Contracts Outline – Fall 2015 – Professor Tabb
What is a K? Rstm § 1 – A K is a promise or a set of promises for the breach of which law gives a remedy, or performance of which law in some way recognizes as a duty.
What is a Promise? Assurance or declaration that one will do or not do some act.
Rstm § 2 – 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.
What required to form K? Proof that the parties involved assented to the commitment of certain obligations to one another and consideration for same.
Why not gifts? No consideration.
When considering a K, ALWAYS take into account the intent of the parties.
Unilateral K: Promise made for a return performance.
Bilateral K: Promise made for a return promise.
Early view: benefit/detriment – right or interest accrued to one party and loss or detriment by the other.
Modern view: bargained-for exchange
Bargained for = promisor must manifest an intention to induce the performance or return promise and to be induced by it, and that the promisee must manifest an intention to induce the making of the promise and to be induced by it.
Rstm § 17 – formation of K requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration.
Rstm § 71 – (1) to constitute consideration, performance or return promise must be bargained for (2) performance or return promise bargained for if sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise (inducement) (4) performance or return promise may be given to promisor or some other person.
Rstm § 81 – (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.
Rstm § 79(a) – no additional requirement of a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee
Sufficient consideration must exist. Inadequacy of consideration not grounds to void K. Courts will not substitute their valuation for that of the parties of the K.
A promise is not enforceable if the promisee takes the action sought by the promisor without knowledge of the promise (wasn’t bargained for nor contemplated.) No consideration if offering something you don’t even have to give
Forbearance of litigation can constitute consideration if it is bargained for by the other party.
Inadequacy of consideration alone does not void a K.
Forbearance from filing an invalid legal claim can constitute consideration for a settlement if the party in good faith believed that the claim was legitimate. Must be reasonable basis for good faith belief in validity of suit.
For K modification, consideration for alteration of terms must usually exist. Duties imposed under original K are “pre-existing duties.”
Modern view allows K mods even without new consideration.
When unexpected or unanticipated difficulties arise during the course of performance of a contract, the parties may modify the initial contract even without additional consideration for the modification as long as (1) the parties voluntarily agree and the promise modifying the initial contract is made before the contract is fully performed on either side; (2) the underlying circumstances prompting the modification are unanticipated by the parties; and (3) the modification is fair and equitable.
A note endorsed by a third party may be taken in accord and satisfaction of a debt, even if the note is for a lesser amount than the debt. Although a creditor may not accept less money to satisfy a debt, a note endorsed by a third party may satisfy such debt, even if the note is for less money than the debt and the original debt is not intended to continue after the note is assigned. The guaranty of the third party constitutes adequate consideration for the discharge of the original debt.
A K’s with B to sell B’s property for a percentage of the sale. Rather than pay the commission, B assigns, and A accepts, the debt of the buyers owed to B in satisfaction and accord of the original debt. B’s original debt to A is thus satisfied.
In fact, a contract may be modified so that creditor receives a smaller sum than the obligor owes, if the obligor receives anything of value in return.
UCC § 2-209(1) – an agreement modifying a contract (for the sale of goods) needs no consideration to be binding…
Must meet test of good faith (avoids extortion, coercion)
Rstm § 73 – Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
Rstm § 89 – A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
Alternatives to Consideration
Alternative basis for enforcing K.
Focus is on reliance rather than bargain.
PE only matters when we lack a traditional K. We are basically enforcing a gift promise because the promisor could reasonably foresee that promisee would rely on it to their detriment. Fact intensive!
Notions of justice that the promisee’s reliance should have been reasonably foreseen by the promisor when she made the promise, and the promisee should have justifiably and reasonably relied on the promise
(1) “Clear and definite” promise which (2) promisor reasonably expects to induce reliance by promisee and (3) does in fact induce actual reliance by promisee; (4) injustice can only be avoided by enforcement of the promise (5) entire promise or lesser amount as justice requires
A promise made not to induce action by the promisee, but to reward or compensate the promisee for actions already taken or expenses incurred. Binding necessary to the extent to prevent injustice.
Benefits already conferred by the promisee cannot constitute consideration, since consideration necessarily is for future action, forbearance, etc.
So can a court enforce a promise made for benefits already received? Sure!
A subsequent promise to pay is not binding if there is no more than a merely moral obligation for the promisor to pay. However, if the subsequent promise to pay follows from the promisor's receiving something of value from the promisee, or is founded on a previously enforceable obligation, then the promisee must pay.
Two concrete requirements
PLUS, a benefit (received by promisor)
… “binding to the extent to avoid injustice”
No “unjust enrichment” (example: intended as a gift when benefit conferred)
Can promisor “disgorge” the benefit? I.E., repairs to his house, even when the handyman repaired the wrong house?
Rstm § 86 – (1) A promise made in recognition of a benefit previously received by th
definite or Incomplete Agreements
Where indefinite/incomplete problem arises:
Uncertain commitment to the deal
Terms left for future resolution
Do the parties intend to be bound at all?i.e., does it appear that the parties have manifested mutual assent to a deal? Even if so – did they reach an agreement with sufficient certainty that a court can enforce an alleged breach?
Does a K have a gap? How do we fill that gap? What is the norm? Parties must act in good faith, and terms of K must be manifestations of good faith.
To constitute a binding contract, the terms of each element of the contract must be sufficiently specific. An agreement to agree where the terms of the contract are not clear and not actually agreed upon is not sufficient to bind a party.
Is a sales contract calling for parties to agree on the price and length of time the price will apply in the future binding if the parties do not subsequently agree on the terms? No.
Mutual (Sequential) Assent by Offer and Acceptance
What is an offer?
Rstm § 24: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. (a) the key concept involves giving the addressee the apparent power to conclude a contract without further action by the other party
Rstm § 26: A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Rstm § 33: (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a K unless the terms of the K are reasonably certain (2) The terms of the K are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
Offeror makes an offer to offeree which manifests her assent to specified contractual terms. The offeree has power to accept the offer and thus create a K by manifesting assent to same terms. The communication which manifests a party's assent to terms is held to an objective, reasonable standard.
Offer is clear, definite, explicit, leaves nothing open for negotiation. Intended to induce the offeree to accept.
(1) by saying, “I accept,” if a promise is sought by offeror, or
(2) by performing the specific act stated in the offer, if performance is sought by the offeror.
Definite terms? Missing? Can they be hashed out later? Merely an invitation to negotiations?
Advertisement = offer of K? Puffery? Too speculative? Unilateral offer which can be withdrawn? Invitation to an offer from the buyer?