Select Page

Contracts
University of Illinois School of Law
Tabb, Charles J.

TabbContracts2010
Contracts
General Contract Formation
I. Contract
a. A promise or set of promises for breach of which the law gives remedy
b. Primary Sources of law
i. Statutory law, common law, Uniform Commercial Code, International Commercial Law, and Convention on the International Sale of Goods
c. Primarily governed by state law
d. Made up of two parts:
i. Consideration
ii. Assent
II. Consideration
a. Early View
i. Benefit/Detriment
1. One party accrues some sort of benefit, the other suffers a detriment
b. Modern View
i. Restatement 71
1. To constitute consideration, a promise or 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 sought by the promisee in exchange for that promise
a. Inducement
b. Performance may consist of:
i. An act other than a promise
ii. A forbearance
iii. The creation, modification, or destruction of a legal relation
c. Promises may be given to the promisee or to a third-person, and vice versa
d. As long as there is a bargained-for exchange, there is no additional requirement of any benefit or detriment to either party
c. Other Notes
i. As long as both parties get what they bargained for, it is unimportant whether consideration is adequate or not
1. Batsakis v. Demotsis
2. Court respects autonomy of parties to contracts—no warrant to rewrite parties’ deals
ii. Consideration that is merely nominal and intended to be so is not valid
1. Schnell v. Nell—One penny is not valid consideration
iii. Forbearance of litigation is consideration, except:
1. Clearly invalid claims are not consideration to prevent extortion and frivolity
iv. Restatement (Second) § 73 Performance of Legal Duty
1. 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.
III. Contract Modification
a. Pre-existing duty rule
i. At common law, if a party promises to do what he is already legally obligated to do, he has not incurred a detriment for the purposes of consideration
ii. Restatement 73 Performance of Legal Duty
1. Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of an honest dispute is not consideration
2. Exception: Similar performance is consideration if it differs from what was required in a way that reflects more than a pretense of a bargain
b. Restatement 89 Modification of Contract
i. A promise modifying a duty not fully performed by either side is binding:
1. If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made
2. To the extent provided by statute
3. To the extent that justice requires enforcement in view of material change of position in reliance on the promise
c. UCC §2-209 Modification, Rescission, and Waiver
i. An agreement modifying a contract within this Article need no consideration to be binding
ii. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party
iii. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2)…it can operate as a waiver.
iv. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change position in reliance on the waiver.
d. CISG Article 29
i. A contract may be modified or terminated by the mere agreement of the parties
ii. A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct.
IV. Promissory Estoppel
a. A promise reasonably inducing action or forbearance

circumstances that would render that retention inequitable
VII. Mutual Assent
a. Lucy v. Zehmer
i. A person cannot contend that he was joking when his conduct and words would warrant a reasonable person believing he intended a real agreement
1. Subjective Standard
2. Actual mental assent of the parties is not a requisite for contract formation
b. Effect of mutual misunderstanding
i. There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations
1. Neither party knows or has reason to know the meaning attached by the other, or
2. Each party knows or has reason to know the meaning attached by the other
ii. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
1. that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
2. that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party
c. Assent to indefinite or incomplete arguments
i. Arises when
1. There is an uncertain commitment to a deal
a. Letters of intent may or may not be a contract
2. There are vague terms
3. There are missing terms
a. Courts may try to fill in some gaps, but enough missing terms may indicate no intent to form a contract
4. There are terms left for future resolution
a. Depends on how important these terms are—does lack of assent to them mean a contract was not formed?
ii. Two issues:
1. Did the parties intend to be bound at all?
2. Did they reach an agreement with sufficient certainty that a court can enforce an alleged breach?