Contracts Outline

 
Contracts – Davis – Fall 2014
 
Basis for Enforcing Promises
Consideration as a Basis of Enforcement:
Restatement 71 – consideration is a promise or a performance that is bargained for
Consideration is tested on terms of the agreement, not on what is done after the agreement
·         Must be bargained for.  Can bargain for a promise, non-act, or act
1.       Something purported to be consideration but is only of no value is NOT good enough
2.       Relative value of thing is not important, only the motive in seeking the thing
§  A condition for accepting a gift is not enough, the other party must actually WANT whatever it is you give in exchange
§  If you don’t know about a reward, a contract for reward is not enforceable
§  Employment: generally, not firing is good enough for consideration
·         Must be good enough – Consideration is anything not on this list of not good enough things:
1.       Promise or performance of a pre-existing duty – Restatement §73
2.       Illusory promise [nudum practum] – a promise that cannot be breached and therefore does not limit any future options – Restatement §77
§  E.g. a promise to forbear collection: “until I want to” [illusory] 3.       Bad faith assertion of invalid claim or bad faith forbearance – Restatement §74
§  E.g. A, knowing that he has no legal basis for a claim, promises to refrain from asserting that claim.  That is not consideration
§  The belief does not have to be reasonable just must be in good faith
·         Gratuitous Promises – is a promise made without consideration and is unenforceable
·         A moral obligation is not a basis for enforcing promises
§  A person promises to repay for services conferred on another  [unenforceable] §  Promise to repay for VERY valuable [life saving?] services [enforceable] §86
§  Exceptions: promise to repay: 1) debt past statute, 2) debts discharged in bankruptcy, 3) debt made when current adult was a child
·         These can be enforced based on reliance and promissory estoppel w/o  consideration
Restatement on Promises as Consideration
·         Restatement §75 – consideration only if performance of promise would be consideration
·         A conditional promise is enforceable even if the condition is never met (so promise isn’t fulfilled)
o   Insurance requires some injury before you can collect
o   Promise to purchase real estate depending on obtaining “satisfactory” tenants
§  If commercial: must be reasonable and not arbitrary
§  If satisfying fancy or taste: only need to act in good faith
o   Satisfaction Clauses: not illusory because the requirement of good faith limits discretion
UCC on Promises as Consideration
Article 2 of UCC governs contracts for sale of goods
·         Sale – transfer of ownership in exchange for $
·         Goods – tangible moveable items (can you put it in a truck?)
 
·         Requirements Contracts – a promise by one party to supply all the other requirements
o   Promise by buyer is not illusory because buyer must act in good faith and industry std
·         Output Contracts – a promise by one party to accept all of a certain good produced by the other
·         Exclusive dealings – not illusory because one must act in good faith
·         Termination Clauses – contracts allowing unilateral termination at will are illusory, but a requirement of sufficient notice will make the promise enforceable
 
 
 
Reliance as a Basis of Enforcement
Reliance is not consideration.  Consideration is determined at point promise is made; reliance later
 
·         Equitable Estoppel – If an act, admission, or conduct induces somebody else to change position, liability may ensue
o   Do not confuse with promissory estoppel.  Usually equitable estoppel involves a mistake of fact.
·         Promissory Estoppel – Restatement §90 a promise which the promisor should reasonably expect to induce action or forbearance on the part of the reasonable promisee or third person and which does induce such action or forbearance is injustice and can be avoided only be performance of the promise.  Requires a promise, some reliance, and a detriment.
o   Charitable subscriptions and marriage are binding without a showing the promise induced any action or forbearance.
o   Conduct does not need to be expected; only must be reasonably foreseen
o   Restatement §90 if often cited to prevent injustice
o   Only allow recovery for reliance damages (not like lost profits)
·         When is reliance the basis for enforcement?
o   Family promises à promises between family members generally lack consideration
o   Promises to convey land à especially when promisee makes improvements
o   Charitable subscriptions à promising to make a donation to the charity
o   Sub-Contractors à a bid to a general contractor is enforceable
o   Terminable at-will relationships (i.e. employment at-will)
o   Gratuitous Bailments à owner relies on promise to keep entrusted property safe
Unjust Enrichment / Restitution – Alternative
 
·         Restitution – basis for recovery where there is no promise or agreement.  Restatement §370-77
o   Based on preventing unjust enrichment.  Recovery is value of benefit conferred on another
o   Generally no restitution for a materially breaching party
§  Minority view that breacher can get restitution based on “some” value conferred
·         Quasi or Constructive Contracts à obligations created by law and w/o assent of part to be bound
o   This is a legal fiction and is dictated by reason and justice.
o   DOES NOT ALLOW:
§  Acting as if authority is granted (e.g. painting the fence then asking for payment)
§  Asking for payment from previously made gratuitous promises
§  Rescue cases unless serving in a professional capacity
·         E.g. a physician rendering emergency services on the side of the road.  Even if the patient dies, the DR can be allowed to recover the reasonable value of his services.
§  Substituting one promisor or debtor for another
o   Benefits rendered by mistake or fraud allow restitution (e.g. gardening wrong house)
o   Restitution is unusual in marriage.  Exception for unusual circumstances (e.g. you pay for my school and I will pay for yours when I go back to work, then filing for divorce after graduating)
Measuring Recovery
·         Restatement §371 à two options for recovery
o   The reasonable value of what defendant received from a person in plaintiff position
o   The increase in defendant’s property value or other interests
 
Creating Contractual Obligations
The Nature of Assent
·         Determining Assent à was there an intention to contract?
o   Objective à Looks at the words used in the contract, written or oral.  Also looks at actions.
§  Would a reasonable person see this as intent to be bound? à bad theory
o   Subjective à takes the original intent of the parties (a meeting of the minds) into consideration
§  Is there a meeting of the minds? (did both parties agree to contract?)
§  The court will look to the outward expression and if a reasonable person would have believed that a contract existed.
§  A joke does not count, but bluffing will give rise to intent
·         Intent to be Bound à the parties must manifest an intent to be bound
o   Absent an expressed intent not to contract, mutual assent, even oral or informal, is sufficient
o   To avoid the obligation, at least one of the parties must express an intention not to be bound
§  Gentleman’s Agreement à explicitly stating there is no intent to “contract”
§  Agree the contract is not formalized until written.  Just waiting on lawyers to finalize drafts does not count unless the agreement is explicitly not in effect until signed
§  A promisor may not be bound if the contract is insufficiently serious (i.e. a joke)
o   Absence of Writing
§  Look for 1) partial performance, 2) terms agreed upon, 3) is this normally a written agreement, 4) was there reservations of the right to be bound?
o   For minor terms, courts can conclude 1 party’s understanding applies or supply missing terms
 
The Offer
·         Offer à Manifestation of intent to confer upon the other the unilateral power to close the deal
o   Restatement §24 defines the offer à an invitation to enter into a binding agreement
o   Never an offer:                 expressions of hope, intent to negotiate, intent to make offer in future, agreements between family members w/o intent to contract, advertisements, price quotes
o   Price Quotes à sometimes price quotes can be offers if they are more than just a quote
o   Advertisements à generally lack specificity to be offers; can be held if clear, definite, and explicit
Construction Contracts
Unique because of and acceptance in construction typically begin wit