Contracts Outline

Contracts Outline

PART I. WHAT PROMISES SHOULD THE LAW ENFORCE?
THE DOCTRINE OF CONSIDERATION
1) DONATIVE PROMISES, FORM AND RELIANCE
a) Simple Donative Promises – promises made out of affection (love, friendship) that have not been demonstrably relied upon
i) Promise (Restatement §2) – manifestation of intention to act or refrain from acting in a specified way
(1) Typically unenforceable in contract law
(2) Dougherty v Salt – Aunt gave son a note for money because he was a “good boy”. This was a promise, but lacked consideration so it is unenforceable.
(a) A promise to make a gift is unenforceable. However, once the gift is made, it is enforceable.
(b) Consideration (Restatement §17) – Need consideration to form a contract. Both people have to give something up
b) The Element of Form – classical contract law à does it look like a contract?
i) Rule: Must be a bargain
ii) Restatement §71 – requires an ACTUAL bargain, not just the form of a bargain
(1) Schnell v Nell – 1 cent for $600 is not a bargain because it is nominal consideration. Neither side sees what they are giving up, as the price of what they are getting.
(a) Nominal Consideration – has the look of a bargain but it is not a bargain because it is clear the promisor did not view what she got as the price of her promise
(i) Restatement 1 = enforceable
(ii) Restatement 2 = unenforceable. Requires a bargain in fact, not in form
c) The Element of Reliance (RS2 §90) – an element where a promisee will incur a cost because he is in reliance on the promise. The presence of this element can make a contract enforceable.
i) Kirksey – Promisor promised land to promisee if she moved there. He gave her land, but then took it away later. (Ask if it makes a difference if he already went through with the promise)
(1) Court found that it was a donative promise and was unenforceable. It had not been bargained for. Moving, was not the price of the land. Would come out different under Restatement 2 §90
ii) Restatement §90 – Have to show…
(1) Promise was broken
(2) Promisee actually relied on the promise
(3) Promisor could foresee the reliance à reasonable person test with all the evidence and circumstances
(4) Does enforcing the promise, correct the injustice?
iii) HYPO: Susie’s grandfather feels bad she is working in a department store. To let her quit her job, he gives her a promissory note for $20,000 telling her that he is giving her this so she will not have to work anymore. She relies on the promise and quits her job. Then, the grandfather dies without paying. Susie tries to get the money from his estate.
(1) Was there a bargain?
(a) No à donative promise
(b) Yes à you might be able to make an argument, but probably not
(2) Did she rely on the promise?
(a) Yes à she quit her job
iv) **A RELIED UPON DONATIVE PROMISE IS ENFORCEABLE**
v) Feinberg – Worked for a long time for the company. They told her they would give her retirement money, whenever she planned to retire. Reasons were her many years of service and her ability and skill. She retired and after a couple changes of execs, the payments stopped. She said she quit the job because she relied on the payments.
(1) Was there a bargain?
(a) No à donative promise, past consideration
(2) Was there reliance?
(a) Yes
(i) Was the promise broken? à yes
(ii) Was the promise relied on? à yes
(iii)Was that reliance foreseeable? à yes
(iv)Does enforcing correct the injustice? à yes
vi) Hayes – Had plans to retire and was told he would be ‘taken care of’ but nothing formal. He gets money for a while, but then it stops.
(1) Was there reliance?
(a) No
(i) Was the promise broken? à yes
(ii) Was the promise relied on? à no because it did not induce his retirement…he was going to retire anyway
vii) Bacardi – D & G was going out of business. Bacardi said they would remain a major supplier and knew they were in negotiations to sell. Based on this, D & G turned down an offer to sell. A week later, Bacardi withdrew their account. General had to sell for $550,000 less than the last offer. D & G claimed reliance on Bacardi’s promise to remain a supplier.
(1) Was there reliance?
(a) Yes and No
(i) Was the promise broken? à yes
(ii) Was the promise relied on? à yes
(iii)Was the reliance foreseeable à yes and no
1. No à at-will relationship
2. Yes à Bacardi was completely aware of the situation and still made the promise
(iv)Does enforcing correct justice? à yes
2) THE BARGAIN PRINCIPLE AND ITS LIMITS
a) The Bargain Principle
i) Giving up a legal right to do something (legal detriment) is consideration.
(1) Hamer v Sidway – kid gave up smoking, drinking, etc. for $5000 promised by uncle.
(a) The legal detriment of giving up his legal right to do these things, is viewed as the price for the promise
(b) Restatement §72 à any performance which is bargained for is consideration
(i) There does not have to be benefit to anyone as long as there is bargained for consideration. The court will not review adequacy of consideration, as a matter of law. It’s up to the jury. (Restatement §79)
(2) Davies – Company said they would give her a job/promote her if she got her MBA. She was subsequently fired. Company argued that getting her MBA was a benefit to her so there was no consideration.
(a) Court said she had a legal right not to go to school, so giving that up was a detriment and therefore consideration
(3) Hancock Bank – Shell entered into bad lease.
(a) Court said that making a bad deal is not grounds for a remedy. (Restatement §79) Court will not look at adequacy of consideration.
(4) Batsakis – Entered into horrible contract during WWII. Basically he got $25 and would return payment of $5000. Court held that they will not go into adequacy of contract. All other elements were met, so it’s a contract. (Restatement §79).
(a) Two ways to get out of a bad contract
(i) Common Law à Duress/Distress
(ii) UCC à Unconscionability (NEXT SECTION)
b) Limitations to Contracts
i) Dur