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Contracts
University of Florida School of Law
Harrison, Jeffrey L.

Contracts Outline

Professor Harrison

Spring 2013

Preliminary Concepts

A. Types of Contracts

1. Express Contracts: obvious contract. Each party expresses what they want. Say it/write it down.

2. Implied in Fact: treated just like a contract. Real contract w/o expressed indicators. (Buying a coke from a machine)

3. Implied by Law (quasi contract): This is not a contract! Law creates the obligation to pay because it is the fair thing to do and provides for a “contract-like” remedy. It is used to remedy “unjust enrichment.”

B. Four Questions to ask for any questions:

1. Is there a contract?

2. What are the terms of the contract?

3. Has there been performance or breach or has the obligation been discharged?

4. What is the appropriate remedy?

C. Basic Elements of a Contract

1. Offer

2. Acceptance

3. Consideration

4. Legality of object

a. Subject matter illegal: contract is void

b. Purpose is illegal: contract is voidable by innocent party

5. Capability of parties (both must have the capacity to contract)

Consideration

I. Introduction

A. Consideration Defined (Restatement 71): what one person gives another–Consideration (or a substitute like primary estoppel) is necessary for an agreement to be enforceable. Something bargained for and received by a promisor from a promisee; that which motivated a person to do something. There must be mutual /reciprocal inducement (each side gets something: “I’m doing this because you are doing that.” Both parties are giving an equal amount of something up.)

Detriment: the promisee gives up something of value, or circumscribes his liberty in some way (i.e.: he suffers a legal detriment—gives up his legal right to do something as an inducement for a promise, Hammer v. Sidway) and

Exchange: the promise must be made in exchange for a current promise or performance. It is given as part of a bargain, that is the promisor makes his promise in exchange for the promisee’s giving of value or circumscription of liberty.

B, Uses of doctrine: the requirement of consideration renders unenforceable two main types of transactions:

Promises to make gifts. A promise to give a gift can be revoked at any time before it is given. Once a gift is given, one can’t get it back. Giving a gift does not satisfy the bargain element and

Business situations in which one party has not really promised to do something or given anything up, even though he may appear to have done so (the detriment is missing here.)

C. Questions to ask regarding consideration:

1. Is there a current exchange of promises?

2. Is there a detriment to the promisor?

3. Is there binding mutuality (not illusionary)?

4. Is there a legal substitute for consideration (promissory estoppel, detrimental reliance)?

II. The Bargain Element

A. Promises to make gifts: A promise to make a gift is generally unenforceable because it lacks the “bargain” element of consideration. (ex: A promises to give B a car in 4 years. In 4 years B doesn’t perform. A sues for breach of contract. A will lose because there was no consideration for A’s promise. A’s promise was not bargained for.)

B. Occurrence of condition is of benefit to the promisor: If the promisor imposes a condition and the occurrence of this condition is of benefit to him, then the bargain element probably will be present.

Hammer v. Sidway D refrained from drinking, smoking, swearing, etc. in exchange for money from P. P’s promise was bargained for because D was attempting to obtain something he regarded as desirable. Furthermore, because the promisee abandoned his legal right (detriment) as an inducement for the promise, there was consideration and the agreement was valid.

III. Promise to pay for benefits previously received (Past Consideration)

A. Generally: Past consideration is not sufficient consideration. If the promise is made in return for detriment previously suffered by the promisee there is no bargain and thus no consideration. Thus promises to pay a pre-existing duty debt, and promises to pay for services already received, usually lack the bargain element.

Feinberg v. Pfeiffer Co. The company promised to give Feinberg a bonus for what she had already done for the company. Court ruled the bonus was not consideration. She did not do those things on the condition that she was going to get the $200 bonus. A promise done in the past as a mere favor CANNOT be turned into consideration at a later time. Court later reversed this ruling (on promissory estoppel grounds) because Feinberg was in perfectly good health and only retired because she knew she was going to get the bonus. Her reliance on the money made it consideration (see page 9)

B. Promise to pay for past services rendered: A promise to pay for services rendered in the past is usually held not to be supported by consideration. However, the current trend is to enforce such promises (Farnsworth).

Mills v. Wyman (1825) Mills cared for Wyman and paid for things. Wyman later promised Mills he would pay him back. No consideration because Mills did not help Wyman knowing he would get $. Past expenses for services is not sufficient consideration to support a later promise to pay for the expenses. (Today, the courts may enforce this K holding that such a promise was made on account of “moral obligation”…or they might say that Wyman received a “material benefit” (life))

C. Where services were requested and rendered with an expectation of payment: where the services were initially requested by the recipient, the enforceability of the later promise to pay doesn’t matter because the initial request probably created an implied-in-fact contract to pay for them.

D. Past consideration may possibly be binding without consideration:

· Bankruptcy and subsequent promise to pay for previous debt

· A moral consideration—Sometimes promises to pay for benefits previously received are often justified on the grounds of moral obligation. The morally right thing to do will only hold up when it is for a material benefit. (Webb v. McGowin)

· Extreme Reliance—Courts are inclined to rule in favor of a P when they can prove the P is completely relying on the D’s promise. (Webb v. McGowin—D had already paid for 8 years.)

· Where benefit and cost are substantial: The court may choose to enforce the promise where the benefit to the recipient of the services was a substantial material benefit. (aka: P incurred a substantial material benefit from D’s act.) (Webb v. McGowin—McGowin’s life was saved!)

Webb v. McGowin P falls off the roof to save the D. D promises to pay him after the fact. D pays for 8 years and then stops. Court rules D still has to pay for P’s injury. Past act from saving a party from past death or serious bodily injury, that results in injuries to the saving party is sufficient consideration for the saved parties subsequently induced promise to pay the saving party. Goes against most other cases for past consideration because of extreme reliance, substantial material benefit and moral duty! Occasionally, courts may enforce payment for past services which were extremely valuable or wielded a material benefit where denial would be extremely unjust.

Harrison said: If you have a high level of benefit, a promise made after a period of reflection and reliance by the promissee, it is likely to be enforced. As these factors become weaker, the probability of enforcement decreases.

Restatement rule 86: A promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice. A promise is NOT binding if

1. The promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched. OR

2. To the extent that its value is disproportionate to the benefit. (this is designed so people can’t have benefit’s just thrust upon them.)

III. The Detriment Element

A. Generally: For consideration to be present, the promisee must suffer a detriment. That is he must do something he does not have to do or refrain from doing something that he has a right to do.

Non-economic detriment: Consideration is achieved when one party abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for a promise. (Hamer v. Sidway)

Consideration is achieved when P can prove the contract was made in good faith (subjective standard) and/or (depending on the jurisdiction) that it has a reasonable basis for support (objective standard.) (Fiege v. Boehm)

Fiege v. Boehm P gave up her right to file bastardly charges against D in exchange for child support. It was later discovered that D was not the father of the child. “We combine the subjective requisite that the claim be in good faith with the objective requisite that the claim have a reasonable basis for support.”

Objective requisite was: there is a possibility Feige is the father. Because they had sex, the facts are he could be the father.

Subjective requisite was: At the time of the contract, she genuinely believed in good faith that he was the father and made the charge in good faith. There was no proof of fraud or unfairness.

Restatement Rule 74: Says you need either the subjective requisite or the objective requisite. This restatement does not overrule the rule used in Feige, however different

led to do, he has not incurred a detriment for purposes of consideration.

· It is not possible to contract not to breach a contract.

· It is not possible to contract not to commit a crime (if you are already legally obligated, than you cannot suffer a “new” detriment.)

· It is not possible for a contract to have a bonus if you win the championship (you are already obligated to play the best you can, which would entail winning a national championship.)

Modification: this general rule means that if parties to an existing contract agree to modify the K for the sole benefit of one of them, the modification will usually be unenforceable at common law for lack of consideration. (this occurs a lot in construction cases).

Alaska Packers Ass’n: Fisherman promised to do the job for $50, but when they were out at sea they said they would not work unless they were paid $100. The captain agreed. However court said NO! This case was duress because the crew forced the captain to give them the raise or they weren’t going to work. The fisherman were already obligated to do the job for $50. There must be consideration with modification of a K.

Restatement Section 89

A promise made modifying duty under a contract not fully performed on either side is binding.

If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made or

To the extent provided by the statute or

To the extent that justice requires enforcement in view of material change of position in reliance on the promise.

U.C.C. 2-209—ABOLISHES THE PRE-EXISTING DUTY RULE. You can have modification without consideration! But there must be good faith.

1. An agreement modifying a contract within this article NEEDS NO consideration to be binding.

2. A signed agreement which excludes modification or recession except by a signed writing cannot otherwise be modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

3. The requirements of the statue of frauds section must be satisfied if the contract as modified is within the provisions.

4. Although an attempt at modification or recession does not satisfy the requirements of subsection 2 or 3 it can operate as a waiver.

5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

If something comes up that parties don’t anticipate, and the parties decide to change the contract and agree to the change, this is enforceable. (Watkins & Son v. Carrig) Courts want parties to be able to change a contract. They just don’t want it to be under unfair circumstances where one person has more leverage over another when changing the contract.

Watkins & Son v. Carrig: P agreed to excavate a cellar for D at a stated price. Soon after the work was commenced, solid rock was encountered. P told D and they orally agreed that P would remove the rock at a price that was 9 times greater than the original price. This was a modification, but because there was no resistance or protest on the part of the P, there was no duress! Neither party thought they could excavate the rocks for cheaper. The modification was fair and equitable because they orally agreed to change the price. You could counter this by saying the rock is something the basement contractor should have forseen or anticipated! Is it fair and equitable if one party should know the risk involved with digging in the ground? In this case, it was because the P did not protest or resist to the price changes at all!