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Contracts
University of Kansas School of Law
Drahozal, Christopher R.

Contracts I Fall 2005 Drahozal

I. Introduction to Contract Law

A. Purpose: One of its main purposes is the security it provides to exchange and thus advancement of markets. A market cannot go on save in a context of reasonably assured expectations. Without contract law, reputation is the only means on which people may rely.
B. Contract Formation – Bases for Enforcing Promises
Three interests:

Reliance: out of pocket expenses in reliance on the promise. Put the promisee (non-breaching party) back in the position had the promise not been made. Always includes restitution interests.
Restitution: put the promisor back in the position had the promise not been made. The breaching party must give back any benefit conferred from the promise. Non-breaching party should get the benefit back.
Expectation: put the promisee (non-breaching party) in the position had the promise been performed.

II. Bases for Enforcing Promises

A. Consideration as a basis for Enforcement
1. Is a contract valid? – MUST BE CONSIDERATION
· Consideration is a bargained for exchange (RS § 71(1))
· A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise. (RS § 71(2))
· Can seek return promise or performance.
· Hamer v. Sidway – promise was legally enforceable when the promisee forbore legal rights. Court doesn’t comment on forbearance of illegal activities.
oForbearance from lawful vices
oForbearance from lawful courses of action
oForbearance from any course of action can serve as consideration for a promise to pay. (possibly too broad.)
· Consideration approach replaces old benefit/detriment approach. The b/d approach required a benefit to the promisor and a detriment to the promisee.
· RS (2d) §79: “Only consideration is required. No need for gain, advantage, benefit or detriment.”
2. Implications of the Bargain Theory
· Promises to make a gift are unenforceable (no consideration)
· Sham promises (peppercorns) are not consideration
oEx: A wants to make a binding promise to give $1000 to his son B. He was advised that a gratuitous promise is not binding, so he offers to buy from B a book that is worth less than $1. B accepts the offer, knowing that the purchase of the book is a mere pretense. There is no consideration for A’s promise to pay $1000.
· Promises to settle lawsuits can be consideration, but in addition to bargained for exchange, it must be reasonable, and in good faith.
oFiege v. Boehm (34) – Fiege promises to pay Boehm for child support if she doesn’t bring a paternity suit against him. Boehm later finds

o raise your family.” No one forced her to move. Court held that this was a mere gratuity, and D was not seeking to induce P to move. Close call for consideration.
oWilliston’s Tramp: “If you go around the corner to the clothing store, you may purchase a coat on my credit.” NO consideration. This is only a condition to a gift – not inducing behavior.
oTiffany’s Problem: “If you will meet me at Tiffany’s, I will buy you a ring.” This is consideration. There is a solicited action. He was attempting to induce her behavior with his promise.
oCentral Adjustment Bureau v. Ingram (52): In exchange for signing a non-competition contract, CAB forbore from firing the at-will employees. It was signed after they started working, and their continued employment is consideration.
o Alternative Theory: RELIANCE : see below.
· Illusory promises are not consideration.
o This is the promissory equivalent of a peppercorn.
Traditional approach: Strong v. Sheffield (69) – literal reading of the promise. Uncle made an illusory promise: “I promise not to collect on the note until I