Contracts Outline (Past Exam 2010 in “Sales” is similar b/c of multiple choice)
The parties form a contract (e.g., mutual assent)
That K is enforceable
Ground for enforcement, e.g., consideration or P/E
No formation defenses (e.g., mistake, fraud, duress, etc)
We know what the parties’ duties are under the K (e.g., PER, interpretation, implied terms)
All conditions to a party’s duties, express and implied, occur
Contract- promise for the breach of which the law gives a remedy (legally binding)
Can also be a written or oral agreement
Contract not valid if: (all valid defense against enforcement of contract)
Undue influence or
Public policy violation or
If all of these fail, then still have possible unconsionability, mental incapacity defense
Restatement of Contracts
Not legally binding, only persuasive
Unless he says otherwise this is what we use in class (essentially the law of this class)
“black-letter” statements of law (well established technical legal rules that are no longer up for reasonable dispute
Consideration must accompany a promise in order for a promise to be enforceable.
Consideration- anything promised or forborne by one party in exchange for promise
II. Consideration as Benefit or Detriment
Original definition of consideration = detriment to promisee, benefit to promisor
A valuable consideration … may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other
Appeal of Clark
Facts: Clarks suing that he wants money owed upon Sheldon’s death. They provided him w/ house keeping services. Sheldon recognized the services and places a value on them w/ $700 promissory note. This agreement happen while he was alive.
Holding: yes consideration
Intended and believed all along that this was not gratuitous, they were going to get paid in the end
Benefit to Sheldon Detriment to Clarks = Consideration
This case would probably not win today b/c they made an agreement after the work was already being preformed
Today the agreement must be before services are preformed
Doesn’t matter how much Sheldon agreed to pay. Courts do not care about the value, how can a court judge how much something is of value to someone else
Wolford v. Powers
Facts: name child after him and he will pay you to do it
Holding: Yes, there is consideration
He is receiving something of value in exchange for money
Need to distinguish btw. gift promise and if someone gets/gives something to est. consideration
Dougherty v. Salt
Facts: Charles Dougherty (his guardian Susan Teves) suing Salt (Hellena Doughety) for the value of his promissory note given to him by his aunt, Hellena Dougherty who is now deceased and represented by her executrix Salt
Valid contract claims you have during your lifetime can be recoverable after your death through a probate claim to your estate. This is why Doughey is suing Salt, the executrix of Hellena Doughtery’s estate.
Holding: Not enforceable. No consideration. No detriment to Charles and no benefit to Aunt Tillie. This was a gift promise.
Hamer v. Sidway
Facts: Willie suing for money. He was supposed to refrain from bad habitsàhis grandfather would pay him. Claim to money transferred to Louisa Hamer (Willie’s mother in law)
Court focused on the restriction of freedom that was placed on Willie
Holding: there was consideration
Rule: waiver of legal right at request of another party is sufficient consideration for a promise
Know difference btw conditional gift and bargain
IV. Consideration as Bargain
Modern definition of consideration – bargain for exchange
Restatement 71 (p. 33):
To constitute consideration, a performance or a return promise must be bargained for.
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.
In summary: under modern view, consideration =
Baehr v. POTOC
Forbearance to sue can make a contract enforceable but not in this case
Holding: promise w/o enforceable consideration
U.S. v. Meadors
Facts: M.J.D applies for loan. The SBA chose to have (Melton) Meadors, Judd, Ducote and Ducote’s wife sign the required guaranty. Only four signature spots but Meadors wife, Betty, signs anyway, even though no one from SBA was present to request additional signatures. Nor the Bank or SBA required Betty’s signature for the loan. MDA defaults on loanàaction to collect deficiency from guarantors, including Betty.
Betty argues that there is a lack of consideration on her part. She signed after agreement/negotiations/bargain took place
Holding: Betty was not part of bargainàSBA had no knowledge of her signatureàno consideration
If bargained for something, benefit can go to 3rd party and you can still have consideration
Meincke v. Northwest Bank & Trust
Janice made loan to Scramm enterprises and was 2nd in line to be repaid. Northwest Bank gets her to sign a document that bumps her further down the list
Facts: Had to pay loan to Rock Island Bank and didn’t have the money. Means Rock Island can forcolse on everything. Rock Island doesn’t want to give more moneyàScramm goes to talk to NW Bank. NW says they will loan if they get a subordination agreement to be #1 priority.
àneed to go to Janice to get agreement signed (Craig and person of Bank go). Janice signs it. NW bank gives loanà foreclosure by Scramm because they still fell into money problemsà NW Bank gets all money because they were 1st in line and nothing was left for Janice
Janice says no consideration for promise to subordinate b/c I didn’t know what I was doing
There wasn’t necessarily a bargain in this case, but there was benefit/detriment
Holding: Court still found evidence of bargain for exchange because she knew a benefit would be triggered by her signature
As long as have a bargained-for exchange, as stated in § 71, “there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee …” (R. § 79(a))
Assume that the Restatement (Second) of Contracts is in effect – Assume that you are always supposed to use bargain for exchange unless stated differently or he tells you differently
Batsakis v. Demotis
Facts: George Batsakis gave 500,000 Greek dollars ($25 in U.S.) to Eugenia Demotsis. Demotsis promised to pay $2,000 in U.S. dollars back to Batsakis.
Want of consideration- no consideration
Failure of consideration- it was promised, but didn’t happen
Holding: Yes there was consideration. Court does not care about adequacy, there was still
tion for work already required to be performed under the contract.
§ 89 – Voluntary, fair and equitable in view of circumstances not anticipated by parties when the contract was made Contract not fully preformed
UCC 2-209(1) – An agreement modifying a contract (for the sale of goods) needs no consideration to be binding. Only requirement is that modification is in good faith
CISG Art. 29
Birdsall v. Saucier
An accord is an agreement and an agreement will not be considered binding unless it is supported by consideration
Satisfaction takes place when accord is executed
A creditor may accept anything (hawk, horse, etc.) in satisfaction of a liquidated debt except a lesser sum of money
Facts: Agreement that if Birdsall helped find a buyer for Saucier’s building, Birdsall would get a commission of ten percent of the gross sales price. Finds buyer that will pay $1,150,000 so Birdsall’s 10% was $115,000 to be paid on the closing date. But Saucier ran into money issues and asked Birdsall to consider an alternative payment method (receive 29,500 instead at closing and additional payments over 5 years, funded by the money that the buyers were going to pay Saucier)
Rule plecludes you from making reasonable deals to make sure deal would close. But if add a new object like a pencil. It is a good deal
Holding: Yes. Consideration got something different that weren’t entitled to before, payment + promissory note w/ new party liable to you. Accord (agreement for parties to settle for something else) in satisfaction (actually performing the agreement to carry it forward)
Change in new deal can qualify as a new deal w/ consideration – doesn’t have to be a new object for example, new deal can be same price but + a new or additional obligor
Accord- fancy name for agreement to modify
VII. PROMISSORY ESTOPPEL
Promise induced forseeable detrimental reliance (promissory estoppel)
Restatement of Contracts (1st and Second) § 90 (p. 154)
Core of PE is reliance – Promisee relied on promise in the sense that they would be harmed if promise wasn’t enforceable
Promisee’s reliance should have been reasonably forseen by the promisor when the promise was made, and the promise should have justifiably and reasonably relied on the promise.
Ex of conditional gift promise “I will give a student a hat after class if he comes up to my office to get it after class” – student didn’t have to bear any injustice/burden
PE matters when you do NOT have a traditional contract enforceable as a bargain
Be careful to distinguish whether it is conditional gift promise and promisee’s detrimental reliance on promise.
Important to ask yourself 1) should promisor reasonably expect reliance? 2) was there sufficient detrimental reliance that was induced by promise?