Contracts I
Val Ricks
Fall 2014
Outline of class w/ personal notes first, Essay outline begins on page 26
I. Introduction
A. Definition: A “contract” is an agreement that the law will enforce.
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.
i. Ogden v. Saunders: R: If the positive law of the State declares the contract shall have no obligation it can have no obligation, whatever may be the principles of natural law in relation to such a contract.
ii. Ferguson v. Skrupa: R: The states have power to legislate against what are found to be injurious practices in their internal commercial and business affairs, so long as the laws do not run afoul of some specific federal constitutional prohibition, or of some valid federal law.
B. Sources of Contract Law:
a. The UCC: Contract law is common law, but every state but Louisiana uses the UCC to govern sales of goods (Article 2).
i. Does not govern land.
b. Common-law: If the UCC is silent on a particular question or there is a conflict, the common law of the state will control (See §1-103).
1. Good or Service?
a. Goods (must be moveable)– UCC
b. Service – Restatement
2. Predominate Factor Test: (Pittsley v. Houser)
a. When determining whether the K is for goods or services, the main method used is the predominant factor test – which is the predominate aspect of K – goods or services?
i. Goods – software, bubble gum, airplanes, custom goods, artwork
ii. Either – electricity
iii. Service – money loans, construction K’s, beauty parlor
3. Test for Inclusion or Exclusion:
a. 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 the service with goods incidentally involved or vice versa.
b. Look at the transaction and try and figure out which aspect of the deal predominates.
i. Things to think about:
1. What is the language of the K?
2. Are the goods in the deal that are not moveable?
3. Is the service billing separately from the billed object?
ii. SECOND LINE OF AUTHORITY (money is not a good, rare coin is)
1. “allows the contract to be SEVERED into different parts, applying the UCC to the goods involved in the contract, but not ot the nongoods involved, including services as well as other nongoods assets and property….
a. Example: an action focusing on defects or problems with the goods themselves would be covered by the UCC, while a suit based on the service provided or some other nongoods aspect would not be covered by the UCC…
b. Example: A court held that although there was a single contract for the purchase of a radio station, the UCC applied only to the actual goods that were covered under the contract…Thus, the court applied different analyses and remedies to two different aspects of the same contract.
2. PREDOMINANT FACTOR TEST IS THE MORE PRUDENT RULE
C. Theory
a. The three types of theories are Autonomy, Welfare, and Justice/Morality.
i. Autonomy: people are reasonable beings, inherently deserving of respect. When they create a contract, we should respect their contract. The exercise of human will is a good in itself and that enhancing the ability of individuals to determine their own future is a worthy goal of law.
ii. Welfare: not only is competition good to promote, but also to generate profit which is good for the individuals and the community. Only a public benefit can justify action by the state.
iii. Morality: It is the right thing to do. Giving to each other according to his due.
D. Types of Contracts
a. Bilateral Contracts – Exchange of Mutual Promises.
i. Ex: A promises B, and B promises A.
b. Unilateral Contract – Acceptance by Performance
i. Ex: A promises B, if B does something for A. If B does the something, A must pay B.
c. Accord and Satisfaction – Associated Builders, Inc. v. Coggins
i. Accord – A contract to accept substituted payment, satisfied with execution of the payment.
ii. Satisfaction – The acceptance of the payment is the performance of the accord.
1. Settlement of the dispute is the consideration
E. Promises
a. Voidable – One or more parties have the power to either ratify or avoid the contract. (Ex. Duress)
i. A voidable promise counts as good consideration. Forrestor’s Case.
b. Unenforceable – Contracts that have some legal consequences, but they aren’t enforceable in an action for damages of specific performance, due to a defense (e.g., Statute of Frauds or Statute of Limitations).
c. Void – No contract has been formed so there’s no duty to perform under it. (e.g., a contract lacking consideration is void).
F. Remedies
1. Expectation: Damages are measured in terms of what non-breaching party should have gotten from the contract had it been performed as promised; Moves the P where promised to be.
2. Restitution: Provides damages to the non-breaching party by returning from the breaching party whatever benefit the breaching party receive from the contract; Moves the D back to where he was.
3. Reliance: Damages are measured according to what it would take to return the non-breaching party from where they are as a result of the breach to where they were before there was a contract. Moves P back to where he was.
4. Injunction/Specific Performance: Court orders parties to perform the K.
a. Only used in circumstances where benefit form K is unique and cannot be obtained on open market (ex: land)
5. Attorney’s Fees in TX: A person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount fo a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; … (8) an oral or written contract.
II. Consensual Contracts
A consensual contract has six elements:
1. Competent Parties
2. Legal Subject Matter
3. Consideration
4. Mutual Assent
5. Certainty
6. Proper Form, if applicable
A. Competent Parties – Contracts made by minors are voidable. However, the minor is liable for the fair value of the necessaries. All other elements of a contract are voidable at the election of the infant. A person cannot escape liability on a contract by defense of intoxication, unless he was so intoxicated to the extent that he was unable to understand the nature of the contract and the consequences of its execution. A less degree of intoxication may serce as basis for avoiding the same contract if the other party caused drunkenness or if he takes unfair advantage of it; however, this involves questions of fraud and undue influence, no capacity to execute the contract. Lucy v. Zehmer.
A. A contract will be enforceable when an infant re-promises upon reaching the age of majority to pay an avoidable contract debt incurred while he was an infant.
B. Legal Subject Matter –
A. A court will not lend its aid to either party to a K founded upon illegal consideration.
Immoral Consideration
1. Adultery
Campaign Promises
1. A political campaign promise is legally insufficient to create a binding contract unless it is so intended by the promisor and promise.
2. Allowing so would break down checks/balances.
C. Consideration
The two elements of consideration are bargained for exchange and proper form (benefit to the promisor, detriment to the promisee or mutual promise). (adequacy of consideration is irrelevant)
A. Bargain for exchange – §71 – Fresh cause must arise on each side. – Sharington v. Strotton
b. To constitute consideration a performance or a return promise must be bargained for.
1) Promise must induce action; action must induce promise
2) Must be benefit to promisor OR detriment to promise.
c. 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.
d. The performance may consist of
i. An Act other than a promise
ii. Or a forbearance (hammer v. Sidway – uncle promised nephew $ to refrain from alc.)
iii. Or the creation, modification or destruction of a legal relation
A.2 Where There is NO Bargain:
a) Past consideration is not sufficient to support a contract. Hunt v. Bate. – §86
i. Hunt v. Bate – Master promised to pay any damages lev
he most the D was going to give the P. The letter stated the P was not happy w/ the check, and that the P should either cash the check or enter into an appraisal proceeding. The P then cashed the check, and attempted to reserve their rights by marking on the back of the check “in partial payment and accepted w/ reservation”. The evidence convincingly establishes that P’s claim has been discharged under an accord and satisfaction.
c. Mutual Promise – Under the doctrine, both parties are extending credit to each other. Mutual binding promises provide adequate consideration to support a contract. Martin v. Vance. Reciprocal promise is consideration. Consideration must exist on both sides, that is promises must be mutually obligatory.
a. West v. Stowell: P (West) bet D (Stowell). The D was to have a shooting match with a third party – Lord of Effingham. If D won, P would pay D 10L, if he lost, D owed P 10L. Both parties mutually promised. D lost the match. P sued for recovery of 10L. Since there were mutual promises, which were bargained for, there is proper consideration. Separate form of consideration – no benefit or detriment to the parties.
b. Strangborough v. Warner: A promise against a promise will maintain an action, as in consideration that you promise to give me 10L on such a day, I promise to give you 10L the day after.
i. Illusory Promises or Lack of Mutuality –
1. “Unilateral power to cancel” or “notice”: an option to be valid must be supported by a consideration.
a. Miami Coca-Cola v. Orange Crush, Coca cola could cancel at any time: If one of the promises appears on its fact 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 that promise is an illusory promise.
b. However, 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 an unilateral right of termination from being regarded as illusory in nature. You can have an exchange in which one party has the right to terminate, but it must have some restriction. Johnson Lakes Development
2. Conditional Promise/Mutuality: A valid contract may be conditioned upon the happening of an event, even though the event may depend upon the will of the party who afterwards seeks to avoid its obligation. “If I do something I promised before purchase, then I purchase, the contract to do the something is now valid.” Scott v. Moragues: lumber yard, if I buy boat, I will lease space to you. Once the boat was bought, the contract was enforceable.
a. Satisfaction Clauses: Mattei v. Hopper: 2 types: (1) Operative Fitness and Mechanical Utility and (2) Fancy Taste, and Judgment.
i. Mattei v. Hopper –(Contract to buy land). In those contracts involving fancy, taste, or judgment, the promisor’s determination that he is not satisfied, when made in good faith, had been held to be a defense to an action on the contract. R: An agreement made subject to the satisfaction of leases does not render a contract illusory or void for lack of mutuality because of the requirement of good faith.
b. Difference is making use of something or making sure its going to work to the standard (operative fitness and mechanical utility) vs. I want the color of this room changed before I buy (Fancy, Taste, and Judgment).
ii. Output Contracts (the seller has the duty, b/c they set the quantity) v. Requirement Contracts (the buyer has the duty, b/c they set the quantity. Decided by the buyer, but they can just cancel at any time, but they must act in good faith). §2-306.
