Chapter 9
Introduction to Contracts
I. Development of the Law of Contract
A. Common law
B. UCC (sales of goods)
C. Non-goods
contracts are not governed by the UCC
II. Definition and Elements of Contract
A. Binding contract that the courts will enforce
B. Elements of Contract
1. Mutual assent
a. Offer
b. Acceptance
2. Consideration
3. Legality
4. Capacity
Steinberg
v.
Facts: P applied to medical school. P paid $15 application fee. School rejected P. P argued that they considered factors (chiefly legacy) other than those in their published materials. P said that breached contract formed by application fee.
Issue: Is there a contract requiring school to use only those factors in their recruiting materials?
Holding: Yes. The recruiting materials were an invitation to offers, and payment of $15 was an offer, and school accepted. Terms were also certain and definite enough.
III. Classification of Contracts
A. Express vs. Implied
1. Express contract: assent shown by words
2. Implied contract: assent shown by actions
Fox v.
Mountain West Electric, Inc., 137
Facts: Lockheed Martin (LM) had a building project. Fox and MWE agreed to work together to make a bid for the job. They wrote up a document called “Scope and Responsibilities.” They were the successful bidder. Fox worked under MWE’s manager.
LM made many change orders. Fox and MWE disagreed on how to handle change orders. MWE said it should be on a flow down basis, that what LM paid would go through to Fox. Fox wanted a bid procedure. They were unable to reach an agreement, and Fox left the project. MWE hired another company to complete the job.
Fox sued for damages, and MWE countersued. Trial court found an implied in fact contract for MWE’s flow down model of compensation.
Issue: Is there an implied in fact contract for the compensation procedure binding Fox?
Holding: Yes. Fox submitted estimates that went into the change order calculations. That conduct shows assent to payment on that basis.
Reasoning: Conduct can be the basis of an implied in fact contract. Although the facts conflict, lower court’s determination was reasonable. The court rejected Fox’s argument that the UCC governed, and that draft documents could be used to show the agreement. Predominant transaction was for services, not goods.
B. Bilateral and Unilateral Contracts
1. Bilateral contract: Parties exchange a promise for a promise
2. Unilateral contract: One side promises, other side accepts by doing
C. Valid, Void, Voidable, Unenforceable
1. Valid. A complete contract that the court will enforce.
2. Void. Not a contract at all. Example, illegal contract.
3. Voidable contract. One side can declare contract void. Example, minor enters into a contract. Minor can avoid obligations, but the other side cannot.
4. Unenforceable contract. Contract exists, but some reason exists that the court will not enforce it. Example, oral contract required to be in writing under the statute of frauds.
D. Executed v. Executory contracts
1. Executed. All obligations have been performed.
2. Executory. Some obligations still need to be performed.
E. Promissory Estoppel
1. In rare instances, court will enforce a promise even if there is no contract.
2. Promissory estoppel. Applies where one party induces reliance on a promise to the detriment of the other party.
Gorham v. Benson Optical, 539 N.W.2d 798 (Minn.App. 1995)
Facts: G worked for Lenscrafters. He talks with Benson about working for them. He is called in for an interview. They make an offer for a management position, with a substantial raise. Manager at Benson says they will send over written offer. G says that he will accept, and that he will give notice to LensCrafters. He did not get the letter right away, so he called. Someone at Benson said, go ahead give notice, it’s a done deal.
He gives notice, turns down a raise, and decides to go with Benson. Letter comes from Benson, but has some mistakes. He calls them, they send corrected version, which he signs. He starts having reservations about new job, and does not return the letter.
Person G dealt with at Benson did not get the COO job. G said he still wanted the job at Benson. At first they said no problem, but then the new COO said he did not think G was up to the job, and decided not to hire him.
G sued, claiming breach of contract and promissory estoppel. Trial court granted summary judgment for Benson.
Issue: Does G have a valid promissory estoppel claim?
Holding: Yes. Benson induced reliance and G relied on it to his detriment.
Reasoning: There was a contract, even though G did not return letter. He said that he would accept, that’s good enough. However, this is an at will contract and Benson had right to fire him. Summary judgment on contract claim was proper.
However, promissory estoppel can apply even where a contract exists. There is an exception where the contract provides no remedy, such as an at will contract.
3. Quasi-contract
a. Quasi contract is a promise enforced at law to avoid injustice. Usually to avoid unjust enrichment. Many times this doctrine is used to avoid injustice where a contract is void or voidable. Sometimes called quantum meruit.
Weichert Co. Realtors v. Ryan, 128 N.J. 427 (1992)
Facts: Realtor finds property for potential buyer. Buyer looks at the property and decides to buy it. Buyer goes directly to the owner, and refuses to pay 10% finder’s fee to the realtor. Realtor sued.
Issue: Can realtor recover?
Holding: Yes. Realtor conferred a benefit, and it would be unjust enrichment benefiting the buyer to not pay.
Reasoning: There was no contract. The terms in the initial conversation were not definite enough. However, realtor did confer a benefit on the buyer. Trial court needs to determine the value of the service provided.