CONTRACTS I OUTLINE
I. In General
· Contract- a of set promises to do or not to do something that are enforceable by law
· Incidental damages- compensation for any commercially reasonable charges, expenses, or commissions incurred with respect to:
(1) inspection, receipt, transportation, or care
(2) stopping delivery
(3) effecting cover, return, or resale of the goods
(4) efforts to cover the goods
· Consequential damages: any loss to the aggrieved party that the breacher had reason to know about and which could have been avoided without the breach.
· Always ask this question 1st: Does the transaction involve a service or a good?
A. Three types of relief available for breach of contract:
1) Expectancy- when one is placed in the position that he or she expected to be in had the contract not been breached.
2) Reliance- when one is reimbursed for the loss caused by relying on the contract. Puts P where they were before the breach occurred.
3) Restitution- taking any benefit away from the breacher and giving it back to the aggrieved party. (taking back fees that were paid for in the nose operation)
B. Bilateral and Unilateral contracts:
1) Bilateral- this type of contract is the one we usually deal with; it is a promise for a promise
2) Unilateral- this is a promise made in exchange for some type of performance. (i.e. a reward to catch a crook; one is not obligated to catch crook, but will get reward if they do!)
II. THE BARGAINED FOR EXCHANGE: PROMISE + CONSIDERATION
· Restatement 2nd § 71:
(1) to constitute consideration, a performance must be bargained for;
(2) It is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for the promisor’s promise.
(3) The performance may consist of an act, forbearance, the creation, modification, or destruction of a legal relation.
(4) The performance or return promise can be given to the promisor or some other person and may be given by the promisee or some other person.
III. THE NATURE OF CONSIDERATION
A. Consideration does not have to be the dominant want of the person in question; it can be a sub-ordinate want and will be sufficient to make a contract enforceable.
B. Bargained-For-Theory: a performance or a promise is bargained for if it is sought by the promisor in exchange for his promise. (a trade-off)
C. Cross-Inducements: each induces the other with something while bargaining. Both must be operating for it to be considered sufficient consideration. ( if you do not find anything that induces the promisor to make the promise, then we do not have consideration)
1) Both promises must actually prompt the other to make his promise; it is not sufficient if one makes a promise because the other has already done something for them. Something received in the past is not sufficient for consideration of a present promise.
2) A new promise to pay an old debt is consideration; a partial payment of a debt is also consideration to pay the old debt.
D. Benefit/Detriment approach:
*promisor must get a benefit, and promisee must suffer some kind of detriment
1) giving up a legal right to do something is a detriment (Hamer v. Sidway)
E. RESTATEMENT (SECOND) 74:
· Forbearance to assert a claim is consideration if:
1) The claim is valid
ance will be required of any term waived.
b) In order for the retraction of the waiver to be effective, the other party must receive the notification requiring strict performance.
c) A party will not be able to retract such a waiver if it would be unjust in view of a material change of position in reliance on the waiver.
Consideration is irrelevant if there is no future behavior. If there is only present behavior there is no need for consideration. (Ex. Transfer)
Transfer: A delivery of an item with donative intent.
G. PRE-EXISTING LEGAL DUTY RULE: RESTATEMENT 73
(1) If a party already has a legal duty to perform then any promise to pay a person more for that which they already must do is not sufficient consideration. (Alaska packer’s case)
(2) However, if the promisor is getting something more than he originally bargained for then this can be found to be consideration for the modification.
(3) This does not apply to 3rd parties; example: an owner, general contractor, and a sub-contractor. The owner’s promise to the sub contractor to give bonus for good work is enforceable because sub contractor only had duty to the general contractor and not actually to the owner.
HONEST DISPUTES ABOUT THE ORIGINAL AGREEMENT WILL AVOID THE PRE EXISTING LEGAL DUTY RULE BECAUSE THEY ARE NOT SURE EXACTLY WHAT THE ORIGINAL DUTY WAS.