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Contracts
St. Louis University School of Law
Baker, Marcy Peek

I. Meaning of a contract – exchange relationship created by oral or written agreement between two or more people, containing at least one promise, and recognized in law as enforceable
A. An oral or written agreement between two or more persons
i.Voluntary consensual relationship
ii.Agreement is distinguishing contractual element from other legal duties
iii.Objective standard – reasonable interpretation of other parties words/conduct is enough
B.An exchange/reciprocal relationship – each party gives something to get something
i.Policy: Trade in property, services, and intangible rights is fundamental to our economy and society; primary function of contract is to facilitate and regulate these exchanges
ii.At least one promise – undertaking to act or refrain from acting in a specified way at in future
1. Express – formed by language (oral or written)
2. Implied – inferred from conduct or the circumstances of the transaction
iii.Types of Exchanges
1. Instantaneous (Executed) – each party fully performs and no promise made
2. Promissory (Executory) – promise on both sides
C.Fundamental Values & Policies of Contract Law
i.Freedom to Contract – Power to enter contracts & formulate terms is exercise of individual autonomy (personal liberty)
1. Converse: Person can’t be bound in contract with their assent
ii.Morality of Promise – Ethical and legal obligation to keep one’s contractual promise –reliability is necessary to foster economic interaction and it is morally wrong to break
iii.Accountability for Conduct/Reliance – Person should be accountable for words/acts reasonably manifesting intent to contract, and other party should reasonably be entitled to rely on that manifestation of assent
iv.Social Justice & Protection of the Underdog
1. Contract law sensitivity to imposition of contractual obligations as a result of coercion, dishonesty, or lack of meaningful choice resulting from power imbalance
2. Need to protect vulnerable parties from unfair imposition
v.Fairness – Court’s desire to achieve a just result may have effect of diverting or evading a resolution called for by a doctrinaire approach to the issues
vi.Economic Aspect of Contract Law
1. Capitalist (free market) –freedom of contract directly related to economic ideology
2. Stress economic values (i.e. efficiency vs. emphasis on social/moral values)
II. Historical Perspective on Contract Law
A. Classical Contract Law
i.Preference for clear rules as opposed to general standards – formalistic/rigid interpretation
ii.Indifferent to issues of morality or social policy – heavily biased in favor of dominant party
iii.Valued free enterprise, private autonomy, and laissez-faire attitude to economic activity
iv.Objective standard – if parties manifested intent, transaction should be enforced
B.Modern Contract Law – Recognized need to regulate freedom of powerful contractors, protect the rights of weaker parties, and social policies (consumer protection, employee rights, business ethics)
C.Legal Realism (Neoclassicism) – considers not only what doctrine says, but also how it works, considering makeup/philosophy of judiciary, use of legal tactics, and social goals to be achieved
D. Law & Economic Movement – economic efficiency of legal rules; laws should facilitate exchanges on free market, and not regulate conduct for social engineering; likes black letter law
E.Relational – “Good faith/fair dealing”, favors long term relationships, sympathetic to Eurice
F. CLS (crit) – laisses faire; don’t preserve status quo, allow judge to ignore precedent

III. Objective Theory – law considers contract to be binding if a reasonable interpretation of a person’s outward manifestations would have one believe it is an offer
A. Subjective Theory – if there is a disparity in the interpretation, then it is not valid
i.Courts focused more on reasonable reliance, than subjective outward manifestations
ii.Objective approach thought subjective approach was wrong, because it less dependable and placed too much on unreliable sources like self serving testimony
B.Neither necessary nor permissible for testimony on what either party actually thought or believed
C.Subjective “meeting of the minds” not required for contract formation
D. Mutual assent is basis of contract – each party must intend to enter and agree on mutually terms
E.Policy: Assent Policy vs. Reliance Protection Policy
i.Assent – Contract should not be imposed on person who didn’t agree to be bound
ii.Protecting Reliance – needed when true assent is too heavily stressed
iii.Manifestation of assent interpreted from standpoint of reasonable person in the position of party to whom manifestation was made
1. Not what words or actions did mean to either party, but how they should have been understood if interpreted reasonably, in context of transaction, by person with knowledge and attributes of party to whom they were directed
F. §21 – Intention to be Legally Bound
i.Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract
1. Secret intention doesn’t matter, only outward manifestations of assent (Eurice)
G. Exceptions to Objective Theory – Fraud, Mutual Mistake, Incapacity, Duress
H. Social Policies furthered by objective theory:
i.Stability in the law
ii.Efficiency of commercial enterprise

at forbearance was bargained for and not merely granted by one party
3. Time period of negotiation doesn’t matter – exchange is key
C.In state of flux – evolving from rigid classical form
D. Court is concerned with the legitimacy/validity of the transaction…not performance
i.May stretch to find consideration when promise appears seriously intended and fairly obtained
ii.May use to invalidate promise that appears to result from advantage-taking or unfair dealing
iii.Purpose is to prevent casual gratuitous promises from being binding
E.Only relevant when there is outstanding promise, not after executed performance
F. Pre-Existing Duty – One doesn’t suffer a detriment by doing or promising to do something that one is already obliged to do or by forbearing to do something that is already forbidden

G. Gift – Purely gratuitous promise that is not paid for in some way, can’t be enforced as contract
i.Ways to make gift enforceable – executed gift (give right now), trust, will
ii.Test to tell a gratuitous promise vs. consideration is if the promisor gets a benefit
iii.Policy: stronger emotional overtone
iv.Dougherty v. Salt
1. Facts: Note saying value received was just a promise for gift to be given in the future
2. Holding: Mere recital of consideration is inadequate; Must have reciprocal inducement
3. Can’t give something in the future for the past
H. Adequacy of Consideration – Mere inadequacy will not void a contract (§79, Batsakis)
i.§79 – Adequacy of Consideration; Mutuality of Obligation
1. If the requirement of consideration is met, there is no additional requirement of
a. (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
b. (b) equivalence in the values exchanged; or
c. (c) “mutuality of obligation”
2. As long as a legal detriment has been suffered in exchange for the promise, the court does not inquire into its value in relation to the promise – §79(b)
ii.Policy: Courts should enforce voluntary exchange on terms agreed by parties; Shouldn’t second guess value placed on exchange by parties at time of contracting, even if it appears one-sided
Exception: gross inadequacy: fraud, duress