Basis of promissory obligations:
I. consideration → bargain for exchange PAGE 2
1. formation PAGE 2
unilateral versus bilateral contracts page 4
2. terms|interpretation Page 6
express, implied terms page 6
parol evidence rule page 8
3. performance|breach/excuse Page 9
excuse page 14
modification page 15
material breach page 16
anticipatory repudiation page 17
conditions page 17
4. remedy Page 18
II. detrimental reliance/promissory estoppel Page 21
III. Restitution Page 22
IV. prom restitution Page 24
V. seal/formation Page 24
VI. statute of frauds Page 24
VII. Rights/duties of third parties Page 25
1. Does the person suing have standing to sue?
2. Is there a contract?
– Is there mutual agreement and consideration?
– Does the statute of frauds apply?
3. If there is not a contract, is there another basis of recovery?
– promissory estoppel
– promissory restitution
4. If there is a contract, is there an interpretation issue?
– does the parol evidence rule apply?
– express, implied-in-law, implied-in fact terms
– duty of good faith
5. Has the K been breached?
– was there an express condition precedent for either party
that did or did not occur?
– is there a reason why the contract is actually void?
– is there an excuse to performance?
– is there an anticipatory repudiation issue?
6. If there is a contract and it has been breached, what is the appropriate remedy?
– specific performance?
– money? Reliance, expectation, or restitution?
I. Consideration: section 71, to constitute consideration, there must be a bargain. 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. mutual assent
i. Manifestation of a willingness to enter into a bargain so made as to justify another person in understanding that assent to that bargain is
invited and will conclude it.
– courts will look for an objective manifestation of intent, and will look at the entire situation in doing so
– would a reasonable person think that a contract had been made?
Case: Lonergan v. Scolnick: D posts ad in paper selling land; P responds but D says form letter; P responds D says must act fast; D sells land to 3rd party; R: Restatement §26: promise not offer if no intent as expression of fixed purpose; H: court holds no contract b/c correspondence just queries, not intended as definite offer; further assent was required by D
ii. is offer revocable?
– has it been revoked?
* offers are automatically revoked by death
– offers are generally freely revocable unless there is an option
contract, which is a promise to keep an offer open for a certain amount of
– if offer has been revoked, no K possible
iii. option contracts are a promise to keep an offer open supported by some sort of consideration
-option contracts only require nominal consideration/services if k will have “Real” consideration
– however, if there is NO consideration there is not an option
CASE: berryman v kmoch
The parties made an agreement under which the landowner granted the individual an option to purchase his land at an agreed price for a period of 120 days. The consideration for the contract was $ 10.00, which the individual did pay. The landowner asked to be released from the option and without the individual’s agreement sold the land to a third party during the 120-day option period. After the land was sold, the individual sought to exercise the option within the option period.
The court held that the individual’s efforts and expense to find investors to purchase the land did not constitute acts that could have reasonably been expected as a result of extending the option promise. The court held that the individual’s power of acceptance was terminated when he learned that the land had been sold to the third party.
Important factors here are that he did not pay the money and that the court says Kmoch did not meet the standards to invoke promissory estoppel.
i. §50): manifestation of mutual assent to terms made in manner invited
ii. Needs to be a meeting of the minds
iii. what to look at to determine if an agreement is final; whether the agreement is:
– in writing?
– many or few details
– small amounts of $?
– requires formal writing?
– whether formal written doc contemplated at end of agreement?
c. If not acceptance, then:
i. counter offer
Cases: Eurice v Ray Bros: P asks D to make house; estimate and bids back and forth; D doesn’t read final draft; did not know specific demands of Ray; intent not essential; R: 20 bishops theory: doesn’t matter if 20 bishops testify; he signed it; outward manifestation more important for K than inner meanings; H: Court holds D bound by signature and breached K
3. consideration Section 71
a. must be future or present consideration
b. past consideration NOT good consideration!
c. if there is good consideration the court does not look at whether it was sufficient
Case: batsakis v demotsis, case where woman during wartime got money in exchange
for promise to pay it back later. Court upheld the bargain even though she had to payback an amount totally disproportionate to what she actually received. The court held that it didn’t matter if the amounts were equal: the contract was valid, and there was consideration, so demotsis had to hold up her end
d. consideration can be a benefit to the promisor or a detriment to the promisee!
i. promise<–mutual inducement>return consideration(benefit|detriment)
this is generally actually viewed as a contract, as opposed to “promises with no consideration”,which do not have a strong basis for enforcement
e. § 81 sez that just because the performance isn’t the thing that induced a promise doesn’t mean it doesn’t constitute consideration, and vice versa.
Case: Hamer v Sidway
Uncle offered nephew $5k if he stopped drinking, smoking, and gambling until he was 21. The nephew complied and informed his uncle of this when he turned 21. His uncle said in a letter that he had the money and would give it to his nephew when he was “capable of taking care of it”. Then uncle died and his estate wouldn’t give nephew the $. D contended that the contract was invalid because it lacked consideration and that there is no consideration unless the promisor is benefited. I: was there consideration?
Holding and analysis: YES. abstention from a permissible legal conduct is sufficient consideration to make a promise based on that forbearance a valid contract. Consideration is not measured as a benefit to the promisor. The court stated that consideration may consist in either a some right, interest, profit, or benefit to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. It is immaterial whether the consideration does in fact benefit the promisee or a third party or is of substantial value to anyone. Refraining from something that one is entitled to do is a sufficient detriment to create an enforceable contract.
4. rules that affect negotiation and assent
a. last shot rule: party implicitly assents to and thereby accepts a counter-offer by conduct indicating lack of objection to it.
i. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts
bonus and filed suit.
The agreement was a unilateral contract, and she had performed so the contract was enforceable.
b. a bilateral contract consists of promises by both sides of performance to take place in the future
c. modern courts will generally interpret ambiguous contracts as bilateral
1. types of terms can include
i. Conditions of satisfaction are enforceable
– Most jx: if it not a party to the k, must be satisfied that good faith jx
– if the party to be satisfied is a party to the k, if it is subejctive is good faith, if it is objective it is standard of reasonableness
CASE: Locke v. Warner Bros Implied Obligation of Good Faith, Satisfaction Clauses: F: P, former wife of Eastwood, entered into agreement with D where P received three-year first look deal, pay or play; D did not develop any of P’s projects; P argues D breached agreement by not acting in good faith; evidence of conversations where execs said they didn’t intend to produce any of her films; P appeals from SJ; R: triable issues of fact exist where evidence of bad faith; must exercise discretion in good faith; H: P did present evidence that D’s subjective dissatisfaction was not held in good faith; there is a triable issue relating to claim of fraudulent promise; reversed and remanded
b. implied in fact
i. Terms that are implied through conduct
c. implied in law: when the law steps in and adds a term, for example there is an implied duty of good faith in almost every state!
i.duty of good faith: in every contract but it is not clear what it means sec 205
– generally, obligation to be honest
– obligation to “protect fruits of k”
– three ways it can be used:
* to supplement/protect terms in k
* to allow redress for bad faith even when p has not breached express terms of k
* when k expressly provides party with discretion regarding its performance allows court to look @ that discretion
– can’t contract out of this!
– When party is given discretionary power (assessing paintings, movies, that party must exercise that power in good faith; difficult to prove bad faith though
* standard = reasonable person – Restatement §228
*courts look at disparate strength of parties, sufficient bargaining power, and access to counsel
ii. Indefinite duration= “at will”
iii. reasonable/best efforts: must employ reasonable or best efforts to effect the
goal of the contract
Case: Lady Duff Gordon
P, fashion designer, exclusive right to place her endorsements on designs of others; K for at least one year, then cancel with 90 days notice; P alleged D broke K by placing her endorsement on fabrics w/out his knowledge and withheld profits; D alleges employment agreement wasn’t in fact a K (P gave no consideration) Holding: P’s implied duty to make reasonable efforts to market D’s products amounted to fair consideration creating performance obligations by both parties; promise had a value, P had duties and parties’ agreement was one of business efficacy