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Contracts - Professor Kevin Kordana

1. a. i.

1. 2. a. b. ii. iii.

1. 2. iv.

1. v.

1. b. i. c. i. ii. d. i. ii. iii. iv.

2. a. i. ii. b. i. ii. iii. c. i. ii. iii. iv.

1. d. i. ii. iii. iv.

Mutual Intent: threshold for agreement to allow enforcement Objective vs. Subjective Theories of Contracts Objective Theory of Contracts: contract speaks for itself regarding intent to contract Few use the pure version, and instead look slightly beyond Policy: Tool for the prevention and perpetuation of opportunism (e.g. hidden intentions/dishonesty changing the content of a contract or making a contract of something in jest) Less work for judges Subjective Theory of Contracts: internal intentions are taken into account (not common) Lucy v. Zehmer Sale of farm: evidence of intent discussion, dickering, wrote down sale, two iterations, signed on napkin, "delivery" of contract "We must look to the outward expression of a person as expressing his intention rather than to his secret and unexpressed intention" Middle Ground: Low Lucy Examines conduct + state of mind and uses inferences about them to fill in the gaps as it believes the parties would have Middle Ground: High Lucy Examines only the conduct and the terms of the conduct to fill in the gaps Often shown via offer and acceptance R.2d 22: (1) intent shown normally through proposal and acceptance, (2) but does not necessarily need offer and acceptance and also does not require a definite moment of acceptance Evidence: bargaining, statements, reliance, consideration, writing and signing, formality, offers + acceptance Reliance: Lucy v. Zehmer and going to the lawyer R.2d 17: bargain required to show mutual acceptance, but subject to some exceptions No Intent: Duress No Capacity Mistaken views of actions/meanings Indefiniteness Indefiniteness - proving intent on the face of the contract Walker v. Keith: Facts: Agreed to a lease with an option to renew but "agreed to agree" on price terms for renewal based on "comparative business conditions of the two periods" Reasoning: much higher cost for courts to determine the lease price than for them to decide themselves (they were the LCAs) UCC 2-204 First must show that an agreement exists, can be shown through conduct Does not need a definite moment of contract Open terms do not make it indefinite if there is a clear manifestation of intent Evidence of Definiteness Price Quantity Date of Delivery Definition of Goods: UCC 2-105 If it is a good under this definition, it fits UCC for terms of quantity/delivery UCC 2-305: Open Price Terms You can use open price terms (i.e. none, left for agreement, or based on a certain set of factors) if you can show intent If you "agree to agree" and you do not agree then it is invalid Policy: used to combat courts that strike down too many open price terms even when there's intent Note: only applies to sales of goods in UCC jurisdictions

e. i. ii. f. i.

1. 2.

3. a. b. c. ii. g. i. h. i.

1. 2. ii.

1. 2.

3. a. i. i. ii. iii. j. i.

1. ii. iii. iv.

3. a. b. c. d. i. ii. iii.

4. a. i. ii.

5. a. i.

1. If it is so incomplete that it's indefinite (threshold) then the court rules that it lacks Intent Does not need to account for all foreseeable possibilities Spectrum Indefiniteness Over Time Hoffman v. Red Owl Stores: not indefinite Facts: agreed Hoffman would open a ROS supermarket, Hoffman relied by giving up store/property, bought a smaller store, had to sell it, Red Owl kept increasing the $ he would have to put upfront, negotiations broke down Ruling: even though they had never agreed on price, date, etc. they did have intent and thus an enforceable contract where Hoffman could recovery reliance interest for breach "Everything is ready to go. Get your money together and we are set." Affirmative confirmation Monetary connotation Coaxing of other party to move forward with plans When does it become definite enough to prove intent?
Cannot introduce Parol Evidence to show definiteness (that is for the terms) Contract must be definite enough on its face before using Parol Evidence Example Cases Webb - not indefinite Facts: P saved D from certain death by falling alongside heavy block. D agreed to pay P until he died. Duration of K was "until death" but the parties didn't specify what would happen if the payer died before the payee. Court was willing to fill in the gaps. Lefkowitz - one definite element, one indefinite one Facts: D guaranteed that "first in line" would be allowed to buy the item but refused to sell it to P (either because he was a man, or because he was D's rival) "First in line" is a definite enough term to make K enforceable. Seller can't withdraw from K after making this offer. "Worth to $100" was an indefinite term in the first offer, thus not an enforceable contract K wants them to figure this out or just punish them for putting in $100 by saying it's worth $100 R.2d 20(a) Mutual mistake works similarly to indefiniteness by voiding terms to which the parties ascribe different meanings. If parties can't agree over meaning of a word they couldn't have mutually intended to contract to it. See Raffles and the two "Peerless" ships Ex: French vs. American chickens Policy: Regulation vs. Restraint "Court may assert right not to be imposed upon" (Walker) i.e. Court does not want to clog itself up with frivolous cases Can the judge effectively fill in the gaps There may be good business reasons to have indefinite terms (e.g. iron smelting next to mine, quantity = "all") LCA here is the court vs. the parties: who has the lower cost to fill in the gaps?
Capacity to Contract - negates formation of a contract. Four factors from R.2d. 12 Infant Under guardianship Mentally Ill Intoxication Unable to understand reasonable consequences Other party has reason to believe you are intoxicated Lucy v. Zehmer: Intoxication must be both evident and to the degree that the party didn't understand what he was contracting. Legality - Threshold Greene: no contracting to bankruptcy fraud Example of where it may exist though it did not come up in the case Also, prior sex cannot be legal consideration Consideration/Promissory Estoppel Consideration Traditional - Bilateral Contract (Holmes: "Promise to perform or pay") Benefit Detriment Test (Minority, NY)

a. b. c. i. ii. iii.

2. a. b. c. i. ii. iii.

d. i. ii. b. i.

1. 2. ii. iii.

1. 2. c. i. ii.

1. a.

2. a.

3. a. iii.

1. a.

i. b.

2. Disjunct test: you only need to prove one of the two Benefit must be to promisor, detriment must be to the promisee Hamer v. Sidway Facts: Uncle promised to give nephew $5k if he didn't use tobacco, liquor, swear, or play cards/billiards for money Objective Detriments Rule: Legal rights can be a detriment - giving up your right to drink, smoke, etc., among other things Intangible Benefit Rule: Pride, satisfaction, other emotional benefits to promisor may count as benefits. Bargained For (Majority) Cannot be one sided: each side must pay the unfortunate price (forbearance) for a benefit R.2d 71: 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 Ex: Wolford v. Powers Facts: Lehman (Powers is estate administrator) had no family, agreed to pay for Wolford's son's education if they gave him middle name of "Lehman," Wolford paid $40 in consideration Ruling: The unfortunate price doesn't have to be money. Wolford is giving up the right to name his son something else, Lehman is gaining something of value by having his name passed on. Therefore, Wolford suffered the unfortunate price of losing right to name his son in order to obtain $ for son's education, and Lehman paid the unfortunate price of $ for education in order to get the "fuzzy feeling" of having someone named after him Batsakis v. Demotsis Facts: contracted to borrow $25 worth of Greek currency, but agreed to pay interest as if it was $2000, when they got to America they tried to enforce and D didn't want to pay Rule: less money can be consideration for more money at a future time because there is subjective value given the circumstances Material Benefit Rule: proof is in the promise to pay (except for medical care/desireable professional service) Webb v. McGowin (facts above) Ruling: in some cases, prior actions can be consideration for a promise made thereafter (e.g. monthly payments for saving life), and if subsequent actions show that the prior action had value (shown by the promise to pay) Contrast: unlike in Bailey v. West there was a promise to pay so there was assumed to be no value to them Like Benefit Detriment Test but w/o previous agreement (i.e. for past consideration) Exception: Squeegee Man/Officious Intermeddler You're under no obligation to pay the squeegee man unless you give some indication that what he has done materially benefited you. Compare to surgeons, who always recover because society deems their benefits to always be material. Promissory Estoppel and Reliance Definite and substantial reliance upon a promise. Distinguishes gift from K. R.2d 90 defines: Induces action or forbearance on promisee Note: this is influential regarding small/negligible reliance Should reasonably be expected to induce such action or forbearance Note: this is influential regarding whether it is a promise that can reasonably be relied on...are they being deceptive by offering the promise?
Injustice can only be avoided by enforcement of promise Note: this gives judges wiggle room for policy arguments Reliance must be reasonable, related to remedy sought, and reasonably foreseeable by promisor Ricketts: Facts: Grandfather promised his granddaughter, a secretary, payments if she quit her job (option to retire), retired (i.e. detrimentally relied), got payments, took another job that was lower paying with grandfather's permission, when grandfather died green eyeshade guy tried to stop payments Note also the emotional response and Shame Sanctions Rule: taken out of the gift box because "It is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift," and thus she detrimentally relied on the promise such that an enforceable contract was formed. Feinberg:

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3. v.

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2. d. i.

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2. a. ii.

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3. e. i.

1. 2.

3. a. b. i. ii.

4. a. ii. iii.

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Facts: Secretary was promised a generous pension for when she retires, she retired, old guy that made the promise died, the company tried to lower the payments saying the initial promise was a gift (because no conditions were attached and thus it wasn't bargained for--there was no unfortunate price she was made to pay). Rule: Even though it wasn't bargained for, there's a K because the secretary substantially relied (retired, didn't seek other sources of income) on the promised pension. Promissory Estoppel Elsewhere Negotiations: Arnold Palmer: normal costs of negotiation do not constitute detrimental reliance Options Contract - Baird: General contractors can use promissory estoppel as an argument in cases where they detrimentally relied upon a subcontractor's option offer in submitting their larger bid. The reliance, while not detrimental until the contract offer is accepted, is nonetheless treated as detrimental. Reliance = basing offer on a quoted price instead of choosing another one. Statute of Frauds Lige Dickson: When one party asserts the statute of frauds to try to negate a contract, the other party can use p.e. as a defense by asserting that it detrimentally relied on the unwritten K. "Big" P.E. vs. "little" "p.e." Big P.E. - Hoffman v. Red Owl: the promise ("you will get a store") was not "contract-like" because it lacked required elements of a K (date, price, quantity) but nonetheless the detrimental reliance of selling properties, buying a store, etc. was sufficient to bring tort-like recovery based on Promissory Estoppel. This applies P.E. even when there is no clear contract, thus more like torts in that it rights a wrong/covers costs from a loss/punishes blameworthy party Note: only reliance damages were awarded - expectation damages would not be warranted given the level of the promise Little p.e. - traditional promissory estoppel where the only missing piece is consideration, which is then satisfied by detrimental reliance on the promise Formality Functions: Evidentiary (Channeling) Function: shows that there was a contracting process Today: Satisfied by writings Cautionary Function: shows your seriousness (the process was not a joke) Today: Satisfied by formality Seal: R.2d 95 - Seal can take the place of consideration R.2d 96 - Types of seals Used to serve evidentiary and cautionary functions Exceptions: Gratuitous Promise/Gifts A promise made without consideration and is unenforceable Promisory Estoppel is the exception for when there is foreseen reliance to the promisee's detriment based on the promised gift Ex: Kirksey v. Kirksey Facts: Brother-in-law wrote to widowed woman offering her land "if you would come down and see me." Kept her as his mistress for 2 years and then asked her to leave. Court rules it was a gift. Note: could have been enforceable under promissory estoppel or benefit detriment p.e.: She detrimentally relied by breaking up her own homestead Benefit/detriment: Brother-in-law benefited by having a mistress on his property. Williston's Tramp: "homeless man, if you come here I will give you my coat!" Walking over to retrieve the coat is a condition to the gratuitous promise, not a benefit or detriment that can sustain the promise under promissory estoppel Interfamilial Promises: generally not enforceable because social shaming is a better sanction. Nominal Consideration/Non-existent Consideration/Past Consideration Peppercorn theory: Something very small can be valid consideration if the parties bargain over it and it has honest value to to them, while something larger can be nominal if it's only done to pay lip service. Greene

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b. c.

iv. 1. a.

b. c.

2. a. b.

6. a. i.

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3. 4. ii. iii.

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5. iv.

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3. v.

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2. b. c. d. e. f. g.

Facts: Greene transferred most of his assets to his girlfriend in advance of bankruptcy proceedings. She gave him $1 as "consideration." Court ruled that this was a gift, not a contract, because the $1 was nominal consideration given only to pay lip service to the law, not because either party cared about it. Rule: $1 and releasing legal obligations that never existed are not adequate consideration for such vast assets Policy: do we want loans to be perfectly fair or do we want to have rich people offer loans in times where the money has a much more significant value than on it's face (Property Rule Protection: the personal value of the money at the time given the war, this encourages desirable behavior; Liability Rule Protection: the value of what was borrowed +
interest at this point; discourages usurious loans that might be situationally good in the interest of objective fairness, e.g. usury) Donations Allegheny College Facts: Old woman promised gift 30 days after her death if college named scholarship after her. $1,000 paid up front. Estate tried to break the promise after she died but court ruled that naming the scholarship was sufficient consideration and the promise was enforceable. Intangible Benefit: Donation promise is enforceable if there is some benefit to the donor (intangible) and a detriment to the recipient (giving up naming rights). Analysis: Cardozo didn't like promissory estoppel so he searched around and found some sort of consideration Kordana's Analysis of No Enforcement even if right to enforce exists: We care about quantity of gifts, not reliability People would be reluctant to make charitable promises if they would be sued for falling through Unenforceable Contracts Unconscionability: Must have both... Procedural Unconscionability: absence of meaningful choice Gross disparity in bargaining power Parties' relative ability to understand K (education levels) Clarify of K Ability of weaker party to bargain with other parties Substantive Unconscionability: unfair terms that lead to unfair results/outcomes Ex: Williams v. Walker Thomas Furniture Co. Facts: Furniture company tricked poor people (procedural element) into signing rent-to-own contracts structured to make it likely that people would pay most of the value of the furniture and then default (substantive element). Rule: taking away all furniture for missing a payment on one given the process of contracting is unconscionable and therefore not enforceable Note: almost all contracts signed by poor people with corporations are procedurally unconscionable - the question is are they substantively unconscionable Many idiosyncratic contracts appear unfair and substantively unconscionable on their face, so these contracts must be procedurally conscionable--agreed to by parties of equal negotiating power. Policy: protection against predatory businesses R.2d 208 - Unconscionable Terms/Contract: options the judge has Not enforce Enforce everything but the unconscionable term Limit the application of the unconscionable term UCC 2-302 Decision is a matter of law, options include No enforcement Enforce the remainder w/o unconscionable terms limit application of the unconscionable term Each party may present evidence regarding unconscionability/lack thereof Gifts (see above) Lack of Capacity (see above) Lack of Intent (see above) Indefiniteness (see above) Counteroffer made/fails mirror image rule (see below) Statute of Frauds

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