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Contracts
University of Illinois School of Law
Maggs, Peter B.

BASES FOR ENFORCING PROMISES
1. Enforceable Promises
Restatement 1: Contract defined
§ A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty
Restatement 2: Promise; Promisor; Promisee; Beneficiary
§ A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made
§ The person manifesting the intention is the promisor
§ The person to whom the manifestation is addressed is the promisee
§ Where performance will benefit a person other than the promisee, that person is a beneficiary
o Hawkins v. McGee- Dr. promised H that he could make his hand 100% perfect. P wins. Distinguishing bw a promise and a prediction
§ RULE: If statement is made with intent to be received at face value, and is so received by P, then it is enforceable and binding.
· Is something a promise or a prediction?
o Prediction= not enforceable
o Promise= distinguish if enforceable or not enforceable
o Hamer v. Sidway- Uncle promised nephew $5k if N didn’t drink, smoke, gamble til 21. Abandoning theory of needing benefit/detriment for consideration. Now: bargained for exchange= K
§ RULE: If promisee gives up a legal right in exchange for a promise by promisor, he has consideration and the promise is binding. Refraining from something is consideration.
· Which promises are enforceable and which are not?
o Enforceable= decide if broken or not broken
§ Not broken= P loses
§ Broken= what is the remedy?
o Shadwell v. Shadwell- important to look at motive vs what is actually bargained for
§ Look at R § 71, 73, 74 (F v B case)
Restatement 71: Requirement of Exchange; Types of Exchange
o To constitute consideration, a performance or a return promise must be bargained for
o 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
o The performance may consist of
§ An act other than a promise, or
§ A forbearance, or
§ The creation, modification, or destruction of a legal relation
o The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or be some other person
Restatement 73: Performance of a Legal Duty
§ Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is NOT consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain
· (= Pre-Existing Duty Rule)
o Talbott v. Stemmons- what is sought is a promise- if breaks pledge, must pay twice amount to the party
3. Consideration as a Basis for Enforcement
A) Fundamentals of Consideration
Restatement 79: Adequacy of Consideration; Mutuality of Obligation
o If the requirement of consideration is met, there is no additional requirement of
§ A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
§ Equivalence in the values exchanged; or
§ “mutuality of obligation.”
Restatement 81: Consideration as Motive or Inducing Cause
§ The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise
§ The fact that a promise does not of itself induce performance or return promise does not prevent the performance or return promise from being consideration for the promise
– Second Restatement- distinguishes bw consideration and a “pretense” of consideration
o R 79:tries to avoid looking at whether the amount of consideration is adequate- as long as doesn’t seem to be a pretense, its valid consideration
o Also: avoids distinguishing bw “unilateral” and “bilateral” promises
Gratuitous Promises:
– under CL, promise to make a gift not binding: no consideration
o Fiege v. Boehm- F got B pregnant out of wedlock. B promised to not sue F for bastardy if F paid all expenses. F not baby’s father, so stopped paying. Promise in exchange for a performance. Made in good faith= upheld.
§ RULE: Forbearance from asserting a good faith legal claim can be valid consideration
Restatement 76: Conditional Promise
§ A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur
§ A promise conditional on a performance by the promisor is a promise of alternative performances within §77 unless occurrence of the condition is also promised
Restatement 74: Settlement of Claims
§ Forbearance that’s invalid is not consideration unless
· Claim is doubtful bc facts of law are uncertain, OR
· Forbearing party believes claim may be fairly determined to be valid
o Second R= “either honest OR reasonable” belief in possibility of your claim
§ Honest belief= 100% sure that it might happen
· R 74: Settlement of Claims
o Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
§ The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
§ The forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid
o The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists
§ R 74: exception to the rule of R 79 (don’t look at adequacy of consideration)
§ R 71: aimed at ppl who want to bring frivolous suits to try to get money
B) The Requirement of Exchange: Action in the Past
– Feinberg v. Pfeiffer Co.- F worked whole life for PC. PC promised $200 pension when F retired. F did. Payments stopped. D wins.
o RULE: past performance is not valid consideration
§ no return/exchange given at time of promise by F= no consideration for K
§ past work can’t be consideration bc u cant bargain for something to be done if it has already happened
· if had said “if works 3 more years, then gets pension” it would have been consideration… “24 hours” may be pretense- no clear line bw pretense of consideration and actual consideration
o more conservative view than Webb v McGowin- long term benefit of her faithful service was not C for the promise- no clear express relationship bw them
o past benefit= not C
– Mills v. Wyman- M took care of W’s son at sea. W wrote M n said would compensate M. Didn’t. D wins.
o RULE: it is only when the party making the promise gains something, and he to whom the promise is made loses something, that the law gives the promise validity
o RULE: moral duty is not consideration
§ Moral obligation: facts that happened before the promise
o RULE: past C isn’t C. can’t bargain for something that has already happened
Restatement 86: Promise for a Benefit Conferred
o A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice (ex: Mills)
o A promise is not binding under subsection 1
§ If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
§ To the extent that its value is disproportionate to the benefit
– Webb v. McGowin- W fell with wood block that would’ve killed M. M said would pay W for rest of W’s life bc W saved M’s life. M died. Payments to W stopped.
o RULE: where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit it received.
o RULE: benefit to OR or injury to EE is a sufficient legal consideration for the OR’s agreement to pay
o General Rule= promise to make a gift is not enforceable- BUT in some instances, promise may be enforced if made for benefit already received
C) The Requirement of Bargain
– Kirksey v. Kirksey- P was wife of D’s brother. D wrote to P of

bc G reserves right to sell portion of land if had future economic needs
o G’s lawyer- no. it’s a condition= must be economica/financial need to sell it- puts an objective/outside test on it, so not illusory the way S v. S was
o = don’t look at “adequacy” of promise, but do look to see if its “illusory”
§ = line bw contractual grey area of adequate/illusory consideration
Contracts for the Sale of Real Estate
– Mattei v. Hopper- P real estate developer, wanted to buy D’s land, made offers. D finally made counteroffer, P accepted. Written agreement- P paid $1k and had 120 days to examine title/consummate purchase. Condition: “subject to Bank obtaining leases satisfactory to purchaser” and if not, P could back out. D tries to back out. P gets leases and demands land. D refuses to sell. P wins
o Bargain, not illusory- good faith/reasonable efforts
o RULE: Deposit Receipts are binding and enforceable contracts
§ Standard form documents (can be called offer from acceptance)
· Sign doc with offer, get owner to sign
· This has now turned into a contract (offer-acceptance)
§ For K to bind either, both must have assumed legal obligations. Without mutuality of obligation, agreement lacks C and no enforceable K created
o RULE: if only 1 party free to withdraw from K at his will, promise is illusory and no C given
§ Illusory promises are not consideration/ non-illusory promises are C if don’t look at their adequacy
o RULE: 2 classes of Satisfaction Clauses
§ Re: commercial value, etc- standard of reasonable person used (objective)= general rule
§ Re: fancy/taste/judgment- if dissatisfaction made in good faith (subjective)
· this is case of 2nd kind- M’s promise to act in good faith is C to support K/ not illusory bc dissatisfaction must be w performance, not just promise n must be genuine
Contracts for the Sale of Goods
– UCC- Article 2: deals with the sale of goods
o UCC Official Comments given a lot of weight- promote uniformity
– Eastern Airlines, Inc. v. Gulf Oil Corporation- D supplies gas to P. D demanded higher price or would shut off P’s supply. P sued for injunctive relief on breach of contract- make D continue providing gas. D claimed K was invalid for want of mutuality/”commercially impracticable” under UCC 2-615.
o RULE: requirements contracts are binding if: not too indefinite/ don’t lack mutual obligation/ have reasonable elasticity/ good faith variations from original K are permitted.
§ Essential test= whether party is acting in good faith
UCC 2-306: Output, Requirements and Exclusive Dealings
§ A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded
· = limits on what buyer can do
§ A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale
· = exclusive deal= B and S both obligated to use “best efforts”