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Contracts
University of Florida School of Law
Dawson, George L.

Contracts Outline- Professor Dawson
Introduction to Consideration
 
Bargain; Reliance; Unconscionability
 
Bargain Theory of Consideration – to constitute consideration a return promise needs to be bargained for: it’s bargained for if its sought by the promisor in exchange for his promise. If the facts fit into section 2 of § 79 in the Supplement, then there is consideration.
Two issues:
·   (1) is there a promise and is it enforceable? And
·   (2) If you are going to enforce it, for how much?
 
§ 71 Consideration
 
(1)    To constitute consideration, a performance or a return promise must be bargained for
(2)    A performance or return promise is bargained for if its sought by the promisor in exchange for his promise or given by the promise in exchange for that promise
(3)    Performance may consist of
a.       Act other than a promise
b.      Forbearance
c.       The creation, modification, or destruction of a legal relation.
(4)    The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
 
Rst. 72- Exchange of Promise for Performance
Except at stated in § 73 and 74, any performance which is bargained for is consideration.
 
 See Rst. 2nd § 71-81
Consideration- sufficient consideration is present when each party has intended to secure something from the other party that they were otherwise not legally entitled to.
·         Consideration may be a right, interest, profit, or benefit accruing to the promisor, or forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the promisee.
o        Under the 2nd Rst. A promise needs consideration to be enforceable unless it does not need to be enforceable
·         Bargain promise v. Conditional donative promise:
o        A promises to provide B a hotel room if B comes to LA (no valid bargain b/c B’s coming to LA was merely a condition to fulfillment of the gift).
·         Adequacy of consideration: values of considerations don’t have to be equivalent, but a gross inadequacy may be evidence of fraud, mistake, duress, or undue influence.
o        Courts have traditionally declined to relieve a party from the terms of a K merely bc he made what he regards as an uneven or bad bargain
·         Even if a “bargain” is made in conditional language {if you do A, I will do B for you} it doesn’t mean that a bargain is always made …the promisor must seek the performance by the promissee.
·         Rst 2nd §73- Performance of a preexisting legal duty is not valid consideration
o        Exà One can’t ask to be paid more for work that already has to be done
o        Exà Advanced payment or starting early installments doesn’t constitute valid consideration
§         Ex. Foakes v. Beer à adv. pymt of part of a debt didn’t suffice as valid consideration to discharge interest otherwise owed on the debt
 
Rst. 79- Adequacy of Consideration; Mutuality of Obligation
Benefit and detriment is not the best way to look at consideration
                If the req of consideration is met (whether it was bargained for), there is no additional req of
(a)    a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b)   equivalence in the values exchanged; or
(c)    “mutuality of obligation”
 
 
Notes on Consideration
Work well in commercial transactions, not well in non-commercial transactions
Does not matter if the promise benefitted either party, the promise itself is enough, can look to  see if one party was injured by the promise though
Courts generally won’t let a party out of a contract just because it was an uneven bargain
Rest 176- If there is an illegitimate use of power, then the contract is voidable
Gift promises are not enforceable bc there is no bargain (unless there are other elements such as reliance); but giving a gift is binding, can’t get it back unless there is fraud
 
Donative Promises
Simple Donative Promises- a promise to make a gift- generally unenforceable because of a lack of consideration (of not relied upon)
o       the most common reason for people to make these promises is that so people can plan and increase the wealth of the gift, ex: if A didn’t know B was going to pay for college A might not prepare her high school curriculum to plan for college
§       promises may frequently take action in reliance on a promise that is intended to enhance the value of the promise, these promises are very important in commercial settings, i.e. band says will play at a venue in 2 months
§       reliance that increases the value of a promise is known as beneficial reliance
§       under classical contract law- consideration btwn bargain and gratuitous promises, but under bargain theory every promise that was not a bargain promise was considered a gratuitous promise- so under bargain theory gratuitous=unenforceable
o       Difference between a conditional donative promise and a conditional bargain promise
o        Under cond donative promise- the condition is the means to make the gift
o        Under cond bargain promise- the condition is the price of the promise
o        Exs- Bargain- If you mow my lawn, I will pay you $20.
                                                                                        Donative- If you pick a car under $15,000, I will buy it for you for graduation.
                                                                                Conditional donative promise is unenforceable
Nominal Consideration- transaction has form but not substance of a bargain; promisor didn’t view what he got as the price of his promise (unless partied really intended to make a bargain and viewed performance as price of other’s performance).
Nominal consid. Makes a promise enforceable in two specific areas b/c more commercial than donative (Rst. 84 requires actual bargaining and not just form- 2 exceptions)
Options (a promise in writing to hold an offer open for a fixed amount of time)
Guaranties (a promise  in writing to answer for another party’s debt/perf. in contractual obligation
Moral Consideration-
o        Promisor’s moral obligation arising out of a past benefit is a good consideration for a promise, to an extent corresponding with the extent of the obligation, but no further or otherwise.
o        Cts earlier held that a moral obligation incurred through past events is not sufficient consideration, but now the modern trend is to enforce promises based on moral obligation.
 
Reliance
See Rst 2nd § 90
·         Promissory Estoppel- When A makes a promise to B that A should reasonably expect would induce B to act or fail to act, and B does so, the promise may be enforced to avoid injustice even when B’s reliance is unbargained for.
o        Promissory estoppel permits enforcement of K otherwise lacking in consideration without abandoning the doctrine of consideration
·         Reliance damages are available to a party who detrimentally relied on P’s unfulfilled promise
·         § 90 Promise Reasonably Inducing Action or Forbearance
o        A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if the injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
·            Should look at the promisors expectation before you look at the reliance of the promise, also need to make sure the injustice can only be avoided by enforcement of the contract
o        Difference between reliance and expectation damages- see damages section later
§         Expectation damages (future)-need to be in as good of a situation as she would have been had the promise been performed (PROMISE WAS NOT PERFORMED)
§         Reliance damages (lost)- putting a party in as good of a position as they would have been if the promise had not been made
·         Harder to prove bc don’t know what people would do without the promise
·         Get out of pocket costs- the net costs incurred by a promisee in reliance on the promise prior to the breach, less the value produced by those costs that can be realized after breach
·         Opportunity costs- the surplus that the promisee would have enjoyed if he had taken the opportunity that the promise led him to forgo
o        Equals the diff btwn the price of the substitute performance and the best alt contract price that was available to the party at the time of contracting
 
·         There is nothing that says the reliance needs to be reasonable!
·         In reliance cases, you usually find disparity, generally to protect the individual (sometimes it works in business- small company v. a big company)
 
 
Unconscionability
Unconscionable-an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party
·         If the person bargaining truly didn’t understand the bargain, then it should be unenforceable, bc the person didn’t know what they were promising; this really isn’t an absence of meaningful choice (paternalistic doctrine)
See Rst. § 208, UCC § 2-302
o        Procedural unconscionability- unfair surprise (i.e. fine print clauses, mistakes, or ignorance or important facts that show bargaining did not proceed as it should {bears a strong resemblance to fraud and duress} 
 
o        Substantive unconscionability- one sided contract, overly harsh terms, grossly excessive price
Majority of cts require procedural and substantive uncons. To render a K unenforceable, however UCC contemplated substantive unconscionability alone to be sufficient as the most plausible reading of the language
       
·         Most courts require both procedural and substantive unconscionability to establish a claim, while others allow proof of either type to suffice.
 
o        Unconscionability- if a K contains unconscionable elements, a court may void an unconscionable result by enforcing only the nonoffending terms or by limiting the application of unconscionable term
o        GROUNDS FOR UNCONSCIONABILITY:
o        gross inequality of bargaining power
o        lack of understanding on the part of one party regarding the terms of the contract.
 
n      In determining reasonability or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when

Proof that immediate possession of needed goods is threatened or that one party to a K has threatened to breach the agreement by withholding goods will prove economic duress or business compulsion
o        The existence of economic duress or business compulsion is demonstrated by proof that “immediate possession of needful goods is threatened” or, more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by w/holding goods unless the other party agrees to some further demand.
o        A mere threat doesn’t constitute economic duress, rather—it must also appear that the threatened party couldn’t obtain the goods from another source of supply and that the ordinary remedy of an action for breach of contract would not be adequate.
 
 
Modification and Waiver
 
See Rst 2nd § 89 and UCC 1-203, 2-103, 2-209
 
Modification – change in the obligation of one of the parties (or both) by a subsequent modifying K. Such a change doesn’t discharge the entire original agreement, but it does alter the terms and performance thereof.
Modifications to K’s encounter problems w/ § 73 which states that performance of a pre-existing legal duty isn’t adeq consideration, but § 89 tells when the consideration issue is not considered.  (89 undercuts 73)
 
§ 89 Modification of Executory K
A promise modifying a duty under a K not fully performed on either side is binding
(a)    If the modification is fair and equitable in view of the circumstances not anticipated by the parties when the K was made; or
(b)   To the extent provided by statute; or
(c)    To the extent that justice requires enforcement in view of material change of position in reliance on the promise
 
**Consideration may be found in the surrender by each party of his right to enforce the original K, h/e there may be a failure if the change benefits only one party
 
(no bargain contracts from Rst 82-94)
Factors to look at to decide if modification is okay
        Must be voluntarily made
        The Promise modifying the orig K was made before the contract was fully performed on either side
        The underlying circs which prompted the mod were unanticipated by the parties
        The modification is fair and equitable
 
Legal Effect of the “Executory Accord”
·         Accord- a new agreement to satisfy a K
·         And until the accord is performed, it is an executory (unperformed) accord
o        B can not promise to do less than what she is already obligated to do (would present legal-duty-rule prob), but if the accord is performed then there is satisfaction of the accord
·         The common law states that an executory accord is unenforceable, but this is inconsistent with the modern bargain principle, so there are many exceptions
o        Substituted contract- if a new agreement is seen as a sub contract instead of an accord, the org K is immed discharged- meaning the new agreement is treated as a complete substitute for the old one, which is deemed to no longer exist (Rst. 279)
·         Test- an new agreement is a sub K instead of an accord when the orig K was disputed, unliquidated, had not matured, and involved a perf other than the payment of money (if opposite then accord)
·         Accord works when there is
o        1. an accord and satisfaction (performance), 2. suspension of old contract, 3. suit by A under the accord, and 4. other effects
·         Rest. 279- Substitutes Contract
·         Rest. 281- Accord and Satisfaction
 
 
 
UCC Approach See 1-203, 2-103, 2-209 Only requires “good faith”, consideration is not required!
UCC 2-209 Modification, Recission, and Waiver
An agreement modifying a K within this Article needs no consideration to be binding. However, modifications made thereunder must meet the test of good faith imposed by the UCC. “Good Faith” is seen as observance of reasonable commercial standards of fair dealing and trade.
(no legal duty rule here)
Ex.’s à market shift that makes performance of the original terms impossible, etc.
CISG Article 9 – convention on the international sale of goods- multilateral treaty-
80 signatories to the treaty
CISG is applicable to the sale of goods: