Contract Law Policies

What are the purposes of contract law?

Principles
1. Rule
  1. There are five principles of contract law:
    1. Autonomy: preserve the right of parties to consent to the agreements they want to make.
    2. Security: secure the interests of parties in the agreements others promise to fulfill.
    3. Justification: only enforce contracts that justify the use of the state’s coercive force.
    4. Justice: do not allow one party to unfairly benefit at the expense of another.
    5. Compensation: compensate the damages of an injured party.
Interests
1. Rule
  1. Contract law protects three interests (RSC § 344):
    1. Expectation Interest: bring injured party to world in which K was fulfilled.
    2. Reliance Interest: return injured party to world in which K had never happened.
    3. Restitution Interest: compensate benefits awarded by injured party due to K.

Part One: Contracts

Is there a legally binding contract?

Contracts
1. Rule
  1. A @contract
    1. is a legally binding promissory agreement.
    2. exists when there is
      1. a bargain,
      2. detrimental reliance,
      3. OR unjust enrichment.
  2. A @bilateral contract
    1. is the default type of contract (Davis).
    2. is offered by an invitation to accept via a promissory acceptance.
    3. is accepted by a promise to perform (Davis).
    4. is terminated by both parties’ consent (Akers).
  3. A @unilateral (option) contract
    1. is a contract in which a promisor’s power of revocation is limited (RSC § 25).
    2. is offered by an invitation to accept via performance without a promissory acceptance (RSC § 45).
    3. may be accepted only by performance (Davis).
    4. may be terminated unilaterally by promisee,
      1. but under the UCC, the irrevocability cannot last longer than three months (UCC § 2-205).
2. Analysis
  1. Is it a unilateral or bilateral contract?
    1. The default presumption is that a contract is bilateral; fully protects both parties (Davis).
    2. An offer for a unilateral contract is typically an advertisement or a wanted poster.
    3. An offer for a bilateral contract is a typical sale or exchange.
3. Case
  1. @Davis v. Jacoby (Cal. 1934, 52):
    1. Δ offered estate to Π if Π promised to come take care of widow. The default presumption is for a bilateral contract, so by promising to do it, Π accepted.
  2. @Akers v. J.B. Sedberry, Inc. (Tenn. Ct. App. 1955, 33):
    1. Π offered letters of resignation to Δ, who either rejected the offer or did not tell the Π that she was considering it. Two days later Δ accepted. This was too late; the offer had expired, so termination would require both parties’ consent.

Promissory Agreements
1. Rule
  1. A @promissory agreement
    1. is an agreement with a promise on at least one side to imagine a different world.
  2. A @promise
    1. is a self-imposed duty or obligation on the promisor (Garwood Packaging Inc.).
    2. exists when
      1. (modern rule) a reasonable man (Embry) given a relevant social practice (Hawkins)
        
        would interpret the promisor’s words or actions as creating a promise,
        
        AND the promisee interprets the words or actions as creating a promise (Embry).
      2. (old rule) both parties have a “meeting of the minds” (Oswald).
  3. A @prediction
    1. is not a promise.
    2. exists when
      1. the promisor cannot control the outcome (Garwood Packaging Inc).
2. Analysis
  1. Was it a promise or a prediction?
    1. Four ways to tell whether an ambiguous word or action was a promise. A promise
      1. is an obligation, not a prediction (Garwood Packaging Inc.).
      2. is expressed, not internal, words or actions (Lucy).
      3. conforms to relevant social practice (RSC § 201).
      4. may be a question of fact for a jury (Embry),
        
        but if neither party is aware of each other’s conflicting understandings and there is no sensible basis for choosing between them, no promise (Oswald).
    2. In medical contexts, most statements are predictions, and require clear proof of a contract (Sullivan).
3. Cases
  1. @Hawkins v. McGee (N.H. 1929, 3):
    1. Δ solicited injured Π and said he would make hand “100%” within three to four days. The “100%” could reasonably be interpreted as a promise, but given social practice, the timeline was a prediction.
  2. @Lucy v. Zehmer (Va. 1954, 11):
    1. Δ externally acted as though he were making a promise to sell land, but internally believed the promise was a joke. A reasonable person would interpret the actions as a promise, so his internal intention did not matter.
  3. @Embry v. Hargadine, McKittrick Dry Goods (St. Louis Ct. App. 1907, 17):
    1. Π demanded a raise, and Δ told him to “go ahead,” even though he internally believed he was dismissing him. Since Δ did not let Π know of his actual intention until months later and a reasonable person would interpret his words as a promise, he promised.
  4. @Oswald v. Allen (2d. Cir 1969, 22):
    1. Δ believed she was selling coins from “Swiss Coins” box, and Π believed he was buying all of Δ’s Swiss coins. Since there was no sensible way to choose who was right, no contract.
  5. @Garwood Packaging Inc. v. Allen & Co. (7th Cir. 2004, handout):
    1. Δ told Π he would help him get financing “come hell or high water.” Π relied on statement and moved to Ohio. Δ was not in complete control of financing, and Π knew this, so it was a prediction, not a promise. Therefore the detrimental reliance does not make the contract enforceable.
  6. @Sullivan v. O’Connor (Mass. 1973, 345):
    1. Δ gave Π bad plastic surgery. If there was a contract to make good surgery as in Hawkins, Π may recover expectation OR restitution damages, or reliance AND restitution damages. Here, Π should recover reliance damages, which includes restitution, pain & suffering not contracted for, and worsening of condition.
Incomplete Agreements
1. Rule
  1. An @incomplete agreement
    1. to agree
      1. is an agreement to specify terms in the future.
      2. is binding if not too indefinite and Π/Δ intend to be bound (question of fact) (Arnold Palmer).
    2. to negotiate in good faith
      1. prevents one party from renouncing deal or abandoning it without reason (Apothekernes) (Itek).
      2. does not require parties to come to an agreement or even participate (Sun Printing).
      3. does require parties to act somewhere between a fiduciary duty and a duty to refrain from fraud or misrepresentation (Mkt. St. Assocs.).
2. Analysis
  1. Was the incomplete agreement binding?
    1. This is generally a question of fact. There is no reason why an incomplete agreement may not have binding elements while leaving the rest up to negotiation.
    2. Courts will not require parties to negotiate (Sun Printing).
3. Cases
  1. @Sun Printing & Publishing Ass’n v. Remington Paper & Power Co. (N.Y. 1923, 89) (Cardozo):
    1. Π agreed to purchase paper from Δ, but left payment per term open. Since the payment per term could result in a variety of different payments, court cannot force Δ to accept one of them. When a condition of a K is untenable, the failure to comply is not a breach.
    2. (Dissent): courts should not allow parties to get out of contracts by unreasonably refusing to negotiate.
  2. @Arnold Palmer Gold Co. v. Fuqua Indus., Inc. (6th Cir. 1976, 95)
    1. Δ signed memo of intention to K, but later revoked offer. Question of fact whether the agreement to agree is binding.
  3. @A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc. (7th Cir. 1989, 100):
    1. Π/Δ signed letter of intent to negotiate in good faith regarding the sale of a division. Agreement would be binding only with acceptance by Δ’s board. Since Δ could not factually intend to be bound (Δ lacked such power), board had power to reject.
  4. @Itek Corp. v. Chicago Aerial Indus., Inc. (D.C. Cir. 1968, 106)
    1. Π/Δ agreed on memo of intent for Π to buy Δ’s shares, and negotiate in good faith for price. Δ got better offer and terminated negotiations. Whether Δ negotiated in good faith is question of fact.

Elements of a Bargain

If the promissory agreement was bargained for, does it have an offer, acceptance, and consideration?

Bargains
1. Rule
  1. A @bargain
    1. is a promissory agreement made with an offer, acceptance, and consideration.
Offers
1. Rule
  1. An @offer
    1. is a manifestation of a willingness to enter a bargain (RSC § 24).
    2. confers upon the offeree a power of acceptance.
    3. exists when
      1. an acceptance is invited and will conclude the bargain (RSC § 24),
      2. the terms are reasonably certain (RSC § 33),
      3. AND the addressee reasonably believes that acceptance will conclude the bargain (Mesaros).
    4. terminates when
      1. the offeree’s power of acceptance terminates.
      2. the offeror permissibly revokes the offer.
  2. A @solicitation
    1. is an advertisement for an offer, not an offer itself (Mesaros).
    2. exists when
      1. the addressee has reason to know that acceptance will not conclude the bargain until the offeror further manifests assent (RSC § 26).
  3. A @conditional gift
    1. is a proposal to give the promisee something if a condition occurs.
    2. is NOT an offer, unless there is consideration.
2. Analysis
  1. Was it an offer or a solicitation?
    1. Two ways to distinguish between offers and solicitations:
      1. offers are reasonably certain (RSC § 33). They are (Lefkowitz)
        
        clear: whether a breach exists and what its remedy is can easily be determined;
        
        definite: they have mainly closed terms;
        
        AND explicit: they leave nothing open for negotiation.
      2. the addressee reasonably believes that the words were an offer (Mesaros).
  2. Was it an offer or a conditional gift?
    1. The question is if the proposal has consideration. If the proposal includes sufficient consideration (e.g. I’ll give you a car if you don’t drink), it is an offer (Hamer).
3. Cases
  1. @Mesaros v. United States (Fed. Cir. 1988, 25):
    1. U.S. Mint sent materials to Π soliciting offers to purchase gold coins; order form said “please accept my order.”...

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