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 Barnes/Dworkin/Richards, Law for Business, 12e, Instructor’s Manual, Chapter 9

PART 2. CONTRACTS

CHAPTER 9: THE NATURE AND ORIGINS OF CONTRACTS

LECTURE OUTLINE

1. The introductory contracts outline presents a good opportunity to give an

overview of the law the students will be studying in this section. Explain that the
questions which form the main outline divisions can be used as a way to approach
contracts problems, as well as to organize the information they will be learning.
The outline is repeated at the beginning of each chapter, with the parts already
covered highlighted, and the part being discussed in that chapter outlined in more
detail. This gives the student a visual “map” of where they have been, where they
are going, and how the information in the particular chapter fits into the overall
scheme. It also gives them a skeleton within which to take notes.

If you taught torts before this section, the broad overview of contracts also
presents a good opportunity to point out how torts differs from contracts, and how
the approach to them differs. You might want to point out that some courts are
allowing some promisees to sue for breach of contract in tort and why, from a
remedies standpoint, people would rather sue in tort.

2. Define contracts as legally enforceable promises.

3. Note that the first decision point society faced in this context was whether to
recognize the idea of contracts at all—should any promise be legally enforceable?

a. Discuss the social utility of contracts.

b. Point out that after we decided that some promises should be legally
enforceable, we had to decide whether all promises should be made
legally enforceable. We decided they should not be (we all break promises
regularly without worrying about being sued).

c. The rest of the chapters in this section of the text discuss those things that
differentiate contracts from unenforceable promises.

4. Discuss how historical changes in the nature of American society and changing
judicial views of social policy have affected the evolution of contract law. Point
out that contract law continues to evolve; on-line commerce is currently causing
reexamination of many contract concepts.

5. Explain that the passage of the Uniform Commercial Code was the biggest change
in contract law in the 20th century. Discuss the objectives of the drafters of the

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 Barnes/Dworkin/Richards, Law for Business, 12e, Instructor’s Manual, Chapter 9

U.C.C.

a. Note that despite the name, the law is not uniform throughout the United
States. Explain why, and give an example.

b. Discuss what a good is and what common kinds of contracts are not
covered by the Code. Stress that the students should determine whether the
Code or common law will apply for each contract problem they encounter.

c. Discuss mixed transactions and how courts determine whether the Code or
the common law will apply.

Conwell v. Gray Loon Outdoor Marketing Group, Inc. – p. 157

The court decides that a contract for the design and launching of a website is
predominately the sale of services and therefore the common law should apply.

Points for Discussion: Ask some students to argue why the Code should apply and ask
others to make the case for the common law. This should generate a discussion about
what factors the court will consider. Stress that the courts usually consider whether
goods or services predominate. Point out that the common law of contract is sometimes
more formalistic/less flexible that the U.C.C. The lack of a price is discussed in the next
chapter where the case appears again.

Additional Example: Problem Case number 5.

d. Discuss cyber-contracts. This is an area that should be of special interest

to the students. Point out that the contract law they learn should help them
better understand the contracts they make on line. If your state has
adopted UCITA, you might want to discuss it here.

e. Note some of the basic differences between the Code’s approach and the
common law’s such as greater flexibility and practicality, and the good faith
and fair dealing duty.

f. Define merchant and note that some sections of the Code impose a higher
standard on merchants. Stress that the Code applies to merchants and
nonmerchants.

g. Note the growing influence the Code is having on the evolution of contract law.
For your own information on this point take a look at the Restatement (Second) of
Contracts - you may be surprised at the extent Code ideas have infiltrated this
influential document. Example: Problem Case number 6. You can use this case
to illustrate the trend toward requiring honesty and fairness in commercial
transactions rather than just focusing on the strict letter of the law. Point out that it
is happening in the common law as well as under the Code. You may want to

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 Barnes/Dworkin/Richards, Law for Business, 12e, Instructor’s Manual, Chapter 9

point out that concepts discussed in Chapters 13 and 14 such as fraud, duress,
undue influence and unconscionability are also illustrative of this trend.

(1). You might want to note that the Code was amended in 1987 to
include leases. However, not all states have adopted this provision.
Thus, leases are still not under the Code in several jurisdictions.

h. Note that most of the basic sales terms of the Code have been incorporated
into the U.N. Convention on the International Sale of Goods (CISG).
Point out the differences which appear in Table 9.1. The same forces
which led to the adoption of the Code in the United States have also led to
ratification of the CISG by major trading nations: a desire for uniformity
and certainty, and increased trading across borders (now national instead
of state). Most of the major trading nations have ratified the treaty. The
CISG applies only to commercial contracts for the sale of goods. Thus,
consumer sales are not included (because of the great disparity in
consumer protection given by different countries). Certain topics such as
products liability and the underlying validity of the contract were also
excluded because they were too controversial and may have prevented
passage. The courts will look to the appropriate domestic laws when these
issues arise. Explain the importance of “choice of law” clauses.

6. Define an unenforceable contract.

7. Distinguish between void and voidable contracts. A void contract is never

enforceable under any circumstances. A voidable contract is enforceable unless
and until a party with the power to cancel the contract exercises that power.

Dodd v. American Family Mutual Insurance pg. 161

The court determines that a material misrepresentation on a contract for fire insurance is
voidable, not void ab initio.

Points for Discussion: Note that the contract was voidable on two grounds –
misrepresentation and by the terms of the contract. Point out that either of these
would be sufficient to allow the company to void the contract. Ask the students if
they think Michael was purposely trying to mislead the company or whether he
made an innocent mistake. He did not recover from the company from the first
fire; it was Katherine’s house and insurance. Do they think the court’s view
reflects a desire to avoid insurance fraud. You might want to note the general rule
that an insurance company must return premiums in order to cancel a policy.

8. Discuss the difference between bilateral and unilateral contracts.

a. Note that in bilateral contracts both parties are bound and a contract is

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 Barnes/Dworkin/Richards, Law for Business, 12e, Instructor’s Manual, Chapter 9

created when they exchange promises to do something in the future.

b. In a unilateral contract one of the parties has performed his or her share of
the bargain in exchange for the other party’s promise of future
performance (act for a promise) or has promised to pay for a specified
future performance rather than a promise to perform in the future (a
promise for an act). In the latter case a contract is not created until the
requested act is performed.

c. Additional example: Refer to the example in the text of Mary offering a

reward for the return of her lost dog. If Mike learns of her offer (an offer
for a unilateral contract), the only way he can accept and bind her to
paying the reward is by finding and returning her dog. However, what if
Mary offered Mike $2.00 to help look for her dog? This is an offer for a
bilateral contract. If Mike agrees to help, a contract is created at that point
in time and both he and Mary are bound to perform.

9. Distinguish between executory and executed contracts. Note that when a contract
has been partially performed it is referred to as being partially executed.

10. Distinguish between express and implied contracts.

a. Note that a contract may be partially express and partially implied. For
example, Frank hires Sally to paint his house. The parties expressly agree
on the price, completion date, and color and quality of paint. Even though
the parties say nothing about the quality of the job Sally is to do, the courts
will imply a promise on Sally’s part to do a workmanlike job of painting
(e.g., avoid painting windows, doorknobs, etc.).

Anderson v. Hanaford Brothers Co. – p. 162

The court finds an implied promise by the supermarket chain to take reasonable measures
to protect customer information.

Points for Discussion: You might want to discuss this case in the context of recent events
such as the Target data breach, among others. Ask the students if any of them have had
their identity stolen. If so, have them tell the class about their experience. Remind the
students that they can get an annual free credit check, and it is wise to do so. Point out
that it is unlikely that the company thought they are making the promise found by the
court. Note that although the agreement is implied, such contracts are true contracts. The
mutual assent is inferred. You may also want to note that it is enforceable even though it
is not written.

Additional Example: Problem Case number 7.

Note that industry custom often plays a part in the interpretation of contracts including

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resolving ambiguities and defining specific terms in addition to filling in missing or

implied terms.

You might want to note that many courts allow “live-ins” (like the couple in the Dodd
case) to use a quasi contract theory to claim a division of property when the relationship
ends.

11. Discuss the theory of quasi contract. In some cases the courts as a matter of law
will imply a promise by a person to pay the reasonable value of benefits she has received
from another person to avoid unjust enrichment at the other person’s expense.

Palese v. Delaware State Lottery Office - p. 164

The court does not allow a lottery player who accidentally destroyed his winning ticket to
collect the prize.

Points for Discussion: Note that the court will not allow Palese to collect because he had
a contract and quasi contract can only be used in the absence of a contract. Do the
students think the result is unjust (the reason the theory was adopted was to avoid unjust
results). Ask them if they think it matters that it is the state that would lose the funds if
Palese collected.

a. Example: Problem Case number 5.

b. You might want to explain Restatements and their influence on the law if you
have not already done so.

12. Discuss the evolution and character of promissory estoppel.

a. Note the fundamental difference between estoppel and contract - contract

protects bargains; estoppel protects reliance.

b. Note that like quasi contract, promissory estoppel gives the court a great
deal of discretion to carry out its notion of justice.

c. Point out that promissory estoppel is increasingly being used as a

substitute for various contract elements. Some commentators have argued
that estoppel will eventually engulf classical contract law.

Examples: Problem Case number 8.

ANSWERS TO QUESTIONS AND PROBLEM CASES – pp. 166

1. In determining whether to apply the UCC or the common law in a contract that
involves both goods and services, the court looks to see which predominates.

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 Barnes/Dworkin/Richards, Law for Business, 12e, Instructor’s Manual, Chapter 9

2. A unilateral contract is one in which a promise is exchanged for an act. In a

bilateral contract, a promise is exchanged for a promise.

3. In promissory estoppel, the court enforces a promise that is technically not a

contract in order to avoid serious injustice. It requires substantial reliance on the
promise. Also, the promisor must know that the promise would likely lead to
reliance.

4. Yes. Duncan did not contract to give Kasim any personal property or goods.
Kasim kept and sold Duncan’s personal property without justification. This is
unjust and Duncan can use the theory of unjust enrichment. Duncan v. Kasim,
Inc., 810 So. 2d 968 (Fla. Ct. App. 2002).

5. The U.C.C. The U.C.C. applies when the sales aspect of the transaction
predominates and the service aspect is merely incidental. Where the services are
comprised of merely installing the goods and making them operational, it is a sale
of goods. Vilette v. Sheldorado Aluminum Products, Inc. 2001 N.Y. Misc. LEXIS
509 (Kings County S.C. Ct. June 11, 2001).

6. The Races should recover. The duty of good faith and fair dealing is implied in
every contract under the code. That duty can give rise to disclose relevant
information during contract negotiations. Fleetwood made material
misstatements to the Races meant to induce the sale of the home. Fleetwood also
failed to cooperate. The law cannot allow contracting parties to deceive one
another when there is a duty to act in good faith. Race v. Fleetwood 2003 Wash.
App. LEXIS 628 (2003).

7. Yes. In an implied contract, the parties’ agreement is inferred in whole or in part

from their conduct. Here, it is clear that Staley supported the variance in
exchange for the Taylors’ promise that they would not block her view. She sent
the letter on the implicit condition that the promise would be kept. When the
Staleys sent a draft letter, they manifested their acceptance of the offer, including
the implicit conditions put on it. Staley v .Taylor, 994 P.2d 1220 (Or. Ct. App.
2000).

8. Yes. People hired for an indefinite period of time are employees at will and can
be fired at any time for any reason. Thus, Goff-Hamel cannot sue for breach of
contract. However, promissory estoppel damages are based on what justice
requires, and will be awarded if she justifiably relied on the promise, the promisor
could reasonably foresee that she would rely, and it would be unjust not to
enforce it. Goff-Hamel v. Obstetricians & Gynecologists, P.C., 588 N.W.2d 798
(Neb. 1999).

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