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Contracts
South Texas College of Law Houston
Ricks, Val D.

Introduction: Contracts I Fall 2012 A-
Focus only on the promise you are attempting to enforce
Definition: Contract law is an enforcement of a single promise, not an agreement as a whole
a. Contract law is state law. It is common law by default, unless a statute has been passed covering the issue. Right to contract is guaranteed primarily by common law and some statutes, NOT by the constitution. Our law does not recognize any natural right to freedom of contract or economic activity.
Theories of Contracts
Natural Law: Human nature is fairly constant/static.
The way to get humans together is fairly static/constant thing (the rules by which they can live happily);  Laws should just manifest out of us, by our close observation of nature we see how it should be; helps to explain rules, doesn’t generate them well.
Welfare Theory:
Not only is competition good to promote, but also to generate profit, which is good for the community
Autonomy Theory (newest)
Kantian Terms; a reasoning being, inherently deserving of respect, creates a contract, and thus we should respect their contract
Judges who grew up with natural law now had to ascribe rights to a document (due process clause in the Constitution). Then, Ferguson v. Skrupa changed that, putting the onus on legislatures to regulate business, no longer using due process to strike down laws.
Types of Contracts
Unilateral: An agreement to pay in exchange for performance, if the potential performer chooses to act
Bilateral: an agreement in which the parties exchange promises for each to do something in the future
Accord and Satisfaction: settlement of a dispute Associated Builders, Inc. v. Coggins p. 40; Coggins owed $70k, paid $25k twice, 3 days late on 2nd payment, AB sued for rest of the amount to be waived, already accepted late payment so accord satisfied.
i.                     Accord—A contract to accept substituted payment, satisfied with the execution of the payment
ii.                    Satisfaction—the acceptance of the payment is the performance of the accord.
iii.                  Rule from AB v. C: a party (AB) waives a contractual right arising from a breach because of a late payment when that party (AB) accepts tender (C’s) of the late payment.
UCC Applicability
The UCC applies to “goods” (things movable).  Predominant factor test is used by nearly everyone.  The test for inclusion or exclusion is not whether they are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom)…This test essentially involves consideration of the contract in its entirety, applying the UCC to the entire contract or not at all.  Based on money amounts, they paid predominantly for the carpet instead of the installation. 
I. Consideration: Contract and Bargain
Contract law is state law and common law by default unless a statute has been passed covering a specific issue. 
It is a fundamental principle of a contract law that “consideration is a necessary prerequisite to a valid contract.”
Nude Promise
One in which only one side is giving something with recompense; a promise “because there is nothing assigned why they should be made” (Ex: promise to sell all my lands to you. No bargain. Nude promise.
Consideration (2 of 6)
a. Defined Generally: Consideration is the price of the promise.  Promise induces consideration; consideration induces promise.  Consideration is a necessary prerequisite to a valid contract; Space Imaging Europe v. Space Imaging LP p. 17
There are two elements:
Bargain for exchange
Proper Form
Benefit to the promisor
Detriment to the promise
Mutual Promises
b. Inadequacy does not render a contract unenforceable.  Lopsided contracts are still enforceable. Batsakis v. Demotsis p. 166 (fill in once gotten to)
c. Why do we have consideration? (Policy)
i. To make sure there is good reason for the promise.
ii. To make sure the person deliberates (so that he has good reason, even though he knows it)
iii. To make sure a jury would understand a deal and believe it occurred as alleged
iv. No action lies for a naked promise
§71. Requirement of Exchange; Types of Exchange
To constitute consideration, a performance or a return promise must be bargained for.
A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
The Performance may consist of:
an act other than a promise
a forbearance, or
the creation, modification or destruction or a legal relation
(4) The performance or return promise may be given to the promisor or to some other person.  It may be given by the promisee or by some other person.
A. Rules of Bargain
Fresh cause arising on each side, mutual inducement, exchange, recompense.  Sharington v. Strotton
i. Consideration must induce the promise and the promise must induce the consideration.
Reasons: ensure good reason for promising, ensure deliberation. Moral or past consideration is apparently not rational enough.
ii. Past Consideration is not consideration to support a contract
Ex. Hunt v. Bate (1568) p20: Master’s Servant in Prison, Pledge takes his place. Pledge had to pay servant’s debt after receiving promise from Master to pay for his debt if he took place for the servant. Master back’s out, wins. Holding: A “fresh” or new cause must be present.
§86 Promise for benefit received: 1. A promise made in recognition of a benefit previously received by the promisor for

ither a benefit to the promisor or a detriment to the promisee
1.        Benefit
Game v. Harvie:  A loan to be paid back on demand, to sit idle, is not a benefit
Reynolds v. Pinhowe: Settlement on a judgment is not valid consideration. If a ∆ defaults on a judg. Payment, π initiates collection procedures, and ∆ cannot settle for a lower amount than the original judgment.
Accord and Satisfaction
Accord: Contract under which an oblige promises to accept a substituted performance in future satisfaction of the obligor’s duty.
Satisfaction: The execution or performance of the accord
If the obligor breaches the accord, the oblige may enforce either the original duty or any duty pursuant to the accord.
R: Settlement of a disputed claim is sufficient consideration for accord and satisfaction.
R: A party waives its contractual right arising from breach of contract due to late payment when that party accepts tender of the late payment.
Ex. Associated Builders v. Coggins: Payment arrangements made for two annual payments, 2nd payment was late and π tried to sue for original amount, but accord for settlement amount had been satisfied when π cashed ∆’s check.
2.       Detriment
1.        1. Promisee does something, he is under no legal obligation to do, or refrains from exercising a legal right.
a.       Webb’s Case:  procured the letter of power of attorney. His labor counted as consideration because it is a detriment.
Non-bargained for detriment will stand for consideration.
Example: Keyme v Goulston – Send granddaughter to school and I’ll pay. There was consideration that didn’t seem unreasonable; Just as non-bargained-for benefit sometimes counts as a reason to enforce a promise, so does non-bargained-for detriment.
 
Settlement Cases
Forbearance: Consideration may be forbearance to sue on a claim, extension of time, or any other giving up of a legal right, in consideration of some promise.
Majority Rule
Forbearance of an invalid or unfounded claim does not constitute consideration
Ex. Kim v. Son: Kim invested in Son’s company, business fails, Son promises Kim money back in blood. No consideration of a promise to pay back gift. Kim claims forbearance of the right to sue to give Son more time, but forbearance on an invalid claim isn’t consideration either.