Contracts Outline Brubaker – Fall 2014
TOPIC ONE: ENFORCEMENT OF PROMISES:
1) CONSIDERATION: Bargained for exchange required to make a binding contract (promise legally enforceable).
Bargain for Exchange Test
i. Look for conditions attached to the promise (i.e. if he’s bargaining)
ii. Both have to be present to be a BFE on the promisor side. The promisor makes the promise in order to get that thing.
iii. Asking for and getting something in return.
iv. Intended to be legally bound to the promise.
i. If he is gives that thing in exchange for the promise. (as long as the he does fulfills the condition there is a Bargain).
ii. Has to give up something.
1. Remember: Recitals such as “in consideration for” are NOT controlling
· 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.
§71 Requirement of Exchange; Types of Exchanges: BFE
1. To constitute consideration, a performance or a return promise must be bargained for.
2. BFE: 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 (see little willy case) c) the creation, modification, or destruction of a legal relation (business relationship)
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 Adequacy of Consideration; Mutuality of Obligation:
If the requirement of consideration (above) is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage or detriment to the promisee (no benefit/detriment test)
(b) Equivalence in the values exchanged;
(c) “Mutuality of obligation”
§81 Consideration as Motive or Inducing Cause: JUST ONE OF THE REASONS
(1) 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.
1. What is bargained for just has to be one of the reasons made promise (not only reason).
2. This is especially obvious in conditional promise, where promisee only gets what is promised based on performance or return promise.
(2) The 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.
1. As long as promisee does condition promisor is placing on promise law will not second-guess promisee’s motives (even if the promisee would have done it anyway).
Ex: Shadwell v. Shadwell: ONE OF THE REASONS he got married could have been to get the money…
How to Determine if there is Consideration (i.e. How to Solve Consideration Problem):
Step 1: Identify the promise sought to be enforced
Step 2: Determine if the promise is conditioned (on performance or return promise)
1. This is evidence of bargained for exchange – (Uncle Willy Conditioned his promise)
Step 3: If not contingent, look at circumstances to see if evidence of bargained for exchange
2. The BFE is a question of fact, what is true (preponderance of the evidence standard). Look at if the promisor is premising promise on what he or she is getting, question of fact.
GRATUITOUS PROMISES/SHAM BARGAIN
Gratuitous Gift Promise: Promise without consideration; Gift Need Delivery
1. If actual delivery or follow through then it becomes an irrevocable gift.
i. Often found in the family context
ii. Do NOT enforce, only have disappointed expectations
3. Not a bargained for exchange because not really sought by promisor in exchange for the promise (needs to be obvious to promisee). Sham is not an enforceable promise under Second Restatement.
4. EX: (Peppercorn Hypo):
1. A wants to give son B $1,000 and wants it to be legally enforceable. Says give me “people magazine” in exchange for the money. Aà B $ 1000, if Bà A People Magazine
2. According to Restatement 2d there is no consideration for that promise, why not?
3. One of the reasons A is making the promise is not to get the people magazine, so DOES NOT meet the “consideration” requirement, MUST BE ACTUAL BARGAIN!
4. Promisor is taking advantage of the situation here (to make gift legally enforceable)
2) PAST CONSIDERATION: IS NOT CONSIDERATION
1. Prior detriment cannot be consideration for promise by promisee, promise is gratuitous.
2. Ex: Feinberg v. Pfeiffer Co.
1. Feinberg’s past employment is not consideration for the promise of $200/mo. retirement pay because the promisee and promisor sides are missing with regard to the 37 years of service. The promisor already received the 37 years of service without the $200/ mo. and the promisee gave her service already without the $.
2. Could have gotten consideration for restructuring the transaction by saying if you work for certain amount of time get $.
3) CONSIDERATION AS BARGAIN
Big Question: To figure out what, if anything, the promisor is bargaining for we look at the condition placed on the promise.
1. Condition: Act that has to occur before the promisor delivers the promise (look for
then a (tender) performance satisfies. Once performed, then other party becomes obliged.
2. If simultaneous is not possible longer performance has to go first and shorter performance conditioned on longer.
3. UCC 2-309(3) places implied in law restrictions on ability to back out at will/terminate. Illusory if termination would be unfair—need to give some notice.
4. Employee handbook ex: if employer fires employee for no reason. But the handbook says that the employer had to follow procedures. But employee found out about the policy in handbook only after the fact that he got fired.
1. Is there a bargain for exchange/consideration if he didn’t know about it? NO.
2. Promisee must KNOW about the employee handbook in order to supply consideration (can only break promise to employee if employee knows of handbook).
3. CAVEAT: Some…courts will still uphold even if did not read employee handbook, because it is good policy reason.
1. If promisee does not know about the reward offer then à NO BFE/Consideration
2. If promisee did not know of reward, caught prisoner, then found out about reward and brought him in— there would be consideration b/c promisor is only concerned with completed action (unilateral k promising for performance).
§51 Effect of Part Performance Without Knowledge of Offer: Unless there is a contrary indication, we'll typically presume that the promisor only wants the promise or performance.
4) BILATERAL CONTRACTS AND ILLUSORY PROMISES
Bilateral Contracts (& Unilateral): Both governed by §71
1. Unilateral Contract: Promise being made in exchange for performance, not a return promise. No mutuality of obligation under §79(c).
2. Bilateral Contact: Exchange of promise for a return promise. Consideration for each promise is the other person’s promise or an implied promise based on the unequivocal start of performance.
3. To find out what the promisor is seeking (either performance or promise) we look at the language of the K.
1. Look to 30 first then 30(2). If you still cannot figure out if the promisor wants an acceptance by performance or promise look to 30(2). 30(2) tell us to look at the circumstances surrounding the promise to determine what offerror wants (i.e. relationship between the parties, special circumstances, etc.)
2. If performance is difficult