I. Contracts Overview
A. Objective Theory of Contract
Obligation attached by the force of law to certain acts (usually words)… even if it were proved that the party intended something else than the usual meaning
a) Lucy v. Zehmer
Zehmer agreed to sell land to Lucy while drinking, contract on a napkin and signed by Zehmers. Zehmers claimed it was a joke; Lucy sued to enforce. Court enforced sale because intentions determined by outside expression/actions of parties. TAKEAWAY: Objective theory of contract: subjective intent of parties doesn’t matter; what reasonable person would have understood intent to be from actions matters.
B. Contract/No Contract Dichotomy
Legal situation changes substantially the second the contract is concluded… vice a system in which liability gradually increases throughout contract formation process…
· Once formation over, both sides bound by promise… before either has done anything, they have “expectation interest” – contracts enforced on expectation alone (executory contracts)
· Once one side has invested something in the expectation of the contract (time/money), that side has a “reliance interest”
· If the other side has received something (e.g. down payment), then they have a “restitution interest” – they have profited from their promise
II. Bargain Theory of Contract
Restatement (Second) Section 1 — Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
Restatement (Second) Section 17 — Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94
TWO REQUIREMENTS
· MANIFESTATION OF MUTUAL ASSENT = OFFER AND ACCEPTANCE
· CONSIDERATION = BARGAINED-FOR PERFORMANCE OR RETURN PROMISE
ONCE PERFORMANCE BEGUN – CONTRACT FORMATION LARGELY MOOT
A. Consideration
Consideration – Principle device to determine whether promise worthy of legal protection
· The typical case is an exchange of promises… the cases below are at the limits to see the limits of promises given legal enforcement
· Promise/return promise must be bargained for
o If sought in exc
ity to continue to perform. In effect, promisee has option contract to continue to perform or not at his choice.)
a) Hamer v. Sidway
Uncle promised nephew to pay him $5K if nephew refrained from drinking/smoking/gambling until 21st birthday. Court held enforceable b/c restraining from legally permissible actions was detriment to nephew which fulfills benefit/detriment test regardless of (lack of) benefit to promisor. TAKEAWAY: Example of old benefit/detriment test for consideration which is no longer followed. Meets modern consideration requirements under unilateral contract doctrine. Could have been construed as simple promise to make gift, however, which wouldn’t have been enforceable.
2. Forbearance as Consideration
§ 74 Settlement of Claims
(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
