Why are the following not contracts? What is a contract? What will courts enforce as a contract?
I. BASES FOR ENFORCING PROMISES
A. What Does It Mean to Enforce a Contract?
B. Enforcement Based on Consideration
1. Aside from offer and acceptance, consideration is generally required for a contract to be enforceable. A promise supported by consideration has three elements:
a. Legal detriment – must promise to do something you’re not legally required to do or promise to not do something you’re legally entitled to do.
b. Detriment must induce the promise – the promisor’s promise is made in part as exchange for the promisee’s detriment
c. The promise must induce the detriment – the promisee suffers his detriment at least in part because of the promise
2. Purpose of consideration doctrine is to determine which promises are legally enforceable
a. Evidentiary function: It provides objective evidence that the parties intended to make a binding agreement
b. Cautionary function: when parties are aware that a promise becomes binding when one party provides consideration, they are more likely to make thoughtless bargains.
3. Gift Promises
a. The promisee’s detriment must have been bargained for by the promisor, this is to prevent enforcement of promises that are actually promises to make gifts.
b. Conditional gifts are not supported by consideration because the meeting of the conditions is not bargained for by the promisor; ie. The meeting of the conditions is not the promisor’s motive for making the promise. Ex: promising someone a place to live if they come down to see you does create a detriment on their behalf, but it wasn’t bargained for; it was a necessary precondition for accepting the gift.
c. To test whether the condition for accepting the gift is bargained for, ask whether the occurrence of the precondition is of benefit to the promisor.
d. Altruistic pleasure (love and affection) is not sufficient to constitute a bargain
e. Sham/Nominal Consideration
i. Courts normally don’t concern themselves with the adequacy of consideration if it was actually bargained for, but if it’s just a recital of purely nominal consideration there is no legally enforceable deal, just a promise to gift.
f. Mixture of bargain and gift
i. If there is a mix of the two, as long as the promise is partially induced by the bargaining, the agreement is enforceable; ex: you sell car to a friend for significantly less than it’s worth, as long as the bargaining somewhat induced your decision to sell, there’s consideration
g. Promisee must be aware of the Promise
i. If the promisee isn’t aware of the promise, any act they perform is obviously not bargained for; there is also the issue of past performance.
h. Past Performance is not consideration
i. Where the detriment is suffered before the promise is made, it is obviously not bargained for.
ii. Promise to pay for past services received
a. Usually held to be not supported by consideration.
b. However, if the promisor makes their promise for past performance in which they received a material benefit (ie. Saving a life, preserving the property of the promisor, etc), the subsequent promise to pay is deemed to have consideration.
i. Forebearance to prosecute a claim
i. If at the time the party promises to forebear from prosecuting a valid claim, there is sufficient consideration if the party believed the claim was well founded and they had an honest intention to prosecute the litigation.
j. Non-Competition Agreements
i. In an at-will employment contract, continuing employment is see
imply good faith.
d. A clause that allows one party to terminate the contract at any time at-will without more makes the promise illusory
i. Ways to get around this rule:
ii. Imply good faith
iii. Require a notice (ie: 30 days) to terminate
l. Alternative promises are consideration
i. Ex: Ben promise to either buy your car or trade you mine; either of those two things in their own right is consideration, so it is okay. As long as the two alternatives standing alone are both consideration, the alternative promise is supported by consideration.
m. Requirements contracts
i. It is often an issue that requirements contracts do meet the mutuality requirement because one party could be seen as not promising to do anything because they could choose to not buy anything
ii. But, the mutuality problem is avoided by the UCC’S (2-306) good faith standard, in which parties conduct can be evaluated by courts. Since parties are held to this standard, it is assumed that they are required to do something under good faith standard, thus they’re not illusory
iii. Output contracts: promise to buy all of someone’s output
iv. Requirement’s contracts: you have to fulfill the entire need of the other party
n. Implied promises
i. If a contract appears to not have any consideration, a court can look at a document as a whole and find an implied promise that will constitute consideration.
ii. Ex: Lucy v. Lady Duff Gordon