978-1285427003 Chapter 9 Lecture Note Part 2

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Additional Case: Novak v. Credit Bureau Collection Service 1

Facts: David Novak suffered a brain aneurysm and was unconscious. An ambulance took him to Saint

Regional Medical Center, where doctors successfully operated. Novak remained in the hospital for two

months and then was discharged.

Novak did not pay the Medical Center’s bill, and the claim was assigned to a collection agency which

sued Novak for the debt.

The trial court found that Novak owed the debt under quasi-contract because Novak was unconscious

and could not consent to the treatment, and the medical services were necessary to avoid serious bodily

injury or death.

Issue: Was the credit bureau entitled to damages based on quasi-contract?

Holding: Yes, judgment for the credit bureau affirmed. According to the court, Novak relies on earlier

cases which state the person must impliedly or expressly request the benefits. The court disagrees and

relies on Galloway v. Methodist Hospital where the court held:

To recover on the basis of quasi-contract, the party seeking recovery must demonstrate that a benefit

was rendered to the other party, under circumstances which equity demands compensation in order to

prevent unjust enrichment.

Novak argued that unlike him, the Galloway’s went to the hospital voluntarily when Mrs. Galloway

experienced toxemia and needed an emergency caesarian section, whereas he was taken to the hospital

without his knowledge or consent. Therefore, he neither expressly nor impliedly requested care.

In response, the trial court correctly held:

A person who has supplied things or services to another, although acting without the other’s

knowledge or consent, is entitled to restitution therefore from the other if:

a. he acted [in an official capacity] and with intent to charge therefore, and

b. the things or services were necessary to prevent the other from suffering serious bodily harm or

pain, and

c. the person supplying them had no reason to know that the other would not consent to receiving

them, if mentally competent, and

d. it was impossible for the other to give consent or, because of extreme youth or mental

impairment, the other’s consent would have been immaterial.

Here, a benefit was rendered to Novak to prevent serious bodily injury, thus in fairness the credit bureau

must be compensated to prevent unjust enrichment.

Question: In this case, Novak never agreed to the services. Isn’t one element of a contract that there

must be an agreement; an offer and acceptance?

Answer: Yes, those are elements of a contract; however, quasi-contract is a theory of recovery when

Question: The court laid out some specific reasons why people like the Medical Center should be

paid under these circumstances. Can you think of any non-legal reason why the decision makes

sense?

Answer: There are several public policy reasons why this decision makes sense. First, it is fair: this is

the Medical Center’s work, they routinely provide these services, and they reasonably expect to get

paid for these services. If a court denied them compensation for services that are the heart of what

1 877 N.E.2d 1253, Ind.App., 2007.

Sources of Contract Law

Common Law

We have seen the evolution of contract law from the twelfth century to the present. Express and implied

contracts, promissory estoppel, and quasi-contract were all crafted, over centuries, by appellate courts

deciding one contract lawsuit at a time. Many contract lawsuits continue to be decided using common law

principles developed by courts.

Uniform Commercial Code

Common law principles, whether related to contracts, torts, or anything else, sometimes vary from one

state to another. The Uniform Commercial Code (UCC) was created in 1952 with the intention to

facilitate the easy formation and enforcement of contracts across the country. Article 2 of the UCC

governs the sale of goods.

Case: Fallsview Glatt Kosher Caterers, Inc. v. Rosenfeld2

Facts: During the Jewish holidays, Fallsview Glatt Kosher Caterers organized programs at Kutcher’s

Country Club, where it provided all accommodations, food, and entertainment. Fallsview sued Willie

Rosenfeld, alleging that he had requested accommodations for 15 members of his family, agreeing to pay

$24,050, and then failed to appear or pay. Rosenfeld moved to dismiss, claiming that even if there had

been an agreement, it was never put in writing. Under UCC section 2-201, any contract for the sale of

goods worth $500 or more can only be enforced if it is in writing and signed. Fallsview argued that the

agreement was not for the sale of goods, but for services. The company claimed that because the contract

was not governed by the UCC, it should be enforced even with no writing.

Issue: Was the agreement one for the sale of goods, requiring a writing, or for services, enforceable with

no writing?

Decision: The agreement was for services. The defendant’s motion to dismiss is denied.

Reasoning: Mr. Rosenfeld contends that the “predominant purpose” and “main objective” of the

agreement alleged by Fallsview was the “service of Kosher food,” while the hotel accommodations and

entertainment were merely “incidental or collateral” services.

Defendant argues that “the essential religious obligation during this eight day period [Passover] and the

principal reason why people attend events similar to the program sponsored by plaintiff is in order to

facilitate their fulfillment of the requirement to eat only food which is ‘Kosher for Passover’. It is the

desire to obtain these ‘goods’ and not the urge for ‘entertainment’ or ‘accommodations’ that motivates

customers to subscribe to such ‘Programs’.”

However, a review of the characteristics of Fallsview’s daily activities program leads the court to

conclude that the “essence” of the family and communal “experience” is defined primarily by “services”

and not by “goods,”

Question: What was the basis for the Caterer’s claim?

Question: On what law was the Caterer’s claim based?

Question: Then why does this court’s opinion discuss the UCC?

Question: Why does he argue that?

Answer: Because his agreement with the plaintiff was oral, the UCC requires contracts for more than

Question: When a contract involves both goods and services, how does a court typically determine

whether the UCC applies?

2 2005 WL 53623 Civil Court, City of New York, 2005.

Answer: Most courts use the predominant purpose test: that is, if the predominant purpose of the

Question: On what basis does Rosenfeld claim that this contract is governed by the UCC?

Answer: He argues the contract was primarily for the plaintiff to provide Kosher food in connection

Question: What did the court decide here—was the predominant purpose of the contract for goods or

services?

Question: Why?

Answer: The court looks at the totality of what the contract would have provided Rosenfeld, pointing

Question: Does it rely on anything else?

Answer: The court also notes that under the UCC “quantity is even more important than price” but

Question: What is the result of this decision?

Answer: As an oral contract governed by common law, the statute of frauds does not apply and the

Multiple Choice Questions

1. A sitcom actor, exhausted after his 10-hour workweek, agrees to buy a briefcase full of cocaine from

Lewis for $12,000. John and the actor have a ______________ contract.

(a) valid

(b) unenforceable

(d) void

2. Carol says, “Pam, you’re my best friend in the world. I just inherited a million bucks, and I want you to

have some of it. Come with me to the bank tomorrow, and I’ll give you $10,000.” “Sweet!” Pam

replies. Later that day, Carol has a change of heart. She is allowed to do so. Examine the list of the

elements of a contract, and cite the correct reason.

(a) The agreement was not put into writing.

(b) The agreement lacks a legal purpose.

(d) Pam does not have the capacity to make a contract.

3. On the first day of the baseball season, Dean orders a new Cardinals hat from Amazon. At the moment

he submits his order, Dean and Amazon have an ______________ contract. Two days later, Amazon

delivers the hat to Dean’s house. At this point, Dean and Amazon have an ______________ contract.

(a) executory; executory

(b) executory; executed

(d) executed; executed

4. Linda goes to an electronics store and buys an HDTV. Lauren hires a company to clean her swimming

pool once a week. The ____________ governs Linda’s contract with the store, and the __________

governs Lauren’s contract with the cleaning company.

(a) common law; common law

(b) common law; UCC

(d) UCC; UCC

5. Consider the following:

I. Madison says to a group of students, “I’ll pay $35 to the first one of you who shows up at my

house and mows my lawn.”

II. Lea posts a flyer around town that reads, “Reward: $500 for information about the person

who keyed my truck last Saturday night in the Wag-a-Bag parking lot. Call Lea at 555-5309.”

Which of these proposes a unilateral contract?

(a) I only

(b) II only

(d) None of the above

Essay Questions

1. Pennsylvania contracted with Envirotest Systems, Inc., an Arizona company, to build 86 automobile

emissions inspection stations in 25 counties, and operate them for seven years. This contract is worth

hundreds of millions of dollars to Envirotest. But suddenly Pennsylvania legislators opposed the

entire system, claiming that it would lead to long delays and high expenses for motorists. These

lawmakers urged that Pennsylvania simply stop construction of the new system. Was Pennsylvania

allowed to get out of the contract because its legislators concluded the whole system is unwise?

Answer: No. Envirotest has an express bilateral contract with the state. The whole purpose of such a

contract is to enable Envirotest to make intelligent business plans, including hiring workers, building

2. Central Maine Power Co. made a promotional offer in which it promised to pay a substantial sum to

any homeowner or builder who constructed new housing heated with electricity. Motel Services, Inc.,

which was building a small housing project for the city of Waterville, Maine, decided to install

electrical heat in the units in order to qualify for the offer. It built the units and requested payment for

the full amount of the promotional offer. Is Central Maine obligated to pay? Why or why not?

Answer: Central Maine is obligated to pay because the parties created a unilateral contract. Central

3. Interactive Data Corp. hired Daniel Foley as an assistant product manager at a starting salary of

$18,500. Over the next six years Interactive steadily promoted Foley until he became Los Angeles

branch manager at a salary of $56,116. Interactive’s officers repeatedly told Foley that he would have

his job as long as his performance was adequate. In addition, Interactive distributed an employee

handbook that specified “termination guidelines,” including a mandatory seven-step pre-termination

procedure. Two years later Foley learned that his recently hired supervisor, Robert Kuhne, was under

investigation by the Federal Bureau of Investigation (FBI) for embezzlement at his previous job.

Foley reported this to Interactive officers. Shortly thereafter, Interactive fired Foley. He sued,

claiming that Interactive could only fire him for good cause, after the seven-step procedure. What

kind of a claim is he making? Should he succeed?

Answer: Foley is arguing that he has an implied contract with Interactive based on the informal

discussions concerning his future and the employee handbook. His argument convinced the California

4 ETHICS You want to lease your automobile to a friend for the summer but do not want to pay a

lawyer to draw up the lease. Joanna, a neighbor, is in law school. She is not licensed to practice law.

She offers to draft a lease for you for $100, and you unwisely accept. Later, you refuse to pay her fee

and she sues to collect. Who will win the lawsuit, and why? Apart from the law, was it morally right

for the law student to try to help out by drafting the lease? Was she acting helpfully, or foolishly, or

fraudulently? Is it just for you to agree to her fee and then refuse to pay it? What is society’s interest

in this dispute? Should a court be more concerned with the ethical issue raised by the conduct of the

two parties or with the social consequences of this agreement?

Answer: Joanna loses the lawsuit. She is not licensed to practice law. Any contract she makes to

perform legal work is void and unenforceable. Perhaps it was nice of her to try to help out, but she

was foolish to think she should do legal work. She ought to have learned enough in law school to

You Be the Judge: WRITING PROBLEM. John Stevens owned a dilapidated apartment

that he rented to James and Cora Chesney for a low rent. The Chesneys began to remodel and rehabilitate

the unit. Over a four-year period, they installed two new bathrooms, carpeted the floors, installed new

septic and heating systems, and rewired, replumbed, and painted. Stevens periodically stopped by and saw

the work in progress. The Chesneys transformed the unit into a respectable apartment. Three years after

their work was done, Stevens served the Chesneys with an eviction notice. The Chesneys counterclaimed,

seeking the value of the work they had done. Are they entitled to it? Argument for Stevens: Mr. Stevens

is willing to pay the Chesneys exactly the amount he agreed to pay: nothing. The parties never contracted

for the Chesneys to fix up the apartment. In fact, they never even discussed such an agreement. The

Chesneys are making the absurd argument that anyone who chooses to perform certain work, without ever

discussing it with another party, can finish the job and then charge it to the other person. If the Chesneys

expected to get paid, obviously they should have said so. If the court were to allow this claim, it would be

inviting other tenants to make improvements and then bill the landlord. The law has never been so

foolish. Argument for the Chesneys: The law of quasi-contract was crafted for cases exactly like this.

The Chesneys have given an enormous benefit to Stevens by transforming the apartment and enabling

him to rent it at greater profit for many years to come. Stevens saw the work being done and understood

that the Chesneys expected some compensation for these major renovations. If Stevens never intended to

pay the fair value of the work, he should have stopped the couple from doing the work or notified them

that there would be no compensation. It would be unjust to allow the landlord to seize the value of the

work, evict the tenants who did it, and pay nothing.

Answer: Yes, they are entitled to the value of their work, said the court in Chesney v. Stevens, 435 Pa.

Super. 71, 644 A.2d 124.0, 1994 Pa. Super. LEXIS 2388 (Pa. Super. Ct. 1994). They have neither an

express nor an implied contract for the work. Stevens did nothing to create either. But he was aware

Discussion Questions

1. Have you ever made an agreement that mattered to you, only to have the other person refuse to follow

through on the deal? Looking at the list of elements in the chapter, did your agreement amount to a

contract? If not, which element did it lack?

2. Consider promissory estoppel and quasi-contracts. Do you like the fact that these doctrines exist?

Should courts have “wiggle room” to enforce deals that fail to meet formal contract requirements? Or,

should the rule be, “If it’s not an actual contract, too bad. No deal.”

3. Is it sensible to have two different sets of contract rules – one for sales of goods and another for

everything else? Would it be better to have a single set of rules for all contracts?

4. In the case Davis v. Mason, a court considered an early non-compete agreement. Did the court in that

case reach a proper conclusion? What should courts say in similar cases in modern times?

5. Return to the opening scenario. Chris made a valid agreement with Chez Luc, which is enforceable in

court Does the thought of Chez Luc suing Chris for using his phone seem odd? Why? If the restaurant

does not plan to take the patrons to court, why bother to have a contract at all?