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Contracts
Wayne State University Law School
Abramowicz, Sarah

Contracts Outline (Abramowicz Fall 2011)

****GOODS? MERCHANT? à UCC****
READ THE QUESTIONS FIRST

Chapter 1. Bases for Enforcing Promises
(What constitutes a promise?)
Section 1. Enforceable Promises – An Introduction: pp. 1-8

I.            Definition of contract (Restatement 2nd): a promise or set of promises for the breach of which the law gives remedy, or the performance of which the law in some way recognizes as a duty
a.       Rule: (When is a doctor’s statement to a patient a promise?) One may use specific factors (nature of transaction; wording) and contextual factors (motive [inducement]; inherent uncertainty of procedures; etc) in order to distinguish between one’s opinion or a description of fact and a promise. [Hawkins v. McGee (1929)] **can’t be mere opinion**
i.      Holding: A doctor's statements to a patient can be construed as a contract to provide certain results, but only if intent to promise certain results is very clear. à A doctor’s mere description of results will be construed as an opinion or prediction, not a promise.
ii.      Facts:
1.       Plaintiff burns his hand.
2.       Defendant tries to persuade Hawkins to let him operate.
3.       Because wants to experiment in skin grafting
4.       (#1) Says that boy will be in the hospital “[t]hree or four days, not over four; then the boy can go home and it will be just a few days when he will go back to work with a good hand.”
5.       (#2) “I will guarantee to make the hand a hundred percent perfect hand or a hundred per cent good hand.”
b.      Rule: A seller’s mere opinion commendation doesn’t constitute a warranty, but a specific affirmation of fact or description of goods specifically relating to the goods to be purchased does constitute a warranty. [(Bayliner Marine Corp. v. Crow (1999)] i.      Holding: The descriptions in the matrices and brochure were too vague (didn’t describe a specific feature or characteristic of the boat) to constitute a specific affirmation of fact and create a warranty
1.       Description in proper matrices didn’t relate to that particular boat or a substantially similar one (weren’t an affirmation of fact creating a warranty)
2.       Statement in brochure merely the sellers opinion or commendation
3.       [Only one has to be true: affirmation of fact or description of goods
ii.      UCC 2-313(1):
1.       (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
2.       (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
iii.      UCC 2-313(2): “[A] statement purporting to be merely the seller's opinion or commendation of  the goods does not create a warranty.”
II.            When the UCC Applies
a.       For the sale of GOODS (not services)
b.       Goods = things that are moveable/existing (ex: NOT a boat that hasn’t been built)
III.            Hybrid goods/services contract
a.       Predominant factor test (Bonebrake v. Cox )
i.      re K for sale and installation of bowling alley
b.       Rule: In a K for both goods and services – Art. 2 applies if goods the predominant factor, and service merely incidental (even if services substantial)
c.       Merchant: UCC 2-104(1): “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved
d.       Goods: UCC 2-314(2)



Section 2. Consideration as a Basis for Enforcement
(A) Fundamentals of Consideration: pp. 29-46

I.         Underlying Principles
a.       Definition of consideration: whatever makes a promise enforceable
i.      Old view: benefit/detriment
ii.      New view: bargain for exchange (don’t necessarily need a detriment)
b.       Restatement
i.      Section 17 (Requirement of a Bargain)
1.       Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
ii.      Section 71 (Requirement of Exchange)
1.       To constitute consideration, a performance or a return promise must be bargained for.
2.       A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
iii.      Section 79 (Adequacy of Consideration) If the requirement of consideration is met, there is no additional requirement of
1.       a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
2.       equivalence in the values exchanged
iv.      Section 81 [motive doesn’t matter] 1.       The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
2.       The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
c.       3 Functions of Legal Formality (Lon Fuller) [p30] i.      evidentiary (proof of what happened)
1.       having some sort of formal mechanisms for distinguishing which promises are enforceable and which are not
2.       gives courts evidence of which should be found legally
3.       clearly identifiable mechanism shows proof that hte parties intend to be bound
ii.      cautionary (parties realized the significance of their act) 
1.       having a formal mechanism that makes promises enforceable helps parties to be aware of why they're doing/make them think carefully
2.       if have to go some procedure before promise becomes enforceable, helps you to consider whether you REALLY want to be legally bound
iii.      channeling (not in book)
1.       provide courts with easy test of enforceability (ex: courts could just look for the legal seal)
2.       courts knew what to look for consideration
3.       same things for the parties involved –> easily identifiable mechanism for identifying whether or not a promise is legally enforceable
4.       not so much about proof –> you need consideration or one of the exceptions to consideration to make a promise enforceable (courts know exactly what to look for)
iv.      Why shift from benefit/detriment to bargain theory of consideration
1.       Freedom of contract
2.       Subjective nature of value
II.      Rule: A promise can be enforceable (have consideration) when the promisee does something (ex: forebear of a legal right) or offers a return promise at the request of the promisor à (Shift away from the requirement of benefit/detriment toward bargain theory of consideration) [Hammer v. Sidway (1891)] i.      Holding: There was consideration that makes the promise enforceable because the nephew did what he was asked to do
1.        forbearance of a right is enough [nephew gave up his right to drink/smoke/etc] and it’s irrelevant whether or not there was a detriment [this was a shift in legal thinking] 2.       benefit component is also irrelevant – the nephew did what he was asked to do, so it doesn’t matter if the uncle got anything out of it
ii.      Facts:
1.       At family celebration, uncle (William Story, Sr.) promises nephew (William Story, 2d):
2.       if you refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until you reach the age of 21, then I will pay you $5,000
3.       Nephew agrees, and refrains from these activities until reaching the age of 21
4.       Uncle dies without paying; nephew sues his estate
iii.      [Refer up à Restatement 17 and 71] iv.      Twist on the Rule: Peppercorns don’t constitute an enforceable promise [insignificant consideration] 1.       (they are actually gratuitous promises that parties wanted to make legally binding à they’re not enforceable)
a.       ex: A offers to buy book from B for $1000 when the book is actually worth less than $1 (B accepts offer knowing purchase of book is mere pretense)
b.       ex: in consideration of one cent received, A promises to pay $600 in three yearly installments of $200 each. (One cent = merely nominal; not consideration for C’s promise)
2.       Restatement § 71 Comment B “Bargained for.”. . .  a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal.
3.       Restatement § 79 Comment D: Pretended exchange. Disparity in value, with or without other circumstances, sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense. Such a sham or “nominal” consideration does not satisfy the requirement of § 71.
4.       Ex: if you give me a dollar, i’ll give you my house
III.    Rule: Promise to refrain from prosecuting an invalid legal claim is consideration for a promise of payment, if P had a belief in the validity of the claim that was honest/good faith AND reasonable [Fiege v. Boehm (1956)] a.       Holding:
i.      Plaintiff’s promise to refrain from prosecuting defendant for bastardy consideration for defendant’s promise to pay the child’s expenses was consideration because she had a good faith belief in the validity of her legal claim and her belief was reasonable.
b.       Broader version of rule with comparison:
i.      Is refraining from pursuing a legal claim consideration?
1.       Fiege:                           Yes, if good faith AND reasonable
2.       Restatement 74:      Yes, if good faith OR reasonable
c.       [D’s state of mind irrelevant as long as P has reasonable/god faith belief in validity of claim] d.       Restatement 74: [bargain to be judged as it appeared to the parties @ the time] i.      (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is NOT consideration UNLESS
1.       [reasonable to think it’s valid?] the claim or defense is in fact

d isn’t consideration (just the status quo)
ii.      [court took this approach à didn’t see any promise not to fire him] continued employment can be consideration  
1.       rationale: you can be fired at any time. By not firing you for any period of time, you're getting something out of signing the agreement [exercise of forbearance employer’s part] [ex: even if for one day] 2.       looking at the other factors as means of finding the implicit promise
iii.      continued employment can be consideration IF continues substantial time after signing noncompete agreement [this isn’t typical] 1.       inferring a promise to not fire the employee à unusual b/c inferring the promise based on what happened after the contract was formed [not looking @ consideration at the time the contract was made] IX.    Rule: Employee Handbooks: An employer is bound to follow the procedural policies laid out in an employee handbook because the employee’s continued performance despite the freedom to quit constitutes consideration. [General statements about job security, etc. not enforceable] (Pine River State Bank v. Mettille (1983)] a.       Holding: There is consideration for an employers promise (via handbook) regarding how it promises to discipline employees, as even though there isn’t a bargain for exchange, the employees continued performance despite the freedom to quit is consideration and sufficient for any promise made by the employer.
b.       Facts:
i.      Employer distributes Employee Handbook with rules about “disciplinary policy”
ii.      Employee fired, not in accordance with that policy
c.       Policy rationale
i.      Different power  dynamic (employer making promises vs. employee making promises)
ii.      Gives employer more stable workforce.
iii.      Reduces transaction costs

Rewards

X.       Rule: The promise of a reward is not enforceable when the performer is unaware of the offer, as there is no consideration/bargain for exchange because the parties weren’t in agreement. (Broadax v. Ledbetter (1907)] a.       Holding: When P returned an escaped convict without knowing of a reward offer by sheriff, he is not entitled to the reward because there was no consideration for the sheriff’s promise (no bargain/return not in exchange for promised reward.
b.       Restatement 71
i.      (1) To constitute consideration, a performance or a return promise must be bargained for.
ii.      (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
c.       [not what Braodax did] Restatement 51
i.      Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept it by completing the requested performance.
d.       Twist: if the motive goes beyond the collecting of other side of the bargain (reward), that motive doesn’t negate consideration for the bargain, but one does need to know that the offer exists in order for the performance to constitute as a bargain for exchange.
e.       Restatement 81
i.      (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
ii.      [motive not determinative] The fact that a promise does not of itself induce a performance or return promise doe not prevent the performance or return promise from being consideration for the promise.
XI.    Knowledge of an offer is enough so that performance of the act constitutes consideration. [Simmons v. United States (1962)] a.       Holding: knowledge of offer enough, even though he didn’t think about the offer until after he had caught the fish but before he turned it in.  [the promise was enforceable even though he wasn’t thinking about the offer at the exact moment he caught the fish]