Contracts I Outline

Introducing Contracts

The simple contract can be broken down into four parts

1. Offer
2. Bargaining
3. Acceptance
4. Considerations

Offer

“I will sell you this…”

Bargaining

There are four bargaining options

1. Ignore
   • Nothing happens until the offer expires or is withdrawn.
2. Accept
   • “Yes, I want it…”
3. Reject
   • “No, I don’t want it…”
4. Counteroffer
   • This acts as a rejection of the initial offer (can’t go back to it), and begins a new offer.

Acceptance

“Yes, I want that…”

Considerations

What you are bargaining for. In the case of a car, the consideration is the car and the money agreed for the purchase.

Other Essentials

We can divide our consideration of contracts into 3 parts

• Formation – Discussed above
• Enforceability – Whether the court could enforce the agreement. Is it legally binding.
• Performance, Breach, and Remedies
  • Performance – Ordering a party to perform (rarely happens)
  • Breach – Breaking a contract
  • Remedies – Making the non-breacher whole, as if the contract was never breached. There are never punitive damages against the breacher.

Allen v. Bissinger & Co.– Was there an acceptance? Report, acceptance through letters

A contract is formed based on the language that was said in the acceptance. Intent does not matter (i.e. assuming no fraud is involved, you think you are signing up for one thing but sign up for another).

Meyer v. Uber Technologies, Inc. – Web-based agreements

Accepting an agreement online is enforceable as long as the notice is unambiguous. The hyperlinked agreements suffice as notice. Finally, creating an account and agreeing does not need to be separate (i.e. a separate button for agreeing to the terms and creating an account).

Basics of Contractual Basics

Mutual Assent

Intention to be bound

Ray v. Eurice – Building a home

The biggest takeaway from this case is that there is no such thing as a “meeting of the minds.” In other words, there is no subjective standard where we look at what the parties were intending when they signed. Instead, we use an objective standard by asking if a reasonable person could agree that the parties made assent to a contract. This standard removes the risk of people lying about entering a contract or not.

Bilateral Contracts

Bilateral Contracts are the standard and most used form of contract. There are agreements where both parties make a promise to perform.

Lonergan v. Scolnick – Preliminary Negotiations

When does an offer become an offer? For complex contracts, there is a process of working out the finer details. As these details are being worked out, an offer has not been made. Therefore, no party is bound until an additional assent is made by the offeror.

Normile v. Miller – Options

An option is when a party holds a contract for review for the other party to think about it. For instance, “I will give you until 5:00 pm tomorrow to agree to my offer.” During which time, the offeror cannot create another offer with a third party.

A party can be held liable for accepting multiple offers. One party will receive the consideration while the other promised party receives damages.

Counteroffers are the ending of one offer and the opening of a new offer.

Unilateral Contracts

Unilateral contracts are one sided promises. “I will pay you when you complete this task.” In the classical sense, they can be revoked at anytime until the performance has been completed (regardless of how much work has been put into the performance thus far). However, if the performance is completed (or if there is substantial performance as outlined in Cook, then the contract is binding on the offeror).

Characteristics of Unilateral contracts:

1. Only one performance can be rewarded
2. Promises by offeree are unhelpful
3. Many people can try to perform

Examples of true and classical unilateral contracts are:

• Bounty hunters
• Real estate agents
• Returning lost items

Think of a bounty hunter. They are commissioned to go find someone. They can all search but only one can fulfill the performance.

Issue with unilateral contracts:

• When multiple parties perform but there is only one consideration

If possible, you should seek to create only bilateral contracts because of the risk one unilateral contracts create to both parties.

Cook v. Coldwell Banker – Real estate commission

Substantial performance standard: When the offeree has performed enough to make the agreement binding.

Sateriale v. RJR – C-Cash

Agreements to Agree

Biggest takeaway from Agreements to Agree is that you don’t want to do them if you can help it! Often times, developing a contract is not time consuming enough to prevent you from completing a full contract and resorting to an agreement to agree.

Walker v. Keith – Option to Renew Lease

Definite material terms need to be defined for a contract to be enforceable. There are a couple ways that this can be done:

1. Actual Term (100/month)
2. Method of obtaining actual term (third party sets price)

Courts are not in the business of deciding the substance of a contract, except…

UCC §2-305

Because of real life situations, the UCC will allow contracts to be enforceable without a material term. However, although allowed, this is not the preferred method of making contracts!

Quake Construction, Inc. v. American Airlines, Inc. – Construction

Letter of Intent is an example of an agreement to agree.

Enforceability is a function of intent. If you can’t figure out the intent of the written paper, the contract is ambiguous. If the contract is ambiguous, you need to look at the intent of the parties through other facts.

Consideration

Consideration: There is value in the contemplation of parties.

There are two main definitions that result in the sentence above. There needs to be a benefit/detriment to the parties or there needs to be a bargain of exchange.

Hamer v. Sidway – William Uncle and Nephew

“Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise.” This is a consideration.

Pennsy Supply Inc. v. American Ash Recycling Corp. of Pennsylvania – Pavement

The main takeaway from here is that the parties contemplated that there was value. If they agree that there was value, there is consideration. The bargaining does not need to be negotiations or even explicitly bargained.

As long as the promises are linked to the detriment, then there is a consideration.

Doughtery v. Salt – “good boy”

A gift is not a consideration. However, there are certain things that one can do to make a gift such (giving in cash, trust, or will). Some jurisdictions accept promissory notes, but you shouldn’t rely on them.

Plowman v. Indian Refining Co. – Pension during depression from oil company

Consideration cannot be given for past actions for a future commitment.

There is actual authority and apparent authority.

• Actual authority is when an agent has binding power (i.e. board of directors or permission from board of directors)
• Apparent authority is when a third party feels like authority has been given to the agent from the principal. The emphasis is on the principal.

Finally, ratification is when someone with actual authority agrees with the actions of an agent who did not act with actual or apparent authority.

Dohrmann v. Swaney – Fraud of the estate

The general rule is that the courts will not examine the equivalency of consideration unless the consideration is so “grossly inadequate as to shock the conscious” enough to suggest other elements of fraud may be involved.

Marshall Durbin Food Corp. v. Baker – Chicken farm

Illusory is when a promise appears to be a promise but there is no substance. For example, a person promising to give Niagara Falls to another person but has no authority to do so.

This case reiterated that consideration requires an action. A consideration does not necessary need to be a promise. The actions of performance is sufficient to be consideration. The person deprived himself from other employment, benefited the company and did not leave the company before the effective date occurred.

UCC

We will always ask ourselves if a contract applies under the UCC. How do we know if it applies? Because it deals in goods! A good is a moveable, tangible object at the time of sale. If it damages an immoveable object to move it, then it is not a good. A merchant is an individual who deals in goods.

Mutual Assent Under the UCC

Jannusch v. Naffziger – Food Truck

Here is a case where there is a sale of goods and services. To determine if this is under the UCC, we need to look at the “predominant purpose” of the contract. If it deals mostly with goods, it falls under the UCC. If not, then we take a common law approach. Courts will often look at the value of the goods vs. the value of the services to see which has more.

E.C. Styberg Engineering Co. v. Eaton Corp. – Manufacturing Brakes

The UCC does not care as much about when a contract is formed or how the parties agree to it, but the terms need to be sufficient. Here are the essential terms of a contract (as factors).

1. Identity of the parties to be bound (We want parts)
2. The subject matter of the contract (I-Brakes)
3. Consideration (Missing because lack of quantity term and price term)
4. Quantity Term (Missing, couldn’t decide on amount)
5. Price Term (Missing, couldn’t decide on quantity)

Qualified Acceptance: The “Battle of Forms”

Princess v. General Electric – Cruise Boat

The battle of forms is where we are trying to decide which form to evaluate as the contract. It depends on how the parties act in accordance with the terms of those forms. Here, the quotation was the predominate form because the plaintiff paid the quotation amount instead of the purchase order form.

Predominate Purpose Factors: We look (1) at the language of the contract, (2) the nature of the supplier, and (3) the worth of materials to determine the predominant purpose of the contract.

Brown Machine, Inc. v. Hercules, Inc. – “Cool Whip”

Paul Gottlieb & Co., Inc. v. Alps South Corp. – Fabrics

§2-207 governs conflict between the battle of forms of merchant to merchant. The purpose is to determine which form is going to be the governing contract.

A quotation is a form implying the intent to enter negotiations.

Then a responding purchase order would make an offer.

Finally, an acknowledgement with additional terms is acceptance. When the agreement is not between merchants, then the additional terms apply. However, between merchants, the terms can be excluded with the following exceptions.

1. Offer expressly limits acceptance to the terms of the offer
2. Materially alter the offer
3. Notification of objection to the terms has already been given.

Electronic and Layered Contracts

Several types of Layered Contracts

• Shrinkwrap (products that you agree to terms when you open the box and don’t return within a certain time)
• Clickwrap (Clicking on “I agree” to the terms and conditions to use a website)
• Browsewrap (Made available on a website telling visitors that by visiting the site, they agree to the terms)

DeFontes v. Dell, Inc. – Dell computer arbitration

When it comes to shrink-wrap agreements, there are two potential options.

First, where the purchaser is the offeror and the seller is the offeree. Here, the agreement would be made at the point of sale and any terms would need to be agreed on at that moment. The pro of this is that the terms are set and the purchaser has a lot of say in what the terms are.

The second option, and accepted in this case, is that the seller is the offeror and the purchaser is the offeree. There are criticizisms of this method because most of the time the purchaser is the offeror and there was no explanation why this switched here. The result is that the terms are not set at the point of sale and additional terms can be added upon receipt as long as the purchaser is give the option to reject them through return.

Long v. Provide Commerce, Inc. – Poor flowers

This case is a question about whether there was a manifestation of assent. The principle is whether the terms were conspicuous enough to have put him on notice of the terms enough to determine that there was assent. No notice = No assent.

So, lack of conspicuousness resolves part of the issue. However, there is required language that is supposed to give the purchaser notice that they are subject to the terms and conditions for acceptance.

END OF MIDTERM MATERIAL

Liability in the Absence of Bargained-for Exchange

Promissory Estoppel

Based on §90 of the Restatement (Second) of Contracts. If the jurisdiction does not use §90, §87 of Options is nearly parallel

Promises within the family

Kirksey v. Kirksey – Come live with me

This is an old common law approach and we must ask if a current court would find that there was consideration from the brother. The court said that there was not, but was offering it out of gratuity. This did not qualify as a promissory Estoppel

Harvey v. Dow – Building house on parents land

Restatement (2d) Contracts §90(1)

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires

A promise alone is not enough to establish a contract. The promissory estoppel requires the promise + actions taken by the promising party.

As a lawyer, we should not prospectively (in advance) rely on section 90. This section is only here for remedial purposes.

Charitable Donations

King v. Trustees of Boston University – Dr. Martin Luther King Jr.

This jury verdict was that this was a charitable pledge, not a contract. Things that are charitable subscriptions needs to have either a consideration, or there is a reliance. Here, the jury said that there was both consideration and reliance. Reliance is easier to prove.

Prong 1: Promise. Here, yes.

Prong 2: Evidence of reliance. Here, yes. Here, they indexed the papers, provided them to researchers, and hired staff. In other words, they relied on that promise enough to be a promissory estoppel.

Restatement (2d) Contracts §90(2) charitable subscriptions

A promise is made if the donor has partially performed or at the time of the pledge, the donor serves on a governing board.

Promises in a commercial context

This section discusses how courts have used §90 to uphold commercial promises even when there is a lack of consideration.

Katz v. Danny Dar, Inc. – Pension to induce retirement

The doctrine is stated very straightforward. There must be a promise, a detrimental reliance, and an injustice if not enforced. Here, Katz met those elements and was entitled to the promise.

He gave up work because of the promise. Thus, his action was induced by the promise.

Note the parallel between §90 and §87

Aceves v. U.S. Bank, N.A. – Bankruptcy, Mortgage, and Foreclosure

A promissory estoppel is:

1. A clear and unambiguous promise
   • Definite enough fro the court determine scope of duty and limits of performance.
2. Reliance on the promise
3. Reliance must be reasonable and foreseeable
   • Could this reliance have been expected?
4. Injury from reliance (Detriment)
   • Sacrificed benefits due to reliance

Liability in the Absence of Acceptance

Option Contract §87

§87(1) Option contract – Needs to be in writing and signed by the offeror, there needs to be purported consideration and proposes an exchange on fair terms within a reasonable time. This is when an option contract is separate from another contract. But how do we determine what’s fair and reasonable? This is fact bound, meaning it depends on the fact of the case.

Should a person’s pre-acceptance conduct have on the offeror’s power to withdraw the offer?

This is remedial, never go into an offer with this in mind.

Berryman v. Kmoch – Pay the consideration for land

There is no option contract because there was no consideration. He did not pay the $10 and he did not conduct services intended to benefit the option provider. He did not do those services out of a bargain or requirement to do so.

Offeree’s Reliance on an Unaccepted Offer as Limitation on Revocability

James Baird Co. v. Gimbel Bros., Inc. – Construction (No offer) §87

General contractors often prepare bids and need to gather bids from suppliers. Here is a classic issue where a mistake was made in the supplier’s bid and how the court found acceptance to be unenforceable.

Contractor should have said, “I accept” before the supplier had said “I withdraw”.

Drennan v. Star Paving Co. – Construction (Offer) §90

This contract could have been revoked at any time prior to acceptance. However, when the “plaintiff used the defendant’s offer in computing his own bid, he bound himself to perform in reliance on defendant’s terms.” In other words, because the contractor bound his bid to the numbers the defendant gave him, he was in reliance of a promise. Therefore, the defendant would be bound to following through because acceptance had already been made on the promise (though actions).

Pop’s Cones, Inc. v. Resorts International Hotel, Inc. – “Almost” ice cream shop

We’re going to rely on promissory estoppel as a remedial option under § 90.

He was made a promise, relied on the promise, and faced a detriment (lost his location, had to pay for storage, opened late, etc.)

Because of this, the court says that this resulted in injustice and he should be protected from that injustice.

Never plan on using this, but it could be useful if necessary.

The plaintiff sought reliance damages instead of expected damages. Reliance damages are usually fewer but easier to prove and more courts go for reliance damages.

Statutory Limits on the Power of Revocation

U.C.C. § 2-205

An offer is revokable unless a merchant gives assurance, in writing with terms, that it will be held open for a reasonable time, even without consideration (because deals occur in real life without consideration). However, this is not to exceed a period of three months unless there is an extension drafted.

Liability for Benefits Received: The Principle of Restitution

Restitution in the Absence of a Promise

Restatement (Third) of Restitution §1, 2, 116

These are all to be used as a remedy if bad lawyering occurred in the first place.

Credit Bureau Enterprises, Inc. v. Pelo – Involuntarily hospitalized (won’t pay bill)

§116 Restatement of Restitution:

A person who has supplied things or services to another, although acting without the other’s knowledge or consent, is entitled to restitution therefor form the other if

a) he acted unofficiously and with intent to charge therefor, and
b) the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and
c) the person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; and
d) it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other’s consent would have been immaterial.

Here, there was no real contract (forced signature), so we use a quasi-contract (restitution and unjust enrichment).

What does officiously mean? Interference in the affairs of other not justified by the circumstances under which the interference takes place. §2 Restatement on Restitution.

Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co. – Owner to subcontractor

The requirements for Quasi-contract is:

1. know of the benefit
2. have the benefit
3. did not pay the fair value of it.

Parts 1 and 2 are met, but the question is the 3rd part. Who should have the risk? Should the owner pay twice or should the subcontractor not be paid at all? The court says that it is not unjust if the owner already paid once and is not obligated to pay a second time.

Restatement (Third) Restitution §1: A person who is unjustly enriched at the cost of the person who provided the services. If it looks like we have a contract, we will not use Restitution (§2(1)).

Watts v. Watts – Cohabitation

The court addresses those five potential avenues for stating a claim. Briefly, she can’t state a claim under the marriage statutes because she was not married, family and acting married is not sufficient.

However, she can state a claim for breach of contract (not that she should, only that she could). This is because both parties provided adequate consideration through their conduct. She left her job under the promise that he would “take care of her.” Therefore, she can state a claim of implied-in-fact.

She can also state an implied-in-law aka quasi contract aka unjust enrichment. This is because she conferred a benefit of childbearing, housekeeping, business services, etc. This she did which resulted in the defendant having a substantial income increase during the cohabitation. Therefore, she can also make this restitution claim.

Promissory Restitution

This is when there was a promise made without consideration and determining when

Mills v. Wyman

§ 82

A verbal promise without consideration is not enforceable. Here, we have an agreement where the person is bound to pay morally, not legally. This means that there are times when people get away with things that are not alright on a moral level, but can’t be enforced legally.

There are some exceptions to this rule though:

1. A parent has a moral obligation to care for a minor.

Webb v. McGowin

§86

There was no actual contract here. The court is acting under the presumption that there was a material benefit and agreement for that material benefit.

What are the better ways to do this? You can form a legitimate contract. Provide adequate consideration for the payment. Another way of doing this is to turn this into a gift (put this in a trust).

Statute of Frauds

General Principles: Scope and Application

Three Steps Regarding Statute of Frauds: Do these on any statute of frauds problem and you will most likely get the right answer (Flowchart).

1. First, is the contract a type within the statute of frauds?
   • UCC or Restatement? Start with UCC. If it is not under the UCC use the Restatement.
   • If not, the contract is not unenforceable under the statute of frauds. If so, move to step 2.
2. Is the statute of frauds satisfied?
   1. Is there a sufficient writing?
   2. If so, not unenforceable under the statute of frauds. If not, move to step 3.
3. Third, Is there an exception which applies to make the contract enforceable?

Restatement

§110 covers certain types of contracts that need to be written down:

1. Duties for decedents
2. When one party agrees to cover the debts of another
3. Marriage Contracts
4. Sale of interest in land
5. Contract where the performance is more than a year later.

Restatement § 129. Can be enforced by specific performance if there is reasonable reliance, part performance, and can only be enforced by specific performance.

Full performance by one party means that the contract can be enforced regardless of the agreement being written down. §130.

Satisfied by any writing, signed by the defendant, and identifies the subject matter. §131.

The writing can be included in several writings as long as one is signed and circumstances indicate that they relate to the same transaction. §132.

Except for marriage, writing does not need to be made as a memo of a contract. §133.

The signature may be made by any symbol made with the intent to authenticate the writing. §134.

The statute of frauds cannot be used to derail an otherwise good contract. § 139

Crabtree v. Elizabeth Arden Sales Corp. – Salary Increase after a year

This falls under the requirements for the statute of frauds because the agreement was to be performed a year from the making of the contract.

The big takeaway from this case is that any communication that is related to a transaction, as long as there is one piece of the communication signed in writing, can be found to meet the statute of frauds.

Beaver v. Brumlow – Double Trailer on another’s property

Make things formal before conducting any performance. But, if it needs to meet the statute of frauds but fails to do so, there may be room for an exception to enforce the contract to avoid injustice for partial performance.

Alaska Democratic Party v. Rice – Didn’t get the job

Big takeaway: § 139 – Promissory Estoppel overpowers statute of frauds.

Does the statute of frauds apply? Yes. Her employment would have been for a period of 2 years with an additional 2 years to be added afterwards.

Was the statute of frauds met? No. There was no written document.

Is there an exception to the statute of frauds? Court says yes. § 139, promissory estoppel trumps (overpowers) the statute of frauds. The plaintiff had a reliance on a promise and there was a detriment due to that reliance. If you prove promissory estoppel claim applies then it can go to the jury.

U.C.C. § 2-201

Buffaloe v. Hart – Tobacco Farm

U.C.C. § 2-201

This is not a complete statute of frauds. So, whenever we have this, we will want to see if it applies and then move to the restatements.

Three step analysis

Does the statute of frauds apply? Yes, this is a good, applies under the UCC. This is a good because they are moveable. §2-105. These barns are more like sheds and can be moveable. They are also being sold for more than $500. §2-201(1).

Is the statute of frauds satisfied? No, there was not a sufficient writing. This is because there was no signature from the defendant (the person who the contract was attempting to be enforced against) on the check that was sent. At a minimum, there needs to be a signature from the defendant.

Is there an exception? Yes, there was accepted performance under §2-201(3)(c). Requires delivery by the seller and acceptance by the buyer, and some performance by the buyer. Even though the barns had stayed on the property, ownership had transferred. Acceptance was made by  the plaintiff providing repairs to the barns and paying for the insurance on the barns, etc.

END OF CONTRACTS I

Disclaimer

The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.