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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.
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Chapter 09 - Introduction to Contracts
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Chapter 09 - Introduction to Contracts
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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
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
##4, 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.
Audio Visual Artistry v. Tanzer: 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 in this section).
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
9-4
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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
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: 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
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).
Thomas v. Archer: Rachel and Steven Thomas were expectant parents. Rachel
sought treatment at Ketchikan General Hospital, at which point Dr. Archer
recommended that she be transferred to Swedish Medical Center in Seattle by
medevac flight. The flight was sure to be very costly, and the Thomases needed
preauthorization from their insurance to be treated in Seattle in order to be sure
that they were not stuck with that bill. Before they agreed to board the medevac
flight, Dr. Archer assured them that she would arrange for the preauthorization
and that, if their insurance failed to pay, “we” will. (The Thomases presumed
“we” meant Ketchikan General Hospital. However, Steven signed an
“Acknowledgment of Financial Responsibility” form, which indicated that the
Thomases agreed to pay any charges that their insurance did not cover.
The Thomases ultimately received bills for more than $90,000 related to the
transportation to and treatment at Swedish Medical Center, because they did not
9-5
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Chapter 09 - Introduction to Contracts
receive preauthorization for Rachel’s treatment there. Though Dr. Archer did
notify the Thomases’ insurance about the need for the transfer and her medical
judgment in recommending it, she did not do so until six months after the fact,
well after the 72-hour preauthorization deadline. The Thomases sued Dr. Archer
and Ketchikan General Hospital for, among other things, liability pursuant to a
promissory estoppel claim. Thought the trial court granted summary judgment
for the defendants, the Alaska Supreme Court reversed that summary judgment.
Points for Discussion: Have the students walk through the elements of
promissory estoppel as applied in this case, just as the court’s opinion does. Be
sure to discuss with students that a reversal of summary judgment does not mean
that the Thomases will actually prevail on their claim of promissory estoppel, but
rather that there is a genuine dispute of material fact over whether they can. In
this regard, once students understand that the case was still “live” following the
Supreme Court’s decision, instructors might find it interesting to have students
debate whether they think the Thomases should be able to recover (i.e., what
would they do if they were on the jury?). This debate can be particularly
interesting as it relates to the final element of promissory estoppel, whether
enforcement of the promise is necessary in the interest of justice. While students
will no doubt be sympathetic to the Thomases, who found themselves in a highly
stressful situation depending on the representations of a trusted medical
professional, Steven also signed the “Acknowledgement of Financial
Responsibility.” Why should that not resolve the case, regardless of Dr. Archer’s
well-meaning, but ultimately wrong-headed, “promise” to the Thomases?
Additional Examples: Problem Cases #3 and #6.
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: 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
9-6
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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
what ethical basis the law finds itself in the business of protecting reliance which
is, in this sense, unreasonable.
lottery regulations. Those regulations indicated that a ticket was required to collect the
jackpot. Palese’s claim for unjust enrichment failed because quasi contract is not
available when there is an existing contract on point and because the Lottery Office did
not act without justification. Palese v. Delaware State Lottery Office, 2006 De. Ch.
LEXIS 126 (Del. Chancery 2006), affirmed, 913 A.2d 570 (Del Sup. Ct. 2006).
9. No. Under section 2-105 of the UCC "goods “must be (1) a thing, (2) existing, and (3)
movable. Water is all three. All who have paid bills for water can attest to its movability.
Under this definition water is "goods" and the implied warranty of merchantability should
attach to its sale. Gall v. Allegheny Health Dept., 555 A.2d 786 (Pa. Sup. Ct. 1989).
10. Yes. Schumacher showed that he made substantial improvements on his parents’
land, that his parents knew of the improvements and either encouraged them or
did nothing to discourage them, and that they benefited by the improvements. The
court held that that was sufficient to create issues of genuine fact for the jury, and
the court denied summary judgment on the claim of unjust enrichment. [Note:
Schumacher also claimed promissory estoppel, but the court decided that
Minnesota law does not allow a claim of promissory estoppel to override the
statute of frauds in the claim of either a promise of lifetime employment or a
promise to make a will.] Schumacher v. Schumacher, 627 N.W.2d 725 (Minn. Ct.
App. 2001).
9-8
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the old house looked very pretty, and were glad that some
one had come to live in it.
The pinafore was quite clean this time, and Audrey went
in with a light heart; and as a reward for keeping clear of
dirt, she was allowed to play with Stephen again after tea.
She was eager to get out, that she might catch another
glimpse of her old man, as she called him; but she found
the shutters closed, and she and Stephen could only watch
the flickering of the bright light inside.
"And he's got a lamp, too," said Audrey. "Look, you can
see it through the crack in this shutter."
"THERE'S SOME ONE SITTING IN THE WINDOW!" HE SAID.
"Is any one there?" said the kindly voice of the old
woman. "I am sure I hear some little feet outside."
"No, I can't see you," said the old woman quietly; "I'm
blind."
"Not a glimmer," said the old woman, "it is all dark now;
but I can feel the warm sunshine, thank God, and I can
smell these sweet flowers, and I can hear your bonny
voices."
"I'm so sorry for you," said little Stephen, "so very, very
sorry!"
"Now," said the old woman, "you must often come and
talk to me as I sit in my window, and you must tell me all
you are doing. I know what to call you, but you must know
what to call me. My name is Mrs. Robin, and you shall call
me Granny Robin. I have some little grandchildren, but they
live over the sea in America, so you must take their place."
The rent was low, for few liked to take a house the
windows of which looked out upon graves, but the
schoolmaster made no objection to the churchyard. There
were green trees in it, which would remind him of the pretty
village where he had lived so long, and he did not mind the
graves: he would soon be lying in one himself, and it was
well to be reminded of it, he said. And as for his wife, she
could not see the graves, but she could hear the twittering
of the swallows that built under the eaves of the deserted
church, and she could smell the lilac on the bush close to
her window, and it would be a quiet and pleasant home for
her until the Lord called her.
But Mr. Robin need not have feared for his wife. She
had a happy, contented spirit. It is true she had felt sad at
leaving her happy country home, but new interests were
already springing up in the one to which she felt the Lord
had brought her. Little Stephen with his shaky legs, and
Audrey with her motherly care over him, had already won
Granny Robin's heart, and the children from that time spent
a very large part of their playtime in talking to their new
friend, as she sat at her window knitting.
CHAPTER IV
Forgotten Graves
One day she called him her "little Hobab," and when he
laughed and asked her why she gave him such a funny
name, she said it was because, long, long ago, when Moses
was travelling through the wilderness with the children of
Israel, he said to his brother-in-law, Hobab:
"Why are you sorry for them?" asked the old woman.
"Oh, all green and dirty," said Audrey, "and the trees
are fallen against them, and when the wind blows, their
branches go beat, beat, beat, against the stones, till Aunt
Cordelia says she can't bear to hear them when she's in bed
at night."
"Nor wreaths?"
"Yes," said the little girl, "I went with Aunt Cordelia to
the cemetery one day, and it's lovely there, just like a
garden; the flowers are beautiful, and there were heaps of
people watering graves, and raking them and pulling off the
dead flowers, and some of them were crying."
"No, not one person," said Stephen. "My father says all
the people that loved them are dead and buried
themselves."
"Yes, some one will," she said brightly; "my Lord will
never forget. He will know where it is, and whose body lies
inside, and it will be safe in His care till the great
Resurrection Day."
"Even when the names are worn off?" asked the little
boy.
"Well, let's choose," said the little girl. "We'll walk round
and have a look at them all."
"'SACRED
TO THE MEMORY OF
CHARLES HOLDEN,
WHOSE REMAINS LIE
HERE INTERRED.
HE WAS
OF HUMANE DISPOSITION,
A SOCIAL COMPANION,
A FAITHFUL SERVANT,
AND A SINCERE FRIEND.
HE DEPARTED THIS LIFE
THE 23RD OF DECEMBER, 1781.
AGED 38.'"
"I don't like that one bit," said Stephen; "it has got too
many hard words in it."
"'IN MEMORY
OF
JOHN POWELL.
DIED IN 1781.
ALSO MARY, RELICT OF
THE ABOVE, WHO DIED
JANUARY 20, 1827,
AGED 87.
ALSO TWO GRANDCHILDREN,
WHO DIED YOUNG.'"
"No, it's a bit of grey hair; she cut it off her mother's
head when she was dead, and she says it's a relict. I don't
know what she means, but she keeps it locked up ever so
safe."
"I hope John Powell didn't lock Mary up," said Stephen.
"She must have got out if he did," said Audrey, "for she
lived a long, long, long time after him. He died in 1781, and
she didn't die not until 1827; let me count up, it's quite a
long sum. Why, it's forty-six years, Stephen!"
CHAPTER V
The Collection
STEPHEN had now quite settled upon the grave which
he was to make his especial care, but he promised not to
begin his work until Audrey had chosen hers. She was very
undecided for a long time, but at length she chose one,
sacred to the memory of another John.
"'BENEATH IS DEPOSITED
ALL THAT WAS MORTAL OF
JOHN HUTTON,
WHO DIED THE 12TH OF APRIL, 1793,
AGED 47.'"
"If Stephen's father will give him a basin, I will give you
one, Audrey," said Granny Robin.
"And I'll get you both an old sponge," said Mr. Robin,
who was smoking his pipe in the window.
At the end of it, they were far from satisfied with their
work.
"I expect she did," said Audrey; "I wonder what has
become of her. Do you think she will ever come to see how
nice we have made her John's grave, Granny Robin?"
"We know very little about it, Stephen," said the old
woman, "but we can't help thinking about it, and dreaming
about it; and I always think of it as a beautiful garden,
where the King walks with His friends. I may be wrong,
Stephie, but that's what I always see in my mind when I
think of it."
"The two grandchildren who died young will like being in
the garden," said Stephen. "Do you think they're glad they
died young, Granny Robin?"
"I think they are, Stephie," she said; "they did not have
to tread far on life's rough ways; their little feet reached the
garden long, long years ago."
"I think you will, Stephie; I feel almost sure you will,"
she said.
"If I see any very dear little children playing under the
trees of the garden," said little Stephen, "I might ask them,
'Are you the two grandchildren who died young?' And then
they could tell me, couldn't they?"
"God bless you, my dear little lad!" was all the answer
Granny Robin gave him.
CHAPTER VI