Enforcing Exchange Transactions
A. Intention to be Bound: Objective Theory of Contract
1. Three substantive basis of contract liability:
a. Private Autonomy – The law views private individuals as possessing a power to effect changes in their legal relations.
b. Reliance – The breach of a promise may cause injury to someone who has changed position in reliance that the promise by fulfilled.
c. Unjust Enrichment – Injustice from a breach of promise is aggravated.
2. Three grounds for making a promise enforceable:
a. Consideration – Something given in exchange for the promise.
b. Promissory Estoppel – Reliance on the promise.
c. Restitution – Unjust enrichment
3. Classical Theory of Contract Law:
Exchange Offer Acceptance ] assent: both parties must assent
1. subjective – private autonomy
2. objective
4. Objective Theory of Contracts Obligation – one is bound or not bound not by secret intent, but by the reasonable interpretation of words and actions.
a. Ray v Eurice Bros.
i. Facts: Ray contracted Eurice to build a house. After making several changes and submitting them, a final plan was agreed on. D refused to build house and claimed to have never seen final specifications.
ii. Absent fraud, duress, or mutual mistake, one having the capacity to understand a written document who signs it is bound by law.
iii. Reasonable person would have thought D intended to enter the contract.
b. Pure objective v. Modified objective
i. Pure – contract has nothing to do with personal intent.
ii. Modified – If it can be shown that something else was intended by a contract, there has to be a mutual mistake to void the contract.
c. Park 100 Investors v Kartes
i. Facts: Kartes wanted to buy property from Park 100 and Park provided a lease agreement. After affirming with other representatives that the papers were what they thought, Kartes signed the lease. Kartes later found out the lease contained a personal guaranty.
ii. Fraud – material misrepresentation of past or existing fact by the party to be charged which was false and made with knowledge or reckless ignorance of falsity.
B. The Doctrine of Consideration
1. The doctrine of consideration can serve the same functions of other legal formalities.
a. Evidentiary Function
i. Evidence of the existence and purport of the contract in case of controversy.
b. Cautionary Function
refrain from exercising legal right.
ii. In reliance on the promise, party refrained from exercising their legal right.
iii. Important that a legal right is being relinquished, not just some harm.
b. Forms of detriment:
i. immediate act – doing or giving something
ii. forbearance – refraining from something
iii. partial or complete abandonment of an intangible right.
iv. could equally be a promise to act, forbear, or abandon a right in the future.
v. Restatment § 79(a) – if requirement of consideration is met, there is no additional requirement of loss or disadvantage to the promisee.
c. Hammer v Sidway
i. Facts: Uncle promised his nephew $2000 when he turned 21 if he would stop swearing, smoking, drinking, and gambling.
ii. A valuable consideration may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.
