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Contracts
University of Illinois School of Law
Brubaker, Ralph

Contracts Brubaker Spring 2016

Consideration

§1 Contract Defined

A contract is 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.

§71 Requirement of Exchange; Types of Exchange

To constitute consideration, a performance or a return promise must be bargained for
(2) A performance or return promise is bargained for if it sought by the promisor in exchange for his promise and is given by the promise 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.

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 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; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”

§81 Consideration as Motive or Inducing Cause

(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.
(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.

Definitions

: means of justifying enforcement of promises, a BFE

Mutual assent and consideration are essential for a K
Evidentiary function: indicate that K was intended to be made, as opposed to informal expression of intent
Cautionary function: Tells parties that a K is making a serious legal commitment

: an undertaking to act or refrain from acting in a specified way at some future time

K cannot be made if both sides perform instantaneously, so there needs to be a promise on at least one of the sides

Lack of consideration doesn’t necessarily mean no K! Oher enforcement mechanisms.

Family Contracts

Frequently oral, not preceded by significant bargaining, and are often informal
Traditionally not enforceable, goods and services exchanged in family are thought to motivated by altruism, not bargains motivated by gain

However, some now acknowledged (prenups, adoptions, etc.)

Hamer v. Sidway

Uncle promised his nephew that if he refrained from smoking & drinking until he reached age of 21, he would pay nephew $5000. Was there consideration?
: Yes, there was consideration. The p’ee surrenders some legal right, which was his “detriment.” That forbearance from alcohol was the performance sought. P’or’s “benefit” was simply the satisfaction of having his apparent desire fulfilled.

Detriment & benefit only serve as evidentiary roles as to whether there was a BFE

Detriment = relinquishment of a legal right, doesn’t matter if party suffers legal detriment if that’s not what was bargained for
Benefit = the p’or gets what he sought from the p’ee
Adequacy of the exchange doesn’t matter to courts as long as it’s bargained for
Single promise/performance can be exchanged for multiple promise or promises

§71 describes the BFE; performances and promises must induce each other
Shadwell v. Shadwell: Uncle heard of nephew’s engagement & promised to give him money after he was married, consideration?

: Yes, §81(2). Was already getting married, but could have been another reason to induce him to do so. §79(b), there’s no need for the values exchanged to be equal.

Gratuitous Promise

Gratuitous promise: a promise made w/o consideration and is usually unenforceable, in non-market form of relationships

: a small token given in “consideration” for a gratituous promise, doesn’t make promise enforceable; consideration of “trifling value”

Reasons to not enforce the promise (look at these to determine if promise is gift):

Evidentiary concerns (evidence about whether promise was made)
Cautionary concerns (did parties intend to be bound by promise)
Administrative costs
Non-market (less concerned about enforcing non-market promises)
There is non-legal enforcement which may be more powerful
Only disappointment if not fulfilled, no one is actually harmed

Seattle Mariner’s Stadium case: taxpayers protested leasing building stadium and leasing it to team for $1/yr; there was consideration b/c the city was bargaining for the money brought into city as consideration, courts don’t look into the “adequacy” of the consideration

“Past Consideration”

Feinberg v. Pfeiffer

∆ promised the plaintiff a retirement package upon her retirement. After two additional years of working, the plaintiff retried. ∆ ceased payment and the plaintiff sued to enforce agreement.
: Past consideration is no consideration; Feinberg did not work 20 yrs. in order to get the pension (nor did she bargain for it by continuing to work) so there was no return promise on Feinberg’s side
Conditional gift promise is a gratuitous (gift) promise w/ a condition
Look for conditions to see if the promisor is bargaining for something
If the promisee suffers the “detriment” before the promise was made, it was not exchanged for he promise
: the promise must be bargained for

Consideration as Bargain

§51 Effect of Part Performance w/o Knowledge of Offer

Unless the o’or 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; unless indicated otherwise, the p’or only wants the completed performance.

Requirement of Bargain

Kirksey v. Kirksey:

Plaintiff abandoned her home & moved her family 60 miles to leave her brother-in-law based on the ∆’s letter inviting the plaintiff. After 2 years, the ∆ asked her to move out
: B/c there was no bargaining on the p’or side, made gift to get her to move so not bargaining for anything; conditional gift promise

Conditional gift promise: promise to give something if the p’ee pefroms a specific act, not in return for an act; no quid pro quo, merely a declaration of intent to give a gift.

Conditions can be express or implied.

Tiffany’s Lunch case: father says emerald ring if she meets him at Tiffany’s. He is bargaining for his daughter’s time b/c they are estranged à enforceable promise.
Jennings v. Radio Station case: Radio station argues that the prize was a conditional gift, weren’t bargaining for a listener to catch them playing commercials, bargaining for people to listen to station.
Sheriff Hypo: If he captures Brodnax & finds out about reward after capture but return to jail, enforceable promise b/c of §51part performance w/o knowledge or capture. If he didn’t turn the guy in for $, harder to establish it’s enforceable.

Employment Agreements

At-will employee: employment agreements are terminable by either party at any time and for any reason or no reason at all
Lake Land Employment v. Columber

Columber was an at-will employee of Lake Land, where he signed non-competition agreement. Employment ended in 2001 and he violat

d for the endorsement on the collection.
: This agreement to forbear would usually be good consideration, but the plaintiff only agreed to forbear from getting the money for so long as he wanted, not a set time. So he wasn’t bound to his promise to forbear.
: illusory promise

Terms and Conditions

Terms can be express or implied (in fact, in law)
If parties don’t expressly condition their promise on other party doing their promise, there will be implied conditions in bilateral K
Implied in fact: determined by circumstance
Implied in law: constructive conditions of exchange

Simultaneous performance – each promise conditioned on performance by other party (e.g., land sale where seller hands over deed and buyer hands over check; conditions satisfied not only by actual performance, but also tender of performance – you tender your performance when you show up at designated time, etc.)
Second performance conditioned on first performance (e.g. promise to mow your yard if you give me $50 in advance)
If parties don’t specify which one goes first, longer promise goes first and shorter performance conditioned on longer performance occurring
Also called “constructive terms” & “default rules” (if the party doesn’t expressly state otherwise the courts will assume the default rules)

Satisfaction Conditions

A condition that allows one of the parties to reject a performance by the other if he is not satisfied with it

Still consideration unless it is reasonably plausible that the agreement was to give one of the parties unrestrained discretion to cancel
Satisfaction clauses are not illusory!

Mattei v. Hopper: Mattei was a real estate developer and wanted to build next to Hopper’s land. They arranged a sale of land dependent on Mattei finding satisfactory tenants for the buildings. While Mattei was finding tenants, Hopper told him that she wouldn’t sell under the terms of the agreement. Satisfactory leases were found and Hopper refused to pay.

: If a satisfaction clause lets the p’or free to perform or withdraw at any time the promise is illusory and no consideration. Promises must be mutual in obligation. Here the satisfaction clause makes the K valid by the duty of good faith b/w parties.
Satisfaction conditions (depends on whether there are objective criteria we can apply or not)

Objective reasonable standard: dissatisfaction must be reasonable under commercial standards
Subjective good faith standard: dissatisfaction must be in good faith (honest)

Wood v. Lucy, Lady Duff-Gordon

∆ is a fashion designer, gave the plaintiff exclusive rights to help her sell her endorsements on fashion products. ∆ would give him half the profits. Nothing in agreement expressly stated what Wood promised to do.
Lucy’s grant of exclusive agency necessarily implied use of best efforts.
Objective standard used here to judge Wood’s promise
UCC §2-306: best efforts à “good faith”