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Contracts
St. Johns University School of Law
Movsesian, Mark L.

WHAT ARE Ks?
·         Rest 2d Sec 1-“A Contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty” 
a promise is “a manifestation of intention to act or refrain from acting in a specified way so made as to justify a promisee in understanding that a commitment has been made”
*For a promise to become a contract, there must be a promise + something else:
Promise + Detrimental Reliance OR Mutual Consideration OR  Obligation (or moral obligation)
*4 Types of Enforceable Promises (Contracts):
Promise + Consideration OR Antecedent Benefit OR Unbargained-for Reliance OR Form
THEORIES
Why contracts are enforced…
essential to the functioning of a free-market economy
Libertarian autonomy – contracts promote individual liberty
Fairness/moral reasons
Formalis- adhering to bright line rules & logical principle v. pragmatism-considering policy
normative- what law should be v. positive-what law is
TYPES of contracts
express contract – K expressed by words-need not be written
implied-in-fact – K in which agreement is manifested by parties’ conduct, not their words
Objective intent of parties – What would a reasonable person in the circumstances understand that a K has been made? Bailey v. West-no intention to make K
look at customs of the parties and of the business practices
Not subjective intent- exists in subject’s mind, can never know what people are thinking
implied-in-law (quasi-contract)
not a contract at all, no manifestation of intent
Parties didn’t intend to make a promise but should have in the interest of justice
P must confer benefit on D
D appreciated benefit
knew it about the benefit and didn’t decline it
Or the unconscious D that would reasonably appreciate the benefit
Circumstances are such that it would be unjust for D to retain benefit w/o reimbursing
just expectation to be reimbursed
rationale— protect people from unjust enrichment
DAMAGES
typically monetary – courts usually don’t require specific performance
expectation measure – puts injured party in as good a position he would have been in had the K been performed as promised
compensatory measure of damages
reliance measure–puts injured party in as good a position as if the K had not been made
restores status quo
restitution measure – Restores the injured party the value of any benefit he’s conferred on breaching party (remedy for quasi contracts)
o       2 Types of promises
·         Unilateral –promise is exchanged for performance, until performed there is no K
·         Bilateral-exchange of a promise for a promise
CONSIDERATION- bargain plus legal detriment
Rest 2d sec 71- to constitute consideration, a performance or a return promise must be bargained for, a performance/return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee for that promise
THEORIES
Freedom of Contract Theory (formalist theory)
contracts exist to facilitate the exchange of goods and services
courts should enforce contracts that are the product of  formal bargains
substance of the exchange is irrelevant
law enforces the promises that are supported by consideration
Substantive Fairness Theory
Presence of formal bargain is not determinative
Adequacy of exchange may be relative
more about reliance than consideration
in some instances the law overlooks the consideration requirement, and enforces promises that are not supported by consideration
·         BARGAIN- thing sought by the promissor in exchange for his promise and given by the promise in exchange for that promise
a mutually reciprocal exchange – manifestation of mutual assent to the exchange
Rest 2d Sec 17 — Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
·         LEGAL DETRIMENT- promisee either promises to do something he has no legal obligation to do, or promises to refrain from doing something he has a legal right to do. 
o      if legal detriment is performance, K is unilateral, if legal detriment is a promise, K is bilateral
a conditional gift (or gratuitous promise) is not a bargain
ask- did promisor receive a concrete BENEFIT – if no-it is a conditional gift (Kirksey v Kirksey no bargain but legal detriment existed)
Rationale for Bargain requirement—
cautionary function –to ensure that ppl are not entering k’s impulsively/accidently, but deliberately under standards of a reasonable person
channeling function – judicial economy because courts can’t enforce all promises
evidentiary function –consideration provides evidence for Cts & 3rd parties that a K exists
economic function – promotes economy
Gift promises are messy situations
Hamer v. Sidway uncle promised nephew $ if he stopped bad habits until 21 the nephew did, uncle refused to pay. CT -there was legal detriment because nephew gave up what he had a legal right to do–didn’t matter that he might have benefited from it (healthier, etc.) But was there a bargain? Benefit to uncle?
Jara-no consideration no bargain b/c father did not promise anything in return for being consulted with
Langer- consideration existed b/c he promised he would not work
·       ADEQUACY OF EXCHANGE
Rule: Adequacy of exchange is irrelevant
Exceptions: Nominal consideration is not sufficient-Unconscionable exchanges are unenforceable
·         you can sell your mansion for a peppercorn, and that is a good bargain
·         ignores the substance of the agreement – only cares about the FORM
-Rest 2d Sec 81 (1)   “The fact that what is bargained for does not itself induce the making of the promise does not prevent it from being consideration for the promise”
Thomas v Thomas widow paid nominal amount. Browning v Johnson paper(K) in exchange for $=consideration
·         The promissor’s motive and the consideration are independent of each other.
·         there is no such thing as intrinsic value-courts are uneasy with this approach
o       (Apfel) Public info had intrinsic value
o       Doctrine of Sham/Nominal Consideration
§         Rest 2d Sec 71 “A mere pretense of a bargain does not suffice, as where there is a false recital of consideration or the purported consideration is merely nominal”
·         if a formal bargain looks like a pretense, then bargain is not enforceable
·         cares about the substance of the agreement   -In re Greene married man promises to pay rent life ins for 1$/yr -ct says there is no bargain because the $1/year was nominal
Unconscionability
was one of the parties in

as. commercial standards of trade and honesty in fact
Promise to use best efforts Wood v. Lucy, Lady Duff-Gordon
D makes an exclusive marketing agreement with P, then makes side deal with 3rd party
D says no K because P wasn’t obligated to bring in money
CT- agreement was valid K with consideration- there was an implied promise that π would do his best to bring in profits
UCC § 2-306(2) – A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
Common law adopts exceptions Omni- promise to buy if report satisfactory not illusory promise

MORAL OBLIGATION exception to the rule that consideration is needed for promise to be enforced
Rule- A promise to pay for a benefit received is unenforceable for lack of consideration
Exception- A promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice
quantum meruit –P can recover from D fair market value of any services that P conferred on D–quasi K
past consideration does not make a contract enforceable
Mills v. WymanD promises to pay P for expenses of caring for son, then changes his mind
Court for D- Son wasn’t minor- promise was not in exchange for benefit – no bargain
Harrington v. Taylor Neighbor gets involved in domestic dispute, saves D’s life, gets injured- D promises to reimburse, doesn’t. -Ct- no bargain, no consideration, the promise is not enforceable.
RT -cautionary-ppl can be emotionally impulsive; channeling-not all promises are legally enforceable
But traditional rule will be abandoned if there’s been material benefit conferred on P from D
Webb v. Mcgowin- injured himself to save boss, boss’ promised payments stopped (he died)
Exception:
There is consideration if there had already been a valid debt and a promise to pay, too much time has gone by and creditor can no longer sue.
Rest 2d § 86
(1)   A promise made in recognition of a benefit previously received by the promisor from the promisee is    
binding to the extent necessary to prevent injustice.(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promissor has not been unjustly enriched; OR(b) to the extent that its value is disproportionate to the benefit.
PROMISSORY ESTOPPEL- Great EXCEPTION to bargain theory – substitute for consideration
Rule- Only bargained for promises are enforceable
Exception-under promissory estoppel promises are enforceable, even w/o consideration when the promisor induces reasonably foreseeable detrimental reliance on the promisee