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Contracts
St. Johns University School of Law
Kniffin, Margaret N.

Two Types of Contracts:

1) Bilateral Contract/Promise: offeror seeks a promise: effective immediately when offeror receives promise
a) Advantage of a promise v. performance
i) aware that it is valid contract from the beginning
ii) If a breach, party can sue for valuable contract right (just as nephew sold his contract right)
b) Disadvantage:
i) Bound immediately; can not revoke

2) Unilateral Contract/Performance: offeror seeks performance contract effective after offeror receives full performance;
a) conditional; I’ll give you this if you; offeror always makes a promise
i) E.g. Hamer v. Sidway; conditional promise; promise based on nephew’s performance (refraining from drinking, etc.)
ii) E.g. reward for lost dog; offeror seeking performance
b) Offeror can revoke promise up until other party begins performance or accepts

3) When doubt as to whether or not there was a unilateral or bilateral contractè courts assume bilateral;
a) Rationale: based on common sense; the language in contractsèofferor rarely uses the word promise even though that’s what they intend

REQUIREMENTS OF A VALID K
1) CONSIDERATION as a Basis for Enforcement:
a) Definition: Consideration: There is consideration when there is a bargained-for (sought-after) exchange in which each party receives something that is either a benefit to that party or a detriment to the other party.
b) Fundamentals of Consideration:
i) No need to say sufficient consideration; either there is or there is not consideration
ii) Consideration need not be the main motive: e.g. a man may promise to paint a picture for $500, while his main motive may be a desire for fame;
iii) Detriment: anything that costs time and energy; inconvenience; forbearance from asserting a legal right (typical settlement claim in civil law);
(1) At times benefit not detectable; unseen benefit is probably detriment to the other a party
(a) Hamer v. Sidway Uncle received something that was a detriment to the nephew (abstaining from drinking, smoking, etc.) and nephew receives the benefit of money from the uncle;
(2) Good faith validity of claim: there is consideration for the surrender of or forbearance to assert a valid claim by one who has an honest (subjective) and reasonable belief (objective) in its possible validity (legal right);
(a) First Restatement: must meet both standards: objective and subjective; more lenient view of consideration; bargaining for detriment to the other person that is not a actually legal right, but a possible legal right
(i) E.g. Fiege v. Boehm: contract for payment of child support and expenses in exchange for forbearance to sue for “bastardy”;
(ii) Howeverèpossible fraud and misrepresentation and/or nondisclosure for not telling D that she had slept with
(b) Second Restatement: pg 194 supplement “may” substitutes for possibility; good faith requirement “believed” but reasonableness standard was relaxed, not mentioned in the Restatement 2nd
(i) Must consider both Restatement and Restatement 2nd for the exam (if the court adopts the first Restatement…)
(ii) No consideration if P makes a bad faith promise of forbearance to prosecute claim
1. E.g. exchange for an agreement to pay in order to a release D from mere annoyance and unfounded litigation

iii) Bargained for: something each person wanted; no need for “negotiations”; relationship of reciprocal conventional inducement, each for the other
(1) Gratuitous promises: can not bargain for something you have already received; past acts do not satisfy consideration; gifts not enforceable
(a) Moral obligation not recognized as consideration in modern common law; e.g. past medical service; past service to a company; these are gifts

(i) Feinberg v. Pfeiffer;Past services to companyèpresident promised pension, not enforced by successor or courts because past act (could accept pension at any time); but reliance

(ii) Mills v. WymanNo consideration for a contract to pay a caretaker who tended to ailing son (past act); Side bar: Not the issue that parent was bargaining for benefit to son and not himself: A person can benefit for a bargain to another (or prove that the other side suffered a detriment);

(iii)Webb v. McGowin; not good law!Act of saving employer’s life was a past act and not bargained for; possible restitution damages?NO because not given in exchange, perhaps intended as a gift

(2) Token Consideration: courts generally do not compare the value of the consideration on both sides
(a) POLICY: freedom of contract (except illegal terms)
(b) People are allowed to make foolish contracts
(c) Limits:
(i) Unconscionability: extreme unfairness; contract not enforceable
(ii) Token “consideration”: “peppercorn theory”; sham contract; pretend contract; really no consideration passing; merely a pretense; not enforceable because really a gratuitous (gift) promise
(iii)DISPUTE: courts are divided as to whether token consideration counts as consideration; some states recognize some do not; Restatement 2d: does NOT recognize token consideration

(3) Conditional gratuitous gifts: gift with requirements attached; requirements to be done to receive the gift;
(a) Question: what does the promisor want from the promise; bargaining/hoping for something;

(b) Kirksey; widow moved in reliance of brother in law asking “if you come and see me, I w

a) Satisfaction clauses NOT illusory: because they do not give full discretion to anyone as to whether to perform
(i) E.G. Mattei v. Hopper; Contract based on buyer’s satisfaction with deal; “subject to Coldwell Banker & Company. obtaining leases satisfactory to the purchaser”
(ii) Court holds satisfaction clause not illusory becauseèbased on good faith judgment; Always limits on claims of dissatisfaction; dissatisfaction can not be arbitrary, must be genuine

(iii)Two primary categories for satisfaction clauses:
1. Subject matter involves something that should be judged by commercial value or quality
a. E.g. house painted properly or not?
b. Standard of reasonable person in industry
2. Subject matter involves something that should be judged by fancy taste or judgment
a. E.g. portrait painted
b. Good faith standard, honesty; (hard to prove)
(iv)No one reasonable standard applicable (many distinctly important factors; so no one right answer as to whether its reasonable or not); categories are not ironed out; which allows for taste or judgment satisfaction based on good faith

(b) Requirements contract/Output Contract
U.C.C. § 2-306 Output, Requirements, and Exclusive Dealings;says requirement contracts subject to reasonableness to protect the seller against dishonesty and impractical demands; based on commercial standard or terms based on prior contracts
(i) Eastern v. Gulf Oil; seller is arguing that there is nor enforceable contract; Requirements: “fill the requirements of Eastern” e.g. Laredo Hides; Defense argues: amount is at the discretion of the buyer; based on reasonable industry standards; but price difficult to determine over the long termèspecific performance
(ii) Wood v. Lady Duff-Gordon store owner had exclusive right to endorse P’s designs; P is dependent on him to make 50% profit; Wood’s obligation to place endorsements illusory?
1. Cardozo: instinct of obligation; reasonable effort èimplied term in the contract
2. Each party must intend this specific term to come in, it just didn’t make its way into the writing; term implied in fact èBoth parties depend on reasonable effort for profits