CHAPTER 8The Nature and Origins of Contracts

Contract Principles • Contract = legally enforceable promise

or set of promises

• Agreement- Valid– Offer– Acceptance– Consideration– Voluntary– Capacity– Some Must Be Evidenced by a Writing (e.g.

Where Statute of Frauds Applies)

Uniform Commercial Code

• Primary Objective: Uniformity• Concerned with rewarding legitimate

expectations• Nine Articles• Article 2- Contracts for the Sale of Goods

(tangible personal property)– Goods = Tangible Personal Property

• Not Intangibles or Predominantly Services

• Duty of Good Faith/Fair Dealing– contra: Unconscionable contracts– Implied Warranties

• Higher Standard for Merchants (Regular Dealers)• International Equivalent - U.N. Convention on

the International Sale of Goods

Uniform Commercial Code

• Duty of Good Faith/Fair Dealing

– Race v. Fleetwood Retail Corp., p. 152• Fleetwood is liable for bad faith breach of the

implied covenant of good faith and fair dealing. This case is a good illustration of the trend toward honesty and fairness in commercial transactions rather than just focusing on the strict letter of the law. This is happening in the common law as well as under the Code. The concepts discussed in Chapters 13 and 14 such as fraud, duress, undue influence and unconscionability are also illustrative of this trend.

Uniform Commercial Code

• Duty of Good Faith/Fair Dealing– Question 7 at end of chapter

• Sons of Thunder, Inc. v. Borden, Inc.– Borden is liable for bad faith breach of the implied covenant

of good faith and fair dealing implied by the Code.

– This case is a good illustration of the trend toward honesty and fairness in commercial transactions rather than just focusing on the strict letter of the law. Note that Borden did not specifically breach a particular contract term when it cancelled the contract, but it acted in bad faith in its efforts to avoid the contract.

Types of Contracts• Validity

– Valid = enforceable– Unenforceable = meets basic legal

requirements but cannot be enforced due to some other legal rule

– Voidable = may be cancelled by 1 or both parties (e.g. contract with a minor)

– Void = lacks 1 or more basic legal requirements = of no legal effect

Types of Contracts

• Unilateral = 1 party promise (act for a promise)

• Bilateral= Both parties promise (promise for a promise)

• Executed = All parties fully perform duties

• Executory = Not yet fully performed• Express = Directly stated

Types of Contracts• Implied = Surrounding circumstances

indicate– Question 8 at end of Chapter

• Varni Bros. Corp. v. Wine World, Inc.– The duration of an implied contract for the distribution of

wine is determined by industry custom.

– What part of the contract may have been express and what had been manifested by conduct?

– Note that industry custom often plays a part in the interpretation of contracts including resolving ambiguities and defining specific terms in addition to filling in missing or implied terms. The court noted that the California UCC provided that contracts of indefinite duration are terminable at will.

Types of Contracts• Quasi Contract = Implied in Law to

prevent unjust enrichment (keys: Fairness/Reasonable Value) – Brewer v. New York, p. 157

• A bankrupt estate is not allowed to collect money from the New York Department of Corrections that it knowingly received in violation of the bankruptcy laws.

• If allowed to keep would constitute a detriment to other general creditors

Promissory Estoppel

• Promise is made which promisor knows will likely induce reliance

• Significant reliance on promise by promissee

• Injustice will occur if promised not enforced

Promissory Estoppel

– Goff-Hamel v. Obstretricians & Gynecologists, P.C., p. 159

• A woman who was hired away from her long-term job but who was told not to come to work the day before her starting date at the new job, is allowed to sue under a theory of promissory estoppel.

• Goff-Hamel cannot sue in contract due to employment at will

• How might the court determine damages?– This court mentions decisions that hold that while the

prospective employee cannot recover for the wages she would have earned at the new employer, she can recover for the wages lost from the past employer since she would not have quit except for the offer she detrimentally relied on.