Professor Templin
Contracts I
Fall 2016
CHAPTER 1: INTRODUCTION & CONTRACT FORMATION
CONTRACTS & PROMISES
Study of contracts is the study of promises
Promises are in two broad categories:
Legally Enforced
Most important enforceable is Contractual Promise
Not Legally Enforced
Usually called Gratuitous or Donative Promises
RULE: DEFINITION OF A CONTRACT
Restatement of Contracts § 1
Contract is a promise or set of promises for the breach of which the law gives us a remedy, or the performance of which the law in some way recognizes as a duty.
Contractual Promise creates both a duty & a right
Duty: One of the parties to perform the promise.
Right: What the duty establishes for the other party to enforce promise by seeking a remedy if there is a breach of the duty.
What is a promise?
Promise is the most basic element of a contract
Without a promise, there is no duty to enforce
RULE: PROMISE
Restatement of Contracts § 2(1)
A promise is a manifestation of intent 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.
Promisor: Person making the promise
Promisee: Person to whom the promise is made
Manifestation of Intention
Has two important themes:
Manifestation
Promisor has made his intention known to others. Either with words or conduct
Intent
To Act or Refrain from Acting
This intention must be “to act or refrain from acting.”
This idea of abstaining from action is often referred to in the contract doctrine as forbearance
So Made as to Justify a Promisee in Understanding
Expression of intent is interpreted objectively
This means that words and actions are normally given the ordinary meaning that a person would ascribe to it unless a special meaning has been attached.
Commitment Has Been Made
Statement of Intention: Statement that falls short of a commitment to act.
Determining Intent: Basic Rules of Interpretation
To determine party’s intent, courts use rules of interpretation.
RULE: BASIC RULES OF INTERPRETATION
Plain Meaning Rule: Interpret language according to the objective and ordinary meaning of the words.
Technical Meaning: Technical terms and words of art are given their technical meaning. If relates to a business, then it is often referred to as “trade usage.”
Circumstances: Words & conduct are interpreted in light of all of the circumstances. Circumstances that may change the meaning of words include time, place, age, culture, and relationship of the parties, among others.
Contract Formation:
To form a contract, the parties normally have to form a bargain. Once a contract is formed, it then becomes legally enforceable.
RULE: CONTRACT FORMATION
Restatement (Second) of Contracts § 17(1)
. . .[T]he formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration.
Mutual Assent: Encompasses the elements “offer” & “acceptance.”
This rule is often stated as “A contract requires an offer, acceptance, and consideration.”
Consideration: “Quid pro quo” (something for something). Exchange of something of legal value for something else of legal value.
EX: Student pays tuition, school provides education.
When two parties agree to the exchange of consideration, a deal is made. (aka a contract)
Exchange of the promises creates duties on both sides of the bargain.
If one party breaks the deal and does not perform their duty, they have breached the contract.
Breach: Non-performance of contractual duty.
Non breaching party can seek a remedy for any loss experienced.
Remedy: How to compensate a party for the breach of a duty.
CHAPTER 2: CONTRACT FORMATION: CONSIDERATION
CONSIDERATION & THE BARGAIN THEORY
Consideration as a Gate Keeper
Consideration rule is primarily used as a sorting mechanism to allow courts to identify which promises are legally enforceable and which are not.
Key requirement for consideration is there is a bargained for exchange between the parties
Bargain: The motives of the parties in making an exchange
Proof of the bargain is typically shown when two parties exchange reciprocal promises
test.
The promise must induce a detriment.
The detriment must induce a promise.
Multiple Motives
Usually, receiving return consideration is the primary motive for a promisor to enter into a bargain.
A bargained for exchange may exist even if a party has other motives unrelated to the consideration if at least part of the reason for entering into the contract is to receive consideration
If consideration is just a pretense for the promisor, and both parties know that, then there is no bargain
Legal Value:
requires that thing exchanged has some worth
Sub-Rule: Legal Value
Legal value is established if there is either:
(1) A detriment to the promisor
(2) A benefit to the promisor
Detriment to the Promisee:
Any act, forbearance or creation, modification or destruction of a legal relationship will be sufficient to sustain a promise.
Act or Forbearance:
Detriment might involve either an act or forbearance. i.e. not performing some act.
Modification or destruction of a legal relationship refers to giving up some legal right (such as a contractual right) that the promisee has as consideration for the promise.
Waiver of a Legal Right:
Some courts provide an all-inclusive definition of detriment as “waiver of any legal right”
The phrase encompasses everything covered in the Restatement definition including:
Any act that the promisee is not legally obligated to perform
Any forbearance of an act that the promisee has a legal right to engage in; and
Creation, modification or destruction of a legal relationship
NOTE: There does not have to be an “economic detriment” to the promisee, so long as the promisee has done something that he was not legally obligated to do.
