978-1285427003 Chapter 9 Lecture Note Part 1

subject Type Homework Help
subject Pages 8
subject Words 4367
subject Authors Jeffrey F. Beatty, Susan S. Samuelson

Unlock document.

This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Suggested Additional Assignments
Research: The Contracts Around Us
Students should locate and read one or more of the contracts they have entered into in the past year—an
apartment lease, a university-housing residency agreement, a mobile phone service agreement, terms of
use for a fee-based website, or a retail sales agreement for a personal computer. How long is it? How
much of it do they understand? Are any of the terms particularly surprising or unfair? If students do this
assignment at the start of the unit on contracts they can measure what they’ve learned by reading the
contract again after they’ve completed the unit.
Chapter Overview
Chapter Theme
Contracts make business matters more predictable and are integral to the day-to-day business and
personal life. Understanding how contracts are formed, the rules of contract law, and remedies the law has
created to address harm that can result when formal contract rules don’t apply enables greater control over
one’s life.
Approaching Contract Law
People make promises every day. The law will enforce some but not others. Why? What distinguishes a
promise the law will enforce—a contract—from a promise the law will not enforce? One way for students
to begin to understand the differences between unenforceable promises and contracts is to pose common
examples of the former and ask why the law would not enforce them. For example, suppose one student
asks another out on a date, say to attend a party on the coming Saturday night. The invited student makes
preparations for the date, buying clothes, getting a haircut, whatever fits the situation. The student who
issued the invitation doesn’t show up at the appointed time. Can the student who was stood up sue the
other for breach of contract? Experience tells students the answer is “of course not,” but why is that so?
This promise involves offer and acceptance (“would you like to go to this party with me on Saturday
night? I’ll meet you at your apartment at 10:30.” “Sure! That would be great!”), consideration (each party
promises to do something he or she is not otherwise obligated to do, and each gives his or her promise in
exchange for the other’s promise), contractual capacity (make the parties over the age of 18 to dispense
with this issue), and a legal purpose. Why can’t the disappointed student file a breach of contract lawsuit
as soon as the courts open on Monday?
Certainly one reason the law would not enforce this promise is that while there is offer and acceptance;
there was no intent to form a contract. These parties thought they were agreeing to go on a date, which
does not create contractual expectations, whatever emotional expectations it may raise. However, if one
changes the facts somewhat—a businesswoman at an out-of-town conference arranges for a male escort
from a legitimate companionship service to attend a business/social engagement, then fails to show up at
the appointed time—the parties’ expectations take on the aspect of contract.
One purpose of contract law, then, is to distinguish unenforceable, day-to-day promises from
legally-enforceable promises.
Contracts Defined
A contract is a promise that the law will enforce.
Elements of a Contract
For a contract to be enforceable, these key characteristics must be present.
Offer
Acceptance
page-pf2
Consideration
Legality
Capacity
Consent
Writing (only certain types of contracts must be in writing.)
Is it certain that the defendant promised to do something?
If she did promise, is it fair to make her honor her word?
If she did not promise, are there unusual reasons to hold her liable anyway?
Development of Contract Law
In the early history of contract law, courts did not assume that promises were legally significant. Common
law changed slowly, but by the fifteenth century, courts allowed some suits based on a broken promise,
but usually only if money had already been paid on the broken promise. By the 17th century, English
courts were enforcing mutual promises.
Case: Davis v. Mason1
Facts: Davis apprenticed himself to Mason, a surgeon/apothecary in Thetford, England. They agreed that
if Davis left the practice, he would not set up a competing establishment within 10 miles of Thetford
within 14 years. Davis promised to pay 200 pounds if he violated the agreement. Mason dismissed Davis,
who then established his own practice within 10 miles of Thetford. Mason sued for 200 pounds.
Davis acknowledged the agreement, but argued that 14 years was too long a restriction, and 10 miles too
great a distance. He added an additional policy argument, saying that it was harmful to the public health
to restrict a doctor from practicing his profession. Finally, he said that his "consideration" was too great:
he did not receive anything worth 200 pounds from Mason.
Issue: Was the contract too unreasonable to enforce?
Decision: No. The parties made a reasonable agreement. Judgment for Mason.
Reasoning: The court found the terms reasonable and stated that it had no idea how to create a better
agreement. The court was unpersuaded by the public policy argument stating that the agreement would
not injure the public since all other surgeons were free to practice in the town.
Question: Davis made three primary arguments. What were they?
Answer: Davis argued that the restrictions were too broad, that a contract prohibiting a surgeon from
Question: Is there any substance to Davis’s argument that the restrictions were too broad?
Answer: The argument is a reasonable one, which is currently made on a daily basis in trial courts
Question: Does the court suggest that an employer is free to make any restriction it wishes?
Question: Does the court create a test to determine when such agreements might be unreasonable?
1 Court of King’s Bench, Michaelmas Term, 33d George III, p.118 (1792).
page-pf3
Question: Would it be more useful as precedent if the court instructed where that line should be?
Answer: Not necessarily. Courts generally restrict themselves to answering only the actual issue
Question: This case is over 300 years old. Why are we reading it today? What relevance does it have
to the current law of contracts?
Answer: It is quite relevant. An employee challenging a non-competition agreement today would
Types of Contracts
In a bilateral contract, both parties make a promise. When the bargain is a promise for a promise, it is a
bilateral agreement. In a unilateral contract, one party makes a promise that the other party can accept
only by actually doing something.
A contract is executory when it has been made, but one or more parties has not yet fulfilled its
obligations. The moment the parties strike their bargain, they have an executory bilateral express contract.
A contract is executed when all parties have fulfilled their obligations.
A valid contract is one that satisfies all of the law’s requirements. It has no problems in any of the seven
areas listed at the beginning of this chapter. A court will enforce it. An unenforceable agreement occurs
when the parties intend to form a valid bargain, but a court declares that some rule of law prevents
enforcing it. A voidable contract occurs when the law permits one party to terminate the agreement. This
happens, for example, when the other party has committed fraud, or when an agreement has been signed
under duress. A void agreement is one that neither party can enforce, usually because the purpose of the
deal is illegal or because one of the parties had no legal authority to make a contract.
Case: Mr. W. Fireworks, Inc. v. Ozuna2
Facts: Mr. W sold fireworks. Under Texas law, retailers could only sell fireworks to the public during the
two weeks immediately before the Fourth of July and during two weeks immediately before New Year's
Day. And so, fireworks sellers like Mr. W tend to lease property.
Mr. W leased a portion of Ozuna's land. The lease contract contained two key terms:
"In the event the sale of fireworks on the aforementioned property is or shall become unlawful during the
period of this lease and the term granted, this lease shall become void."
"Lessor(s) agree not to sell or lease any part of said property including any adjoining, adjacent, or
contiguous property to any person(s) or corporation for the purpose of selling fireworks in competition to
the Lessee during the term of this lease, and for a period of ten years after lease is terminated." (Emphasis
added.)
A longstanding San Antonio city ordinance banned the sale of fireworks inside city limits, and also within
5,000 feet of city limits. Like all growing cities, San Antonio sometimes annexed new land, and its city
limits change. One annexation caused the Ozuna property to fall within 5,000 feet of the new city limit,
and it became illegal to sell fireworks from the property. Mr. W stopped selling fireworks and paying rent
on Ozuna's land.
2 2009 Tex. App. LEXIS 8237, Court of Appeals of Texas, Fourth District, San Antonio, 2009.
page-pf4
Two years later, San Antonio's border shifted again. This time, the city disannexed some property and
shrank. The new city limit placed Ozuna's property just beyond the 5,000 foot no-fireworks zone. Ozuna
then leased a part of his land to Alamo Fireworks, a competitor of Mr. W.
Mr. W sued for breach of contract, arguing that Ozuna had no right to lease to a competitor for a period of
ten years. The trial court granted Ozuna’s motion for summary judgment. Mr. W appealed.
Issue: Did Ozuna breach his contract with Mr. W by leasing his land to a competitor?
Decision: No, the entire contract was void and therefore no provisions were enforceable.
Reasoning: Contracts that require an illegal act are void, which means that neither party can enforce any
provision. It is as if the contract never existed. Thus, Ozuna argued that when the law made the sale of
fireworks illegal, the lease became void and the entire agreement was unenforceable.
In contrast, Mr. W wanted to enforce the provision that prevented Ozuna from renting the land to
competitors, but not the one that required him to pay rent. Mr. W’s could not have it both ways. He could
not choose to keep the benefits of the contract while rejecting its obligations. When selling fireworks
became illegal, the entire lease was extinguished, which released Ozuna from the non-compete restriction.
Question: What was the legal basis on which Mr. W relied in his argument to enforce the
non-compete provision of the lease?
Answer: Mr. W argued that the annexation of the new land – which made selling fireworks on the
Question: What was the court’s response to Mr. W’s argument?
Answer: The court concluded that, even if the agreement were voidable, Mr. W would not be entitled
to enforce selective provisions of the contract while repudiating others. Further, the court determined
Question: Does this decision make sense?
Answer: Yes. The court in its opinion discusses the example of a minor who has the right to
disaffirm a voidable contract. The minor may set aside the entire contract at his option, but would not
Express and Implied Contracts
In an express contract, the two parties explicitly state all important terms of their agreement. The vast
majority of contracts are express contracts. Some express contracts are oral, and some are written. In an
implied contract, the words and conduct of the parties indicate that they intended an agreement.
People do not enter negotiations with intent to form an implied contract. Implied contract is not another
method of forming a contract, but a remedy a court may apply after the fact if there was no valid contract
between the parties but their words and conduct manifest implied intent that certain promises would be
legally enforceable.
You Be the Judge: DeMasse v ITT Corporation3
Facts: Roger DeMasse and five others had been hourly employees-at-will at ITT Corporation for many
years. ITT issued an employee handbook, which it revised four times over two decades. The first four
editions of the handbook stated that within each job classification, any layoffs would be made in reverse
order of seniority. The fifth handbook made two important changes. First, the document stated that the
handbook did not guarantee continued employment. Second, the handbook stated that “ITT reserves the
3 194 Ariz.500, 984 P.2d 1138 Supreme Court of Arizona, 1999.
page-pf5
right to amend, modify or cancel this handbook, as well as any or all of the various policies [or rules]
outlined in it.” Four years later, ITT notified its hourly employees that layoff guidelines for hourly
employees would not be based on seniority but on ability and performance. About ten days later, the six
employees were laid off, though less senior employees kept their jobs. The six employees sued.
You Be The Judge: Did ITT have the right to unilaterally change the layoff policy?
Holding: Judgment for the employees. The case came to the Arizona Supreme Court from the Ninth
Circuit, which certified this question: Once a seniority-layoff policy becomes part of the employment
contract based on the employee’s reliance on the company handbook, may the employer thereafter
unilaterally change the handbook policy and layoff employees without regard to seniority? The Arizona
Supreme Court said the answer was “no.”
The court emphasized that an implied contract carries just as much force as an express contract. The
manner of contract formation does not matter. Assuming that the handbook created reasonable
expectations of a seniority-layoff plan, it was binding on the company. The company had no right
unilaterally to modify the agreement.
Question: Why did the court rule that an employee handbook was a contract?
Answer: The court concluded that certain provisions of the handbook were promises, which the
Question: Is an employer ever able to change an old handbook without breaching a contract?
Answer: The court did not conclude that all employee handbooks are contracts. Here, the court ruled
Question: What could ITT have done differently to protect itself?
Answer: ITT could have included a disclaimer in the original handbook. Otherwise, ITT could have
Additional Case: Britt v. Chestnut Hill College4
Facts: Joseph Britt, a detective, enrolled in a Master’s Degree program at Chestnut Hill College in
Pennsylvania. Chestnut Hill promised students credit for life experience. The college promised Britt
important credits for his life experience if he enrolled, and after he did enroll, the school awarded the
promised credits.
Britt took a one-week required course entitled “Gender Stereotyping,” taught by Professor Klee. As part
of a classroom exercise, Klee directed another student, who Britt claimed was a "known" homosexual, to
make physical advances toward Britt. The student complied by telling Britt that he was attracted to him
and by touching Britt above the knee. Britt rejected the student’s advances. The next day, Klee assigned
that same student to serve as a "facilitator" to "deal with Britt’s anger." Klee became openly critical of
Britt’s attitude and performance in the class and awarded him a "C" grade for the course.
Britt claimed that Klee thereafter did everything within his power to sabotage Britt’s reputation and
academic career. Klee arranged to have himself assigned as Britt’s academic advisor and, after doing so,
personally revoked, and successfully persuaded other instructors to revoke, the life experience credits that
had been granted to Britt upon admission to the college. The revocation of those credits caused Britt not
to graduate as scheduled.
Britt sued. The trial court dismissed his contract claim, essentially ruling that a college had an absolute
right to award and revoke credits as it saw fit. Britt appealed.
Issue: Did Britt have an implied contractual right to receive credits from the college for life experience?
Holding: Judgment for the college reversed. The court reinstated Britt’s contract claim. In the words of
the court:
4 429 Pa.Super. 263, 632 A.2d 557, 1993 Pa.Super.LEXIS 3356 Pennsylvania Superior Court, 1993.
page-pf6
The economic reality is that colleges and universities are competing to attract non-traditional age students
and many of those institutions have designed programs to cater to them. Through advertising and
recruitment campaigns, an increasing number of colleges and universities are inducing students who wish
to return to school with flexible schedules, evening and weekend classes, and academic credit for life
experience. Students, in turn, attracted by these options, may seek to apply to a particular institution and
inquire as to the requirements they will have to meet in order to achieve their degree. Where an individual
is induced to enroll in a university or college based upon an award of certain life experience credits, the
institution cannot then, after the student’s enrollment, revoke those credits.
We point out that, by reaching this conclusion, we are in no way attempting to interfere with an academic
institution’s rights to develop its curriculum and set requirements for a given degree. However, where a
college or university promises a student, upon enrollment, a certain amount of life experience credits, the
purpose of which is to enable that student to graduate at an accelerated rate, provided that he or she
successfully completes the course chosen, the institution cannot breach its promise. Where a student can
prove that such an agreement was made, the university or college cannot revoke the life experience
credits.
Question: What should Britt argue to convince the court of his implied contract claim?
Answer: The college made a deal and should be forced to stick to it. This college, like many, is using
Question: What should the college argue to refute Britt’s claim?
Answer: This is not a business deal. All we have here is an unhappy college student. If Britt wins on
the contract issue, can he also sue to have his grade of “C” raised to an “A”? Can all students file suit
just because they are unhappy with grades, credits, or class schedule? Is a student entitled to a refund
General Question: Has your college, or that of a friend, made any promises that it has failed to keep?
In your view, did the promises create a contract? Was the contract express or implied?
Promissory Estoppel and Quasi-Contract
Courts created promissory estoppel and quasi-contract as “fall-back” remedies for cases in which the
plaintiff cannot prove a valid contract with the defendant. They are not equivalent to a claim of breach of
contract for at least two reasons: both require a plaintiff to convince the court, as an essential element of
the claim, that justice requires a judgment for the plaintiff, and in both a successful plaintiff will almost
invariably receive a smaller award of damages—reliance damages or restitution damages, as the case may
be—than would be the case in a claim for breach of contract.
Promissory Estoppel
Even when there is no contract, a plaintiff may use promissory estoppel to enforce the defendant’s
promise if he can show that:
The defendant made a promise knowing that the plaintiff would likely rely on it;
The plaintiff did rely on the promise; and
The only way to avoid injustice is to enforce the promise.
page-pf7
Case: Norton v. Hoyt5
Facts: Gail Norton met Russell Hoyt when Norton, who was single, worked as an elementary school
teacher. Hoyt told her he was also single, and they began an affair. She later learned that he was married,
but he assured her he was getting a divorce, and they continued their relationship.
Six years later, Hoyt, who was rich, convinced Norton to quit her job so that they could travel
together. The couple lived lavishly and Hoyt repeated his promises to divorce his wife and marry Norton.
He did neither and, after 23 years, ended the relationship. Norton became ill, and saw various doctors for
anxiety, depression, headaches, stomach maladies, and weight loss. During one joint therapy session,
Hoyt told Norton and the psychiatrist that he would continue to support her with $80,000 a year. He did
not.
Norton sued, claiming promissory estoppel. Hoyt moved for summary judgment. In ruling on the
motion, the Court assumed that Norton’s allegations were true.
Issue: Was Norton entitled to support, based on promissory estoppel?
Decision: No. Norton failed to establish promissory estoppel.
Reasoning: Norton did not establish a clear, unambiguous promise. She claimed that Hoyt promised to
take care of her for life. But what does "take care of for life" mean? It could refer to emotional closeness,
social pleasures, or financial support.
Even assuming, for the sake of argument, that there was a clear, unconditional promise, Norton's reliance
was unreasonable. It is true that the couple discussed wedding plans, but Norton knew that Hoyt was
married and that he spent time with his wife and children. She and Hoyt never presented themselves as
husband and wife. Friends and family knew of their complicated living arrangement. Further, Norton
knew that Hoyt had lied to her about his marital status, had never fulfilled his promise of marriage, and
was committing adultery by spending time with her. At some point between year 1 of their affair and year
23, she should have grasped that reliance on Hoyt's promises was badly misplaced. Her conduct was
unreasonable, and she cannot establish promissory estoppel.
Hoyt's motion for summary judgment is granted.
Question: What is the purpose of promissory estoppel?
Answer: Promissory estoppel can provide a remedy to someone who relied on the promise of another
Question: What does “estoppel” mean?
Answer: To “estop” someone means to bar him or her from taking a position or asserting something
Question: Hoyt did promise Norton a number of things over the years and Norton relied on them by
staying in the relationship. Why isn’t that enough to constitute promissory estoppel?
Answer: Proving promissory estoppel requires more than proving there were promises. In addition to
Question: What does that mean—“avoiding injustice to the plaintiff?”
Answer: It means it must have been reasonable for the plaintiff to rely on the promise, and that it is
Question: What remedy does a Court order to a successful plaintiff in a promissory estoppel case?
Answer: The Court does not award expectation damages—“the benefit of the bargain”—which are
5 278 F.Supp.2d 214 United States District Court for the District of Rhode Island, 2003.
page-pf8
Question: So even if Norton had won her promissory estoppel claim, the Court would not have
ordered Hoyt to support her financially?
Quasi-Contract
Even when there is no contract, a court may use quasi-contract to compensate a plaintiff who can show
that:
The plaintiff gave some benefit to the defendant
The plaintiff reasonably expected to be paid for the benefit and the defendant knew this; and
The defendant would be unjustly enriched if he did not pay.
If a court finds all of these elements present, it will generally award the plaintiff quantum meruit, or the
value of the goods or services that the plaintiff conferred on the defendant.

Trusted by Thousands of
Students

Here are what students say about us.

Copyright ©2022 All rights reserved. | CoursePaper is not sponsored or endorsed by any college or university.