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

Peter Maggs Fall 2013

1. Chapter 1: Bases for Enforcing Promises

a. Enforceable Promises (Introduction)

i. Contract

a. Contract Defined: § 1: a promise or 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.

b. We are concerned with which promises the law can enforce (as it does not enforce all of them)

ii. Authority

a. The authority to enforce contracts is written in a restatement of common law contract principles written by the ALI (American Law Institute) in 1932 (Restatement, First) and the Restatement, Second (put out in 1980)

b. Statutes, particularly Article 2 of the Uniform Commercial Code (governs all cases involving the sale of goods)

iii. Promise

a. Promise: § 4: A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct

b. Hawkins v. McGee: – doctor’s promise is binding because it is understood to be so (enticed him)

· Hawkins was having a scar repaired on his hand via skin graft by Dr. McGee. P alleges that the D promised the hand would be 100% again, and it was not. The court says this was a contract because the promise was meant to be understood as a guarantee: the doctor repeated it several times in an attempt to get the kid to say yes.

b. Consideration as the Basis for Enforcement

i. Fundamentals of Enforcement: What promises do we enforce: those with consideration.

a. Covenant (English practice of sealing something with a wax seal, which became enforceable them no matter what the bargain was).

1. This practice was evidentiary and cautionary (proof and the seal added significance to the person doing it), and this has become one of the standards.

b. Consideration:

§71: (1) To constitute performance, 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 promisor or to some other person. It may be given by the promisee or by some other person.

§79: as long as there is consideration according to §71, there is no need for the benefit/detriment test, equivalence, or mutuality meaning. Courts generally do not inquire into the adequacy of consideration, but mere pretense of a bargain (peppercorn) does not suffice.

c. Family Contracts: usually unenforceable, considered gifts

1. Hamer v. Sidway: forbearance from a legal right is consideration

· Uncle (Sidway) promised his nephew $5000 if the nephew refrained from drinking, tobacco and gambling (which were legal) until he was 21. The nephew did, wrote a letter asking for the money, and was denied saying he was too young. The nephew agreed and let the money stay where it was. The uncle died a few years later, and the nephew had Sidway pursue the money. Hammer acquired the case through several mesne (intermediate) assignments (this means she has the same rights as P). The court said the refraining from legal rights was consideration for a contract, so the money needs to be paid up.

· Shadwell v. Shadwell: Uncle will pay 150 pounds per year until he makes more money. Held that it was consideration because of marriage.

2. Homes’ bargain theory of consideration: A consideration is given and accepted as the motive or inducement of the promise and vice versa. It doesn’t matter what the motive is; it matters that an offer was made and accepted.

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d. Gratuitous Promises: promises given without seeking anything in return (or seeking a mere pretense of consideration) are not enforceable (§ 71); not bargained for and nothing is given in exchange; § 71 says a pretext is not sufficient.

1. Fiege v. Boehm: P acting in good faith in making a claim is sufficient consideration

· Fiege got pregnant with a child that she assumed was Boehm’s. He promised to pay her expenses and child support if she did not go after bastardry charges. He found out that the kid was not his and stopped paying, so she started the charges. She also sued him in court. The forbearance from a legal right based on a claim made in good faith is consideration.

· It is enough for the person to in good faith believe it to be true when the contract is

· §74: A forbearance based on a false claim is NOT a consideration; unless that claim was made in good faith [honest is the only standard] (reasonable was old standard and doesn’t apply)

ii. The Requirement of Exchange: Action in the Past: promises for past performance are not binding as to prevent injustice

a. Promise for Benefit Received:

§86: (1) A promise made in recognition of a benefit already received by the promisor from the promisee is binding to the extent necessary to prevent injustice (2) It is not binding under (1):

(a) if the promisee conferred the benefit as a gift or for other reason the promisor has not been unjustly enriched, or

(b) to the extent that its value is disproportionate to the benefit.

b. Feinberg v. Pfeiffer Co.: Woman can’t get retirement money for past performance she was paid for (can get it for reliance). Past performance is not consideration; new work is not part of the bargain.

· Forbearing the pursuit of gaining or retaining employment under the promise of a retirement check until such time as one is unemployable is not a consideration, but it is reliance.

· Her 30 years of service is not consideration because a consideration is in return for a promise that is bargained for. She didn’t bargain for her work as consideration for a pension. (§71)

· Working for a year after the company offered her a pension is not consideration because she still did not bargain for this. They said that she could quit at any time, so under the terms of the promise she didn’t have to work a year.

· §86: A promise (to pay her pension) is made in recognition of a benefit previously received (her length of service) by the promisor (the company) from the promisee is binding to the extent necessary to prevent injustice (her being impoverished in her old age because she didn’t work). Not binding if (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched (if you are company, you would argue that the company was not unjustly enriched because they paid her). So this clause doesn’t get her the win, but reliance doe

eration by working under it. Changes must be known. No reduction of rights unless signed.

f. Rewards: A person has to know of the reward prior to doing the deed in order for contract to be good. If you find out about the reward partway through, you can still get the reward (§52: Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance). If the desire to complete reward is for another motivation, you can still collect the reward (§81 (1) 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 (2) fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise). See Broadnax v. Ledbetter (D offered $500 reward for capture of escaped prisoner)

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iii. Promises as Consideration (bilateral contracts)

a. What Constitutes a Promise?:

1. §75: A promise which is bargained for is consideration if the promised performance would be consideration.

2. Illusory and Alternative Promises (not consideration): §77: A promise is not consideration if by its terms the promisor reserves a choice of alternative performance unless: (a) all of the alternative performances would have been consideration (b) all of the non-eliminated alternative performances would have been consideration

b. Strong v. Sheffield: an illusory promise (not collect the debt until I feel like it) is not consideration

· Reasoning: A promise not supported by consideration is not enforceable. Since the promise was not to collect until such time as the P wanted his money, there was nothing of substance there, so the promised performance is not a valid consideration. Thus the contract is void.

· Consideration is tested by the agreement, not what is done under it (i.e.: he waited 2 years to collect but did not promise to wait 2 years)

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c. Contracts for the Sale of Real Estate: They are complicated, very meaningful, and involve several parties. For this reason, there is usually more formality involved with them, and they can be drawn out over time.

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1. Mattei v. Hopper: P signed deal to buy D’s land upon “satisfactory” leases. Promisors duty to exercise judgment in good faith (§205) is adequate consideration.