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Chapter 09 - Introduction to Contracts
CHAPTER 09
INTRODUCTION TO CONTRACTS
I. OBJECTIVES:
This chapter, and the contracts chapters that follow, are designed to give the student a feel for
contract law as an evolving social institution rather than as a static body of rules. Accordingly,
emphasis is placed not only on traditional contract doctrines, but also on the U.C.C. and the
Restatement (Second) of Contracts as important sources of modern contract principles. After
reading the chapter and attending class, a student should be able to:
A. Explain what a contract is and why contracts are useful.
B. Distinguish the terms used to describe contracts and apply those terms to actual contracts.
C. Distinguish the applicability of the common law of contracts and Article 2 of the Uniform
Commercial Code and identify which governs a given contract.
D. Identify the circumstances under which promissory estoppel or quasi-contract can afford a
remedy even though no contract exists.
II. ANSWER TO INTRODUCTORY PROBLEM
A. Yes1, a good argument can be made that there was a contract between GSU and Paul. GSU
made an offer to him and he accepted. The terms of the contract would presumably cover any
provisions of any materials made available to Paul at the time of contracting. There was
consideration, legality and capacity. This problem bears similarity to Aronson v. The
University of Mississippi, 2001 Miss. App. LEXIS 385 (Miss. Ct. App. 2001), although the
Aronson case has more complex facts. In that case, the court ruled in favor of the student.
B. A unilateral contract, 2because GSU made a promise (to give the scholarship) that Paul
accepted by doing an act (getting the appropriate score on his SAT).
C. The common law of contracts, 3because this is a contract for a service.
D. Even if a court ruled that GSU did not have a contract with Paul, he has a strong case for
promissory estoppel.
E. Probably not under the deontological approaches because Paul’s right to receive what he has
bargained for as well as his property rights would be compromised. We do not have enough
information to do a consequentialist analysis because we don’t know the reasons that GSU
wanted to change the rules or the overall consequences of changing them. You might have
your class discuss what information would make GSU’s actions ethical under a utilitarian
approach.
III. SUGGESTIONS FOR LECTURE PREPARATION:
A. The Nature of Contracts
1. Define contracts as legally enforceable promises.
2. Note that the first decision point society faced in this context was whether to recognize
the idea of contracts at all--should any promise be legally enforceable?
a. Point out that once we had decided that some promises should be legally enforceable,
we had to decide whether all promises should be made legally enforceable. We
decided that they should not be (we all break promises regularly without fear of being
sued).
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 09 - Introduction to Contracts
b. Briefly discuss the basic elements of a traditional contract. Subsequent chapters
discuss these elements in detail so that students will be able to distinguish contracts
from unenforceable promises.
B. The Social Utility of Contract
1. Discuss the factors that make the contract device an essential component of a modern
industrial society.
2. Note the "private lawmaking" aspect of contracts.
C. The Evolution of Contract Law
1. Discuss the historical and social forces that shaped contract law and the resultant nature
of classical contract rules.
a. Give examples of the many different ways in which contracts can be formed.
2. Consider bringing examples of online contracts, such as Facebook’s Terms of Use, to the
classroom and using them as a focal point for discussion about standardized contracts in
the information age. Discuss why contract law is so important to e-commerce.
D. Methods of Contracting and Elements of a Contract
1. Discuss interactions that students are likely to have encountered that are essentially
contractual—e.g., leases, lottery tickets, magazine subscriptions, even syllabi. Talk about
what it is that makes these relationships contractual.
2. Note that some level of agreement is at the heart of every contract.
Lambert v. Barron (p. 323): The parties to this case were friends. Barron, a contractor,
was going through some hard economic times due to problems with five pending
projects. His friend, Lambert, was concerned about his financial and emotional well-
being. Lambert had some background in arbitrating constructions cases. He flew to
Farmerville, Barron’s town, to help. Prior to his departure, Barron’s employee had
transmitted various documents pertaining to Barron’s problems to Lambert for Lambert’s
review. Lambert claimed that, as Lambert and Barron were standing on the airport
runway immediately before Lambert returned home, he and Barron agreed to a consulting
contract whereby Barron would pay Lambert for providing consulting services for him.
Lambert billed Barron for $34,100 owed on the alleged contract, and Barron refused to
pay. Lambert sued him. Did Barron’s acceptance of Lambert’s help indicate the formation
of a contract, or was it merely an indication of a person accepting the help of a friend?
The court found that it was the latter, and no contract was formed.
Points for Discussion: What factors point toward the fact that this was not just a person
accepting the gratis help of a friend? Consider using the example of a college student
borrowing money from his/her parents. What should the parties to do make it clear that
there is a contract to repay the loan and not just a gift?
E. Basic Contract Concepts and Types
1. Discuss the elements of contracts and the common transactions that are, in fact, contracts.
a. Note that in bilateral contracts, both parties are bound and a contract is created when
they exchange promises to do something in the future (assuming that the other
elements of a binding contract are present).
b. Note that in unilateral contracts, one of the parties has promised to pay for a specified
future performance by the other party (a promise for an act), rather than a promise to
perform in the future (a promise for a promise). Point out that unilateral contracts
cause some problems in the areas of offer and acceptance and mutuality of
obligation, but that despite some evidence of disfavor, courts sometimes use
unilateral contract terminology to produce just results. You might bring in a “frequent
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 09 - Introduction to Contracts
buyer” card to show an example of an offer for a unilateral contract and a lease to
show an example of a bilateral contract.
3. Define a valid contract and distinguish it from an unenforceable contract.
4. Distinguish between voidable and void contracts. A void contract is never enforceable
under any circumstances. A voidable contract is enforceable unless and until a party with
the power to cancel the contract exercises that power.
5. Distinguish between express and implied contracts.
a. Note that a contract may be partially express and partially implied. For example,
Frank hires Sally to paint his house. They expressly agree on the price, completion
date, and color and quality of the paint. Even though they make no express
statements about the quality of the job Sally is to do, the courts will imply a promise
on Sally's part to do a workmanlike job of painting. For a contemporary business
problem involving implied contract issues, you may wish to refer students to the
Employment Law chapter's discussion of those employment cases in which the issue
is whether employer statements in employee handbooks, etc., become part of the
employment contract. A further discussion of implied contracts can be found in
Symons v. Heaton, a text case that appears later in the chapter.
5. Distinguish between executed and executory contracts. You may wish to distinguish this
usage of the word "executed" from its more common business usage to denote the signing
of a document.
E. The Uniform Commercial Code
1. Discuss the nature and origins of the UCC.
a. Discuss the ways in which Code rules exhibit some of the basic tendencies attributed
to "modern" contract rules. Discuss the "good faith" and "unconscionability" rules in
particular as examples of this phenomenon. Discuss the content of the good faith
requirement.
b. Note that although the UCC is a statutory source of law, it is in an evolutionary
process because it is subject to revision. Discuss the fact that there is an ongoing
project to draft revisions of Article 2 and note that an offshoot of Article 2. UCITA
(the Uniform Computer Information Transactions Act) has been drafted, offered for
enactment in about ten states, and has now been enacted by several states. Only two
states have enacted UCITA so far.
c. Note the Code distinction between merchants and non-merchants. Give some familiar
examples of each.
d. Discuss the application of the Code--Code rules technically apply only to contracts
for the sale of "goods." Discuss the meaning of goods and show how goods differ
from real estate, services, and intangibles. Point out that Code application does not
depend on the amount of money involved in the contract or whether the parties are
merchants. Note, however, that even where a contract for the sale of goods is clearly
at issue, the Code has not changed all contract rules. Thus, the body of law that
applies to such cases includes specific Code principles together with all general
contract principles that have not been changed by the Code. Discuss Problem Cases
#7 and 9.
1) Note that many contemporary contract cases are "mixed" cases because they
involve elements of both goods and services (e.g., a construction contract). The
test most frequently used by the courts to determine whether or not the Code
applies is which element (goods or services) "predominates" in the contract.
Contracts calling for services involving significant elements of skill or judgment
are unlikely to be decided under the Code. See Problem Case #1.
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Chapter 09 - Introduction to Contracts
Audio Visual Artistry v. Tanzer (p. 327): The Tennessee Court of Appeals holds
that the trial court was correct in concluding that the UCC, rather than the
common law, controlled the mixed good-and services contract at issue. The court
determined that the goods aspect of the contract for a “smart-home” sound
system predominated over the services aspect; hence, the UCC provided the
controlling rules.
Points for Discussion: Ask the students what the contract contemplated in terms
of good and services. Why does the court conclude that the goods aspect of the
contract predominated? (The components of the sound system were critical
under the contract’s language and purpose, and those components clearly were
goods. AVA’s business centered around the furnishing of goods, with services —
delivery and installation—seeming incidental by comparison. Also, more than
80% of the contract price pertained to the goods sold, as opposed to the services
aspect of the deal.)
2) Note also, however, the tendency of Code principles to "bleed-over" into
traditional contract cases. This is especially true of general Code ideas such as
"good faith" and "unconscionability."
F. Discuss the CISG (See The Global Business Environment on p. 325).
G. The Restatement (Second) of Contracts
1. Discuss the nature and origins of the Restatement Second.
a. Note that although the Restatements do not have the force of law, they have been
very influential in the evolution of the legal areas that they address.
b. Point out the "modern" contract nature of many of the Restatement Second's
provisions.
H. “Noncontract” Obligations
1. Explain the relationship of the “noncontract” obligations covered in this chapter to
contract obligations. Explain why courts created these doctrines.
a. Discuss the doctrine of quasi-contract. In some cases the courts, to avoid unjust
enrichment, will, as a matter of law imply a promise on a person's part to pay for
benefits that he has received from another.
1) Note that quasi-contract liability is not truly contractual in the sense that it is not
based on any agreement between the parties. Quasi-contract is a device used by
the courts to impose liability in some cases where the elements of a contract are
not present. In fact, quasi-contract recovery is not available to a party when there
is a valid contract that covers the subject matter in question.
Symons v. Heaton (p. 331): The Supreme Court of Wyoming affirms the lower
court’s grant of summary judgment to the defendant (The Estate of Gary Plachek)
in a case brought by Plachek’s long-time friend, Curtis Symons. Symons based
his case on three alternative theories: implied contract; unjust enrichment; and
promissory estoppel. He lost on all three claims.
Points for Discussion: Ask the students to note the key facts, including the
circumstances under which Symons moved in with his long-time friend
(Plachek), hauled him around, and did all sorts of things for Plachek while
Plachek did little but sleep and drink to excess. So why doesn’t Symons win in
his claim against Plachek’s estate for the value of the care and services he
provided to Plachek? Ask the students about each of Symons’s claims. Why
does he lose on the implied contract theory? (Among other things, no conduct
suggesting an agreement that if Symons stayed around and provided services, he
would be paid. Do your students agree?) Why does he lose on the unjust
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 09 - Introduction to Contracts
enrichment claim? (Symons admitted he stayed because he wanted to stay, and
that he was fulfilling a commitment he had made to Plachek’s mother. Do your
students agree that there was no unjust enrichment?) Why does he lose on the
promissory estoppel claim? (There was no clear and definite promise on which
Symons relied to his detriment.)
2) Distinguish between quasi-contract liability and implied contract liability. In
implied contract cases liability is imposed because the courts believe that the
parties in fact reached an agreement despite their failure to express all the
agreement's terms. In quasi-contract cases no actual agreement exists, but courts
infer the existence of a promise to pay as a means of avoiding an injustice.
Consider Symons again (see above).
b. Discuss the doctrine of promissory estoppel. Although traditional contract
principles afforded no protection to those who relied on the promises of others when
the other elements of a binding contract were not present, courts in this century have
been increasingly willing to do so.
1) Discuss the elements of promissory estoppel. Note the fundamental difference
between liability based on promissory estoppel and liability based on contract:
promissory estoppel protects reliance--contract law protects bargains. Again,
note Symons (see above).
Aceves v. U.S. Bank (p. 334): Aceves obtained a loan from Option One (which
later transferred its interest to U.S. Bank) to buy a house. The loan was secured
by a 30-year mortgage (deed of trust) on the house at an initial rate of 6.35
percent that would become adjustable after two years. When the interest became
adjustable, Aceves could no longer afford the payments. Aceves received a
foreclosure notice. She filed for bankruptcy under Chapter 7, which imposed a
stay on the foreclosure. U.S. Bank told her that it would “work with her” on a
loan modification/mortgage reinstatement once her loan was out of bankruptcy.
U.S. Bank filed a motion in bankruptcy court to lift the stay. The loan servicing
company contacted Aceves’ lawyer asking permission to speak with Aceves
directly to discuss “loss mitigation.” Relying on the bank’s promise to work with
her on loan modification, Aceves did not resist the bank’s motion and did not
seek bankruptcy relief under Chapter 13. The bankruptcy court lifted the stay.
Aceves’ home was nevertheless foreclosed upon and she was evicted. She filed
suit against the bank on several theories, including promissory estoppel. Her
theory was that the bank did not intend to work with her to reinstate the mortgage
and modify the loan, but only promised to do so in order to persuade her to
forego bankruptcy proceedings. The bank filed a demurrer, and the trial court
decided in its favor. Aceves appealed. The issue on appeal is whether Aceves’
complaint stated a claim for promissory estoppel. The court applied the four
elements of promissory estoppel to the facts and found that the complaint did
state a claim for promissory estoppel.
Points for Discussion: This case is one person’s story from the “mortgage
foreclosure crisis” of recent years. You might expand on the type of mortgage
Aceves had and the difference between bankruptcy under Chapters 7 and 13
Does your class agree with the court’s analysis of the applicability of promissory
estoppel’s elements—e.g., was the promise made here clear and unambiguous?
Why wasn’t the last-minute offer that Aceves refused considered to be a
fulfillment of the bank’s promise to negotiate?
Additional Examples: Problem Cases #3, #5, and #6.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Chapter 09 - Introduction to Contracts
2) Note that promissory estoppel is a classic example of an imprecise (what is
"injustice?") modern contract law rule. It enables courts to impose liability in the
name of fairness in cases where no liability would exist under classical contract
principles.
3) Note, however, that promissory estoppel is unlikely to apply if a person relies on
expectations that are not traceable to a fairly clear promise.
Ethics in Action (p. 335): Quasi-contract plainly rests on an ethics-related
foundation--the idea that, in some circumstances, it is unjust to receive a benefit
from others without paying for it. Another way of stating this is to say that just as
the benefits one obtains from others pursuant to the performance of a freely
bargained contract are matters of right, both legal and moral, in some situations
one may have received benefits from another without being legally or morally
entitled to them. If the circumstances are such that it is impossible to return such
benefits (e.g., a free paint job), quasi-contract forces the recipient to make just
compensation for them. The ethical basis for promissory estoppel may be found
in the idea featured prominently in the ethical and public policy problems in
Chapters 6 and 7; that those who unjustifiably cause harm to another are duty
bound to compensate that other for his injuries. Promisors who make promises
which they should reasonably expect to induce detrimental reliance on the part of
the promisee are accordingly held liable for the promisee's reliance losses.
Promissory estoppel is not, however, perfectly ethically analogous to tort liability
due to the role of the promisee in the process. Certainly, it may be said that "but
for" the promisor's promise, the promisee would not have relied and suffered
loss. But this ignores the question whether the promisee was reasonable in
relying on a promise which was otherwise legally unenforceable and, if not, on
what ethical basis the law finds itself in the business of protecting reliance which
is, in this sense, unreasonable.
IV. RECOMMENDED REFERENCES
A. RESTATEMENT (SECOND) OF CONTRACTS (1983).
B. E. Allan Farnsworth, CONTRACTS (3rd ed. 2004).
C. Kevin M. Teeven, The Origins of Promissory Estoppel: Justifiable Reliance and Commercial
Uncertainty Before Williston's Restatement, 34 U. Mem. L. Rev. 499 (2004).
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
