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  1. 1. CONTRACTS FALL 1994 COURSE OUTLINE Muriel Morisey Spence/ Farnsworth & Young 4th Ed. Exam strategy: 1. answer question asked (not all questions require a conclusion) 2. support your answer with an analysis 3. don't worry about the "right answer" (no extra points for that) 4. try to cite to relevant cases (extra points there) 5. try to infer adaptability to UCC (not so much b/c we haven't really done this) or Restatements (esp Restatement 90) 6. perhaps speculate on how a different answer would alter the outcome 7. do not let reality or your experience base get in the way --> this is the small universe of the exam hypothetical ONLY --> especially facts related to, eg., the specifics of buying beads 8. For exams, don't spend time repeating the facts 9. Should write down any prevailing assumption 10. Write every other line so that she can read more easily Contracts I. Restatement (Second) of Contracts § 1: Contract Defined A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Basis for Enforcing Promises II. Consideration A. common law actions to enforce contracts 1. covenant: used to enforce contracts made under seal (written contract) 2. debt: used to enforce unsealed promises to pay a definite sum of money, including promises to pay for goods that had been delivered or for work that had been done 3. assumpsit: (most important) cases in which the promisee sought to recover damages for physical injury to person or property on the basis of a consensual undertaking a. misfeasance (improper performance of a legally allowable act) B.00 Definition: word of art; the sum of conditions necessary for such an action to lie C. Parties 1. promisor: one who makes a promise 2. promisee: one to whom a promise has been made D.0 Restatement 17: Requirement of a Bargain (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. (2) Whether or not there is a bargain, a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94. E. Restatement 71: Requirement of Exchange: Types of Exchange Contracts Outline (Part I) Page 1
  2. 2. (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. **** See Feinberg, Kirksey, and CAB v. Ingram F. Restatement 79: Adequacy of Consideration: Mutuality of Obligation If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged; or (c) "mutuality of obligation." 1. (in other words, as long as the parties bargained for what they received, the consideration was sufficient) G.0 Benefit/ Detriment not sufficient: The promise and the consideration must purport to be the motive each for the other, in whole or at least in part. It is not enough that the promise induces the detriment, or that the detriment induces the promise if the other half is wanting. H. Valid consideration of a promise is constituted by the return of whatever the promise was intended to induce 1. Hamer v. Sidway (NY 1891) p. 41 a. D promised to pay his nephew (P) $5,000 if P stopped drinking, smoking and gambling until he turned 21. P did so. D later died, and his executor claimed that there was no consideration for this promise. b. judgment for D. c. Held: reversed. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement, and since he fully performed the conditions imposed, we see nothing in this record that would permit a determination that the uncle was not benefited in the legal sense. d. The surrendering or forgoing of a legal right constitutes a sufficient consideration for a contract if the minds of the parties meet on the relinquishment of the right as consideration. e. Bargained for Exchange: the language of the initial deal is what is binding. Is the person who initiates the exchange asking for a promise or performance, and does he get what he asks for? f. Here, the uncle asked for performance, and got it. Therefore, it is valid consideration Contracts Outline (Part I) Page 2
  3. 3. I.00 Forbearance to assert an invalid claim may serve as consideration for a return promise if the parties at the time of the agreement reasonably believed in good faith that the claim was valid 1. Fiege v. Boehm (MD 1956) p. 48 a. P believed that she had become pregnant with D's child even though they were not married. P agreed that she would not bring him to bastardy court if he promised to send child support money until child was 21. After blood tests were done, D found out that he was not father, and refused to pay. b. verdict & judgment for P. D's motion for judgment nov denied. D appealed c. Held: affirmed. We find no reversible error in the rulings and instructions of the trial jury. d. P's promise was made in good faith, and therefore is sufficient consideration for D's promise to pay. There was a bargained-for exchange: D bargained for P's promise not to prosecute, not on the basis of whether he was in fact the father e. this is a policy decision: (1) the courts show more stability if they enforce voluntary contracts (2) the court may have wanted to set a precedent which would ensure that if a man agreed to pay child support, that he cannot back out -- the child needs to be protected 2.00 Restatement 74: Settlement of Claims (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) the claim or defense is in fact doubtful because of uncertainty as to facts or the law, or (b) the forbearing of surrendering party believes that the claim or defense may be fairly determined to be valid J.0 Gratuitous Promises 1. definition: Promise made by one who has not received consideration for it. The absence of consideration makes these unenforceable as legal contracts. 2. not legally enforceable because people make promises all the time that they do not intend to keep; there must be a mutual agreement, an exchange for a promise to be enforceable K.0 Gratuitous Transfers 1. not enforceable as contract commitment, but it does not have to be returned 2. no deal is made, thus you can't say that one person reneged 3. person who gives money clearly has shown that he intended to give the money 4. fact of gift is the proof of the intent of the giver 5. completed transfer has evidentiary value because: a. giver could have just promised b. shows that he didn't have any conditions upon the receipt of the money c. policy preference — don't want the courts tied up with trying to recover money already given Contracts Outline (Part I) Page 3
  4. 4. d. keeps people in their toes — must be careful what you do, not so much in what you promise! 6.0 Hypo: If uncle in Hamer had given nephew $5000 and then said, "I'm expecting you to not drink or smoke," and the nephew ignores his uncle's comment, he does not have to return the money a. the money is a gift, because it has already been transferred. L.00 Past service not valid consideration for a promise 1. Feinberg v. Pfeiffer (Missouri 1959) p. 56 a. P worked for D store for 37 years. Board of directors & president decided to give her a pension for life because of her dedicated past service b. judgment for P. D appealed c. Held: (see later part). Since this pension required no action on her part (either quitting or having to remain for a set time), there was no mutuality of obligation which is essential to the validity of the contract. Thus, this is merely a gratuitous promise to pay. d. decision to retire, though, was influenced by the promise (see below under reliance) M.00 Conditions on a gratuitous promise do not constitute consideration 1. Kirksey v. Kirksey (Alab. 1845) p. 61 a. P was D's sister-in-law, and had, for some time, been a widow raising several children. D asked P to join him at his home. He said, "if you will come down and see me, I will let you have a place to raise your family." P then sold her land and moved the 60 miles to his place. b. verdict for P. D appeals. c. Held: reversed. The promise on the part of the D was a mere gratuity, and that an action will not lie for its breach. d. there was no bargained-for exchange; D was not asking P for anything. P's moving was just a condition that had to be met in order to receive his gift. e. doctrine of promissory estoppel did not exist then 2.0 Hypothetical a. example of the tramp with the promise of the coat (1) benevolent man says to tramp: if you will go around the corner to the clothing shop there, you may purchase an overcoat on my credit. (2) the short walk was not consideration for the promise (3) the tramp can't hold the man to the promise (b/c it is "gratuitous"); there's no guarantee that the tramp will get the coat (4) IF, on the other hand, the man went to the store where he had credit, got the coat and hands it to the tramp (gratuitous transfer), the man cannot get the coat back (it is now the tramp's) 3.00 Hypothetical a. Father says to daughter, "If you meet me at Tiffany's tomorrow, I will buy you a diamond bracelet." She met him there and he failed to give her the bracelet. (1) There is a mutual, bargained-for exchange. (Father uses the bracelet as an inducement because he wants something from his daughter; he wants to see her.) Contracts Outline (Part I) Page 4
  5. 5. (2) Daughter's performance is consideration b.0 It doesn't matter what the motives of the parties are; the daughter may hate the father and only want the bracelet, but her performance by meeting him fulfills her part of the bargained-for exchange. 4.0 Restatement 81: Consideration as Motive or Inducing Cause (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise. N.0 Non-competition agreements have consideration under specific conditions 1. Central Adjustment Bureau, Inc. v. Ingram (TN 1984) p. 62 a. P, employer, is a collection agency. Ds are former employees who left CAB to form a competitive company. All of Ds had signed non-competition agreements. b. trial court found that non-competition agreements were unreasonably broad, and modified the broad statements, after which it enforced the agreement. The appellate court reversed, noting that the agreements lacked consideration c. Held: reversed. Where an employee signs such a clause prior to or shortly after commencement of employment, it is valid. When an employee remains employed for sufficient time after the signing of this covenant, the length of time they remained is sufficient consideration. d. Dissent: this agreement was coerced, not a free bargain, where there was no guarantee that, as consideration for executing a non-competition agreement, the employee will not be terminated anyway. e. General rule is that non-competition clauses are disfavored. O.00 Promise for Promise 1. General rule: consideration for promise could be found in a return promise, even if not even partially performed 2. Illusory promises are not enforceable a. Strong v. Sheffield (NY 1895) p. 75 (1) D signed a promissory note to pay her husband's debt to P. P promised to wait to collect until such time as he wanted the money. (2) judgment for P reversed by appellate court. (3) Held: Affirmed. A purported promise is illusory and not consideration if, by its terms, the performance of the promise is entirely optional with the promisor. (4) P's promise to hold the note only as long as he did not want the money did not commit him to anything. (5) there was no bargained-for exchange b.0 Restatement 77: Illusory & Alternative Promises A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless (a) each of the alternative performances would have been consideration if it alone had been bargained for; or Contracts Outline (Part I) Page 5
  6. 6. (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration. 3.0 Satisfaction clauses do not necessarily render a contract illusory a. Mattei v. Hopper (CA 1958) p. 78 (1) P purchased land for shopping center from D, the sale to be completed in 120 days if satisfactory leases could be obtained (2) trial court found this agreement to be illusory & lacked mutuality. P appeals (3) Held: reversed. The contract here was neither illusory nor lacking in mutuality because the parties inserted a provision in their contract making P's performance dependent on his satisfaction with the leases to be obtained by him. (4) court reads into a satisfaction clause the obligation to act in good faith (implied duty to do so) or as a reasonable man (5) as long as satisfaction clause deals with an objective reason to refuse contract, it is not illusory. (eg. length of lease) 4.00 Requirements contract entered in good faith is not void for lack of mutuality a. Eastern Air Lines v. Gulf Oil Corporation (Florida 1975) p. 82 (1) P and D involved in business dealings for decades. D raises its prices, and demands that P meet these demands, or D would shut off supply of gasoline sales to P. (2) Held: for P. The document is a binding and enforceable requirements contract. Thus, D must provide fuel at original contractual cost (3) essential test is whether the party (attempting to enforce the contract) is acting in good faith (in entering into the contract) b.0 Requirements Contracts (UCC § 306) (1) a term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. 5.0 Implied Promise creates a good faith duty and is therefore consideration a. Wood v. Lucy, Lady Duff-Gordon (NY 1917) p. 89 Contracts Outline (Part I) Page 6
  7. 7. (1) D gave P exclusive right to promote her name and clothes. D would get half the money. Then, P sold to others without going through D. (2) Appellate division allowed D's motion on the pleading and dismissed the complaint. P appeals (3) Held: reversed. P's promise to pay D one-half of the profits and revenues from the exclusive agency and to render accounts monthly was an implied promise to use reasonable efforts to bring profits and revenues into existence. (4) analyzed as promise for promise (5) court prefers allowing business deals to happen, and will read in an implied promise to preserve agreements that seem to make sense III.0000 Reliance (promissory estoppel) A. Restatement 90: Promise Reasonably Inducing Action or Forbearance (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. (2) A charitable subscription or marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. B. Elements of Promissory Estoppel 1. promise is clear and unambiguous in its terms 2. reasonable expectation of induced action or forbearance 3. inducement occurs 4. will be binding if injustice can be avoided only by enforcement of the promise C.0 Even without consideration, if promise reasonably induced action or forbearance, it will be enforceable 1. Ricketts v. Scothorn (Nebr. 1898) p. 94 a. Grandfather said that he would giving P money so that she would stop working. P immediately stopped working. Grandfather died. b. judgment for P, D appeals on error in jury instructions c. Held: affirmed. Having intentionally influenced P to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration. d. court noted: (1) this promise is a gift (2) normally not enforceable (3) notion of this exception is valid in other situations (4) better called estoppel D.000 A gratuitous promise is made enforceable by D's reliance on the promise 1. East Providence Credit Union v. Geremia (RI 1968) p. 99 a. P promised to D to pay his car insurance premium and apply the cost to the car loan. Promise was not kept and D suffered as a result. b. dismissed complaint. P appeals Contracts Outline (Part I) Page 7
  8. 8. c. Held: affirmed. P's failure to successfully carry out its promise must be deemed a breach of that contract entitling Ds to assert a right of action which would at the very least offset any amount found owing to P on the loan. d. P's gratuitous promise: to procure insurance on D's property e. D's forbearance to procure such insurance himself indicates reliance on P's promise E.00 Promise to pay not supported by consideration may be enforceable for reliance 1. Feinberg v. Pfeiffer Co. (Missouri 1959) p. 103 a. facts as before, see 4. b. judgment for P. D appealed c. Held: affirmed. Trial court correctly decided that such action on part of P as her retirement from a lucrative position in reliance upon D's promise to pay her an annuity or pension. IV.000 Restitution/ Quasi-Contracts A. Court will permit one party to recover an amount equal to their loss (and the other party's gain) to make it equitable 1. more complicated than this, but it takes a four-volume work to explain it completely! B.0 Quasi-contracts 1. theory that if you don't find a promise to be enforceable, someone will be unjustly enriched, and this is something to be avoided 2. this is only used to avoid injustice 3. courts do not usually grant this remedy C.0 Unjust enrichment can only be between parties that are directly connected 1. Callano v. Oakwood Park Homes Corp (NJ 1966) p. 108 a. Ps under contract to a third party, planted shrubbery on and enhanced the value of D's property. b. judgment for P. D appeals c. Held: reversed. Since there was no relationship between P and D, and P did not expect payment from D at the time the benefit occurred, there is no unjust enrichment d. P had another remedy from 3rd party's estate D.00 Implied contract for emergency medical services is valid 1. Cotnam v. Wisdom (Ark. 1907) p. 112 a. P, a doctor, rendered emergency medical services to unconscious man (D's intestate) after an accident b. judgment for P. D appeals on jury instructions c. Held: reversed, remanded (on evidence and improper instructions). It was improper to tell the jury that D's ability to pay for services should be considered in deciding reasonable payment d. principle that doctor deserves payment for necessary services rendered was reaffirmed e. if court did not allow recovery, doctors would be discouraged from rendering emergency services E.00 In the absence of fraud or other tortious conduct on the part of the person enriched, restitution is properly limited to the value of the benefit which was acquired. Contracts Outline (Part I) Page 8
  9. 9. V.0 Moral Obligation A. A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit 1. Webb v. McGowan (Ala. 1935) p. 121 a. P saved now deceased from grave injury/death by placing himself in grave danger. Deceased thanked him and promised to care for him and maintain him for remainder of P's life. b. judgment of nonsuit. P appeals on errors. c. Held: reversed, remanded. The court below erred in dismissing the case. d. uncomplicated definitions of benefit & detriment: benefit = saved life; detriment = permanent disabling injuries e. Court is giving moral obligation a status as equivalent to consideration 2.0 Restatement 86: Promise for Benefit Received (1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (emph. added) (2) A promise is not binding under Subsection (1) (a) if the promisee conferred a benefit as a gift or for other reasons the promisor has not been unjustly enriched; or (b) to the extent that its value is disproportionate to the benefit. The Bargaining Process VI.00 Assent A. Basic principles 1. the parties being bound have assented to a legally binding agreement 2. traditional contract principle — that entering into a contract is voluntary B.0 Mutual assent, based on what the reasonable man would believe, is required C. Assent can be found in a reasonable interpretation of behavior and words 1. Lucy v. Zehmer (VA 1954) p. 129 a. Dispute among friends over whether D promised to sell farm to P; they were at a bar drinking and D says he was joking b. dismissed. P appeals on error. c. Held: reversed, remanded. Whether the writing signed by Ds was the result of a serious offer by Lucy and a serious acceptance by Ds, or was a serious offer by Lucy and an acceptance in secret jest by Ds, in either event, it constituted a binding contract of sale between the parties. d. mental assent is not required e. parties re-wrote contract and discussed it for over 40 minutes. indicated their willingness to be bound by the contract 2.0 Promise inferred from conduct to family member seen as gratuitous a. proved troublesome when the parties are unmarried. Contracts Outline (Part I) Page 9
  10. 10. 3.0 "Formal Contract Contemplated" a. several factors to help determine whether the parties intended to be bound in the absence of a document executed by both sides: (1) whether there has been an express reservation not to be bound in the absence of a writing (2) whether there has been partial performance of the contract (3) whether all of the terms of the alleged contract have been agreed upon (4) whether the agreement at issue is the type of contract that is usually committed to writing. VII.0000 The Offer A. Restatement 24: Offer Defined An offer is the manifestation of willingness to enter into a bargain, is made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. B. Restatement 26: Preliminary Negotiations A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. C. Requirements of an offer (See Restatements 30 & 33) 1. nothing open for negotiation 2. clear 3. definite 4. explicit 5. assent (which must be reasonably believed) D.0 There cannot be a contract without an offer 1. Owen v. Tunison (ME 1932) p. 138 a. D replied by letter to P's offer to buy D's lot in the following words, "it would not be possible for me to sell unless I was to receive $16,000 cash." P wrote back "accepting offer." b. Held: judgment for D. The language used is general, and such as may be used in an advertisement. D's letter may have been written with the intent to open negotiations that might lead to a sale. It was not a proposal to sell. E.00 Statement of the lowest price at which owner would sell contains no implied contract to sell at that price. 1. Harvey v. Facey (Note Case) (Jamaica 1893) p. 140 a. D was in negotiations to sell his property for £900. P telegraphed D asking for lowest price to sell. D replied by telegraph "£900". P answered "we agree to buy it for the sum of £900 asked by you." D did not want to sell. b. dismissed, appellate court reversed, D now appeals c. Held: for D. The mere statement of lowest price at which the vendor would sell contains no implied contract to sell at that price to the persons making the inquiry. Contracts Outline (Part I) Page 10
  11. 11. F.00 If more than a quotation of prices exists, if an offer to sell has been made for the terms indicated, it cannot be withdrawn after the terms have been accepted 1. Fairmount Glass Works v. Crunden-Martin Woodenware Co. (KY 1899) p. 141 a. P (Crunden) asked lowest price "you can make us on our order of ten carloads of Mason green jars." D responded, "we quote you ... for immediate acceptance." P wrote again: "Enter ten car loads as per quote." D responded "impossible to fill order, output all sold." b. judgment for P. D appeals. c. Held: affirmed. There was no error in the trial court. Offer to sell different sizes at different prices gave the buyer the right to name the quantity of each size, and the offer being to ship no later than May 15, the buyer had the right to fix the time of delivery at any time before that. G.00 Newspaper ads listing prices of goods do not constitute an offer to sell 1. Craft v. Elder & Johnston Co. (OH 1941) p. 145 a. ad in newspaper offered to sell sewing machines for $29. P went to purchase one from D store, where they refused to sell to her. b. dismissed. P appeals c. Held: affirmed. No error found in dismissing petition d. published price is not an offer to sell the goods listed at the published price. H.00 After acceptance of published offer, advertiser cannot vary terms 1. Lefkowitz v. Great Minneapolis Surplus Store (Note Case) (Minn. 1957) p. 147 a. Ad read "first come first served" for sale of mink stoles for $1 each. P went to store, and they refused to sell to him because of a "house rule" that the offer was intended for women only. b. judgment for P. D appealed. c. Held: affirmed. While an advertiser has the right at any time before acceptance to modify his offer, he does not have the right, after acceptance, to impose new or arbitrary conditions not contained in the published offer. d. where the offer is clear, definite, and explicit, and leaves nothing open to negotiations, it constitutes an offer, acceptance of which will complete the contract. I.00 Restatement 30: Form Invited (1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. J. Restatement 32: Invitation of Promise or Performance In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. K. Restatement 33: Certainty Contracts Outline (Part I) Page 11
  12. 12. (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. L. Mistaken Bids 1. an option contract arising through promissory estoppel (the subcontractor's bid) 2. An offer can be withdrawn after acceptance if the offeror has made an honest mistake, not neglected a legal duty and notified the offeree as soon as the mistake was discovered a. Elsinore Union Elementary School Distr v. Kastorff (CA 1960) p. 152 (1) D made a bid for a construction contract. Mistakenly left out plumbing costs. P accepted his bid. Next morning, he realized his mistake and contact D, asking to be let out of the bid. They refused. (2) judgment for P. D appeals. (3) Held: reversed. Because of an honest clerical error in the bid, and D's subsequent prompt rescission, he was not obligated to execute the contract (4) D would not have been able to perform on this contract without substantial monetary loss VIII.0000 The Acceptance A. Once accepted, offer becomes a contract B. Restatement 50: Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise (1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. (2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. (3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. C. Restatement 52: Who May Accept an Offer An offer can be accepted only by a person whom it invites to furnish the consideration. D. See also UCC 2-206 in reference to sale of goods E. Offeror can dictate the form and manner of the offeree's acceptance F. Acceptance is not defective if notification is missing 1. International Filter Co. v. Conroe Gin, Ice, & Light Co. (TX 1925) p. 161 a. Offer was made when D wrote the word "accepted" on P's proposal. Acceptance would happen when P's executive officer approves it b. judgment for D. Affirmed by appellate court. P brings error c. Held: reversed, remanded. Notice that acceptance exists as determined by a reasonably prudent person is sufficient. d. offeror can dispense with notification by not requiring it in his offer Contracts Outline (Part I) Page 12
  13. 13. e. the form of notice, where required, may be a different thing from the acceptance itself; the latter constitutes a meeting of the minds, the former merely relates to that pre-existent fact. f. offer stipulated how the acceptance would happen g. language of offer: "this proposal is made in duplicate and becomes a contract when accepted by the purchaser (D--this is the offer) and approved by an executive officer of P at its office in Chicago (this is the acceptance)." 2.0 Restatement 54: Acceptance by Performance; Necessity of Notification to Offeror (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification . . . 3. Restatement 56: Acceptance by Promise; Necessity of Notification to Offeror Except as stated in § 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. G.0 Acceptance must be manifested by some outward act, indicating purpose to offeror 1. White v. Corlies and Tift (NY 1871) p. 165 a. P, builder, attempted to accept offer by D by beginning performance of fixing up a suite of offices without indicating to D his intention to accept b. judgment entered for P, Ds appeal on jury instructions c. Held: for D. There was nothing in P's thought, formed but not uttered or in his acts that indicated or set in motion an indication to the Ds of his acceptance of their offer. d. promise needed could come from behavior only if the behavior occurred in such a way that it clearly communicated the purpose to the person making the offer e. language of offer: "Upon an agreement ... you can begin at once." (1) court interpreted this to require a return promise H.000 Acceptance can be inferred by partial performance 1. Ever-Tite Roofing Corporation v. Green (Louisiana 1955) p. 168 a. Ds wanted P to re-roof their home. P gave D an estimate. P had to do a credit check before they began their work. When P came to start work, they learned that Ds hired another company to do the work. b. judgment for D, P appeals. c. Held: for P. Actual commencement or performance of the work therefore began before any notice of dissent by Ds was given to Ps. Thus, the contract was accepted by P by the commencement of the performance of the work contracted to be done. d. offer requires a promise, but indicates 2 ways that a promise can be made e. language of offer: "This agreement shall become binding only upon written acceptance hereof, by the principal or authorized officer of the Contractor, or upon commencing performance of the work." 2.0 Notice in Unilateral Contracts Contracts Outline (Part I) Page 13
  14. 14. a. general rule: an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together b. EXCEPTION: the offeror may dispense with notice to himself if he thinks it desirable to do so c. Acceptance by part performance in accordance with terms of the offer is sufficient to complete the contract (1) Allied Steel and Conveyors, Inc (D) v. Ford Motor Co. (P) (US Cir. 1960) p. 171 (a) language of the agreement: "this purchase order agreement is not binding until accepted. Acceptance should be executed on acknowledgement copy which should be returned to buyer. (b) D's (Allied's) motion for judgment nov denied, and judgment entered for P. (c) Held: affirmed. The execution and return of the acknowledgement copy was merely a suggested method of acceptance and did not preclude acceptance by some other method. The offer was accepted and a binding contract entered when Allied (D) undertook performance of the work called for by the amendment. 3.000 Hypothetical 2.I a. Lena: I'm thinking about selling my car. Harry: How much do you want for it? Lena: $8400 I could count on would do it. I'd take $8200 if I could have it in cash this week. b. Harry gives her a check for $4200 with a note that says "this is towards the purchase of the car. I'm good for the rest of the money." c. Assuming that Lena made a valid offer to sell, is she now contractually bound to sell Harry the car? d. NO. The offer requires either 1) performance of delivering $8200 in case within the week would apply; OR 2) promise to pay $8400 4.0 Hypothetical 2.II a. Alpha Co. sending mailing to customers: "Close-out of top grade widgets. 50,000 to sell at $25/1,000. To order, indicate number needed on this form, sign and return. Phone home office for expedited order. Orders filled promptly upon home office approval." b. What must happen in order for this offer to be accepted? (1) indicating number needed on this form, signature, and return by mail or may phone home office with order) (2) Alpha Co. must actually accept the offer (the order) since this mailing is an advertisement. 5.00 Shipment of Goods as Acceptance a. UCC 2-206(1)(b) provides that: such an order "for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods." Contracts Outline (Part I) Page 14
  15. 15. (1) under the terms of the Code, the buyer's revocation comes too late if the seller has promptly shipped. (2) but, the seller is bound to deliver goods that conform to the buyer's order 6.00 Silence not normally acceptance a. general rule: silence alone is not acceptance b. Restatement 69: Acceptance by Silence or Exercise of Dominion (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. (2) An offeree who does not act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. c. Unsolicited merchandise (1) A common consumer complaint concerns the practice of sending unsolicited merchandise, often coupled with the suggestion that the recipient will be liable for the price if it is not returned. (2) THIS SUGGESTION IS NOT THE LAW. (3) Although the recipient who lays the merchandise on a shelf and does not use it incurs no liability, the practice is at best irritating and at worst deceptive. A number of states have enacted statutes dealing with it. I.000 Termination of the Power of Acceptance 1. Power to accept may be terminated in several ways: (See also Restatement 36) a. revocation b. death or incapacity c. lapse d. rejection 2.0 Revocation of an offer a. offeror is free to revoke an offer at any time before the offeree has accepted it. b. A time limit fixed by offeror could not prevent revocation before time limit expired. (1) Dickinson v. Dodds (Eng. 1876) p. 177 Contracts Outline (Part I) Page 15
  16. 16. (a) D gave P until Friday at 9am to accept his offer to sell. On Thursday evening, P decided to accept. P was told by his agent that D made an offer to sell to another party. P went over to D's house to accept offer in writing, which never reached D. P went to train station to give copy of acceptance to D before 9am, and was told it was too late. (b) decree for specific performance for P. D appeals (c) Held: reversed. There was no consideration given for the undertaking or promise, to whatever extent it may be considered binding, to keep the property unsold until 9am (d) dicta: if a man who makes an offer dies, the offer cannot be accepted after he is dead c.00 Restatement 43: Indirect Communication of Revocation An offeree's power of acceptance is terminated when the offeror takes a definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect d. option contracts (1) UCC 2-205: Firm Offers (only deals with the sale of goods) (a) not revocable during the time stated (b) if no time is stated, it will be a reasonable time (c) in no event may such period of irrevocability exceed 3 months (2)0 see also Restatement 37 and 45 e.0 A promise not to revoke an offer may be supported by consideration other than money. An option, for example, may be part of a larger transaction, as where an option to renew a lease or to purchase the premises is given the lessee as part of the lease. 3.0 Lapse of an offer a. if no period is specified in the offer, it will lapse after a reasonable time 4.0 Rejection of an offer a. Acceptance of terms varying from those stated in the offer is a rejection (unless the offeror renews the offer or assents to the modifications suggested.) (1) Minneapolis & St. Louis Railway Company v. Columbus Rolling-Mill Co. (S. Ct. 1886) p. 188 (a) Correspondence between two parties. P originally ordered steel rails. D does not make steel rails, makes iron. informed P of same, noting that the accept orders of 2,000 to 5,000 tons. P ordered 1200 tons. (b) verdict and judgment for D. P appeals on error in jury instructions. (c) Held: affirmed. An offer to sell imposes no obligation until it is accepted according to its terms (d) policy consideration: we're trying to avoid a situation in which several offers are open at the same time; we want Contracts Outline (Part I) Page 16
  17. 17. everyone to know where they stand at any given time in the negotiations; we don't want the power to accept to be unclear b.00 Restatement 38: Rejection (1) An offeree's power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement. (a) "unless the offeror manifests a contrary intent" means: the original offer sets the terms for acceptances, could also set up an escape clause to avoid rejections: i) eg. You can reject it by ... which would then be taken as a counter-offer. ii) a counter-offer shifts the power of acceptance (it is also a rejection) c.000 Restatement 39: Counter-Offers (1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer (2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. 5.0 Mailbox rule: contracts by correspondence a. general rule: dispatch of the acceptance is ordinarily the crucial point at which the contract is made b. after the dispatch, the offeror's power to revoke is terminated, the offeree's power to reject is ended and the risks of transmission are on the offeror. (1) Restatement 63: Time When Acceptance Takes Effect Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror; but (b) an acceptance under option contract is not operative until received by the offeror. c.0 a revocation, however, is generally held to be effective only on receipt, not dispatch (1) see Restatement 42 J.000 Acceptance Varying Offer: The Battle of the Forms 1. Mirror Image Rule: Acceptance must be on the terms proposed by the offer without the slightest variation — anything else is a counter offer and thus a rejection 2. See also UCC 2-207 K.0 Precontractual Liability 1. orthodox contract doctrine: Neither party to contractual negotiations is bound until an offer has been accepted. Contracts Outline (Part I) Page 17
  18. 18. 2. a party whose reliance has conferred a benefit on the other may have a claim to restitution to prevent unjust enrichment though no contract has resulted 3. Reliance on an offer that seeks a promise a. The reliance by a general contractor on a subcontractor's promise to perform at a specific rate would hold the subcontractor liable for non- performance (1) Drennan v. Star Paving Co. (CA 1958) p. 219 (a) P (gen. contr.) used lowest subcontractor's bid for paving in its general contracting bid. P awarded the contract. Went to inform D, and as he walked in door, D said that they had made an error and would not be able to perform as promised. No formal acceptance given for the contract (b) judgment for P and D appeals. (c) Held: affirmed. In terms of promissory estoppel, where D reasonably expected P to rely on its low bud when submitting the contract, and therefore induced action by P. (d) Policy: i) which party should bear the cost: the burden of care and resulting loss is more suitable imposed on offeror than offeree ii) subcontractors should be careful with their bids because general contractors rely on them and are bound by their own bids iii) gen contractors are not at liberty to delay acceptance in the hope of getting a better price iv) if gen contractors couldn't rely on subcontractor's bids they would have to add a premium to their bids to reflect the risk; thus overall cost increase in the industry without adding anything positive to the process (2)00 Restatement 87: Option Contract (1) An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; OR (b) is made irrevocable by statute (2) An offer which the offeror should reasonably expect to induce action or forbearance of an substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. b.0 The use of a subcontractor's bid in preparing the general bid does not constitute acceptance of the subcontractor's offer. Contracts Outline (Part I) Page 18
  19. 19. (1) Holman Erection Co. v. Orville E. Madsen & Sons (Note case) (Minn. 1983) p. 224 (a) D contractor used P subcontractor's bid in its general bid by then used another subcontractor after winning the contract, in accordance with the Minority Business Enterprise regulations (b) summary judgment for D. P appeals (c) Held: affirmed. Subcontractor may be obligated to perform by application of promissory estoppel. The general contractor remains free to avoid the listed subcontractor and negotiate with other subcontractors (d) dominant policy justification: avoidance of bidshopping while not unnecessarily restricting the freedom of the general contractors 4.000 Liability for failed negotiations a. Even w/o an express agreement, a promise to withdraw premises from market during leasing negotiations can be held binding when a required letter of intent holds significant value for owner of property (1) Channel Home Centers v. Grossman (US Ct App 1986) p. 237 (a) P prepared a letter of intent, at D's request, to lease D's space. P requested in return that D take the property off the market. P spent money on marketing plans etc. D used the letter of intent to obtain financing for the property as a whole, but then rented to another competitor. (b) for D on grounds that letter of intent was unenforceable, P appeals (c) Held: reversed. There was evidence that the parties intended to enter into a binding agreement to negotiate in good faith. Agreement also had sufficient specificity to make it an enforceable contract, and consideration passed between the parties (d) letter of intent was a bargained-for benefit, and was valid consideration for return promise to negotiate in good faith L.0000 The Requirement of Definiteness 1. Court can enforce a reasonably definite agreement when it is convinced that the parties intended to bind themselves to an enforceable agreement a. Lee v. Joseph E. Seagram & Sons, Inc (Ct of App 1977) p. 248 (1) Oral contract by Ds to relocate Ps in another wholesale distributorship after Ps sold their distributorship to D (2) jury verdict for P. D appeals (3) Held: affirmed. Since the obligations of the parties under the contract were therefore ascertainable, it was not void for indefiniteness (4) Ds tender of reasonable performance would discharge its obligations under the oral agreement, whether or not Ps accepted. 2.00 Restatement 33: Certainty Contracts Outline (Part I) Page 19
  20. 20. (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. 3. UCC 2-204(3): Formation in General (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy IX.00 The Requirement of a Writing for Enforceability: The Statute of Frauds A. Statute of Frauds 1. UCC 2-201(1): Formal Requirements; Statute of Frauds a. sale of goods for the price of $500 or more not enforceable unless written b.writing may be ok if it omits specific terms c. quantity may be wrong—can still enforce, but are kept on the wrong quantity d. eg> oral contract for 5000 beads; written contract says 4500 beads (1) contract is enforceable, but only to 4500 beads e.0 Why do this? (1) still want to encourage people to enter into contracts (2) but also want to encourage people to be careful about the terms they agree to in writing f.0 extrinsic pieces of information: (1) because of known market prices, fraud is less likely (2) parties entering contracts have catalogs/price sheets that can be referred to in order to re-specify prices/quantities 2.00 UCC 2-201(2): provision sets up possibility that an agreement to sell goods can be enforced against a merchant who never signed anything: a. a writing has to be received (1) writing confirms an oral contract (2) rec'd within a reasonable time of entering into the oral contract (3) person writing confirmation does so binding himself to the agreement b.0 receiver has a reason to know the contents (1) eg. envelope says "enclosed is a copy of the contract we entered into on Monday" c.0 UNLESS written notice of objection is sent within 10 days of receiving it d. EXCEPTIONS (1) can't use this to defeat an oral contract if result is unjust enrichment (2) can't defeat performance of contract if promissory estoppel/ reliance would require enforcement Contracts Outline (Part I) Page 20
  21. 21. (3) doesn't mean oral contracts can't be entered into (a) recovery for enforcement may be barred, though, if not written 3.000 Agreements that require a writing: a. suretyships b. contracts not to be performed within 1 year c. interests in land (real estate dealings) d. some contracts for sales of goods, when amount is $500 or more 4.0 Reasons to require a writing: a. clarity: reduces possibility of fraudulent claims b. reduce litigation to what is not written (specifies what the contract deals with --> eg., which specific condo) 5.0 Hypothetical 3.II a. uncle writes to niece in letter 3: let me know what law school tuition bill is each year and I'll take care of it. b. does this have to be in writing? (1) can be viewed as a promise to pay her debt (suretyship)-- thus, yes (2) no: because the possibility exists that the contract can be complete in a year (a) she can die (b) she only decides to attend for one year (c) THUS, it is possible that the entire contract can be performed in one year and thus does not need to be in writing (even if a problem happens in the third year) (3)0 doesn't matter that there are three writings as long as: (a) the details that are important are in writing (b) evident that all three refer to the same general thing c.00 THUS: it does not have to be in writing because it could be performed in one year; the fact that it's likely to take longer is not the issue B.00 Problems of Statutory Scope 1. the suretyship clause a. this covers agreements to "answer for" another's debt or other obligation as surety or guarantor. b. eg. Strong v. Sheffield (see 5) 2.0 contracts not to be performed within one year a. a contract for lifetime, or "permanent", employment is not within the one- year clause, by prevailing rule X.000 Policing the Bargain A. Policing measures 1. status of the parties a. disqualifies certain classes of persons from committing themselves by contract 2.0 behavior of the parties a. how they bargained in fact b. treatment of fraud and duress illustrates this method Contracts Outline (Part I) Page 21
  22. 22. 3.0 substance of the bargain in question a. exchanges of highly unequal advantage are commonly enforced b. this is the main spring of the doctrine of consideration B.00 Capacity 1. who are we trying to protect? a. an "infant": someone too young to contract b. person on opposing side because they believed the infant was capable of entering into the bargain 2.0 why do we care? a. because of moral obligation b. POLICY CONSIDERATIONS c. protecting people in a way that costs them (1) limits one's rights (2) limits their responsibilities (a) creates a second-class citizenship issue (b) any negative impact attached to this class will be attached to the minor (3)0 does not allow children to learn from their mistakes (4) limit ability to make their own judgments 3.00 Restatement 14: Infants Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person's eighteenth birthday. a. One may disaffirm or rescind contracts made while a minor (1) Kiefer v. Fred Howe Motors Inc. (Wisc 1968) p. 292 (a) P, few months short of age 21, married and a parent, entered into contract with D to buy car. It was a lemon. P sought to return it after becoming 21, and D would not let him. P later sued for the price of the car (b) judgment for P, D appeals. (c) Held: affirmed. The law is that a minor is anyone under 21, and they are not allowed to contract. Thus, P should be let out of the deal. If changes are warranted, they should be left to the legislature (d) general rule: the contract of a minor, other than for necessaries is either void or voidable at his option. (e) exceptions: involve contracts with duties imposed by law (eg. marriage, agreement to support an illegitimate child) (f) note: at this time, there were no consumer protection laws in this field (lemon laws) 4.000 Restatement 15: Mental Illness or Defect (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. Contracts Outline (Part I) Page 22
  23. 23. (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief on such equitable terms as justice requires. a. A person enters only voidable contractual duties by some mental illness or defect, he/she is unable to act reasonably in the contract and the other party has some reason to know it. (1) Ortelere v. Teacher's Retirement Board (NY 1969) p. 294 (a) P's wife had pension. P quit his job to stay home and take care of wife, who had a nervous breakdown. P's wife exercised an irrevocable option to take maximum benefits, which dissolve any after death amount. She died shortly after, leaving P w/o any remaining portion of her retirement fund at her death. (b) judgment for P. D appealed and court reversed & dismissed. P now appeals (c) Held: reversed, remanded. It is not a sound system which would permit 40 years of contribution and participation in the system to by nullified by a one-instant act committed by one known to be mentally ill. There would not be any substantial harm to the system if the act were avoided. (d) policy considerations i) if the contract is fair and beneficial to the alleged incompetent, the tendency is to uphold it. ii) if not, tendency is to void it iii) considered that a great sum of money was lost to P as a result of the alleged incompetent's decision b.000 Weakmindedness is not sufficient to allow a contract to be voided unless P was defrauded or overreached (1) Cundick v. Broadbent (Ct of App 1967) p. 298 (a) P negotiated the sale of his ranch for about half its value to D. P's wife, who participated in the 5 month negotiations, sought to rescind it, alleging that D knew P to be mentally ill, and that D knowingly overreached. (b) action dismissed. P appeals (c) Held: affirmed. The facts support the trial court's finding that P was not overreached. (d) this finding from factual evidence alone; ignored the psychiatric testimony completely C.0000 Unfairness: conventional controls 1. courts have manipulated the doctrine of consideration to serve the ideal of fairness 2. If contract imposes unfair restrictions upon one party while other party is benefitted only slightly, contract will not be enforceable a. McKinnon v. Benedict (WI 1968) p. 302 Contracts Outline (Part I) Page 23
  24. 24. (1) D, in order to buy summer resort, borrowed $5000 from P, who promised to help D attract tourists if D would not cut trees between the resort and his property nor make certain other improvements for 25 years. When resort did not prosper, D began to make improvements. P sought to enjoin any future construction for the 25 years. (2) injunction for P, D appeals (3) Held: Reversed. Considering all the factors—the inadequacy of consideration, the small benefit that would be accorded the Ps and the oppressive conditions imposed upon D—we conclude that this contract failed to meet the test of reasonableness. (4) contract was unfair at time it was made (5) parties could not deal at arm's length b.0 Restatement 79 (see 2) 3.0 Fairness of the contract and adequacy of consideration can determine if specific performance is appropriate a. Tuckwiller v. Tuckwiller (Missour. 1967) p. 306 (1) P agreed to take care of sick woman for life in exchange for her house and farm. Woman died soon after without changing her will to this effect (though she did try). Woman had ambulance attendants witness a signed paper containing her promise. (2) relief granted for P, D appeals (3) Held: affirmed. Contract was fair when entered into: there is powerful evidence that her intent was to change her will and would have if she hadn't died before keeping her appointment with her lawyer. (4) transaction must be viewed prospectively 4.00 Cannot void a contract as against public policy simply because a middleman was getting a profit a. Black Industries, Inc v. Bush (NJ 1953) p. 309 (1) D contracted to produce and sell parts to P, who resold them at a large profit. Assembled parts eventually sold to government on contract. D refused to perform, claiming that P was receiving excessive profits in violation of public policy when government was at war, and desperate for the product. (2) D moved for summary judgment. (3) Held: denied. Contract does not fall into any of the categories for illegal contracts. We should not hold that all contracts are void if they provide compensation for middlemen, a result that is not supported by precedent and would defy the realities of our economic life. (4) to be void as against public policy, must fall into one of these categories: (a) D pays P to induce a public official to act in a certain manner (b) contract to do an illegal act (c) contemplating collusive bidding on a public contract Contracts Outline (Part I) Page 24
  25. 25. D.0000 Overreaching: Conventional Controls 1. Pressure in bargaining a. The Pre-existing Duty Rule (1) Restatement 73: Performance of Legal Duty Performance of a legal duty owed to promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of the bargain. (2) Alaskan Tuna Packers (a) Group of workmen had individually signed contracts to work on Packer's ship during salmon canning season. Once they arrived in Alaska for work, they presented a demand to the superintendent for a substantial increase in compensation, and refused to work until their demand was met. Packers agreed to pay them the increase. Once the work was done, workers were paid according to the original agreement, and they sued. (b) Held: The agreement to pay the increased compensation was without consideration and was induced by the coercion of the workers' unjustified refusal to perform their contracts. (3)0 Where mutual assent to modifying a contract exists, it will be enforceable (OK for rescission and modification in same transaction) (a) Schwartzenreich v. Bauman-Basch (NY 1921) p. 319 i) D contracted for P, designer, to work for $90 a week. P was offered similar employment with another company for $115 a week. When he told D, D offered to pay $100 a week if P would reject other offer. They made a new contract, and tore off the signatures of old contract, P surrendering his copy to them. D later discharged P. ii) judgment for P on amount of second contract, D appealed iii) Held: affirmed. An agreement may be rescinded by mutual consent and a new agreement made thereafter on terms to which the parties may assent. iv) promise to induce a party to do that which he is already bound by contract to perform is without consideration v) a contract may be cancelled by mutual consent and a new one made (4)00 New consideration for promises is required (a) Arzani v. People (NY 1956) p. 321 i) D let a contract for the reconstruction of a highway to general contractors. General contractors entered into a written subcontract with P. P did the work. A Contracts Outline (Part I) Page 25
  26. 26. few days after P began work, union rep demanded increase in minimum wage, and threatened strike. P paid the amount, and passed cost to Gen'l contr. Sued general contractors for unpaid balance of contract. ii) Held: For D. Termination of previous contract was not shown. Thus, no new contract was entered. b.000 Duress (1) Renegotiation under duress is not permitted (a) Austin Instrument, Inc. v. Loral Corp (NY 1971) p. 330 i) P threatened to withhold delivery of precision parts on a government contract unless D would raise the contract price. ii) dismissed iii) Held: affirmed, remanded for damages. Loral agreed to price increases in consequence of the economic duress employed by Austin. iv) Similar to Alaska Packers (25) v) Contract is voidable on grounds of duress when it is established that the party making the claim was forced to agree to it by means of wrongful threat precluding the exercise of his free will. vi) However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. 2.0000 Concealment, misrepresentation & mistake a. Where D only non-discloses facts and makes no attempt to actively hide them, D will not be liable. (1) Swinton v. Whitinsville Savings Bank (Mass 1942) p. 344 (a) D sold house to P. At the time of sale, house was infested with termites. D did not disclose this, but did not attempt to hide it either. (b) demurrer. (c) Held: Affirmed. If this D is liable on this declaration, every seller is liable who fails to disclose any nonapparent defect known to him in the subject of sale which materially reduces its value and which the buyer fails to discover. (d) policy justification: trying to encourage P to be more careful in buying houses (encouraging buyer to ask more questions) (e) concealment here, but no duty was imposed to provide the information Contracts Outline (Part I) Page 26
  27. 27. b.00 When D engages in partial disclosure, lack of full disclosure amounts to misrepresentation (1) Kannavos v. Annino (Mass 1969) p. 346 (a) D bought one-family dwelling and converted it into apartments without obtaining a building permit and in knowing violation of the city zoning ordinance. Sold to P under advertisement as an investment opportunity since they were converted into apartments (b) demurrer overruled. granted rescission of purchase contract in favor of P. D appeals. (c) Held: affirmed. Enough was done affirmatively to make the disclosure inadequate and partial, and, under the circumstances, intentionally deceptive and fraudulent. (d) Π can find out that Δ is lying, but reliance because of the representation excuses Π from having to do so (2)0 See Restatement 161 (When non-disclosure is equivalent to an assertion (3) important if material (misrepresented) fact determined willingness to enter contract (4) reliance of buyer on this fact (5) unfair to force buyer to keep something he didn't intend to buy (if he had known all the facts) (6) mindset of seller (a) generally, innocence of misrepresentation is only a factor if there's some relationship between the knowledge of the parties c.00 Mistake (1) Hypothetical: Lena and Harry BOTH believe that Liz Taylor owned this car before. Both are wrong (another famous person owned it instead). Can Harry void the contract? (2) Requires mistake in the understanding about the contract to be: (a) mutual = both believed it (b) material = how much the mistaken fact mattered to the deal i) THUS, if Harry would not have bought the car otherwise, it is material ii) THUS, if he wanted to buy a car owned by someone famous (didn't matter who), it is NOT material (c)0 basic = (fine line between material and basic) i) "basic" = something more than just material ii) not the deal they wanted to make iii) eg. if plan was to make more money off resale, and the fact that it wasn't really owned by Liz would make the market value of the car drop, it is basic. (3)00 Restatement 152: When Mistake of Both Parties Makes a Contract Voidable Contracts Outline (Part I) Page 27