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

Contracts

I. Fundamentals; which promises do we enforce and why

Donative Promises

Dougherty v. Salt
New York Court of Appeals, 1919
An eight-year-old boy received a signed promissory note from his aunt for $3000 that was “payable at her death or before.” After the aunt died, the boy sued the executor of the aunt’s will for the $3000.

The court will not uphold every promise.

“Generally, you do not have to perform promises as a legal matter. The court does not enforce social promises.”

Restatement§ 71. Requirement of Exchange; Types of Exchange, p.220
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) 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.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation
(4) The performance or return promise may be given to the promissory or to some other person. It may be given by the promisee or by some other person.
“What is done or promised must be sought, and it must be something that is given for a promise.”

Schnell v. Nell
Supreme Court of Indiana, 1861
J.B. Nell brought an action against Zacharias Schnell based on a document, signed by Zacharias Schnell. The document stated that Theresa Schnell, Zacharias’s deceased wife, put in her last will and testament that Nell and two others should receive $200 upon her death. She did not own any property, and the document said this nullified the promise. The document stated that in exchange for one cent, Zacharias Schnell was to fulfill his wife’s wishes and give the three individuals $200 each. He changed his mind.

While the court will leave the valuations of the promise, and return promise up to the promisor and the promisee, it will not uphold what are deemed conditional donative promises because of lack of consideration (bargain), even though it can look like a bargain.

“This case looks like a bargain, but isn’t really.”

“Generally, the promise to make a gift in the future is not enforceable.”-Chirelstein p. 15

Restatement § 72. Exchange of Promise for performance p.220
Except as stated in parts 73, and 74, any performance which is bargained for is consideration.

Consideration: The Bargain Principle
“Side Note: Consideration is not the subject of most current cases.”

Restatement § 17 Requirement of a Bargain p.201
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent (the formation of a contract) to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
“If you have a bargain, the notion of enforceability is satisfied. Interpretation problems arise when the courts try to figure out if there was a ‘manifestation of mutual assent’.”

Hamer v. Sidway
Court of Appeals of New York, 1981
An uncle promised his nephew when he was 15 that if he would not drink, smoke, or gamble until he was 21 he would give him $5000. The nephew did this, but the uncle, not wanting him to spend all of his money right away, decided to put the $5000 in an account for his nephew on interest. The nephew agreed. The uncle died without paying over the money. Someone who the nephew owed money to brought a claim to the executor of the uncles will. The defendant argued lack of consideration.

A forbearance is valuable consideration.

“The uncle wanted a performance.”

“Surrendering a freedom of action is sufficient consideration for a promise.” Although the uncle received nothing tangible, the court, generally, will not look into the adequacy of the consideration because the parties are supposed to do that. -Chirlestein p.16

“Parties are in a better position to value their promises.”

Restatement § 79. Adequacy of Consideration; Mutuality of Obligation p.234
If the requirement of consideration is met, there is no additional requirement 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.”

· Deals with contract formation

Batsakis v. Demotsis
Court of Civil Appeals of Texas, 1949
The plaintiff loaned the defendant 500,000 drachmae while in Greece during the WWII. At the time of the loan, the defendant signed an agreement stating that she had received, and was going to pay back once in America, $2000 plus interest. The defendant didn’t want to pay, so the plaintiff sued and the trial court awarded the plaintiff $1163.83. The plaintiff appealed, winning the whole amount.

Inadequacy of consideration will not void a contract.

“Valuation is something that individuals should decide, not the courts. If they did this, the courts would become very unpredictable. The trial court’s ruling of ‘meeting half way’ was incorrect.”

Reliance
“Besides consideration, Reliance is the most applicable theory on whether to enforce a promise.”

Kirsky v. Kirsky
Supreme Court of Alabama, 1845
The defendant invited the plaintiff, the defendant’s widowed sister-in-law, to bring her kids and come live with him, suggesting to her to obtain her preference on the public land she was living on and sell it. He stated in the letter inviting her, “I feel like I want you and the children to do well.” She abandoned her comfortable living space and she and her children moved in with him 60 miles away. After two years the defendant kicked the plaintiff and her children out, first making her move to an uncomfortable house in the woods, and then off of his property completely.

Conditional donative promises are mere gratuities, and are not enforceable.

“The court could have gone either way between conditional donative promise, or bargain. Until you resolve what the meaning of the promise is, you can’t tell if there is a breach.”

“Between this and the next case, a historical development of reliance evolved.”

The court held the defendant’s promise a mere gratuity despite the obvious elements of inducement and reliance. -Chirlestein

Restatement §90. Promise Reasonably Inducing Action or Forbearance, p.231
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promissee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (The purpose of this last sentence is to permit the use of a reliance measure of damages in suc

nable at the time it was made the court may refuse to enforce the contract, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
(2)When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
“The real issue of unconscionable is ‘outrageous deals’.”

Maxwell v. Fidelity Financial Services Inc.
Supreme Court of Arizona, 1995
The Maxell’s (P) took out a loan for a solar powered water heater that never worked for $6,512 with an interest rate of 19.5% from Fidelity Financial Services (D). Several years later, the P took out an additional loan from D which, among other things, paid of the original loan and contained the same interest rate. Overall, the P was required to pay the D $17,000 for an $800 loan and a broken water heater.

The presence of substantive unconscionabilty, or a “one sided contract,” is enough to deem a contract unconscionable.

“Unconscionability allows a court to not enforce a contract because it ‘must’ have problems with the bargaining process evidenced by ‘unfair’ terms. Unconscionabilty brings about unpredictability in the courts.”

When there is evidence that one party could not understand an agreement, then the court can decide whether or not the contract terms were fair. Usually, the average person can’t understand every stipulation of a contract, so their unconscionability defense focuses more on the substantive fairness of the deal. What the unconscionability doctrine does, arguably, is allocate an individual’s choice function to the court when “circumstances show that the individual can’t choose for herself.” -Chirelstein

This marks the end of the basics for the contract law.
The next 3 sections focus more on the bargain.

Issues in the Bargain Principle: Mutuality; “Illusory” Promises

Scott v. Moragues Lumber Co.
Supreme Court of Alabama, 1918
Scott (D) agreed with Maragues Lumber (P) to charter a boat for them if he purchased it. D bought the vessel, but chartered it to a third person, making it unavailable for P. P was awarded damages at trial, (D) appealed saying his promise was illusory.

A conditional promise is binding if the condition occurs.

“Because Scott did not have to buy the boat, he claimed his promise was illusory. However, the court viewed the buying of the boat as a condition. A condition is part of a binding contract. The performance is not necessary unless the condition is satisfied. The condition, buying the boat, was satisfied, therefore, the performance was necessary.”