Select Page

Contracts
South Texas College of Law Houston
Kelso, R. Randall

BASIS OF PROMISSORY LIABILITY                      
 
 
I. CONSIDERATION    Typically Immutable – not a default rule that can be bargained around.
 
A. ELEMENTS
 
        1. Bargain (express or implied)   AND 
 
        2. Exchange               (no adequacy requirement – must be more than mere pretense or sham)
 
                a) Return Benefit to Promisor (or third party)   OR
 
·         Must be legal benefit                                 (“feeling better” benefit is NOT a legal benefit).
 
·         Third Party –
o        A bargains with B.
o        B has C (third party) do something for A.
 
                b) Detriment to Promisee (or third party)
 
·         Must be legal detriment (gave up legal right to vices – drinking, swearing, smoking).
o        If uncle had made nephew only give up gambling which is not legal anyway, then no legal detriment, thus no consideration = no K.
 
·         Third Party –
o        A will do something for B
o        In Exchange – B will do something for C (on A’s behalf).
 
 
c)    TRAD/MAJ– merely feeling better (love/affection) is NOT enough for Exchange 
                        MOD – Family promises exception– merely feeling better (love & affection) w/b enough for
                                       legal benefit.
 
                d) HYPOS –
·         Ex1: If uncle had made nephew only give up gambling which is not legal anyway, then no legal detriment, thus no consideration = no K.
o        MOD – if you gave up any right at all = that’s enough.
·         Ex2: Nephew swears once. In general, substantial performance usually enough.
·         Ex3: Old woman down the street offers you $ to come & visit with her. Perhaps, try to extend family promises exception to this case & hope the court sides with you. Good faith argument, but atty w/h an uphill battle.
·         Ex4: Nephew gambling the whole time, but had given up smoking, drinking, swearing – still valid K? Yes– /c he gave up the legal detriments (gambling wasn’t a legal detriment)
 
 
 
B. BARGAIN
 
        1. Expressed
 
        2. Implied – even if one party remained silent.
·         Ex: injured mechanic – “I’ll take care of you.” [Pls don’t sue me…]  
 
C. SUFFICIENCY OF EXCHANGE
 
        1.   NOMINAL CONSIDERATION – must be more than mere pretense or sham.
 
·         Ex: Selling a Mercedes
o        $10 – nominal consideration/sham – NOT enforceable
o        $500 – would probably work – just not very adequate – but enforceable
 
·         Ex: $5000 for worthless book — it’s not K – it’s a gift (NOT enforceable).
 
                a. No adequacy requirement – just must be more than mere pretense or sham.
 
                b. Peppercorn Theory (same as Nominal Consideration) – must have more than a mere
                                                                                                                           peppercorn for consideration.
 
                c. EXCEPTIONS:
 
                        (1) OPTION CONTRACTS for land
·         Nominal consideration is routinely accepted in common day to hold land.
 
                        (2) MODIFICATION OF CONTRACTS
·         Nominal consideration is okay – but there must be something.
·         Ex: LL lets tenant pay less rent b/c business is failing. Tenant did not for consideration – nothing different. Even paying on a different day w/h worked.
 
 
        2. PAST ACTS ARE NEVER CONSIDERATION
·         Ex: Proud Grandfather – “I’ll give you the painting ($5000) if you name the baby after me.” They already had named the baby after him b/f he made the offer. NOT enforceable. 
 
 
        3. MODIFICATION OF CONTACT MUST HAVE IT’S OWN CONSIDERATION
 
·         Nominal Consideration is OK for Modifications of K.
 
·         Ex: Initial setup of promises – Later something happened & add’l promises.
o        Modification must have its own consideration.
 
·         Ex: Hard-Bargaining – Alaska workers – using their position to take advantage of the situation (waited until they were it Alaska with no other alternatives). BUT- modification of K – they could have done anything to make it valid, BUT no other consideration was given, therefore, modified K was NOT valid.
o        To Make Valid Could Have – torn up old K for $60 (both parties must agree to tearup) AND then, make new K for $100. This would have worked. 
o        You want to renegotiate your employment K – NOT modify.
 
·         Ex: Garbage collector – additional houses – he asked for more money – but offered no other consideration. 
o        TRAD/TX – would deny him b/c no new consideration for modification.
o        MOD – extra homes w/h/b sufficient for add’l consideration.
·         Don’t need consideration for modification if unexpected special conditions.
o        UCC (sale of goods) – no new consideration needed for modification but
                                                 modification must be bargained for in good faith.
        4. GIFTS – one sided K & is NOT enforceable.
·         Cannot promise to make a gift & have it be enforceable by law.
 
·         Ex: “I buy you a coat – you go pick it up.” This is not a bargain for exchange. No legal detriment or benefit. It’s a gift & NOT enforceable.
 
·         Ex: Mixed Motives – bargain for exchange as part of the agreement.
o        If K has a severable bargain – court will break it out.
·         Treat gift as a gift – treat bargain as bargain.
o        If cannot be severable – all of it will be enforceable.
·         Penny case – The letter will not be supportive of bargain for exchange b/c no specific bargain.
·         Cannot claim to receive something that you don’t have, therefore, no consideration – so NOT a bargain (he didn’t have penny at time he wrote the letter.).
 
·         EXCEPTION – Charity Gifts (promissory estoppel)
 
 
 
        5. “IDEA” DOES NOT HAVE TO BE NOVEL TO BE VALID CONSIDERATION FOR K.
·         If idea has value, it’s valid consideration. (Ex: computer system)
 
 
        6.   RELEASE FROM IMAGINARY CLAIMS IS NOT CONSIDERATION.
·         Ex: Mistress sues married man’s estate.
       (a) $1 will not support promise to pay thousands of dollars
o        nominal consideration won’t work.
       (b) “Other good & valuable consideration” will not serve as consideration when
                nothing good or valuable was actually given
o        just saying you gave consideration is not enough for consideration.
        (c) Release from imagery claims is not consideration for a promise
o        She didn’t even have any claims anyway.
        (d) Immunity from paying taxes on the house is not consideration b/c he was never
               liable for those taxes anyway.
        (e) Fact that parties intended to make an agreement means nothing. We don’t care
               if they intended to – must have actual consideration.
 
 
        7. SETTLING AN INVALID CLAIM – measure consideration at the time the agreement is made.
(a) Subjectively – Good faith at the time of agreement.
(b) Objectively – Reasonably basis of support
 
·         TRAD –                         must have (a) AND (b)
·         MOD/MAJ/TX –          must have (a) OR (b).
 
·         Ex: Paternity Suit – P made deal w/ D not to sue him for paternity if D paid her some money. After birth of child, blood tests showed D c/n/h/b the father.  D stopped pmts. P sued to collect pmts. P won. The bargain was made b/f the blood tests were known. It held b/c:
                (a) In good faith, P thought she had a claim. Does not require P to be
                      completely honest with him. She was obviously sleeping with
                      other people. 
                (b) P reasonably believed she’s giving something up (paternity suit).
 
·         If ENFORCEABLE at the time K was made – remains ENFORCEABLE.
·         If UNENFORCEABLE at the time K was made – remains UNENFORCEABLE.
 
·         Was something of value exchanged when agreement was made? 
o        If yes – consideration holds.
 
 
D. MUTUALITY OF OBLIGATION – a contract that allows one party to act with unbridled discretion
                                                                            lacks mutuality of obligation.
        1. Two Types of Contracts:
                       
                a) Output Contract – how much seller is selling.
o        Have an output K when no seller could possibly sell all that the buyer needs.
 
                b) Requirement Contract – how much buyer is buying.
o        Have a requirement K when no buyer could possibly buy all that the seller has.
 
 
        2. Examples:
·         Ex1: Whiskey retailer – per K – buyer did not have to do anything – no express language. Did buyer imply that he promised to take some? 
 
o        TRAD – reluctant to imply – No implied promise – no consideration – no K
                        b/c this K had no express consideration.
 
 
·         Ex2: Sand Seller – D agrees to furnish all the sand (implied substantial quantity) P could sell. 
 
o        TRAD – Literal express terms – no consideration.
 
o        MOD – court implies consideration that buyer will have SUBSTANTIAL
                       AMOUNT of sand that he needs to buy from seller (he was an
                       experienced sand seller).
 
o        UCC – Imply Consideration/Obligation – would require that he buys a
                     “GOOD FAITH” amount (rather than “substantial amt.”)
 
 
·         Ex3: Designer – D gave P an EXCLUSIVE CONTRACT to promote her clothes, but D put her name on someone else’s clothes & did not share profits with P. P sued. 
 
o        TRAD – P did not literally promise to put D’s name on anything – no
                       consideration.
 
o        MOD – Implied Contract – b/c exclusive K when she gave him benefit of
                                                         her name. What must P do to comply with K?
·         P must use “REASONABLE EFFORTS.”
 
o        UCC – “BEST EFFORTS” for exclusive K.
§         More proactive than “GOOD FAITH” – normal business effort – can sit back & wait (that’s ok).
 
 
·         Ex4: Buying Land – Satisfaction Clause – P contracted to purchase property from D subject to “Satisfaction Clause.” P wanted to make sure land was suitable for development. 
 
o        TRAD – literally no expressed consideration b/c person has total discretion to say they don’t want the land. NOT Enforceable
 
o        MOD – Implied obligation to buy the land – Enforceable
 
o        MOD/MAJ/TX – SATISFACTION CLAUSE– always ENFORCEABLE b/c consideration b/c limited discretion.   P has obligation to use “Good Faith” reason for the reason of determining satisfaction. They’ve limited their legal right to total discretion. That’s consideration.
§         Two Standards:
·         GOOD FAITH (subjective) – multiplicy of standards/factors – not clear standards – must use “Good Faith.”
 
·         OBJECTIVE REASONABLE (objective) – clear industry standards by which you s/b satisfied. (ex: produce – are you satisfied w/ the lettuce you’re buying?)
 
o        TX – in a General K – TX is TRAD & will NOT apply “Good Faith” – only for output, requirement & satisfaction clauses & any sale of goods (UCC).
 
o        MOD/UCC – will require that K be completed in good faith.
 
 
·         Ex5: Illusionary Bonus – not part of any of the 4 Exception Contracts. 
o        Literal language – not express obligation
o        Implied – only can withdraw if in “good faith”
o        Exam Answer:
§         P would lose in a TRAD state (like TX), but in a MOD state under UCC would likely win unless co had a “good faith” reason to withdraw the bonus plan.
 
 
E. SUMMARY OF TYPES OF CONTRACTS
 
        1. In General
 
o        TRAD –                         nominal okay
o        MOD/TX/MAJ –          more than pretense or sham BUT no requirement for adequacy.
 
        2. Option Contract
 
o        TRAD/TX –                   nominal okay
o        MOD –                            nominal okay § 87
o        No Clear Majority
 
        3. Modification
 
o        TRAD/TX –                   nominal okay
o        MOD –                            nominal okay § 89 (UCC 2-209)
o        No Clear Majority
 
        4.  Imply Bargain for Exchange
                        a) Output Contract                    “Good Faith”
                        b) Requirement Contract        “Good Faith”
                        c) Exclusion Contract              “Reasonable Efforts” “Best Efforts”
                        d) Satisfaction Clause              “Good Faith” “Reasonable to Industry Standards”
 
o        TRAD –                         reluctant to imply
o        MOD/MAJ/TX –          willingness to imply
 
 
 
F. MORAL OBLIGATION – cannot bargain for past consideration (life-saving act – then bar

                            =         Expectation Damages                                                  $   15
 
                                                                Note: Nowhere in the formula is the value of where P started from.
 
Ex2: same as above except value of the book is $9.
Damages –
Restitution = $11     ($10 + value of the notes $1 benefit conferred)
Reliance = $13         ($10 + $3 copy costs)
Expectation = $9                      ($9 book value – $13* = $ – 4 where you should have been)
                                                *($13 = $10 + $3 copy costs)
 
                                                           Value of what you were suppose to get                     $ – 4
–              Less Value of what you got                                      ($ -13)
                                                =          Expectation Damages                                                   $    9
 
                If losing contract position to start with – expectation damages will be lower than reliance damages. 
                Courts will not let reliance damages exceed expectation damages.
 
Sullivan – the nose job 3 operations– P waived add’l Reliance damages in favor of trial jury verdict – D only wanted to pay Restitution (dr bills).   Why not Expectation?
                1) C/a “promising perfection” is suspect.
                2) To put value on what the value w/h/b for better nose (# not reasonable for monetary damages)
                3) Undue burden for jury b/c difficult calculation.
 
TRIAL COURT
EXPECTATION
RELIANCE
RESTITUTION
 
Promise-Start
 
 
 
            Y
 
 
 
 
 
Start – Finished
 
 
         Y
 
 
           Y
 
 
          Y
 
 
 
 
Doctor Bills
 
 
 
 
 
      Y – all bills
 
 
 
 
 
   N- had K gone thru,
 you’d have paid
 these anyway. BUT,
 
Y-any expense on 3rd operation.
 Y – all bills
 
 
 
 
 
Y-all bills
BUT D’s benefit from his fees
 
 
 
Pain & Suffering
 
 
 Y-3rd operation only
 
 
Y-3rd operation & extra P&S for 1st & 2nd from breach.
Y-all P&S for all operations.
 
 
 
 
 
Mental Anguish
    Y
    Y
    Y
 
 
Loss Employmt
 
 
 Y (but these facts 0)
Y-   & also lost opportunities from better features
 
Y – but NOT lost opportunities
 
 
 
 
B. GENERAL POINTS
 
        1. Mental Anguish                     TRAD –                                  Not allowed
                                                                MOD/MAJ/TX –                   Allowed in Special Cases
 
        2. Punitive Damages                 TRAD/MAJ/TX –                 Only if independent tort
                                                                MOD –                                    indep. tort or gross neg or oppression
 
        3. Specific Performance          TRAD –                                  Money inadequate – unique performance
                                                                MOD/MAJ/TX –                   Unique performance
 
 
C. MEASURING DAMAGE AMOUNTS
 
        1. Expectation                            TRAD –                                  Market or contract price
                                                                MOD/MAJ/TX/UCC-         Market or cover price
 
 
        2. Reliance                                  TRAD –                                 cannot exceed expectation
                                                                MOD/MAJ/TX –                   can exceed expectation
 
 
D. SPECIFIC CASES
 
        1. Doctor Promises                   TRAD/MAJ/TX –                 Expectation recovery
                                                                MOD –                                    Only Reliance recovery
 
 
        2. Promissory Estoppel           ULTRATRAD –                    Expectation recovery
                                                                TRAD/MAJ/TEX –              Only Reliance recovery
                                                                MOD –                                    Reliance, expectation, whatever justice req’s               
STATUTE OF FRAUDS                                   CONTRACTS OUTLINE – KELSO– FALL 2001
 
 
I. SOF
 
A. ELEMENTS
 
                1. Answer for the Debt of Another – promise must be in writing to be enforceable.
·         Ex: Debtor (A) owes Creditor (B).
o        C promises to answer debt for A.
 
                2. Sale of Land    – contract must in writing to be enforceable.
 
       
                3. Not to be Performed within a year
 
 
                4. Sale of Goods ($500 or more)   – under UCC 2-210 provides that they must be in writing.
a) Some kind of writing signed by the parties
b) Quantity included
 
                5. Every state has other stuff (TX- O&G – R/E brokerage, etc.)
 
                6. All essential terms must be in writing for 1-3 (harder to satisfy).