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

Contracts I Outline Fall 2010 Ricks

· Natural Right to Contract

o There is no natural right to contract. There is no freedom of contract. (Farmer v. Brook)

o If cts no longer enforced contracts the following would happen, but life would go on (Ferguson v. Skrupa)

§ You could only do business with people you trust

§ There would be more emphasis on someone’s reputation

§ Transactions would take place among a smaller circle of people

§ There would be other ways to vouch for people (credit rating agencies, personal references)

o If congress decided thered be no contract law, it would be constitutional

o People don’t contract thinking they need to rely on the law so contract law isnt based on legal mechanisms

· K elements

o Consideration

§ Introduction

· “There are three things considered: consideration, promise, and breach of promise.” Doctrine of consideration was used to determine which promises were worthy of enforcement. (Golding’s Case)

o In order to prove damages, you had to prove the promise was given for consideration

· “It is a fundamental principle of contract law that ‘consideration is a necessary prerequisite to a valid contract” (Space Imaging Europe v. Space Imaging LP)

§ Theory

· Consideration doctrine was formed so we know that the person making the promise thought about it ahead of time (Christopher St. Germain, Doc and Student)

o Naked promise = there is no value to it

o Why would make a promise w/o recompense

§ Because it’s a gift

§ Acted out of impulse

§ To show faith in something

o A promise should be enforced even if it is made unreasonably

· Two ways to make a contract (Sharington v. Strotten)

o Words & writing

§ Writing is better

o Consideration definitions

§ A thing given on both sides

§ An act on each side

§ A fresh cause arising from each side

o Reasons for consideration

§ So the public can understand the case

§ To ensure the parties are serious

§ To ensure the promisor was careful

§ Bargain for exchange

· Past consideration – no valid consideration

When a promise is made after an event has occurred, there is no consideration

Hunt v. Bate – Master’s servant was arrested and in jail, Pledge went and sat in jail in servant’s place, Master didn’t pay = Pledge hadn’t spoken with Master prior to going to the jail – he did it on his own

There was no consideration on each side – no fresh cause arising on each side

If M had told P to do it, there would be consideration

A performance given for love and affection is not consideration for a promise

Vian v. Carey – Carey’s stepfather gave her gifts (financial and emotional support) as a parental figure in her life, mentioned her giving him permission to make dolls using her name and image, and sued when she wouldn’t let him saying that the gifts were in consideration for the promise to make the dolls

Mona v. Harry – husband was sick and said hed give her $2m to care for him, wife did, when he died his kids refused to pay her, ct asked her why she cared for him, she said it was because she loved him – if she had said it was for the $, there would have been consideration – she would have won the $

There is no consideration/contract when there is a pre-existing duty to care (it’s not a fresh cause)

Borelli v. Brusseau – Borelli’s husband had a stroke, she wanted to put him in a home, he offered her many properties if shed care for him at home, she agreed, when he died he didn’t leave the properties to her in the will, ct said there was no consideration on her part because it was her duty to care for him

Wife had a pre-existing duty to her husband

Abe v. Juanita – Juanita’s store was burglarized, she offers a reward, Abe – a part time security guard, finds evidence and arrests someone, he can’t claim reward – would be a corruption problem

Since cops are always on duty they have a pre-existing duty and can’t collect reward money

Restatement (2nd) of Contracts § 71(1) & cmt b

o The consideration and the promise bear a reciprocal relation of motive or inducement.

o Law is not considered with the mental state – must have an external manifestation

Proper form – consideration must be in a certain form: a benefit, detriment, or mutual promise

Consideration is the ground of every action on the case, and it ought to be either a charge to the P or a benefit to the D. (Stone v. Withepoole)

Consideration is a present exchange bargained for in rtn for a promise. It consists of either a benefit to the promisor or a detriment to the promisee. (Roark v. Stallsworth)

This is the consideration rule as its used today

Benefit = to the promisor (one who makes the promise)

Game v. Harvie – P loaned $ to D to repay on request, but when P requested it back, D didn’t want to pay, P won

A promise is ground upon an accommodation by way of a loan, which creates an implied benefit because the D gets the money

In consideration for the use of the $, is a promise to repay the $

Riches v. Bridges – P owed JS 20 combs of barley on X day, P told D he would deliver the barley to him on a day before X, D took upon the duty and promised to deliver the barley to JS on X, P delivered the barley to D who didn’t deliver it to JS

“it shall be intended that he has some benefit, otherwise he would not make such a promise”

Benefit can mean merely having possession and using that possession to be looked upon favorably by others.

Early payment of a lesser amnt can serve as a benefit. (Reynolds v. Pinhowe – P paid D only 4 of the 5lbs he owed, D took 4 as full pymt)

There is a benefit to settle a dispute claim outside of court

Associated Builders, Inc. v. William Coggins – Coggins owed ABI a certain amnt, ABI agreed to take a lesser amnt as long as the Coggins pymts were on time, Coggins 2nd pymt was 3 days late but ABI accepted it and then filed suit for breach of contract

Ct said that by accepting the late pymt, ABI waived their right to enforce the accord, relieving Coggins of the contractual obligation

Accord: a contract under which an obligee promises to accept a substituted performance in future satisfaction of the obligor’s duty

Settlement of a disputed claim is sufficient consideration for an accord and satisfaction

A waiver is a voluntary or intentional relinquishment of a known right. By accepting a late pymt, one disregards an accord and the right to enforce an original obligation.

Satisfaction is the execution or performance of the accord.

Moral obligation – all of the moral obligation cases have no consideration

Exception: A new promise to pay a discharged debt is sufficient consideration to revive the enforceability of th

Goulston – P )

Non-bargained promise induced detriment = counts as consideration

Settlement cases

If a claim is wholly invalid, neither forbearance to sue nor a compromise thereof can be good consideration. (Kim v. Son – K loaned S money for two business ventures, money was invested in companies, S wrote letter in blood stating hed pay it back)

Blood agmt lacked sufficient consideration b/c wasn’t the result of a bargained for exchange b/c Son only made it because he felt guilty

Corporation had debt, not Son

The compromise of a claim, either valid, doubtful, or disputed, is good consideration, the claimant giving up his or her asserted right to recover the whole amount as consideration for a promise to pay a lesser amount

Exception (this case is the exception)

If a claim is wholly invalid, neither forbearance to sue nor a compromise thereof can be good consideration

If the forbearance has no value, it will not suffice

Forbearance can be considered consideration in a promise if it is made in good faith. If the claimant has a reasonable belief in the grounds of their claim, they are just to try to enforce it. (Dyer v. Nat’l By-Products – )

Claimant must just believe he has a good faith claim.

Restatement (2nd) of Contracts § 74

Policy: Policy favoring compromise of disputed claims is clearest where a claim is surrendered at a time when its uncertain whether it is valid or not.

If claim is valid – a promise to pay was enforceable b/c it was supported by consideration, namely your forbearance

If your claim is invalid, the promise would not be enforceable on public policy grounds

If you think your claim is valid but its not – claim is “colorable” or “doubtful” and treats your forbearance to sue as good consideration

Motive wasn’t to extort

You only have to reasonable or honest about your belief – not both

U.C.C. § 1-207: Performance or Acceptance Under Reservation of Rights

A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice”, “under protest” or the like are sufficient

Subsection (1) does not apply to an accord and satisfaction.