INTRODUCTION 

Contracts are designed to be simple enough generally that you don’t need a lawyer to sign them all the time—we want efficiency. 

Elements of Contract

• Offer
• Acceptance
• Consideration

OBJECTIVE THEORY OF CONTRACT

 

Manifestation of Assent

RAY v. EURICE (1952) P contracts with D to build a house. Contract signed. Eurice Bros later refuse to complete contract b/c they misunderstood specs. Contract.

Rule/Rationale:  

• Classical Rule: Absent fraud, duress, or mutual mistake, contracts that were entered into through signing by competent parties (i.e. not child or mentally ill) are valid and enforceable (even if you didn’t read it).

 

• Mutual Assent: In determining whether parties have reached mutual assent, parties are bound by the reasonable, objective interpretation of their words or actions, not their subjective thoughts or intentions.
• Objective test for intent: What would a reasonable person in the position of the other party conclude was the intention?
• Unilateral Mistake will not void K.

 

• Not understanding K will not void K.

SKIRBINA v. FLEMING (1996) Worker signed release after termination which barred any claims regarding employment, benefits or separation. Told they needed to sign to get benefits. Contract. 

• Fraud/ Misrepresentation will void K.

PARK 100 INVESTORS, INC v. KARTES (1995) Ps are hurried into signing a contract they were led to believe was approved by their lawyer. No contract.

• Fraud Trumps Duty to Read.
• Fraud is:
• Material Representation, that was
• False, that was
• Known to be False (or Recklessly Ignorant) and was
• Reasonably Relied Upon
• Kartes’ reasonably relied b/c late for rehearsal dinner

DOCTRINE OF CONSIDERATION

 

Elements of Consideration 

1. Benefit/Detriment: Some right, interest, profit, or benefit accruing to one party OR some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other, AND
1. Forbearance of right
1. HAMER v. SIDWAY (1891) Uncle promises nephew $5000 if nephew stops smoking, drinking gambling until age 21. Legally enforceable obligation because nephew’s forbearance of legal rights (to drink and smoke) was sufficient detriment.
2. Bargained-for exchange (mutual awareness)
1. Mutual awareness is required that one action was made in exchange for the other.
1. BAEHR v. PENN-O-TEX (1960) One Kemp became heavily indebted to Penn-O-Tex, D. D took control of all of Kemp’s assets. P asked for D to pay Kemp’s debt owed. D said sure but never paid. D said he made forbearance by refraining from suing.

Aspects of Consideration

Donative Promise is no consideration

DOUGHTERTY v. SALT (1919) P received from his aunt a promissory note for $3000  payable at her death or before. ”Value received” was written on the note. No consideration even though the note said “value received.” R2d§71

• Donative promises not enforceable as contracts.
• Mere recital “for value received” is not valid w/o consideration.

Inadequacy of Consideration will Not Void Contract

BATSAKIS v. DEMOTSIS (1949) P lent D money during WWII that required a repayment that was ridiculously unfair

• Court does not inquire as to values exchanged.

• However, Consideration can’t be a Sham.

Past Consideration is No Consideration

PLOWMAN v. INDIAN REFINING CO. (1937) D made contract with some employees who were being fired that they would pay them half their wages for the rest of their natural lives. After a year, payments stopped. Past work may not be consideration.

• BUT maybe having the employees come in to collect checks to boost moral could be consideration.
• Agency: Also, boss didn’t have the authority to make such a decision. It wasn’t approved by the board.

AGENCY

 

When it exists:

1. Manifestation by Principal that Agent will act for her
2. Agent’s Acceptance
3. Mutual Understanding that Principal controls

 

Two kinds of it:

1. Actual Authority (Reasonable person standard. Doesn’t matter whether 3^rd party knew, just that it does exist)
1. Express
2. Implied
2. Apparent Authority (Reasonable 3^rd party would think there was authority)

PROMISsORY ESTOPPEL

Without consideration, promise may be enforceable if one can show that the promise reasonably relied upon the promise to his or her detriment. 

Elements, R2d § 90

1. Promisor has done or said something to reasonably induce an expectation
2. Promisee reasonably relied on the expectation, and
3. Enforcement of agreement is necessary to avoid injustice

(Charitable subscriptions and marriage settlements do not need to show #2 – reliance.) 

Remedy: Put in position you were in before promise.

Inter-Family Disputes—Development of PE

KIRKSEY v. KIRKSEY (1845) P brother in law told D widow that if she moved, he’d give her a house and land. Later, promise revoked. Promise was a mere gratuity.

Rule/Rationale:

• PE not usually applied in family setting.
• No bargained-for exchange.

Charitable Contributions

ALLEGHENY COLLEGE v. NAT’L CHAUTAUQUA COUNTY BANK (1927) D pledged $5000 to college to be paid 30 days after her death, specifying that money would be used for scholarship. 2 yrs later, $1000 paid up. Year later, Johnson repudiated promise. Promise is enforceable as a contract.

• Future Detrimental Reliance/Future Cognizable Detriment.
• Consideration is weak, so he uses a PE theory in place of it. (“What the college would have had to have done.”)
• Promissory estoppel adopted as the equivalent of consideration in connection with law to charitable subscriptions.
• This is not a K b/c it lacks mutuality. Charity could give the money back.

Commercial Context

KATZ v. DANNY DARE (1980) P negotiated pension with employer approved by board of directors. After 3 years, Dare stopped payments. Katz claimed he wouldn’t have left had he not received pension—detrimental reliance. PE.

• Doesn’t matter that he was going to be fired, b/c he quit.
• Reasonable reliance on promise—13 mos of negotiating
• Estoppel need not involve a Legal Right.
• Need not be a detriment in terms of value. Any action or forbearance that he otherwise would not have done.
• Injustice can be avoided by enforcement of promise. He’s 70 and can’t work now. Avoid injustice by enforcing promise – pay pension.
• Injustice is a flexible concept. It’s likely to be limited to the value of the promise. Idea is to remedy the harm that flows out of the wrongful act.

 

Conflict—Promissory Estoppel in a Commercial Setting

• Companies aren’t known to make promises without commercial benefit
• Parties are generally expecting hard bargaining
• We expect parties in commercial setting to take risks and incur costs

Indefinite Promises

SHOEMAKER v. COMMONWEALTH BANK (1997) Bank notifies morgagees that that if they don’t get house insurance they’ll do it, and then bank allows it to expire. Gives notice, but they claim they didn’t receive it. Ps relied.

• D foresaw that P would act in reliance.
• Reliance must be reasonable and compensable

RESTITUTION

• Where one party renders service to another party with consent or knowledge, there is presumption that the benefactor expects to be compensated; the law implies a promise from the beneficiary to pay.
• Restitution is a quasi-contract, meaning that it isn’t a real contract, so rights to contract don’t apply

 

Elements:

1. Performance (Consideration)
2. Unjust Enrichment (Benefit)
3. No Prior Promise
4. Promise made after benefit conferred

 

Damages measure value of the benefit received. 

Where Restitution is Appropriate when Services are NOT Requested, Restatement of Restitution §116 (p. 121)

1. Acted unofficiously and with intent to charge
2. Services were necessary to avoid serious bodily harm or pain
3. Had no reason to think recipient would not consent, if mentally competent
4. It was impossible to give consent or consent was immaterial due to mental incompetence

Restatement of Restitution §117, Preservation of Another’s Things or Credit (p. 126)

A person who has preserved property, although without consent, is entitled to restitution if:

1. He was in, or had taken, lawful possession of the property
2. It was reasonably necessary to take steps before contacting the owner
3. No reason to think owner wouldn’t want him to act

(Doesn’t matter what owner, in fact, wanted. Only that he reasonably thought owner would want him to act.)

4. He intended to charge
5. The owner has accepted the property back

 

Rescue

CREDIT BUREAU ENTERPRISES, INC. v. PELO (2000) Pelo threatened to kill himself and was involuntarily hospitalized. Pelo refused to sign release that would ensure payment from either him or his insurance until awoken at 5am by nurse. Few days later, hospital realized it didn’t have authority to keep him, and he left.

• Pelo was personally liable for bill b/c personal hospitalization order somehow suggests he was mentally impaired.
• Doctor acted unofficiously with intent to charge
• Services were necessary
• No reason to think recipient wouldn’t want services, if mentally competent
• Impossible to give consent

 

Unjust enrichment Test (Watts)

1. Benefit conferred on the D by P
2. Appreciate or knowledge of benefit
3. Acceptance of benefit

 

Family Relations

WATTS v. WATTS (1987) Unmarried cohabitants split and Ms. Watts wants her due part of shared property.

• A bargain between two people isn’t illegal so long as the bargain is indiependent of the illicit relatiomship and the illicit relationship doesn’t constitute any part of the consideration.
• Contract Claim – H promises to provide $ in exchange for W’s domestic services
• Court rejects H’s defense re: condoning illegal activity. Both are equally “guilty” of this.
• Although sexual services can’t be consideration, there were other services performed. Court recognizes an economic aspect to this relationship.

PROMISORY RESTITUTION (moral obligation)

 

Elements:

1. Performance/Consideration
2. Unjust Enrichment
3. Then a Promise

  Promise for Benefit Received, Restatement §86 (Rules, p. 185)

• “A promise made in recognition of benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.”
• Not binding if:
• Benefit was a gift or otherwise not unjustly enriched
• Value is disproportionate to the benefit

Benefit to the Promisor

MILLS v. WYMAN (1825) Ds 25-yr-old son was nursed to health by P. Upon son’s death, D wrote letter to P promising to pay expenses.

• Classical contract law approach.
• Past Consideration is No Consideration (Plowman)
• Moral Obligation is not a Legal Obligation
• No Bargained For Exchange (Penn-O-Tex)
• No Benefit to the Promisor (as required by R§86)

Significant Material Benefit

Manifestation of Assent

WEBB v. McGOWIN (1935) Webb saved McGowin’s from death or serious bodily harm. Webb sustained serious injuries. In consideration, McG agreed to care for him for the remainder of his life. McG died, payment stopped. There is consideration.

• Ratification Theory
• Had the promisor known of the benefits, he would have bargained for them before the accident
• Manifestation of Assent
• Made payments for 8 years
• Benefit to the Promisor
• Month passed before promise – not emotional
• Sufficient consideration
• Significant Material Benefit to Promisor
• Sufficient Detriment to Promisee
• (Court also influenced by P’s injuries and D’s moral obligation, but they can’t base their legal argument on this.)

OFFER AND ACCEPTANCE – BILATERAL CONTRACTS

 
 

Bilateral Contracts: where both parties enter into an agreement where they both commit to some act or performance 

Offers are either:

1. accepted
2. revoked
3. expired

Restatement §24, Offer Defined (Rules, p. 179)

Manifestation of willingness to enter into a bargain, made as to justify another person in thinking his assent to that bargain is invited and will conclude it. 

Counter-Offer, R2d § 39

1. …is an offer made b an afferee to his offeror relating to same matter as original offer and proposing a substituted bargain
2. An offeree’s power of acceptance is terminated by his making of a counter-offer, unless offeror has manifested countrary intention or unless counter-offer manifests a contrary intention of the offeree

Offer Defined

Mailbox Rule

LONERGAN v. SCOLNICK (1954) P alleged contract whereby P offered and D accepted to buy tract of land. D sold land to someone else. No contract b/c there was no offer, just an invitation to bargain?

• Mailbox Rule. Offers and revocations are effective upon receipt, but acceptances are effective upon being placed in the mail.
• Since offerer dictates the terms of the acceptance, the acceptor should be allowed some control.
• D’s communication was not the offer – it did not invite consent that would conclude the bargain
• Form letter – sent to many people
• “Rock bottom price” – accepting multiple offers
• Convention
• Court wants to avoid Mailbox Rule: Acceptance is effective once it’s in the mail. (Restatement §63, Rules p. 182)
• If they D’s communications had been found to be the offer, then P’s letter would have been valid acceptance upon deposit in the mail.