1) What is a contract?
a) A contract may refer to a document representing an agreement to an agreement in fact between or among people, to a legally binding obligation arising from an agreement in fact. I is most often used to mean “a promise or a set of promises for the breach of which the law gives remedy – that is, a legally binding obligation arising from a promise.
2) The definition of contracts speaks of remediable “promises”. What is a “promise?”
a) A promise is an assurance or declaration that one will do, or refrain from doing, some act. It is a commitment; a definitive statement and manifestation of that commitment.
3) What is required to form a contract?
a) A notion that both parties themselves created obligations to each other and communicated their commitment is required to form a contract
4) Are all promises enforceable?
a) All promises are not enforceable because they are fundamentally required to have a consideration in order for the promise to be enforceable.
5) What is consideration?
a) An additional element, or the “something else”, that must accompany a promise in order for it to be enforceable. What’s been given up or gotten in exchange.
i) Old view: benefit and detriment
ii) New view: bargain
1) Gift promises are not enforceable
a) Gift promises are not enforceable because there is no consideration using either the old view or modern view of consideration. There is neither a bargain that takes place or a benefit and detriment to the parties involved. A gift promise is a voluntary action on one party and that party is lawfully within means to rescind that promise.
2) What is the essence of consideration?
a) Essence of consideration encompasses an action to take place (future promise) or an exchange of goods or services.
3) Why do we require consideration?
a) Consideration is required in order to enforce promises because there must be an agreed upon exchange or bargain made. If one party breaks a promise with consideration, the offended would suffer a loss in some form.
4) Difference between bargain with consideration and a conditional gift promise?
a) Hamer v. Sidway
i) The Uncle’s promise and the nephew’s actions in response are more than just a naked gift promise, BUT the informal family setting makes for an argument that it could have perhaps been a conditional gift promise.
ii) Intermediate appellate court holding
(1) Uncle had given an incentive to his then 8 – 10 year old nephew to an amount of $5,000 when he became of age on the condition that he abstains from alcohol, tobacco, and gambling. That it would be a reward for instilling a good life habit and one that would be beneficial to the nephew. There is also testimony from a witness who claims that there was never any mention of any contract between the uncle and the nephew.
iii) Court of Appeals holding
(1) The uncle had limited the nephew’s legal rights at a detriment to the nephew which substantiated the claim of consideration.
(2) “in general, a waiver of any right at the request of another party is sufficient consideration for a promise.”
5) Revisiting old view of consideration
a) Focus was on benefit/detriment
i) Benefit to promisor, or detriment to the promisee
b) Hamer: a valuable consideration…may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other.
c) Did the benefit/detriment have to be bargained for? Did it serve as an inducement for the making of the promise?
i) There is a suggestion in Hamer that “inducement” matters, and on the facts there appears little doubt that the nephew at least incurred his detriment on the strength of the Uncle’s promise.
6) Modern view of consideration
b) Restatement 71
i) To constitute consideration, a performance or a return promise must be bargained for
ii) 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 promise in exchange for that promise
c) BARGAINED FOR EXCHANGE
i) As long as there is a bargained for exchange of performance or promise, there isn’t an additional requirement of a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee
1) What does consideration have to do with modifying contracts?
a) Modifying a contract is itself a contract within itself, which means that consideration is needed in order for the modification to be enforceable.
b) Essentially a contract modification is making a new contract
2) Pre-existing duty rule
a) Restatement 73
i) Consideration for modification of contract can’t be what the parties were already obligated to do
(1) EXCEPTION: Similar performance is consideration if it differs from what is required in a way that reflects more than just a pretense of a bargain
(2) Rationale: To prevent the hold-up game
(a) Hold up game: Alaska Packers’ Ass’n v. Domenico
(i) Fishermen asked for extra $50 or would not work and return to port. Domenico consented because of no reasonable alternative but ended up not paying the extra $50. Fishermen brought suit. Court held that the fishermen had a pre-existing duty to already perform under original contract and so the modification of the original contract was unenforceable.
3) How to make enforceable modification:
a) New consideration for the modification
b) Recission followed by new contract
c) Restatement 89
i) Enforce modification if the parties voluntarily agree and if
(1) The promise modifying the original contract was made before the contract was fully performed on either side,
(2) The underlying circumstances which prompted the modification were unanticipated by the parties, AND
(3) The modification is fair and equitable
(a) Alfred L. Angel v. James Maher: Case where Maher signed a 5 year contract with the city for waste collection. Contracted with assumption that there would be an average increase in dwellings per year. However, there was a sudden unexpected and unanticipated increase in the number of dwellings. Court held that although Maher had a pre-existing duty to collect the waste from the previous contract, the modification was enforceable because of the unanticipated circumstances and it was fair and equitable
ii) There is now a modern trend moving away from the pre-existing duty rule as reflected by restatement 89 above, AND
(1) UCC 2-209(1): An agreement modifying a contract for the sale of goods needs no consideration to be binding. Only looks to good faith of modification.
4) CISG Art. 29
a) CISG: international sale of goods
b) Contract may be modified or terminated by the mere agreement of the parties and if there is a contract in writing which states modification of the contract must be in writing, it cannot be modified in agreement, but only in writing.
Promissory Estoppel (no consideration but enforced anyway because of detrimental reliance)
1. Promissory estoppels only matters when you do NOT have a traditional contract enforceable as a bargain
a. Only care about promissory estoppels when the parties don’t conclude a bargain, but one party made a promise that we think should be enforced because the other party relied on it
b. Even though was thus by definition a gift promise
c. Likely have notions of justice that the promisee’s reliance should have been reasonably foreseen by the promisor when making the promise, and the promisee should have justifiable and reasonably relied on the promise
i. In a setting where there is NOT a bargain, and instead was just a gift promise
d. Have to distinguish between (1) the promisee’s performance of a condition to gift promise, on the other hand, and (2) the promisee’s detrimental reliance on the promise, on the other
2. Can be helpful to put promissory estoppels in perspective by focusing on, first, in each instance on why there is NOT a contract enforceable via traditional notions of consideration. Then ask whether, even absent traditional consideration, the promisee’s induced reliance should be a sufficient justification to enforce the promise anyway
3. Elements of promissory estoppel
a. A promise
i. Often courts say must be “clear and definite”
b. Promisor reasonably expects promise to induce reliance (action or forbearance) to promisee
i. 1st Restatement: adds that reliance must be “of a definite and substantial character”
c. Promise in fact does induce actual reliance by promisee
4. Courts also consider factors such as
a. The reasonableness, AND
b. Justifiability of promisee’s reliance, AND
c. Under 2nd Restatement, the “definite and substantial character” of the promisee’s reliance
i. In sum, the actual reliance by the promisee must be the sort expected by the promisor
5. Justice requires enforcement
a. Preventing INJUSTICE!!!
a. Expectation damages: value that would have been realized if the promisor had gone through with the contract. Forward looking.
b. Reliance damages are allowed under 2nd Restatement: looks at promisee and asks “how much did they lose?” Trying to restore the promisee to what they were before they were injured
i. Compensate a person who is injured by the acts of another – here by making promises that you’d expect the person to rely on to their detriment
Promissory Restitution (promise for benefit already received)
1. Also known as “material benefit” rule
2. Benefit received: basis for enforcing a contract
3. In essence, the subsequent promise by the benefited party cures the other party in circumstances where we believe it is only fair and just to hold the promisor to her promise
4. Recovery under promissory restitution:
a. Two concrete requirements
i. A promise
ii. A benefit received by the promisor
1. Mills v. Wyman: A father promises to pay plaintiff back for taking care of his sick adult son. Father ended up not paying and the court held that the father did not have to pay because the benefit was realized by the son and not the father who was the promisor
b. A vague admonition
i. Binding to the extent necessary to prevent injustice (no officious intermeddlers)
1. Benefit can’t be returned
2. Benefit would have been contracted for before if possible
5. Exclusions for not enforcing promise
a. No unjust enrichment (intended as a gift when benefit was conferred)
is sought by the offeror, OR
2. By performing the specific act stated in the offer, if performance is sought by the offeror
2. Advertisements and rewards
a. “Rule of thumb” on advertisements: Usually NOT an offer
i. Generally invitations to make an offer. There is a risk of over acceptance.
b. But in unusual cases CAN be an offer
i. Only an offer if there is a particular performance requested
1. Directed at one person
2. Explicitly stated how they can fulfill the contract
3. Has language signifying a commitment
c. Rewards are often offers for a unilateral contract (contract for completed performance)
i. Carbolic: cash reward if you use carbolic smoke ball and still get sick; courts enforced because terms were anyone who took the smoke and got sick would be rewarded from an account the company set aside for exactly that purpose.
ii. Reward must be one in which a reasonable person would believe the offeror truly intended to be bound
d. Irrevocable offers
i. Option contract
1. Makes offer irrevocable for a stated period
2. Must have consideration for the option
ii. Firm offers under the UCC 2-205 (Sale of goods)
1. Offer by merchant in signed writing gives assurance that offer will be open for X amount of time or, if no time is states, then for a reasonable time not to exceed 3 months
iii. Part performance (unilateral contract)
1. When promisee begins performance, offer is irrevocable (Restatement 45)
2. Does not apply to preparation, only actual performance
iv. Detrimental reliance (bilateral contract)
1. Action made in reliance on existence of offer
1. Legal effect of an offer is that it creates a “power of acceptance” in offeree
a. Restatement 35(1): the offeree’s power of acceptance = an offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer
2. Once offer is made, ONLY get a contract right away in one situation àthe offeree ACCEPTS
a. Restatement 50: acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer
3. The question always is:
a. What intentions did these parties actually manifest, as reasonably understood in the context offer was made?
4. To be effective, the acceptance must have two traits:
a. Definite, unconditional, and unequivocal manifestation of assent to the offer, AND
b. Not throw in anything new or different
5. Silence CAN be acceptance IF
a. Takes benefit of services offered with reasonable opportunity to reject them and has reason to know that compensation was expected
b. If offeree intended silence to mean acceptance
c. Prior dealings make it reasonable that silence is acceptance
6. Inquisitive “maybe” that keeps the offer on the table but asks more is NOT termination
7. Mirror image rule
a. Acceptance must be the “mirror image” of the offer
b. UCC 2-207: abandoned the mirror image rule
i. Offeree’s acknowledgment can be acceptance if it is a definite and reasonable expression of acceptance EVEN IF it states terms additional to or different from those offered
ii. If contract is formed by exchange of forms, what about offeree’s new terms?
1. It is treated as a proposal to be added to the contract
2. IF both parties are “merchants,” then the proposal becomes part of the contract UNESS:
a. The proposals are a material alteration of the offer
b. Offeror said no – either in the original offer or in response to the proposal
iii. If Offeree wants to be certain it gets all its terms, then offeree must say in its response that its acceptance is “expressly made conditional” on offeror assenting to the offeree’s terms
1. The fact that offeror began performance does not mean it assented to all of offeree’s terms