Contracts I. Val Ricks. Fall 2012.
Introduction: Focus only on the promise you are attempting to enforce.
A. Definition: Contract law is an enforcement of a single promise, not an agreement at 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.
B. Sources of Contract Law
a. Common Law: applies if the UCC is silent on a subject or if there is a conflict.
b. The UCC: governs the sale of goods in all states but LA. Use the predominant factor test if there is a sale of goods and a service.
C. Theories of Contract Law
a. The three types of Policy theories are:
b. Natural Law Theory
i. Natural law theory: the laws should just pop out from within us because they just occur w/in us. By our close observation of nature we see what they should be. Almost as if they occur within us.
D. Types of Contracts
a. Bilateral Contracts: A promise for a promise.
b. Unilateral Contracts: A promise for a performance.
c. Accord & Satisfaction: settlement of a dispute Associated Builders, Inc. v. Coggins.
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 of (C’s) the late payment.
A. Competent Parties
i. Voidable at the election of the minor.
ii. Contracts of minors are voidable; Minors are only liable for the value of necessaries in such contracts.
iii. Minor can come back after age of majority and reaffirm
i. Can be intoxicated and held to K.
ii. If you are intoxicated to a point beyond comprehension/ severely intoxicated. To drunk to understand nature of K.
c. Mentally incompetent/ Insane
i. Must be mentally incompetent at time of contract, not after. So mentally incompetent that they cannot comprehend the contract.
B. Legal Subject Matter
i. A court will not lend its aid to either party to a K founded upon illegal consideration.
b. Immoral Consideration
c. Campaign Promises
i. A political campaign promise is legally insufficient to create a binding K unless it is so intended by the promisor and promisee
ii. Policy: Allowing so would break checks/ balances and shift power from legislature to the courts.
d. Plea Bargains
i. The policy of the gov’t being able to enter into such agreements makes them enforceable, regardless of consideration.
e. At-Will Employment
i. Courts will not enforce an employer’s right to fire for public policy issues such as:
1. Employee fired for refusing to commit an illegal act
a. Ex/ Armored car/ Liquor store preventing
2. For doing a public duty (jury duty)
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. There are two elements:
i. Bargain for exchange
ii. Proper form
1. Benefit to the promisor
2. Detriment to the promisee
3. Mutual Promises
b. Inadequacy does not render a contract unenforceable. Lopsided contracts are still enforceable. Batsakis v. Demotsis
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 she 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
d. Bargain for Exchange
i. § 71—Requirement of Exchange
1. To constitute consideration, a performance or a return promise must be bargained for.
2. 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.
3. The performance may consist of:
a. An act other than a promise, or
b. A forbearance, or
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. Comment B:
ii. Rules of Bargain
1. Fresh cause must arise on each side – Sharington v. Strotton.
a. Ex: recompense, thing given on both sides, act on each side, a fresh cause, something in return for.
2. Past consideration is not sufficient to support a contract. Promise and consideration must induce each other – Hunt v. Bate.
a. §86 Promise for benefit received: 1. A promise made in recognition of a benefit previously received by the promisor form the promisee is binding to the extent necessary to prevent injustice. 2. A promise is not binding under 1 if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or to the extent that its value is disproportionate to the benefit.
b. Example: (Hunt v. Bate) Pledge takes servants place in jail (detriment). Afterwards, Master promises to pay for his fine (promise). There is no consideration b/c the promise did not induce the detriment (non-reciprocated consideration)
c. Policy – you cannot hold a promise over someone’s head (i.e. blackmail)
3. A gift, love, or affection is not consideration for a promise or an act. Rose v. Elias (promise); Vian v. Carey (act)
a. Policy: if you give out of love and affection, ex. Pay for your kids college, you should not expect anything in return from them.
4. Consideration cannot be founded
iii. The claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was “tendered as full satisfaction of the claim”
iv. Ex. Cashing of a check – debtor sends a check for less than amount due and writs “in full settlement.” The creditor writs “in protest” on the check, but still cashes it. UCC holds this is an acceptance of a settlement and the creditor cannot sue (Harvard v. Kemp)
v. Disputed claims-unliquidated (coggins) (person paying may not have too pay but forbears detriment to sue and just pays money
iv. Mutual Promise
a. Consideration is a promise for a promise. A promise can be sufficient consideration for a reciprocal promise. West v. Stowell.
b. Under the doctrine, both parties are extending credit to each other. Nicholas v. Raynbred (cow; a sells to b for 5£ a cow.)
c. Martin v. Vance. Mutual binding promises provide adequate consideration to support a contract.
d. Policy: mutual promises induce commerce by holding parties to follow through with their agreements.
2. Illusory Promises
a. Defined/ Rules: If one of the promises appears on its face to be so insubstantial as to impose no obligation at all on the promisor – who says, in effect, “I will if I want to” – then the promise may be characterized as illusory (i.e. a promise in form but not in substance)
i. A contract is not mutual when only one party is bound by it.
b. Unilateral Power to Terminate
i. There mere fact that the option prevents the mutual promises from being coextensive with one another does not prevent both promises from being binding according to their respective terms. BECAUSE: Power to terminate is not an illusory promise when there is a restriction on the exercise of the right of termination (WHEN THEY GIVE NOTICE).
ii. Even a slight restriction on the exercise of the right of termination, such as the requirement that advance notice be given, is sufficient to prevent a unilateral right of termination from being regarded as illusory in nature. Johnson Lakes Development.