WHAT IS A CONTRACT
Legally enforceable promise
Can be printed or negotiated orally.
Purpose of power is left to those who exercise choice in contract, flexible
market- organized commercial activity taking place in the sphere of autonomous legal ordering
a. marketing depends on contracts
b. provides essential conditions for its existence
As character and institutions of society change, so does contract making and enforcement.
Prof Kessler said the freedom of contract is closely tied to the ethics of free enterprise capitalism and the ideals of justice of a mobile society.
Consumers becoming increasingly involved in consensual transactions based on adhesion to a standard form contract.
Freedom from contract- what extent do we allow the dominant party to invoke official sanctions for the breach of an agreement?
If there were no means of enforcing promises, those that kept them would be at a disadvantage b/c few people would be willing and able to pay the price of honoring our undertakings.
a. Extra legal sanction to enforcing promises- a bad reputation would evolve from not holding up promises.
b. Contract law promotes exchange and promotes trust as long as promises can be enforced. Everyone is better off.
c. Contract law is most important in long-term arrangements that take time; it’s one of the central theories as to why we have contract law and why we enforce promises.
d. Legally enforcing promises also keeps people from trying to force others to uphold their end via alternative means, such as threats and violence.
•Agree to buy Honda Accord from a dealer
•Terms of deal
-$1,000 down payment
-Dealer promises to deliver car tomorrow
•Rent garage (for $500) in which to store car
•Next day, dealer sells car to someone else for $25,000
•Market value of car: $22,000
•Why should this promise be enforced?
•If you hadn’t put any money down or rented the garage, is the promise enforceable?
•How much, or to what extent should a promise be enforceable?
INTERESTS IN CONTRACTS (p. 14 note 1)
•Restitution interest-if it not only relied on the promise but has conferred a benefit on the promisor. The breaching party has to give back the benefits the parties conferred upon. Make whole again (The $1000 down payment in the car hypothetical). Put the breaching party back in the position they would have been in had the contract never been made.
• Contrast expectation interest with reliance and restitution interests.
1. Put the breaching party back into the position they were in prior to the contract
2. Breaching party must return what does not belong to them
3. Return down-payment for car
•Reliance interest- if it’s changed its position to its detriment in reliance on the promise. You did A (such as rent garage à reliance) because you relied on the promise (to be sold a car). You put the (consumer) non-breaching back in the same position as if the promise had never been made (hypo $1000 down pay and $500 garage rental).
4. Compensate non-breaching party as if the contract had not been made
5. Non-breaching party has relied on the promise and is now worse off than before
6. Reimburse for down-payment and money spent on seat covers
7. Reliance includes the restitution interest
•Expectation interest- the promisee’s injury consists of being worse off than if the promise had been performed. Put the non-breaching party in the same position as if the contract had been performed (Hypo $1000 down, $500 rental, $1500 profit that you would have made from the deal).
Buyer now -$1500 (-$1,000 plus $500)
8.Give the benefits of the bargain
9.Put the non-breaching party into the position they would have been had the contract been performed
10. Possibly more than what could come from reliance or restitution (could get profit from higher market value of car without paying for car)
11. Ex: Give fair market value of a new car
5 ELEMENTS OF A CONTRACT
1. Offer–absolute, unequivocal promise.
b. revoked by offeror (before offeree accepts)
c. rejected by offeree
2. Acceptance–any indication by only the offeree that they accept the offer by using any reasonable means of acceptance.
3. Mutual Assent–both parties are agreeing to the same bargain at the same time.
4. Consideration–“quid pro quo” means this for that.
a. bargain for exchange
b. benefit/detriment test
5. Capable Parties–Must be competent, of age, etc. Exceptions:
b. severe drunks
om the promisee.
Assumpsit- third and most important common law action and came from cases in which the promisee sought to recover damages for physical injury to the person or property on the basis of consensual undertaking.
a. The promisor having undertaken (assumpsit) to do something, had done so in a manner inconsistent to the detriment of the promisee (carpenter builds a bad house).
Consideration- word of art used to express a sum of the conditions necessary for such an action to lie.
•Not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first
Quid pro Quo- must have been an exchange arrived at by way of bargain.
To the extent that debt inspired the concept of consideration, there must be a benefit to the promisor. To the extent that assumpsit inspired it, there must have been a detriment to the promisee.
•Restatement of contracts (Second) (bargain for exchange)
1) To constitute consideration, a performance for a 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 given by the promisee in exchange for that promise.
3) Inducement: Each party must induce the other to do something for there to be a legally enforceable promise
Hamer v Sidway
1. A promise to pay money is legally enforceable when in exchange for nephew’s forbearance from a vice in which he has a legal right to engage
2. Not certain how this case will apply to an illegal vice
3. Old Basis: Benefit/Detriment
4. New Basis: Bargain for Exchange
•Gratuitous promises (without consideration) are not enforceable.
•A promise to make a gift is not enforceable