CONTRACTS LAW
PROFESSOR TABB
FALL 2014
INTRODUCTION[1]
Fundamentals
– Contract: a promise or a set of promises for the breach of which the law gives a remedy
• Promise: assurance or declaration that one will do or refrain from doing something; manifested intent to perform a commitment in a way that is believed to be possible
• Elements of a contract: assent and consideration
• Contract law governs promises, agreements, and exchanges
• Contracts is a strict liability regime – you either comply or you don’t
• Contracts are either bilateral (most contracts) in that they are promise/return promise; or they are unilateral via promise for performance
– Principals of Contract Law
• Freedom of contract: parties should decide for themselves what responsibilities to undertake, with only the smallest of restrictions, and should not ask the court to choose for them
• Predictability and security: parties operate more effectively when they can comfortably predict and order their lives according to the legal implications of their actions
• Commercial reasonableness: rules should reflect the way parties actually conduct business
• Fairness – parties should be protected from being misled, unreasonable pressure, or otherwise led into contracts that do not represent their true choices or that shock the conscience
– Sources of Contract Law and Authority
• Common Law
• Primarily State Law
– There is a significant amount of interstate variation in contract law because precedents from other jurisdictions are not binding
Restatements of Law
– In 1923, a group of prominent American judges, lawyers, and professor established the American Law Institute (ALI) for the purpose of bringing clarity and consistency to the common law
– Over the years, the ALI has published “Restatements” which attempt to formulate the principles and rules of law
• Because of the lack of uniformity in contract law, the ALI must often choose which rules are best for inclusion
• These publications are not law unless adopted by a court of the legislature
– While two Restatements have been produced (1932, 1979), some courts still refer to the earlier version
Uniformity In the Law
– The Uniform Commercial Code (UCC)
• Jointly promulgated by the ALI and the Uniform Law Commission (ULC)
• Not law unless adopted by the states
– The UCC has been adopted in whole or in part by all 50 states, Puerto Rico, and the US Virgin Islands
– International Commercial Law and the CISG
• The Convention on Contracts for the International Sales of Goods (CISG) is a UN treaty enacted by the US and 78 other nations, making it relevant in many transactions between parties from more than one country. It applies if:
– Both parties to a contract have their places of business in countries that have ratified the CISG
– One party’s business is in a country that has ratified the CISG and that country’s law is determined to be the governing law of the contract
– Parties elect to have the CISG govern their contract even though neither is from a country that has ratified it
– A tribunal decides to apply the CISG under applicable law
• Agreements may exclude entirely the application of the CISG or vary its provisions
• The Principles of International Commercial Contracts was adopted by the International Institute for the Unification of Private Law (UNIDROIT)
– Like the Restatements, UNIDROIT is an attempt to provide guiding rules of law for contracts and are not binding unless parties agree that they should be
• The CISG and UNIDROIT Principles were drafted with common and civil rules in mind
CONSIDERATION[2]
Interpretation of Consideration – Case Law
– Early focus was on benefit to promisor, or detriment to promisee (HAMER, CLARK)
– Modern view: BARGAINED-FOR EXCHANGE (§71, §79)
Notes
– Gift promises not binding, cannot bargain for past consideration, sham/nominal consideration is not valid (must be seen as valuable by both parties), courts are hesitant to wade into family disputes (policy), forbearance can be consideration if made in good faith and with notice, illusory contracts are not valid because they don’t specifically obligate any parties to do stuff, on-demand exchange of currency cannot be enforceable (same currency)
– Case Law
• Clark v. Clark (PAGE 74)
– An old man (Sheldon Clark) signed over a promissory note for $700 for services rendered by the Clarks who took care of him in his final years. If Senior Clark were to get healthy, Clarks would return promissory n
nature.[6]
• Meincke v. Northwest Bank & Trust Co. and Scramm – Supreme Court of Iowa, 2008 (PAGES 46, 51) – MODERN BARGAIN
– Meincke loaned family $90,000 for its failing business and received a mortgage from the business in return – she was second in line to receive money if the business failed. The family wanted another loan but in order to do so, it had to have Meincke sign a subordination agreement to have the bank remain first in line to receive a lien. Meincke signed agreement even though the bank never talked about what it was for. Business failed and when bank was repaid, nothing was left over for Meincke.
– Court ruled in favor of the Bank and the family because even though the bank failed to mention the nature of the agreement, was it liable to do so? Further, Meincke knew that she was signing the agreement to help family procure another loan and that is enough to be sufficient for consideration.
• George Batsakis v. Eugenia Demotsis – Ct. of Appls of TX, 1949 (PAGE 77)
– Plaintiff loaned Defendant 500,000 drachmas (at the time worth $25) if Defendant promised to pay him $200,000 and 8% per year
• Loan to help defendant with financial woes following damages caused by WWII which left Greece in economic straits, defendant had property and equity in US but could not access it, wanted to leave Greece
• Court found that although consideration was inadequate, it still existed – ruled for full repayment, not $750 ruled by lower courts, out of respect for autonomy of private agreements
– Rule: Exchange can be severely disproportionate if currency/exchange rate is different[7]
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