Contracts II Outline

CONTRACTS B OUTLINE, PROF WHITE, WINTER 2013
MULTIPARTY TRANSACTIONS
AGENCY
Types of Authority: Actual and Apparent
Actual authority is when the Principal has expressly (usually in writing) given authority; it is clear what the Agent has authority to do on behalf of the Principle (see NEET v. Silver Street), OR the Agent has been given authority to act on behalf of the Principal through the Principal’s conduct.
In both cases (implied and express), the Principal is manifesting the intention to give the Agent authority to act on Principal’s behalf.
Apparent authority: when Principal talks to third party and implies the Agent has authority to act on Principal’s behalf.
Authority is implied based on the Principal’s representations, not the Agent’s.
Exception: the federal Government does not recognize apparent authority to act on it’s behalf.
Elements comprising an agency relationship: Mutual consent to a relationship in which the Agent acts on behalf of the Principal and is made subject to the Principal’s control.
Principal is bound to a K made by an Agent when Agent has the requisite authority to act on Principal’s behalf.
Agent must act in the best interest of the Principal, in trust and good faith of Principal.
The relationship is legally binding but not necessarily contractual: one party can get out of it at any time without breaching – more beneficial for the parties to be able to end it at any time.
If have K, have a binding and exclusive relationship, and availability of legal remedy in case of breach.
Only need manifestation of consent to create Agency.
New England Education Training Service, Inc. (NEET) v. Silver Street Partnership, VT 1987: D thought they had properly bought title to land, but P had title. In negotiations, D gave Agent-lawyer specific authority to offer $10,000; Agent offered P $60,000, and P accepted. NEET sued b/c Silver Street refused to pay $60,000; Court granted NEET summary judgment to enforce settlement. Silver Street appeals, Supreme Court reverses: attorney-agent didn’t have requisite authority to bind Principal (Silver Street) to K for $60,000 because only had specific authority to offer $10,000.
D’s Agent has general authority to negotiate, specific authority to make an offer.
Implied authority is actual authority proven from facts and circumstances of transaction in question –look at relationship between Principal and Agent, and what authority Principal gave to Agent.
Apparent authority, unlike express or implied authority, doesn’t derive from manifestation of consent by Principal to Agent of Agent’s power to affect the legal relations of Principal. Rather, it derives from conduct of the principal, communicated or manifested to third party, which reasonably leads third party to rely on Agent’s authority. Manifestation of authority giving rise to reliance must be that of Principal, and reliance by third person on manifestation of authority must be reasonable.
Attorneys (Agents) deal with procedural steps of the lawsuit, but the client (Principal) dictates substance
Rule: Agent bound by Principal’s control; Agent’s actions only binding on Principal if A has requisite authority.
Sauber v. Northland Insurance Co., MN 1958: P purchased a car from his brother-in-law, called insurance agency (D) about transferring insurance. Brother-in-law got into an accident while driving the car, insurance company wouldn’t pay, saying insurance had never been transferred. P was awarded ~$2,000 at trial; appellate court reversed; Supreme Court found for P: if company puts out phone number and makes representations that public is free to call it for business, a presumption arises that person answering phone has apparent authority (thus company bound by any K made between agent and customer); court looks at how Principal holds itself out to the public.
Apparent authority arises because (1) business has invited public to use phone to transact business with it; (2) the business permitted an employee to answer phone; (3) such person purported to act for business with authority; and (4) person calling business had a right to assume the person permitted to answer phone had authority to act.
Rule: presume that agent has authority until rebutted.
Rebut presumptions of authority by showing P not acting in good faith/has no reason to believe that D’s employee/agent had authority to act.
Jennings v. Pittsburgh, PA 1964: P sued for breach; jury finds for P, D appeals from court’s denial of motion JNOV. D’s agents wanted P to solicit bids for them, rejected two but accepted the third. Agent Egmore is VP and treasurer of Mercantile; Agent Stern is financial consultant.
P argues apparent authority arose by virtue of (1) certain prior dealings of Egmore, and (2) corporate offices held by Egmore.
Holding: D’s agents did not have apparent authority to bind D to pay P’s commission because the agents’ authority did not come from D.
Rule: Agents cannot vest apparent authority in themselves.
THIRD PARTY BENEFICIARIES
Third party beneficiaries are not Agents; benefit from K between two other people.
Two types of beneficiaries:
Intended beneficiaries: If K is intended to benefit third party, third party need not be in privity to sue on K.
Creditor Beneficiary: performance by promisor must be to satisfy actual or supposed duty of promise to P, i.e. A and B have K. A has performed but B has yet to pay A. A owed C money (C is a creditor of A). B promises A he will pay C instead of A, B breaches – C can sue B as a creditor beneficiary.
Donee: instead of owing money, i.e. A wants to give a gift to C instead of owing C money. The people in privity have to have consideration, not A to C.
Seaver (see below) is a donee beneficiary.
Promisee intends to give beneficiary benefit of promised performance.
Incidental beneficiaries: cannot sue on K; third party has no rights against the parties to the K.
Restatement 302: Intended and Incidental Beneficiaries (Definitions).
Seaver v. Ransom, NY App. 1918: Mrs. B is dying, has a small estate, wants to leave money to her niece. Mr. B (judge) wrote her will, but will doesn’t give money to Mrs. B’s niece. Mr. B agrees to leave money to niece in his own will in exchange for Mrs. B signing her will. Mrs. B dies, leaves Mr. B only a “life estate”; Mr. B dies leaving nothing to niece. P, niece, won at trial because Mr. B obtained property from his wife and induced her to execute the will as prepared by promising he would leave P value of house in his own will; P sued as an intended beneficiary; Appeals affirms for P.
Court holds niece is an intended beneficiary. Niece is already in Mrs. B’s will, Mr. and Mrs. B made a K to benefit niece – in exchange for Mrs. B to sign, Mr. B promised to give money to P.
K was made for P’s benefit; she alone was damaged by its breach.
Niece was intended to benefit from K and so she has a right to sue on it.
Sister of St. Joseph v. Russell, OR 1994: Russell injured at work, unsure who employed him, filed workers comp against 4 employers. P intervened. Court found that Aetna (employer’s insurance) was responsible to pay P because P was a third-party beneficiary – underlying K between Russell and Aetna stated Aetna was responsible for paying medical providers past medical expenses, and Russell to pay future bills.
Creditor-beneficiary: hospital needed to be paid for services rendered, had a right to benefit from the K reached.
Specht v. Netscape Communications, S.D. N.Y., 2001: must be some relationship between contractors and third party beneficiaries. Specht is not an intended beneficiary, but incidental and has no right under Restatement 315.
If third party doesn’t receive direct benefit, not an intended beneficiary.
 
DOCTRINE OF CONSIDERATION
PRINCIPLES OF ENFORCEABILITY
Party Based Principles: focused on promisor, and only on that person/entity – a weakness. Look at process.
Will Principle: what did promisor intend to be bound by? Doesn’t consider objective manifestations of intent. Doesn’t look at contract process or power imbalances.
Reliance Principle: protects promisee, who reasonably relied on the promise.
Restitution Principle: prevent promisor’s unjust enrichment and forces them to disgorge any benefit received from other’s actions.
Standards Based Principles: Looks at substance of what was promised. Can be objectively tricky because different people value objects at different prices – substance valuation is subjective.
 (Economic) Efficiency Principle: don’t want courts to be clogged with family issues; looks at benefits gained from enforcing promises – do they exceed the costs?
There will be consideration if the court wants to enforce a K; no consideration otherwise.
Principle of Substantive Fairness: evaluate fairness of substance; problem is that second-guessing value.
Process Principles: look at how parties were treated when engaging in process of contracting – was it fair? Shift away from the substance of K and look at how it was reached.
Bargain Principle: consideration – very focused on process; was it a bargained for exchange?
CASE LAW: difference between gifts and promises with intent to be bound.
Marvin v. Marvin, CA 1976: era where if not legally married, no way to distribute property because never legally bound to share property. Before this case, hard to enforce K that could be made apart from a marital relationship.
CA says if make promises whose character is not immoral, then any K can be enforced; adults engaging in a sexual relationship while unmarried are still competent to K with each other – not precluded by public policy.
D argues relationship was of immoral character, that enforcing K would violate public policy; court disagrees.
D argues splitting property with P is impossible because D is already married; court says only D’s wife can go after property and argue she wasn’t given what she was due.
D argues it was an oral K and so void because marriage Ks must be written; P and D never married.
Holding: Terms of K as alleged do not rest upon any unlawful consideration; court concludes that the complaint furnishes a suitable basis upon which trial court can render declaratory relief.
Rule: so long as K doesn’t rest on illicit, meretricious consideration, parties may order their economic affairs as they choose; no policy precludes courts from enforcing such Ks even between married people
Dissent concerned about equity: if can determine that parties intend to be bound, can enforce K.
Morone v. Morone: P alleged she performed domestic services, based on oral K, expecting full compensation, and D accepted services knowing P expected compensation. P alleges D breached, failed to provide support and refused accounting demands. Trial court granted D’s motion to dismiss; Appeals affirmed, no express K, held: (1) K as to earnings/assets may not be implied in law from relationship of unmarried couple living together, but (2) unmarried couple living together are free to K with each other in relation to domestic services, no requirement that such K be in writing.
Issue: whether K as to earnings and assets may be implied in law from the relationship of an unmarried couple living together and whether an express contract on those subjects is enforceable.
Court does not follow Marvin: to find an implied K here (as in Marvin), would be to “defy equitable, enforcement, and inconsistent” with legislative policy to abolishment of CL marriages in NY.
Holding: Affirmed; limits enforcement to express Ks only: an express K between unmarried persons living together is enforceable, provided no illicit sexual relations were part of the consideration.
Second cause of action is sustained: no statutory requirement that K be in writing.
1st cause of action properly dismissed; precedent requires explicit and structured understanding of an express K, declines to recognize K implied from rendition and acceptance of services, especially if services may have been rendered gratuitously based on relationship between the parties.
Even express Ks present problems of proof: in Matter of Gorden, Ann Clark and Oliver Gorden bought a tavern in Gorden’s name, operated tavern for 7 years, lived together as if married until he died. Clark filed a claim against estate predicated upon an oral K to which Gorden agreed to compensate her, marry her, grant her the same rights she would have as his wife, and make a will to compensate her.
Appellate Court found no proof of any relationship between duties performed and the fact that the parties lived together, reversed and awarded Clark $9,000.
Supreme Court reversed: no evidence of “clear and convincing character required to establish a claim against a decedent’s estate”, BUT Rhodes v. Stone: the unmarried state of the couple did not bar an express contract between them.
Rejects presumption that domestic services are more likely result of a personal rather than a K bond, or that because compensation Ked for is not payable periodically that there was no K.
Dissent: agrees that first cause of action failed to state a ground for relief; dismissal is appropriate.
The express K is too vague and indefinite to be enforced.
Second cause of action pleaded only more ambiguous – cannot establish what “net profits” means, so whole provision is “fatally vague and indefinite”.
Posner v. Posner: Posner did not fully disclose his wealth to his wife when making pre-nuptial K. W sued for alimony, child support, and a decree that the ante-nuptial K was void. H counterclaimed for divorce. Circuit court granted divorce, awarded alimony and child support to W pursuant to ante-nuptial K; W appealed. Appeals held ante-nuptial K not binding on alimony award, reversed by FL Supreme Court; W appealed again after Circuit Court entered order upon remand. FL held: where W had no knowledge of H’s access to a trust to maintain his standard of living (fraud), ante-nuptial K void.
If hide material facts about finances, party has failed to disclose and this fraud results in unenforceable K. Both parties should be able to enter into K knowing what they’re giving up.
Ante-nuptial K not against public policy b/c if divorce is gotten on proper grounds and in good faith, ante-nuptial Ks can’t be said to facilitate or promote procurement of a divorce.
H has burden of proving W had full knowledge of extent of his property when she signed K; inadequate and disproportionate provisions for W do not invalidate K – freedom to K includes freedom to make bad bargain.
Holding: husband’s failure (FRAUD) + inadequate provision renders ante-nuptial K void, remanded for determination of a reasonable permanent alimony, child support and property rights.
CONSIDERATION
Three criteria of enforceability of promises:
Intent to be bound:
US no longer recognizes the seal as a way to bind a contract because became too mass produced – if no longer taking the time to seal, do you intend to be bound?
Consideration: bargained for exchange.
Promissory Estoppel: not a K, but can still get a remedy for detrimental reliance on a promise.
Consideration entails the acceptance of some general K theory: the factors which the promisor considered when he promised, and which motivated his promising.
Consideration is the CL adoption of the idea that the legal effect of a promise should depend on the factor(s) that motivated the promise – can’t decide whether a promise is binding without knowing why it was made.
BA