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)