Select Page

South Texas College of Law Houston
Ricks, Val D.

Contracts I Outline
Courts in the United States do not recognize a natural right to contract or a constitutional right to contract.  Legislators and voters might.
            HYPO: Legislature passes law prohibiting all work b/w 10 pm and 6am.  A and B form a contract in which B promises to work b/w 10 and 6.  B challenges the law as unconstitutional.  B loses.
Theories (see notes for more info)
1.      Autonomy- Contract law under this view is an attempt to aid individuals at self-determination
2.      Welfare- Believe that only a public benefit (from contract) can justify the action by the state
3.      Morality/ Justice- A number of moral rules that reflect ways in which a person might fail to give another her due (i.e.- “keep your promises”- reflects that failure to keep a promise might do real harm to another)
a.       When taking the exam, if a question comes up that discusses whether someone who deliberately breaks a contract should be treated any different than one who is merely negligent or unfortunate, discuss how proponents of moral basis for contract would argue, and how someone who view contract law is designed to meet the needs of trade
Other Theories
1.      Sovereignty of the Individual Will- individual responsibility to the promisor
2.      Reliance- fairness to the promisee
Important Note: Rarely is a conscious choice made b/w competing theories (different judges hold different theories)
Jury decides fact, Judge decides law
Key Terms
Enforceable- when a promisee is entitled either to a money judgment, an injunction, or a specific performance
Void- produces no legal obligation upon the part of the promisor; an exchange of promises which lack consideration is void
Voidable-one or more of the parties has the power to elect to avoid the legal relations created by the contract or by ratification to extinguish the power of avoidance; sometimes given to an infant, or someone who was induced by fraud, mistake, or duress
Unenforceable- have some legal consequences but which may not be enforced in an action for damages or specific performance in the fact of certain defenses such as SOF and the SOL; certain contracts that have illegal activity
Express- when the parties manifest their agreement by words
Implied in Fact- when it is manifested by conduct (not a contract, but an obligation imposed by law to do justice even though it is clear that no promise was ever made or intended- quasi contract)
Before assent, a contract litigant showed:
I.       Promise
II.    Consideration
III. Breach
Consensual Contracts- 6 Elements
I.                  Competent Parties-Contracts of minor are voidable at the election of the minor
II.               Legal Subject Matter
Action in Equity- based in contract
Whether a contract is void for public policy?- It well settled that neither a court of law nor a ct of equity will lend its aid to either party to a contract founded upon an illegal or immoral consideration.  Immoral consideration is when people were engaged in immoral activity that one party is claiming was the consideration (ie- woman lives with another man, the two are not married, she claims she is entitled to rent b/c she slept with him); however, if there an immoral activity, but the conduct is incidental to the contract, then you can have a contract. Must analyze whether the immoral activity was incidental to contract.  Must look to see what could have been other possible types of consideration.  If person is claiming that she is demanding money for sex, then she would be prosecuted for prostitution.  If a judge is going after them for being sinners, judge should state it in the opinion, and who is to say what a ‘sinner’ is in legal terms.  Party won’t say that sex was the issue they will say domestic relations if the parties live together for a long period of time, they are not called alimony cases b/c they are never married, they are called palimony cases. 
Campaign Promises- a political campaign promise is legally insufficient to create a binding contract unless it is so intended by the promisor and promisee.  Must have some evidence or claims made to the P.  Similar to promises in advertisements (pepsi).  PP- if promises made by candidates were enforced by the judiciary, then the judiciary would be in charge of the gov’t and be in charge of not only the offices, but the office holders, to keep a balance of powers we need to separate the two.  PP- what would happen if promises were enforced?  At what point does a legal binding contract form b/w candidate and voter. Other PP- we should follow contract theory with campaign promises, should not make any exceptions. 
Plea Bargains- plea bargain, in law, is just another contract, so it should be followed by the same standards as other contracts.  In the absence of any indication that the parties expected the gov’t not to oppose a Rule 35 (recommendation for sentence) motion, the ct would hesitate to imply such a condition.  The prosecutor honored his commitment to make the agreed sentences recommendation at the sentencing hearing.  Gov’t would not oppose a post-sentence motion designed just to obtain what the gov’t had said it would not oppose.  What does in this cause mean- ambiguous, cause usually means you have grounds to recover, what is gov’t trying to say, is this common in the case?  Rule 35 is common in the case, show it should be allowed to appeal on it, if this is just another contract, here you have two parties involved, one with a lot more power, and is the one drafting the agreement (could be anything, insurance contract, ect).  the person on the other side is no a repeat player, you have an insurance company that.  You should bear the burden of the ambiguity?  If this is just another contract, review the ambiguities of the drafter and see what it purported to offer the D, but the court is not willing to do it.  A plea bargain is not just another contract. 
Is a plea agreement enforceable when D did not enter a plea? A plea agreement is enforced when there is performance pursued to the agreement.  Justification: 1) constitutional right- when the d has given up a constitutional right (right to plead guilty/not guilty) 2) honor of the gov’t (public confidence in the administration of justice) 3) detrimental reliance (returning stolen property, making monetary resistution, submitting to a lie detector test).  These will make a plea bargain enforceable.  Must is different from a plea bargain and a contract. Autonomy is not supposed to act in their own autonomy, should be based on the public autonomy.  So we should take autonomy right out of the mix.  Not really concerned about welfare, where the D opportunities are restricted it is not meaningful, gov’t doesn’t know our utility, that is why we don’t have communism.  Morality might be the a theory, but perhaps there are other concerns.  Public safety, fair administration of justice.  The assent of the parties meant nothing at, it was based on action taking in reliance on the D (sounds like consideration, but rather the fair administration of justice).
Employment at Will- Gardner v. Loomis case- man saves woman’s life by violating company policy not to leave his car.  Case was in fed ct., fed ct send the question whether an employee can be fired for violating company policy when he leaves his post to assist someone who is in serious danger of great bodily injury or death?  State ct told Fed ct that that employee could be fired.  PP exceptions to at will employment- under common law, at-will employees could quit or be fired for any reason, 4 exceptions to when an employer cannot fire an employee- 1) when the employer asks the employee to commit an unlawful act,  2) when an employee is fired for doing his lawful obligation (having to do jury duty) 2) where an employee is exercising a legal right of privilege (exercising statutory right to being able to) 4) where an employee reports employer misconduct.  This case does not meet any other 4 categories.  That means the P has to go outside of the 4 categories to show that some other PP must be recognized.  Good illustration of lawyers going after public policy- statutes, judicial decisions, regulations, administrative regulation, constitutional right or common law right, tell where the stats come from ect. Then plug your pp into a pp test- this works all across the board, not just employment at will, any type of contract, where there is pp against your contract- happens frequently in surrogacy cases ($10k to have child and never see the child again).  Must look at the facts of the contract to see how pp in that state would go towards the contract.   Gambling decisions.  The only policy that really wins here is encouraging someone to save another’s life- should they be persuasive enough to change the law.  Statute must have some effect to the case and be the intent of the leg.  Look at the totality of the circumstances- why was the rule violated, did the rule recognize this situation, should the rule include this exception?
Question 10- she is heroic, if she doesn’t stay home with the kids they could be harmed. 
why do we make the majority decide at all?  They have a bunch of legal mumbo jumbo of things that they are not quite sure about. Every case requires a decision, should the case just sit if the judges are not settled about it.  If they are not settled should they just not let him recover. 
III.           Consideration
I.       What is Consideration?
1.      A bargained for exchange- the promise and the consideration must purport to be motive each for the other, in whole or at least in part, it is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting.”
a)      HYPOS- Suppose I promise my lands but there is not promise to repay and no repayment.  No consideration(this sound like a gift)
b)      I sell my horse (promise my horse?) for money. Consideration
c)      If you marry my daughter you shall have my land. Consideration
d)      I promise you $20 to rebuild my house. What induced this promise? Charity? Friendship? I get nothing for it.  Does the other have to do anything for it?  Seems not.  Just a promise.  No consideration
e)      Promises made out of guilt are not done out of deliberation
f)       Once a contract is already established, the promisor cannot receive additional benefits for that particular detriment (wife has duty to husband).
2.      A benefit to the promisor- Promisor receives what was bargained for, does not need to have monetary value (w/o detriment is not sufficient consideration
a)      A legal benefit to the promisor is a forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor
b)      Riches v. Bridges- you have to know what the benefit is
c)      Gamie v. Harvey- in considering the benefit to the promisor, must also look at the detriment to promisee (promisor loans promisee money to be retrieved back on demand, promisor demands money back, promisee has money tied up in business- you must look at both sides in deciding, no clear answer)
d)      Associated Builders Inc. v. Coggins- p owed d money, d and p made a new contract to settle the money owed, p was late in performing the new contract (pay money), d took check to bank, then took p to court for breach of accord, p won since d gave up his legal right when he cashed check
1)      Accord and satisfaction- a contract under which an obligee promises to accept a substituted performance in future satisfaction of the obligor’s duty
                                                                                                              i.       If an obligee (person owed duty) takes an obligor (person who owes the duty) to court for breach of accord, the obligor can have the claim discharged if 
1.      that person in good faith tendered an instrument to the claimant as full satisfaction of the claim (i.e. accepted check and cashed it, then brought the suit),
2.      the amount of the claim was unliquidated (don’t know the amount) or subject to a bona fide (good faith) dispute, and
3.      the obligee obtained payment of the instrument
2)      Settlement of disputed claim- sufficient consideration for an accord and satisfaction
3)      Satisfaction- is the execution or performance of the accord
3.      A detriment to the promisee- relinquishment of a legal right that can take on the form of an immediate act or forbearance
a)      If the promisee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do. 
1)      It is important to remember that the detriment to the promisee need not involve any actual loss to the promisee or benefit to the promisor
b)      Promisor must have primarily sought to induce the detrimental act by his promise
1)      Doctor and Student- if someone says to do something and makes a promise in return for the act, and then the act is done, there was action and the person should fulfill their end of the promise (detriment is healing the sick person)
2)      Webb’s Case-  if one is induced to do labor, even if the person who request the labor does not benefit, he owes one for their labor (promise of one must induce the act, not act to induce the promise)
4.      Mutual binding promises- provide adequate consideration to support a contract (a mutual extension of credit- no performance at all)
a)      sat

extra consideration for it
c)      We don’t just the adequacy of the consideration only if there was given notice
V.   Past consideration, mere moral obligation,  is not a valid consideration-
1.      Moral obligation is generally not consideration except,
a)      when an infant re-promises upon reaching the age of majority to pay an avoidable contract debt incurred while an infant;
1)      Note: There is no bargain, this is an exception b/c there was a new promise once he reached the age of majority (there was an original bargain, but in the new case, there is no bargain)
b)      when a bankrupt re-promises to pay a contract debt that otherwise would be discharged in bankruptcy;
1)      Bankruptcy Code 11 USC 524- the debtor does not have to have an agreement in order to repay a debt that has been discharged in bankruptcy.
c)      When a breaching party re-promises to pay a contract debt notwithstanding that a statute of limitations bars collection of the debt
1)      Note: The second promise is a waiver of the legal hurdle to collection. If this rationale is followed, the hurdle is removed and the original contract enforced, with no need for moral obligation to serve as consideration.
d)      An act which was done at another’s prior request and which induced a promise from the other after the act was done is given for consideration. Hunt v. Bate (II) (Some see this as moral consideration.)
1)      Note: Consideration for the promise was the request for the performance of the act with further promises to be paid (sounds more like moral obligation w/ request).
2)      Webb v. McGowin- moral obligation is a sufficient consideration to support and executory promise where the promisor has received an actual pecuniary or material benefit for which he subsequently expressly promised to pay.
2.      Conditional gifts are not consideration- look at conditional gifts when dealing with promises made in family relations- you walk the dog, I will get you a TV, can be bargained for exchange, can be conditional gift
VI.            Nominal and Recited Consideration Generally, and in Option Contracts
1.      Nominal Consideration- something in name, but not substance, is exchanged for something of substance
a)      Doctrine of inadequacy of consideration- if the value is fixed ($ for $) one cannot claim that the contract was inadequate; however, if the value is not fixed one can claim the doc inadequate
1)      The mere promise to pay six hundred dollars for one cent is an unconscionable contract. 
2)      The term one cent is ambiguous and lacks even an indeterminate value.  There is no way of knowing whether the meaning is a coin possessing monetary value or a family piece. 
3)      The consideration of one cent is merely nominal, and did not induce promise. 
4)      In Schnell, the wife’s will imposed no obligation upon her husband to discharge her bequests out of his property, and as she had none of her own (all assets belonged to him), her promise to discharge them was not legally binding upon him. 
5)      A moral consideration will not support a promise.  The promise was simply one to make a gift. The past services of his wife, and the love and affection he had borne her are not legal considerations b/c
                                                                                                              i.      they are past considerations and
                                                                                                            ii.      the fact that he loved his wife and that she had been industrious constituted no consideration for his promise to pay money.
b)      Examples- buying car
1)      $10 – nominal consideration/sham – NOT enforceable
2)      $500 – would probably work – just not very adequate – but enforceable
3)      $5000 for worthless book- it’s not K – it’s a gift (NOT enforceable).
2.      Exceptions:
a)      Option contracts for land- Nominal consideration is routinely accepted in common day to hold land
VII.         Implied Inducement- Courts that tend to disregard the consideration aspect of a contract, and consider assent more important will use this to hold a contract binding
1.      If a contract was intended, the law with uphold it
2.      In order to infer if it was intended, if the d with a view to induce the p to enter into a contract made a statement to the p of such a nature as would be likely to induce a person to enter into the contract it is a fair inference of fact that he was induced to do so by the statement
3.      Difference from prom est is that we don’t know if the promise induced the action or whether the action induced the promise
4.      Both parties must think of the agreement as inducement, you do not have to know that there is  consideration or not
IV.            Mutual Assent- each party must intend to enter the contract and must agree with the other to do so on mutually acceptable terms
I.       Purpose- to show the time and formation of a contract
II.    Determining Assent- Objective Test
1.      Substantive Aspect- prescribes to the legal standard for determining assent
2.      Evidentiary Aspect- regulates what evidence is admissible to prove intent
III.           The Substantive Aspect: the legal standard for determining assent is objective and external
1.      Elements
a reasonable person in the position of the party to whom the manifestation