a) Contract as Binding Promise.
i) A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.
ii) A promise is a pledge of future performance, or rather, a commitment.
iii) For the promise to be understood it must be reasonable.
b) Why do we have contracts?
i) Stability , Predictability , Fluid Economy, Individual Autonomy (Two people may strike their own deal)
c) Where do we get Contract Law?
i) English Common Law, Restatements , Universal Commercial Code (UCC).
d) Default vs. Immutable Rules.
i) Default Rules are rules that can be altered by the private agreements of the parties.
ii) Immutable Rules are contract rules that cannot be contracted around. They are rules that are established by both courts and legislatures.
e) Why don’t courts provide specific enforcements of the particular contract?
i) The court does not make you follow through with the contract, but it makes you pay money as damages. Why? Efficiency – The court does not want to have to monitor whether or not the contract was performed correctly. Money, however, has monetary value and can end to the dispute immediately
f) — Meaning & Enforcement—
(1) Need a promise
(2) Where law recognizes a duty of performance
(3) If there’s a breach – you get a remedy
i) Unilateral – 1 promise: exchanging for performance – other party not bound to
ii) Bilateral – 2 promises
iii) Option contract – keeps offer open; limits promise’s right to revoke offer
h) Which law will govern?
i) With contracts for services – The Restatement: Not adopted so only Persuasive
ii) With contracts for goods – U.C.C.: Adopted and Binding
i) Remedies Overview (probably not on test)
i) Four Types:
(1) Restitution: Moves Δ back to where he was before the K.
(2) Expectation: Moves Π to where he would have been if the K had not been performed.
(3) Reliance: Moves Π to where he was before entering into the K.
(4) Specific Performance: Forces Δ to perform under the K.
j) Efficient Breach – hypo: D has K to sell to P for $1000, value rises to $1100. 3rd party promises to buy for $2000. Breach K with P, pay P the $100 value increase and sell to 3rd party.
k) Your contractual obligations outlive you
Goods v. Service
Is it a Good or a Service?
i. UCC à Sale of Goods
ii. Restatement à Service
Predominant Factor Test:
i. When determining whether the K is for goods or services, the main method used is the predominant factor test—which is the predominant aspect of the K, goods or services?
1. Goods: Software, bubble gum, airplanes.
a. stuff that you can buy
2. Either: Electricity
3. Services: Beauty parlor, construction K’s, money loans.
*TEST* IS this a good or a service?
i. What good does it make?
1. Deemed to be a good then these laws are going to be different then if these were a service
Test for Inclusion or Exclusion:
i. 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.
Look at the transaction and try to figure out which aspect of the deal predominates.
i. (1) What makes the deal even a Goods Deal potentially>
1. All Goods must be moveable
a. Must be moveable when they are identified to the K
ii. (2) Does moveable “junk” predominate or does not predominate?
1. HYPO: Painted Canvass
a. Custom made goods are still goods!!!
2. Service Agreement: Hair, Construction Contracts
3. Things to Think About:
a. (a) What is the language of the K?
i. Such as equipment, goods, etc.
b. (b) Are there goods in the deal that are not moveable?
c. (c) Is the service billing separately from the billed object??
i. Overall Definition:
1. To constitute consideration, a performance or return promise must be bargained for.
2. A performance or return promise is bargained for if it:
a. Is sought by the promisor in exchange for his promise, and
b. Is given by the promise in exchange for that promise
3. Perceived benefits qualify even if they never actually existed – we don’t really care if what was perceived to be a detriment was really a benefit or vice-versa
ii. The performance may consist of:
1. an act other than a promise
2. a forbearance – a legal opportunity forgone is enough to be forbearance
a. Hammer v Sidway – clean living gets you a payout
b. Langer v Superior Steel – what would be gratuitous pension was consideration because the promisor benefited from non-competition clause (forebearance).
3. the creation, modification or destruction of a legal relation
iii. Promise may be from a 3rd party OR to a 3rd party
1. Bodigan v Bodigan – benefit goes to the buyer of the house, detriment goes to ex-wife
iv. No Consideration for Past Events
1. May be important to the promisor but as far as consideration goes a promise cannot be based on past benefit because it cannot be inducing the party to receive something in the future. Past consideration is no consideration.
a. HYPO: If Paul saves Joe’s life in the war and this induces Joe to make a promise to Paul, Joe’s promise is not what induced Paul to save his life so there is no consideration
1. What is bargained for does not have to be the primary motive, it just has to act as some inducement for promise.
a. Impressing a hot chick can be the inducement to enter into buying a car that the buyer really doesn’t want. Still induced to buy, so it’s a K.
b. Thomas v Thomas – not looking like an ass for throwing out a widow is inducement, even if the one pound rent you charge isn’t.
2. Forbearance to assert a claim is consideration even if it is a false claim and there is no question by the other party about the facts or law at time of contract.
a. Fiege v. Boehm – he’s not the baby daddy, but she thinks he is and her forbearance is consideration. Good faith can exist even if you are wrong.
i. The promise needs to be something that each party actually wants and cannot be indifferent to either party. There has to be some inducement
1. Fuzzy cough drop is not enough to bind a contract for the sale of Grandpa’s house but baking him cookies is.
2. In re green – A 1$ nominal payment is not consideration for D paying P’s rent and being her sugar daddy.
i. A gratuitous promise is on its face not supported by consideration because there is no cross-inducement. It can be canceled at any time before it is performed.
ii. Once a gratuitous promise has been performed the performing party can’t get their money back (gratuitous transfer)
iii. The fac
i. Forbearance in asserting an invalid claim by one who has an honest and reasonable belief in its possible validity is sufficient consideration for a contract.
ii. Forbearance in asserting an invalid claim that is known to be invalid is not consideration.
iii. Good Faith (PAGE)à
1. Honesty, observance of reasonable commercial standards, and also “honoring the common goal of the transaction”
Previous Restatement: Subjective/Objective Test:
i. We combine the subjective requisite that the claim be bona fide with,
ii. the objective requisite that it must have a reasonable basis of support.
NOW: Only need Subjective Test
i. Now we need only a genuine belief
ii. HYPO: NOW A DAYS
1. Kissing equals a child. She believes it is his. But not reasonable.
2. Subjective element of genuine belief but YES today’s Standard
Promise not to make a Claim:
i. A writing that promises not to make a legal claim, whether or not such a claim even exists, may qualify as consideration.
Pre-Existing Legal Duty Rule
Pre-Existing Legal Duty Rule
i. Performance already legitimately agreed to, and not in dispute is not consideration (because it is in the past) for a new agreement unless there is a modification to the agreement that provides new consideration. The modification has to be enough to be actually induce a change and cannot be a mere pretense of a bargain.
1. Basically, you cannot promise to do something you are already bound to do by a past promise.
a. Levine v. Blumenthal – Verbally agreeing to lower rent when you had contract to pay full rent means I can make you pay full rent
b. Exists to stop Hold’em-up tactics
i. Alaska Packers – can’t demand more money for the job you already agreed to do for less.
i. Voidable K’s (If I promise to make good on a previous promise I got out of due to bankruptcy or infancy, I can be bound to this promise even though the consideration is in the past).
i. Services= (R 89) – requires consideration
1. A K may be modified if in good faith:
a. Both parties voluntarily agree
b. Modification is made before either performance is complete
c. Underlying causes of modification were unanticipated
d. Modification is fair and equitable
i. Angel v. Murray – It got a lot harder to remove combustible waste so the contract to perform this service was altered in good faith.
ii. If the Alaskan Packers promised to recycle the fish hooks they could have claimed the modification was different enough to overcome the pre-existing legal duty rule and had a new inducement for more money.
ii. Goods= (UCC 2-209)