contracts I outline
prof. a.j. bellia - fall 2003
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I. The Importance of Promise
 Promise= A manifestation of an intention to act or refrain from acting in a
specified way, so made as to justify a promisee in understanding that a
commitment has been made (Restatement 2nd).
 Intent= manifestation of intent.
 Contract implied in fact= a contract established by conduct.
o Δ requested Π to perform work
o Π expected compensation
o Δ knew or should have known that Π expected compensation
o Technically, recovery is amount that parties intended as contract price. If
they didn’t agree on a price, courts will infer that they intended a
reasonable market value of the plaintiff’s services.
 Contract implied in law (AKA quasi-contract)
o Δ received a benefit
o Δ knew about and appreciated the benefit
o circumstances would make it unjust for Δ to retain the benefit w/o
paying for it
o Recovery is value of benefit conferred on Δ, not expense incurred by Π
II. The Bases of Promissory Liability
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THE CONSIDERATION REQUIREMENT= Something of value received by a
promisor from a promisee. Necessary for an agreement to be enforceable.
o ‘Peppercorn’ theory- look for the smallest possible benefit or detriment
that could be of value to the parties
o There must be a bargain in order for there to be consideration.
o Presence of benefit to promisor or detriment to promisee
o A gratuitous promise is not enforceable.
o Giving up a legal right at another’s behest can constitute consideration.
o A detriment incurred by promisee at the behest of promisor is
consideration.
A contract without consideration is not enforceable.
o There must be bargained for agreement or there is no valid consideration.
o A stipulation for payment in a contract is sufficient legal consideration.
o Nominal consideration isn’t really consideration. It doesn’t induce the
making of the promise.
LIMITS OF THE CONSIDERATION DOCTRINE
o An action done in exchange for a benefit is consideration.
o An idea can be legal consideration even if it is not novel if the party to
which it is sold did not have prior knowledge of the idea.
o An act or forbearance already required by a legal duty is not
consideration.
o A promise modifying a duty under a contract not fully performed on
either side is binding if the modification is fair and equitable in view of
circumstances not anticipated by the parties when the contract was made
(Restatement).
contracts I outline
prof. a.j. bellia - fall 2003
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There must be mutuality of obligation for a contract to be valid. Illusory
promises where one party has a free way out are not valid.
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MORAL OBLIGATION
o Having a moral obligation to do something doesn’t necessarily mean you
have a legal obligation to do it.
o A moral obligation to fulfill a promise made w/o consideration isn’t
legally enforceable.
o A moral obligation is not consideration.
o Where the promisee cares for, improves and preserves the property of the
promisor, though done w/o his request, it is sufficient consideration for
the promisor’s subsequent agreement to pay for the service because of the
material benefit received.
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PROMISSORY ESTOPPEL
o The principle that a promise made w/o consideration may nonetheless be
enforced to prevent injustice if the promisor should have reasonably
expected the promisee to rely on the promise and if the promisee did
actually rely on the promise to his detriment.
o Reliance + detriment = possible promissory estoppel.
o A promise can be enforced under promissory estoppel if it must be
enforced to prevent injustice.
o When a contract exists and is valid, promissory estoppel can’t be used.
o When you see a reliance case, don’t assume that promissory estoppel
should be used. Was there a reasonable expectation that reliance would
occur? If promise + consideration fails, make sure there is bargained-for
reliance
o Equitable estoppel applies to situations where there has been a
misrepresentation of fact.
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FORMAL REQUIREMENTS- STATUTE OF FRAUDS
o Statutes of frauds are state laws saying that a writing is necessary to make
a promise + consideration enforceable under some circumstances, based
on the UCC (although UCC provisions only apply to contracts for the sale
of goods)
o When does an agreement need a writing?
 agreements that are not to be carried out in one year or less
 agreements for the conveyance of an interest in land
 agreements for the sale of goods where the price is greater than
$500
 if goods are manufactured specially for buyer and can’t be
sold to another buyer, and seller has begun manufacturing
or procuring them, no writing is required
 if the party against whom enforcement is sought admits
that the contract was made, no writing is required
 if payment has been accepted and/or the goods have been
accepted, no writing is required
contracts I outline
prof. a.j. bellia - fall 2003
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o
o
o
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only enforceable up to the quantity specified in the writing
(that means if you don’t specify a quantity, you’re
screwed)
 the provisions are cumulative- that is, only one is required; if one
isn’t present, you can argue another one.
What is a good?
 something movable
 a service and a good combined IF the good is the predominant
factor
What sort of writing?
 doesn’t have to be anything formal
 if only one party signs the writing, the agreement is only
enforceable upon that party
 writing must identify parties, subject matter of agreement,
essential terms
 there can be 2 writings if the writing that is signed refers to the
other as long as it can be proven that both documents are related
to the same transaction
If an agreement can conceivably be performed w/in one year, it doesn’t
fall within the statute of frauds.
When a sufficient connection can be established between two or more
writings, they can be combined to constitute the required writing.
III. Introduction to Contract Remedies
 Types of damages
o Expectation= puts promisee in as good a position as he would have been
in if contract had been performed
o Reliance= reimburse promisee for loss caused by reliance by putting him
in position he’d have been in if contract had never existed
o Restitution= restore to promisee any benefit that he conferred on
promisor
o Specific performance= actually force breacher to do what he said he’d do
 Specific performance can be granted in extraordinary cases where monetary
damages will not make up for the loss.
 Punitive damages may be assessed in contract actions where there is fraud,
malice, oppression or other sufficient reason for doing so. Some reasons might
be economics, deterrence, retributive. Where there is a tort inherent in the
contract breach- like in the case of fraud- punitive damages might be
appropriate.
IV. The Bargain Relationship
 What happens when one party says there is a contract and the other party says
there isn’t?
 Objective approach= Manifested intent, not subjective intent, is what matters.
o If a reasonable person would interpret Δ’s statement as manifesting the
intent to enter a contract, it’s a valid contract.
contracts I outline
prof. a.j. bellia - fall 2003
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Not every exchange of promises is a legally binding contract. The law
doesn’t create a contract when the parties intended none.
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OFFER= A manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited
and will conclude it.
o Leonard v. Pepsico, Inc, US Dist Ct So NY, 1999- Π is suing Pepsi alleging
that their commercial advertising a Harrier Jet for 7,000,000 Pepsi points
(which could be collected by buying Pepsi or for $.10 each) was a contract
offer. He sent in some points and a check for about $700K. Jet was not
featured in Pepsi Points catalogue and Pepsi said that Pepsi points
purchases were limited to catalog item. Unless there is some language
of commitment or invitation to take action w/o further communication,
an ad isn’t an offer.
o When circumstances exist that would lead a reasonable person to believe
that Δ was making an offer, it is an offer even if Δ didn’t subjectively
intend to make it
o When the instrument itself negates the existence of a contract it can’t be
relied on for purposes of satisfying the statute of frauds. For example, if a
letter says specifically it is not a contract, then it’s not.
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ACCEPTANCE= An agreement, either by express act or by implication from
conduct, to the terms of an offer so that a binding contract is formed.
o If offeree doesn’t meet the terms stipulated for acceptance in the offer,
there is no valid contract.
o There is no contract until acceptance is communicated to the offeror.
Manifested acceptance, not subjective acceptance, is what matters.
o If an offer is accepted, the contract becomes binding.
o A response to an offer that does not conform to the offer is a counteroffer, not an acceptance, if it is made only to accomodate the offerer.
Unilateral contract- Offeror makes a promise in exchange for a performance. As
opposed to a bilateral contract (the normal kind) where has the right to what B
has promised and the duty to perform what A promised, and vice versa.
o If you don’t know about an offer, there isn’t an offer w/ respect to you.
An offer only exists when you have a reasonable belief that it exists.
o As long as you are aware of the offer, and you act in accordance with the
offer, the law will assume that there is a contract.
When can silence constitute an acceptance?
o If the offeror says silence is an acceptance, and offeree remains silent
subjectively intending to accept, it’s an acceptance.
o Silence + retaining offered benefit
o Silence when in prior dealings, silence meant acceptance
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Mailbox Rule- If A mails an offer to B, the acceptance is made at the time B
puts it in the mailbox.
Mirror-Image Rule- The acceptance must be a mirror image of the offer.
contracts I outline
prof. a.j. bellia - fall 2003
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If the ‘acceptance’ changes the terms of the offer, it’s a counter-offer. The
counter-offer destroys the power of acceptance and takes the original
offer off the table. Once the offeree makes a counter-offer, the power of
acceptance of the original offer is gone.
UCC 2-207- Applies to contracts for the sale of goods
o An acceptance stating additional or different terms is an acceptance
unless it’s expressly made conditional on assent to those terms
o The extra terms are construed to be proposals for addition to the contract
and between merchants become part of the contract unless
 the offer specifically limits acceptance to the terms of the offer
 they materially alter the contract
 the offeror has already objected to them before the acceptance or
objects w/in a reasonable time of receiving the acceptance
o A contract can be formed by the conduct of the parties even w/o
writings. In this case, the terms consist of terms agreed upon in any
writings that exist and the terms provided by the UCC.
Click-wrap agreements: If you agree to buy something on the Interet and the
terms are not immediately available to you, they aren’t part of the contract.
However if you’re told to read them before clicking, then they are part of the
contract
o
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TERMINATION OF OFFER
Restatement: offer terminates w/
o rejection or counter offer
o lapse of time specified or reasonable time (reasonable time may vary
based on the circumstances of the offer)
o revocation
o death of offeror (note that if there is an actual contract, it doesn’t
terminate w/ death of offeror, just an offer)
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IRREVOCABLE OFFER
Option contracts= a contract to hold an offer open
o Rejection or counteroffer doesn’t destroy the power of acceptance when
offeree is holding an option
o If the offeror reasonably relied on the rejection, offeree may be estopped
from accepting
If an offer is to be accepted by performance, offeror can’t revoke once offeree
commences performance
Sometimes an offeror can be prevented from withdrawing his offer by
promissory estoppel, if the offeree justifiably relied on it (subcontracting cases)
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INSUFFICIENT AGREEMENT
When parties misunderstand a material term, they can’t have a mutual
manifestation of assent.
o The misunderstanding needs to be reasonable- ‘Peerless’ case
o Must be a ‘material’ term
o Look for vagueness or ambiguousness
contracts I outline
prof. a.j. bellia - fall 2003
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UCC 2-204- In contracts for the sale of goods, even if party leaves a term open
and don’t agree on what it should be, as long as they intend to make contract the
court will say there is a contract as long as there is an objective way of
determining what the terms should be. However if parties don’t set a quantity,
the default quantity is 0.
o for price, court will determine fair market price/ ‘reasonable’ price.
o This is a default rule and can be contracted around.
o Restatement says the same.
Modern case law says that the court can assign terms if the parties intended for
the contract to be valid and there is an objective way of determining what the
terms should be
V. Avoidance of Contract
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CAPACITY TO CONTRACT
Infancy
o A contract is voidable at the option of the minor.
o It is not voidable at the option of the adult party to the contract.
o Voidable does not mean the same thing as void.
Exceptions
o if a minor buys a ‘necessary’, the person who makes the contract can
make restitution on a theory of unjust enrichment
 Examples include housing, food, clothing. But it has to be
necessary for that individual minor who is making the purchase
 This doesn’t mean that the contract is enforceable, just that the
adult party can get restitution for losses
o In most jurisdictions, if a minor represents his age the contract is still
unenforceable but there might be a tort suit
Mental Incompetence
o As a general matter, a contract made by someone who is suffering from
mental incompentence is voidable
o The person has to be mentally incompetent at the specific time of making
the contract
o How does the law determine if someone is mentally incompetent? 2
different ways
 Cognitive- Ask if the person as the cognitive capacity to
understand the nature and consequences of the contractual
obligation
 Volition- does the person have the ability to control his actions?
He might understand the transaction, but can he control himself
or is he unable to stop himself from making it?
Intoxication
o Same issues as mental incompetence and infancy, but raises issues of
voluntariness. We didn’t talk about this much.
contracts I outline
prof. a.j. bellia - fall 2003
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MISTAKE
Unilateral mistake= mistake of one party allows that party to get out of the
contract
Mutual mistake= both parties are mistaken, adversely affected party or parties
may get out of contract
Recission= to rescind a contract
To get out of contract, prove:
o Mistake was material
o enforcement would be unconscionable (look at totality of situation)
o Mistaken party did not violate a positive legal duty (e.g. by gross or
willful negligence- no bad faith)
o Other party will not be ‘prejudiced’ except by loss of bargain.
Restatement § 152
o mistake by both parties must have material effect on agreed performances
o voidable by adversely affected party unless he bears risk of mistake
Restatement § 153
o mistake of one party must have material effect that is adverse to that
party
o contract only voidable by mistaken party if he doesn’t bear risk of
mistake, enforcement would be unconscionable or other party had reason
to know of mistake
Restatement § 154- When does party bear risk of mistake?
o risk is allocated to him by agreement of parties
o party is aware at time contract is made that he only has limited
knowledge but treats his knowledge as sufficient
o it is reasonable for the court to allocate the risk to one party
FRAUD
One party has made a misrepresentation of material fact to the other party and
the other party justifiably relies on that misrepresentation in entering into the
contract.
o immutable rule
o silence doesn’t usually constitute a misrepresentation unless there is
concealment or the party has reason to know that the other party is
laboring under a mistake
o opinions don’t constitute a misrepresentation unless the party stating his
opinion has a fiduciary duty to the other
o if one party has a superior knowledge of the material facts and the other
party is not equally able to find out those facts, he generally has a duty to
disclose them
o fraud in the inducement to make contract makes contract voidable, fraud
in the execution of the contract makes it void. Someday, you might even
understand this distinction.
Basically what most of these cases turn on is whether it was a material fact being
misrepresented, and whether the defrauded party would have taken different
action if he knew the truth.
contracts I outline
prof. a.j. bellia - fall 2003
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UNCONSCIONABILITY
What does it take for an agreement to be unconscionable?
o procedural irregularity-absence of meaningful choice on the part of one of
the parties . Unfair surprise.
o substance of contract- terms which are unreasonably favorable to the
other party. Oppressive terms. Terms so one-sided so as to shock the
conscience. This is pretty subjective.
o basically if someone who had their wits about them wouldn’t make the
contract, it’s probably unconscionable
Contracts of adhesion are generally unconscionable
Contracts between 2 commercial entities are generally not unconscionable