Contract 1 Outline
Contract law is state law and common law by default unless a statute has been passed covering a specific issue.
Theories of Contracts
Natural Law Theory – human nature is fairly constant/static. The way to get humans together is a fairly static/constant thing (the rules by which they can live happily); helps explain rules, but doesn’t generate them well.
Welfare Theory – not only is competition good to promote, but also to generate profit which is good for the community.
Autonomy Theory (newest) – Kantian terms; a reasoning being, inherently deserving of respect, creates a contract, and thus we should respect their contract
There is no constitutional right to freedom of contract. Our law does not recognize any natural right to freedom of contract.
Judges who grew up with natural law now had to ascribe rights to a document (due process clause in Constitution). Then, Ferguson v Skrupa changed that, putting the onus on legislatures to regulate business, no longer using due process to strike down laws.
Nude promise (nudum pactum)
One in which only one side is giving something with recompense; a promise “because there is nothing assigned why they should be made” (Example – promise to sell all my lands to you. no bargain/nude promise)
Contracts come in various forms
Unilateral: an agreement to pay in exchange for performance, if the potential performer chooses to act.
Bilateral: an agreement in which the parties exchange promises for each to do something in the future
UCC Applicability
The UCC applies to “goods” (things movable). Predominant factor test is used by nearly everyone. The test for inclusion or exclusion 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 service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom)…This test essentially involves consideration of the contract in its entirety, applying the UCC to the entire contract or not at all. Based on money amounts, they paid predominantly for the carpet instead of the installation.
A contract exists when the following elements exist:
(A) Consideration
(1) A bargain
Fresh cause arising on each side, mutual inducement, exchange, recompense
Consideration must induce the promise and the promise must induce the consideration.
Reasons: ensure good reason for promising, ensure deliberation. Moral or past consideration is apparently not rational enough.
Past consideration is not consideration to support a contract.
Example: Master’s Servant in Prison (Substitute Prisoner). Pledge had to pay servant’s debt after receiving promise from Master to pay for his debt if he took the place of the servant. A “fresh” or new cause must be present.
Moral obligation is insufficient consideration.
Example: Wife About to Ax Husband. Husband promised to pay for injuries sustained in saving him. “A humanitarian act, voluntarily performed, is not such consideration as would entitle recovery.
Exception: Moral obligation has been recognized in some cases to be sufficient consideration.
Example: Webb v McGowin in which one was permanen
benefit (i.e. the loan). It was called a loan and thus the promisee had a benefit. Court intends benefit if it is possible, plausible, or rational.
Example: Riches v Bridges “it shall be intended that he had some benefit.”
Settlement of a disputed claim is sufficient consideration for an accord and satisfaction.
Example: Associated v Coggins (Construction Dispute)- An accord is a contract under which an obligee promises to accept a substituted performance in future satisfaction of the obligor’s duty.”
(b) Detriment to the promisee
Example: St. Germain – Paying for a road or to heal someone.
Example: Webb’s Care – money from one to another.
Pay for work; work for pay.
Example: Storer’s Case – A promise for an action. John Doe signed the lease in consideration of the storer’s promise.
Non-bargained for detriment will stand for consideration.
Example: Keyme v Goulston – Send granddaughter to school and I’ll pay. There was consideration that didn’t seem unreasonable; Just as non-bargained-for benefit sometimes counts as a reason to enforce a promise, so does non-bargained-for detriment.
Forbearance of a right can constitute consideration if:
Forbearing party has a reasonable belief (not obviously unreasonable or frivolous) that he or she has, at least, a questionable right to act rather than forbear. (OBJECTIVE)
