Class Outline
Introduction
A contract is a promise or a set of promises for the breach of
which law gives a remedy, or the performance of which the law in
some way recognizes as a duty Restatement (Second) of Contracts
1
Two major questionsa. Under what circumstances is a promise
enforceable?
1. Not all promises are enforceable
i. Examples: coercion, violates the law, misrepresentation
b. How do courts enforce promises?
1. Specific performanceordering the person to uphold their
promise; very rare in American courtsvery difficult to do
i. If you dont do it then you are held in contempt of court and
sent to jail
2. Money damagescommon remedy, measured by the amount the
damages would have cost the person
Requirement of a Basis for Enforcementdistinguish promises to
which the law will enforce. Need to be sufficiently important
c. Historical bases (e.g. wax seals)1. Written out, signed, and
sealed with wax; Used for something importantparties thought about
it; It provided trustworthy evidence of the existence and terms of
the contract in the event of a controversy
i. Evidentiarymade, delivered, and sent
ii. Cautionarypeople had to think about what they are getting
into
2. Almost everything that people had to sign put a seal on it
because it became to common, it lost its cautionary function
i. As time went on the enforceability of the seal became
abolished in the United States (through the enactment of the
Uniform Commercial Code and statute)
ii. Debtused to enforce some types of unsealed promises to pay a
definite sum of money. The promisor (debtor) had something
belonging to the promisee (creditor)iii. Assumpsitcame from cases
when the promisee sought to recover damages for physical injury to
person or property on the basis of a consensual undertaking. i. As
time went on and the courts extended this common law they imposed a
requirement that the promisee must have incurred a detriment in
reliance on the promiseii. The courts went further and said that a
party that had given only a promise in exchange for the others
promise had incurred a detriment by having its freedom of action
fettered, since it was bound in turn by its own promiseenforce
exchanges of promises
d. Principal modern bases1. Consideration for a promise is
something that is bargained for in exchange for another promise or
performance in which enforcement is there i. A promise to something
in the future does not follow this rule of consideration. Does this
type of issue need further criteria to be enforceable?
ii. Refer to next section
2. Reliance
Basis of Enforcemente. Requirement of a Basis for
Enforcement
1. General Principles
i. When a plaintiff sues a defendant for breach of contract, the
plaintiff claims that the defendant made a promise and did not keep
it, and the plaintiff asks the court to enforce the promise. E.g.
Mills v. Wyman; Feinberg v. Pfeifferii. A court will not enforce
the D's promise unless the P can show a basis for enforcement
iii. Three modern basis for enforcement are consideration,
reliance, and in a few special cases, "moral obligation"
iv. In seeking to prevent enforcement, the D may argue that the
P cannot show one of these three basis for enforcement
ConsiderationConsideration as a Basis for EnforcementGeneral
Rule: Consideration for the D's promise may be (1) either a promise
or a performance that was (2) bargained for in exchange for the d's
purpose
D's arguments: The D will argue that there is no consideration
because these two elements have not been met.
Arguments for why there is no valid promise or performance:f.
The promise given in exchange is a promise to settle an invalid
claim, and the P did not have a good faith and reasonable belief in
the possible validity of the claim. Cf. Fiege v. Boehm
Consideration for a promiseg. Promise or performance (i.e.
action or forbearance) h. Bargained for (i.e. sought and given) in
exchange Bargain Theory/Definition of Consideration: Rest. 72 (1) +
(2); 79 (a), (b) Rest 72 (1) + (2) Any performance which is
bargained for is consideration Rest 79 (a), (b) If the requirement
of consideration is met, there is no additional requirement of A
gain, advantage, or benefit to the promisor or a loss,
disadvantage, or detriment to the promisee, or Equivalence in the
values exchangedQuestions of enforcement stemmed from early English
law that was closely tied to common law actions:Hamer v. Sidway
Court of Appeals of New York, 1891this is the highest court in the
state of New York. The Supreme Court of New York is the trial
court.
Facts: William E. Story Sr. uncle to William E. Story 2nd
promised his nephew if he stopped gambling, drinking, swearing, and
using tobacco until he became 21 he would give the boy $5,000. When
the younger Story turned 21 he sent a letter to the uncle and the
uncle replied that since he was earning the money an easy way that
he would hold onto it until the boy was old enough to appreciate
it. The money was his with interest. The uncle died two years
later. Holding: The promisee restricted his lawful freedom of
action with certain prescribed limited upon the faith of his uncles
agreement. It is enough that the nephew restricted his action
(Sidway was wrong). It does not have to be a detriment to the
nephew or a benefit to the uncle. Reasoning: Does NOT cite any
legislation or statute. Contracts is based on common law. Contract
laws are based on previous rulings!Possible policy arguments for
recognizing consideration as a basis for enforcement Economic
importance of bargains? Nothing in life is for free and to get more
things you enter into a bargain. Bargains are important because
they maximize our interest. Promises made with bargains make it
important. Bargains provide an explanation to a promise. Minimal
dangers as to proof?Can something of trifling value be
consideration? (pg. 38 in Contracts book) Promise to pay $1000 book
(worth less than or equal to $1) Rest. 79 (b)says no that this
scenario is a fair bargain, while the original says yes. Why the
difference? The restatement believes that this is NO BARGAIN, its a
sham!Fiege v Boehm Court of Appeals of Maryland, 1956
This is an example of the Bargain Theory of Consideration Fiege
promised to pay Hilda Boehm. Boehm promised not to bring claim if
money is paid Boehm threatened suit through the basterdy claim.
Initially had an exchange she wouldnt bring the claim against him
if he promised to compensate her for being pregnant. He paid her
some of the money and then he stopped because he had a paternity
test and it ended up that he wasnt the father. Divides this into
two: honest and reasonable Honest, good faith, bona fide=subjective
test Maggs getting a pay raiseits honest but not necessarily
reasonable Evaluate the testimony, ask them, are their actions
consistent to their beliefs Reasonable-objective To figure out
reasonable: what others believe would be reasonable Reason for the
exception for the bargain theory was that you dont want tons of
bogus claims to go to court This is a civil nature so its deception
and not blackmail. Criminal cases you cannot settle.Feinberg v
Pfeiffer Co Saint Louis Court of Appeals, Missouri, 1959
Opposite of the Fiege v Boehm. Things that happened in the past
can NOT be bargained for so there is NO consideration History: Ms.
Feinberg worked for Pfeiffer for a long time. They initially pay
her the pension, the owner of the company dies and the wife assumed
the position and then the son-in-law took over. The wife was not
amused by Feinbergs service. When she retires the son-in-law takes
over and asks the accounts whether he has to pay the pension. They
said no and gave her less money. Pfeiffer Co promised to pay
pension. Feinberg ??? to Pfeiffer Past service? Does not count
because there was no bargain Subsequent service? There was still no
bargain for her to keep working to get the pension. She did not
have to render service for the pension. Act of retiring? Was that
consideration? It still was not bargained for Promise to make a
gift is NOT enforceable
If you do _______, I will do ______
When is a promise like this part of a proposed bargain and when
is it a mere conditional promise to make a gift? Based on a
case-per-case basis Willistons advice: As an aid, consider
benefits/detrimentsmore of a guide to follow, not set in stone
Refer to appendix 1 part 1 in syllabus Tension with Hamer v. Sidway
(or not)? When things are unclear have to look at the benefit or
the detriment, but when its clear you dont have to Promise not to
compete after leaving
Columber ()----------> Lake Land Employment
Lake Land Employment Benjamin Strong ()
Mattei ()
Wood ()
Drennan (general contractor)-->offer to build school
$317,385-->Lancaster School District
General contractor named Brennan and he learned that the
Lancaster School district wanted to build a new school. Drennan
submits a bid for $317,385 to build the school. When Drennan
submitted the original number it was just an offer. Drennan took
the subcontractors offer and didnt accept it immediately (because
if they didnt get the school district they would have still had to
pay Star and didnt want to do that). Brennan got the contract from
Lancaster and he went to star paving to tell them and to accept
their offer. Star Paving revoked the offer before the acceptance
because they made a mistake. Court ruled that there must have been
an implied promise by the subcontractor not to revoke the promise
of the contractor. Promise was enforceable Drennan reasonably
relied on it so there was a contract between the two parties
Subcontractor said that they made a mistakejustice does not enforce
a promise Judge said that is another reason to enforce the promise
because they mislead PHoffman v. Red Owl Stores P wanted to start a
grocery store. Most major grocery stores are franchises. P
approached a man named Lukowitz (Red Owl Representative) who would
help P start a franchise. Rep. said that P needed to buy a grocery
store and run it. He was told to sell the grocery and move. They
had to sell a bakery and buy a property in a new town. Now rep said
that P needed to get more money and he asked his father-in-law.
Everything fell through and P sues D. Court ruled that the promise
was enforceable To have monetary damage they calculated the amount
based on the amount that was going to be relied on Promissory
Estoppel Promise Action/forbearance Induced by (taken in reliance
on) Reasonably expected Preventing injusticeCan there be liability
despite failed or apparently failed negotiations? General rule-no
liability Possible bases for exceptions Breach of implied promise
not to revoke offer (45, Drennan) Breaches of assurances during
negotiations (Hoffman) Breach of contract to negotiate in a
particular manner (Channel)Definiteness/Certainty 33, Varney Terms
must be "reasonably certain," must look at whether or not: What is
a breach What is an appropriate remedy Reluctance to find
indefiniteness e.g., Fairmount, Hoffman, Channel, Toys Effect of
trade usage, implied terms, etc.Varney v. Ditmars D (architect) was
sued by P (draftsman). D made a promise to P to pay his ordinary
salary, and P would get a fair share of the profits. P voted and
that made D mad and only paid the salary Court said that P could
not get the fair share of the profits because the fair share amount
is unknown. It was too indefinite for the court to enforce. It
would be "pure conjecture"Toys, INC. v. F.M. Burlington Company Toy
store entered into a lease with the mall for a five year period.
The lease had an option to renew for another five year period. The
rental rate after the five years was left unknown when P wanted to
renew the lease. P wanted to renew D gave a new figure. There were
negotiations, but then D gave the store to another company. D's
argument was that the amount was indefinite. Court rejected the
argument that it was too indefinite. Court didnt like the term
renegotiate-start from scratch. Court held that there was a
prevailing rate. Cannot start from scratch have to just give an
offer and allow for the other party to accept it.
Channel Home Centers, Division of Grace Retail Corp. v.
Grossman"letter of intent"
Take of market negotiate only with Channel
Act in good faith 205
Grossmans (D)
--------------------------------------------------------------------->
Channel (P)
Juliet (P)
Romeo (P)
Car Dealer
Principal voidable)
D had a bunch of cattle because he fed them corn mash and
decided to sell one to a banker P and set the price $80 and then D
refused to deliver the cow b/c he thought the cow was infertile but
it was pregnant Was it enforceable? Walker could refuse because it
was voidable Mistake of fact: cow was infertileWood v. Boynton
(promise to sell diamond--->not voidable)
Found a pretty looking stone and took it to a jeweler She sold
it to him for a dollar but then she wanted to rescind the contract
because it was a rough diamond (jeweler thought it was a topaz) The
court would not allow her to rescind the contract Mistake of fact:
it was believed it was not a diamond. Depending on what sides it
was a mistake of fact of a poor prediction The two parties were
bargaining over a different animal--a barren cow is very different
than a breeding one Affected party that bears the mistake because
the jeweler knows more about jewels and stones rather than Wood
would knowDenying Specific PerformancePromises induced by a
unilateral (not mutual) mistake Traditionally not voidable, e.g.
Swinton Modern rule (~25 states), 153(a)--might not be voidable
Effect on bare non-disclosure rule? In most cases this happens, but
if you hide it then it could it voidable Policy
considerations--facilitate business, deterrence. Looking out for
the guy who is injuredCourts of Law and Courts of Equity History
lesson that helps to understand what is going on with specific
performance English history: two sets of courts-law and equity Some
of the courts didnt have SMJ and if you didnt like what happened in
court that you can petition the monarch. The monarch sent the
petitions to the chancellor and he decided and he had too many
petitions and the petitions were given to subordinate positions in
what developed the court of equity In most states there is only a
court of law and no more court of equity. Everything is unified The
court will decide the equitable remedy based on the contract--the
rules that governed equity still govern when you can get equitable
remedies in the court of law today Modern courts will look at the
fairness of the transactions Types of remedies Legal=damages
Equitable=specific performance, injunctions, rescission, etc.
Containing relevance despite unification of courts in most
jurisdictionsEquitable grounds for denying specific
performance/injunction even if contract is enforceable
damages would be an adequate remedy 359(1), 360 Specific
performance or injunction will not be ordered if damages would be
adequate to protect the expectation interest of the injured party
359(1) The exchange was inadequate/unfair 364(1)(c) Cf. 79(b)
Performance or injunction if the exchange is grossly inadequate or
the terms of the contract are otherwise unfair Etc. many other
groundsMcKinnon v. BenedictNo improvement/cutting trees
Benedicts--------------------------------------------->
McKinnon
(D) Uptowner Caf (P)
Builder (P)
Builder (P)
Naval Institute (P)
Luten Bridge (P)