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

Ricks

Contract

Fall, 2013

Contract:

1. An agreement between two people that the law will enforce

2. Contracts do not need to be written down, they can be oral

3. Courts are only trying to enforce one of the promises

Three Types of Contracts:

1. Bilateral- mutual agreements, there are two agreements, the consideration of his agreement inspired mine and vise versa (mutually induced)

2. Unilateral- my promise influenced your promise, one promise and one performance

Validity of Contracts:

1. Void- totally without any legal effect from the beginning and cannot be enforced by either party

2. Voidable- a contract where one or both parties may elect to void (ex. by raising a defense that makes it voidable, such as infancy or mental illness)

3. Unenforceable- an agreement that is otherwise valid but which may not be enforceable due to various defenses extraneous to contract formation, such as the statute of frauds

Theories of Contracts:

1. A policy argument is anything you can argue that has a foundation of belief within reason

2. Autonomy- in creating a contract, reasonable beings inherently deserve respect. People deserve respect when making contracts and courts will respect their decision to do so

a. Helps us learn liability, based on our consent

b. Exercise of human will is good in itself

3. Welfare- people are going to inherently act in their own self-interest

a. Competition is good

b. Courts want to support contracts that support competition

c. If you maximize your utility, society will be enhanced too

4. Justice/Morality

a. What is just between both parties?

b. What party deserves fairness/respect?

-Fairness should govern

c. Which one was the more moral/just party?

Elements of a Contract:

Competent Parties

1. Minors can void a contract

a. Minors have to pay if they reach the age of majority and make a re-promise to pay back debt of their avoidable contract they incurred as a minor

b. Minor is liable for the fair value of the necessities

2. Intoxicated persons

-Drunk rule- a person cannot escape liability of a contract by defense of intoxication, unless he was intoxicated to the extent that he was unable to understand the nature of the contract and consequences of its execution

-Lucy v. Zehmer- (Zehmer only had a few drinks, he knew what he was doing)

Legal Subject Matter

1. A court will not lend its aid to either party to a contract founded upon illegal consideration

2. Immoral consideration- adultery

3. Campaign promises

-A political campaign promise is legally insufficient to create a binding contract unless it is so intended by the promisor and promisee

b. Allowing so would break down checks/balances and give the court too much power

4. Plea Bargains

a. The policy of the government being able to enter into such agreements makes them enforceable, regardless of consideration

5. At-will employment

-Courts will not enforce an employer’s right to fire for public policy issues such as:

a. Employee fired for refusing to commit an illegal act

b. For doing a public duty (jury duty)

c. For exercising a legal right (filing worker’s comp. claim)

d. Whistle blowing

Consideration

1. The part of a promise that makes the contract enforceable

a) Space Imaging- It is a fundamental principle of contract law that “consideration is a necessary prerequisite to a valid contract”

b) A promise is not recognized or enforced as contractual unless consideration has been given for it

c) Concerned with the validity of promises and only an issue when there is an outstanding promise to be enforced

-Does not effect the validity of an executed performance- one that has already been completed

2. Two types of consideration:

a) Bargain for Exchange

b) Proper Form

i. Benefit to the promisor

ii. Detriment to the promisee

iii. Mutual promises

3. Bargain for Exchange- a promise must be bargained for to have sufficient consideration

a) Promisor- makes the promise

b) Promisee- accepts the promise

-Restatement §71 Requirement of Exchange; Types of Exchange

a) To constitute consideration, a performance of a return promise must be bargained for

b) 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

c) T

i. Harrington v. Taylor- (woman saves man from getting hit with an axe but gets hurt in process, he promised to pay medical bills but didn’t)

-Majority view, no consideration

-He did not request to be saved, no bargain

iv. Webb v. McGowin (guy saves his boss from getting hit with wood, gets hurt, boss promises to pay him and does until boss died)

-Minority view, court said there is consideration

-McGowin received a ‘substantial material benefit’

h) Exceptions to moral obligations:

i. Infancy, bankruptcy, and statute of limitations are the exceptions to the rule of consideration

ii. All three are originally bound unless promise is made after these are reached, they waive their legal right not to pay

iii. Minors- not bound to contracts because they are incompetent of using proper judgment

-If promise is made after age of majority, minor is bound

-Promise to pay a debt contracted during infancy

-Edmonds Case

iv. Bankruptcy- When someone goes bankrupt, all debts are discharged and they don’t owe anyone

-It promise to pay discharged debts after bankruptcy when they have money again, they are bound

-Bankruptcy Act 11 U.S.C. §524

v. Statute of Limitations- If promise is made after sol has expired, person is bound

-Promise to pay a debt barred by the statute of limitations

i) Mutual inducement is required

4. Proper Form

A. Consideration is required to be in a certain form: benefit, detriment, or mutual promise:

B. Benefit to the promisor

i. §86- A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice

ii. Promisor receives a benefit he was not legally entitled to

iii. Benefit to the promisor is not required to have economic value