Introduction to Contracts
a. Contracts must contain at least one promise
i. A promise is a commitment to do something in the future
b. Contracts may be written or oral.
i. E.g. a physician who renders emergency services to an injured pedestrian on the sidewalk may be allowed to recover even though the victim did not request his services
1. Quasi-contractual recovery is implied in law.
d. Implied-in-fact contract
i. A real contract, but one in which agreement is reached by the parties’ actions rather than their words
1. Treated exactly like express contracts
e. The usual contract, which may be enforced by either party is said to be enforceable
f. Void contracts
i. An agreement with no legal effect
1. E.g. a gambling contract is void as against public policy
g. Voidable contracts
i. One party may at his option either enforce or not enforce
1. A minor who has made what would otherwise be a binding agreement, or a person who has been induced to agree by fraud has the choice of either avoiding the K or enforcing it
h. Unenforceable contracts
i. A K that does not give an immediate right to judicial relief, but which nonetheless has some legal status
1. An unenforceable K may be converted into a fully binding K by one of the parties while a void K may not
2. Statute of frauds (e.g. K for sale of land) – an oral agreement is unenforceable unless one party produces a written statement of its terms. A void K can never be rendered enforceable by the act of just one party.
i. Sources of K Law
1. Governs the sale of goods under Article 2.
a. If UCC is silent as to particular issue, case law controls.
j. Why do we enforce promises?
i. We enforce promises because each party has certain autonomy that we want to protect
k. Punitive damages are not recoverable in contract law
i. K rulings are to right the wrong committed and ensure fairness; they are not meant to punish
l. Pepsico Contract Issues
i. Offer (Ad)
iii. Exchange (Consideration)
iv. Offer made in jest (reasonable person)
v. Necessity of writing
vi. Relevance of other evidence
m. Theories of Contract
i. Contract as Promise
ii. Contract as Exchange
iii. Contract as Fairness
1. Reasonableness of Exchange
2. Fairness to parties
iv. Contract as protection of good faith reliance on promises
n. Whites vs. Benkowskis
i. Stages of Story
1. Negotiation, drafting, execution of K
3. Alleged Breach
4. Settlement attempts
ii. Why did parties enter into agreement?
iii. Why write agreement down?
iv. What role is/should be played by
1. Real estate agent
v. Why involve the courts?
II. Theories of Obligation
a. Agreement with Consideration
i. A promise, to be enforceable, must be supported by consideration
ii. A promise is supported by consideration if two requirements are met:
1. The promisee gave up something of value, or limited his or her liberty in some way (legal detriment)
2. The promisor made his promise as part of a bargain; that is, he made his promise in exchange for the promisee’s giving of value or circumscribing of liberty
iii. Mutuality of consideration
1. Each party must furnish consideration to the other.
iv. Consideration is a bargained-for-exchange
1. Restatement 2d. Sec. 71: Bargain defined: a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
2. The doing of an act by one at the request of another, which may be a detriment or inconvenience to the party doing it, or may be a benefit to the party at whose request it is performed, is legal consideration for a promise by the requesting party.
3. The parting of a right to another at his request constitutes consideration.
4. Even if the item that the parties bargained for is ultimately deemed valueless, the courts will not second-guess the price the parities initially assigned to it under K. The judgment of the purchaser is the best arbiter of whether the thing is of any value. Hardesty v. Smith
v. Restatement (First) Sec. 75
1. Consideration for a promise is
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal relation, or
d. A return promise
Bargained for and given in exchange for the promise.
2. Consideration may be given to the promisor or to some other person.
vi. Functions of Consideration
1. Substantive Reasons
a. Determination of which promises to enforce
i. Gratuitous promises are not enforced
b. Private autonomy
c. Protection of reliance interests
d. Unjust enrichment requires judicial intevention
2. Formalistic reasons
i. Evidence of existence and purport of K
ii. Equivalence in the values exchanged
b. Absence of Consideration
i. Illusory Promises
1. An illusory promise is not really a promise because it doesn’t obligate the promisee in any way. The promise is made at the promisor’s discretion; he retains the unilateral ability to decide whether or not to perform and is not really committed to do anything at all.
a. “I will buy goods if I want to.” De Los Santos v. Great Western Sugar Co. P promises to ship goods and mfg. agrees to pay him according to amount of goods he transports. After 2 months D tells P he no longer needs his services. P sues for breach of K. Held, an illusory promise cannot be consideration as a return promise.
b. There must be mutuality of obligation; if one party’s promise is illusory, that party is not bound.
2. Implied Promise. Wood v. Lucy Lady Duff Gordon; D promises to give P exclusive right to brand name if he gives her half of the profits. P’s promise is illusory but he is suing on Ds real promise. Court holds that an illusory promise is not consideration, but in this case, Ps promise establishes duties to perform, i.e. the duty “to use reasonable efforts to sell.”
a. Although promise seems illusory, court implies a real promise “to use reasonable efforts to sell.” This implied promise is a sufficient detriment to P to constitute consideration for Ds counter-promise of exclusive rights to brand name. Therefore, K is binding. Here, we have example of court implying promise of good faith to protect party that has acted or relied on first party’s promise, even if that party’s promise seems illusory.
3. Court may manipulate doctrine of consideration in at-will employment K. Weiner v. McGraw Hill. Employee quit former job in reliance on promise by employer to work until employer had just cause to terminate employment. P was fired.
a. Lower ct holds that P was free to quit at will, so agreement lacked mutuality, leaving D free to terminate employment at its discretion.
i. Ct. of Appeals finds that this engages in a search for mutuality, which is not essential to a binding K.
b. Court manipulates doctrine to find that Ds promise to fire only with just cause induced P to quit his job. Even though Ds promise is supported by past acts and D never explicitly made this request, court finds consideration. Case demonstrates court’s effort to find consideration through reliance on past acts.
4. Court may imply term of agreement to render promise enforceable and not illusory.
a. D promises to pay P when leases are “satisfactory.” Ct. interprets this term such that the promise is not illusory. Ps performance is hinged on good faith judgment that leases are satisfactory, so there is sufficient consideration. Mattei v. Hopper.