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Contracts
University of Illinois School of Law
Brubaker, Ralph

 
Contracts Outline – SPRING 2013
A contract is a promise/set of promises that if breached, law gives a remedy. Performance of a contract is a recognized duty. (Restatement §1)
 
ENFORCEMENT OF PROMISES
      I.      CONSIDERATION
a.      Definition
                                                              i.      Consideration requires performance or a return promise sought by promisor in exchange for his promise (Restatement §71)
b.      Purposes
                                                              i.      Evidentiary function – provides evidence of the terms of the contract
                                                           ii.      Cautionary function – Looks at the significance of their parties to the dealings
c.       Elements – Bargain for Exchange (Restatement §71)
                                                              i.      Sought by the promisor in exchange for the promise/performance
1.      Makes the promise to get it
2.      81(1) threshold: One of the reasons to make the promise (very low threshold)
3.      Not a sham pretense/nominal consideration
4.      Not past consideration (past consideration ≠ consideration)
5.      Not conditional gift promises (Kirksey)
6.      Not illusory promise
                                                           ii.      Given by the promisee
1.      Only consideration if promisee does it to get what’s promised
2.      As long as it’s one of the reason to get what was promised, it passes the §81 threshold
                                                         iii.      Exceptions:
1.      Peppercorns (something of no value to either party) cannot be exchanged
a.      §79- Mere pretense of a bargain does not suffice.
2.      Familial ties usually are gifts
d.     Cases
 
CASE
FACTS
HELD
Hamer v. Sidway
Uncle promised nephew $5K if he gave up smoking, drinking, etc. until he turned 21. Nephew gave up activities and asked for money.
Binding K.  Consideration: Nephew abandoned legal rights as inducement for promise.
Shadwell v. Shadwell
Uncle promised nephew to pay him startup $$ if he were to get married to F.  N married F and asked for $$.
Binding K.  Consideration = N got married to F.   It does not matter if N was already going to marry F, as long as one tiny reason he went through with it was to get $$.  The fact that he got married was enough to conclude that this was ONE of the reasons. (Rest. 81 threshold)
 
e.      Gratuitous promises are not binding.
                                                              i.      Not enforceable by a mere taken payment arranged in order to satisfy the requirement for consideration (peppercorn)
                                                           ii.      Purpose of gratuitous promises
1.      Assurances are good
2.      Weed out promises that are “small potatoes”
                                                         iii.      Case:
 
CASE
FACTS
HELD
Fisher v. Union Trust Co.
Dad wanted to convey land worth $5K to son.  D sold land to S for $1. 
No consideration.  Gratuitous promise b/c he used a peppercorn in attempt to satisfy consideration.
 
   II.      PAST CONSIDERATION
a.      Past consideration ≠ consideration.  It’s a gift.
b.      Case
CASE
FACTS
HELD
Feinberg v. Pfeiffer
F worked for company for many years, and company made an unconditional promise to give a pension to her.  F retired, and company stopped paying pension.
No consideration. There is no language predicating F’s right to a pension upon her continued employment aka “no mutuality of obligation”
 
c.       Exceptions
                                                              i.      If it’s necessary to prevent injustice. §86.
                                                           ii.      Moral obligations
CASE
FACTS
HELD
Webb v. McGowin
Webb saves McGowin’s life in emergency and was injured.  McGowin promised to pay Webb for rest of Webb’s life and pays Webb until McGowin dies.
Binding promise – consideration arose from Webb’s promise to pay for saved life based on moral obligation.  Moral obligation= sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.
 
d.      Employment Agreements
                                                              i.      (Maj.) Contracts are not enforceable after job begins because employee lacks the ability to bargain for it before he renders his service.
                                                           ii.      (Min.) Contracts are enforceable after a job begins if supplied by implied promise to continue work
 
III.      CONSIDERATION AS A BARGAIN
 
a.      Promises to give a gift ≠ consideration—lack quid pro quo
                                                              i.      Case
CASE
FACTS
HELD
Kirksey v. Kirksey
Brother promised widow (his sister) a home if she moved family 60 miles.  S moved and was later kicked out by B.
No consideration because B’s promise was a just a “conditional gift promise” in that he just wanted to offer her a gift.
 
Jennings v. Radio KSCS Hypo
Radio station promised its listeners 25K if they caught them not playing 3 songs in a row.  J caught them, and demanded the $.
No consideration; If defending J, make it clear that Radio was bargaining towards the “if.”  For example, “to increase audience by inducing them with an award for their vigilance/duration of listening.”
Lake Land Employment Group of Akron v. Columber
Columber= at-will employee of Lake Lane, where he signed a non-compete. P. sued for damages when non-compete breached.
Valid Consideration exists to support a noncompetition agreement when, in exchange for the assent of an at-will emp

39;s promises has a termination right if they've essentially promised nothing.
2.      Would only be held as illusory if the party has completely unfettered discretion
3.      If there is a promise to perform, the contract is upheld
4.      Requirement of giving notice is usually enough to give substance to a promise. 
CASE
FACTS
HELD
Wood v. Lucy, Lady Duff Gordon 
Lucy claimed exclusive license agreement w/ Wood to promote her fashion was illusory because Wood never promised to market. 
Not illusory because Lucy’s promise was given to induce Wood’s efforts and success so that he’s not undercut by other agents.
 
d.     Satisfaction Clauses- not illusory as long as the objective or subjective standard is met
                                                              i.      In a complex transaction, it would be slower if you had to wait until you received a promise before moving onto the next one, so satisfaction clauses are used to condition a promise on everything else moving forward
                                                           ii.      TWO STANDARDS:
1.      Objective satisfaction: reasonable standard/ commercial standard
2.      Subjective satisfaction: honest state of fulfillment; good faith
 
CASE
FACTS
HELD
Mattei v. Hopper 
Mattei promised to sell land upon the condition that developer Hopper obtained satisfactory leases. 
Contract= binding w/consideration.  Not illusory promise because of subjective standards of good faith (Hopper honestly attempted to find leases).  If no time period, then it’d be an illusory promise.
 
e.      Actual Reliance Rule- establishment of sufficient reliance creates a contract.
                                                              i.      Discourages reliance through:
1.      Proof problem
2.      Uncertainty of enforceability
a.      Enforceability is reliant on subjective standards- need to look at records but no certainty that it’ll be enough.
  V.      RELIANCE AND PROMISSORY ESTOPPEL
a.      Purpose of Promissory Estoppel: Compensate for harm. Enforced when there is no contract, but one party relied on another to their loss.
b.      Elements of Promissory Estoppel (Restatement §90)
                                                              i.      Promisor made a promise to the promisee