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

Contracts Outline
Prof. Ricks Fall 2016
 
Contract law
What it is
State law. Common law by default, unless a statute has been passed covering the issue.
Hierarchies: constitutional, legislation, common law
Rights to contract are guaranteed primarily only by common law and maybe statutes. No constitutional right to contract or engage in economic activity
Source of contract law:
Contractual obligations come from actions of individuals
Theories for purpose of contract law
Autonomy: an attempt to aid individuals in their attempt at self-determination
Welfare: individual pursuit of self-interest results in promotion of the good of society
People act in their own self-interest; in the pursuit of self-interest, people act rationally; people have access to perfect information; people and resources are readily available; there are no artificial restrictions on entry to the marketplace
Justice/Morality: failure to keep a promise might do harm to another, so the harm can be remedied by requiring recompense
Elements of a valid contract
Consideration: to constitute consideration, a performance or return promise must be bargained for: a performance or return promise is bargained for if it is sought by the promisor for his promise and is given by the promise in exchange for that promise
Bargain
Synonyms (Sharington v. Strotton)
Fresh cause arising on each side
Pre-existing duty = no fresh cause, no consideration (Borelli v. Brusseau)
Mutual inducement
Bargained for exchange = promise + consideration; consideration induced the promise. Consideration for promise can’t arise from love and affection (Vian v. Carey)
Exchange
Consideration is a present exchange bargained for in return for a promise (Plains Builders, Inc. v. Steel Source, Inc.)
Recompense
Reasons for bargain
Ensure good reason for promising
Ensure deliberation or caution in promising
Put promises in a form a jury would recognize
Give evidence of a promise
Ensure a minimum level of rationality in promising
Moral or past consideration is not rational enough
Past consideration not valid: Hunt v. Bate
Moral consideration: most jurisdictions do not take moral obligation as consideration
Harrington v. Taylor
Moral consideration is not valid consideration
Exceptions to when moral obligation is sufficient consideration
Minor: a promise to pay a debt contracted during infancy
Bankruptcy: under code, when bankruptcy declared, debts are discharged, but if reaffirmed, they are enforceable
Webb v. McGowin (minority position): moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a substantial material benefit, although there was no original duty or liability resting on the promisor.
A person can waive a right not to pay if they feel morally obligated, but it must be done on their own accord (Edmonds)
Proper form
Benefit to the promisor (Promisor receives a benefit which he has a legal right to) OR
Implied benefit
Game v. Harvie: implied benefit is use of money
Riches v. Bridges: implied benefit is to be considered rich
Reynolds v. Pinhowe (minority position): benefit to have money without suit or charge
Detriment to the promisee (forbearance to sue on a claim; extension of time or any other giving up of a legal right in consideration of some promise; promise does something or gives something up that he was not legally obligated to give up) OR
Forbearance: forbearance of a right can constitute consideration if there is any reasonable ground for the claimant’s belief that he has a right to enforce his claim (objective)
Forbearance without value is not consideration (Kim v. Son)
Keyme v. Goulston
Non-bargained for detriment will stand for consideration
Facts: D promised to pay if P put granddaughter in school for a year
Mutual promise
West v. Stowell
Mutual promises do not require a benefit or detriment; only requires mutual obligation
Nicholas v. Raynbred
The thing promised as consideration must itself be adequate consideration if exchanged for the promise at the time the promise was made. Promises must induce each other and be made at the same time.
Strangborough v. Warner
There must be trust on both sides. Promise to pay one day, the other party promises to pay the next day, the promise is credit
Associated Builders v. Coggins
Accord: contract under which an obligee promises to accept a substituted performance in satisfaction of the obligor’s duty
Settlement of a disputed claim is sufficient consideration for an accord and satisfaction
Facts: Coggins paid bill late and Associated cashed check, which is an acceptance of the payment and cannot collect discounted amount
Illusory promises: NOT valid consideration; “I will if I want to”
In re Adirondack Railway Corp.
Illusory promise: when a party can cancel contract at any time. Even if a present intention is manifested, the reservation of an option to change that intention means that there can be no promise who is justified in an expectation of performance (In re Adirondack Railway Corp.)
Unilateral power to cancel: if one of the parties may cancel a contract at will, the contract is void for lack of mutuality (Miami Coca Cola v. Orange Crush)
Not illusory promise when
Advanced notice of any length of time is given (Johnson Lakes Inc. v. Central Nebraska Public Power & Irrigation District)
Conditional promise made and condition fulfilled: if I buy the boat, I WILL charter it to you. I bought the boat. (Scott v. Moragues Lumber Co.)
Invalid: If I buy the boat, I will charter it to you if I want to
Good faith effort is valid consideration (Wood

y the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim
one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction and good faith without reason to know of the material in the transaction
A threat is improper if §176
What is threatened is a crime or tort, or the threat itself would be a crime or a tort if it resulted in a obtaining property
What is threatened is criminal prosecution
What is threatened is the use of civil process and the threat is made in bad faith, or
The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient
A threat is improper if the resulting exchange is not on fair terms, and
the threatened act would harm the recipient and would not significantly benefit the party making the threat,
the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
what is threatened is otherwise a use of power for illegitimate ends.
Hamer v. Sidway
A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken
Facts: Uncle promises nephew money if nephew refrains from drinking, using tobacco, swearing, playing cards or billiards for money until he turns 21. Uncle dies before he gives the money. Nephew sues estate. Ct rules in favor of nephew.
Batsakis v. Demotsis
Mere inadequacy of consideration will not void a contract
Facts: Batsakis loaned money to Demotsis. Demotsis agreed to pay $2000 for a $25 immediate payment
Allied Bruce Terminix Co., Inc. v. Guillory
The threat of doing a lawful act does not constitute duress.
Facts: Guillory employed by Terminix and signed non-compete agreement.
Miller v. Miller
If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
Facts: Husband threatened to break off engagement if wife didn’t sign pre-nup, so wife did sign pre-nup. Ct ruled in favor of husband.