Contracts Outline

FRIER_CONTRACTS_SPRING 2013

CONSIDERATION

Benefit/Detriment (Disfavored) Test: consideration if some right, interest, profit, or benefit provided to promisor or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by promisee

In Fact? only legal benefit/detriment (Hamer)

Illegal? no legal benefit/detriment -> not consideration

Promise to Perform 3P Agreement? consideration only if 3P agreement binding (Shadwell)

Alternatives? consideration only if non-benefit alternative detriment to promisee (Petroleum Refractionating)

Bargain Theory Test: consideration if (1) performance or return promise (2) that’s bargained for (R2K § 71) unless exception

Donative Promise? no return performance/promise -> no consideration (Doughtery)

Return Promise?

Illusory?

Restatement Rule: no consideration if performance entirely optional with return “promisor” (R2K § 77, Cmt. a)

Recent Trend: construe illusory promise to imply promise especially if evident intention of enforceability (Wood)

Alternatives?

Restatement Test: consideration only if each alternative performance would have been consideration if bargained for alone (R2K § 77(a)) OR (1) one of the alternative performances would have been consideration and (2) is/appears substantial possibility other alternative will be eliminated before promisor chooses (R2K § 77(b))

Requirements/Output?

General Rule: consideration only if quantity-controller return promises to buy/sell exclusively from/to promisor

UCC Rule: consideration because best efforts obligation imposed unless otherwise agreed (UCC § 2-306(1))

Nominal?

Uncertain Value? maybe promise (e.g., old sweatshirt)

Unequivocal Disparity? trend towards not recognizing (i.e., pseudo-bargains, disguised gifts) (Schnell)

See Restatements: pretense of bargain -> consideration (R1K § 84, Ill. 1) -> not (R2K § 71, Ill. 5)

Option Contract?

Nominal? maybe consideration (Keaster)

Mere Recital?

Majority Rule: no consideration (Burgess)

Restatement Rule: offer is option contract if (1) in writing, (2) signed by offeror, (3) recites purported consideration for offer, and (4) proposes exchange (5) on fair terms (6) w/in reasonable time (R2K § 87(1)(a))

UCC “Firm Offer” Rule: offer irrevocable if (1) by merchant to buy or sell goods, (2) in signed writing, and (3) gives assurance that offer will be held open notwithstanding not even recital (UCC § 2-205)

Drafted by Offeree? firm offer only if firm-offer clause separately signed by offeror (UCC § 2-205)

CISG Rule: irrevocable if indicates by fixed time for acceptance or otherwise (CISG art. 16(2)(a))

Performance? act or forbearance or creation, modification, or destruction of legal relation (R2K § 71(3))

Minuscule? consideration but recovery likely denied by de minimis noncurat lex (Harris, P2-1) (Jennings)

Bargained For? performance/return promise bargained for if (1) sought by promisor in exchange for his promise and (2) given by promisee in exchange for that promise (R2K § 71) notwithstanding any former adequacy criteria (R2K § 79)

Noncompetition Agreement?

In ~A/W Agreement? nothing gained -> no bargained for exchange

Entering A/W Agreement? started with nothing -> bargained for exchange

Changing A/W Agreement?

Old English View: noncompetition clauses highly disfavored

Market (50/) View: consideration if a/w employer forbears from discharging (Lake Land, maj.)

Frier’s Caveat: in reality only if employer impliedly agrees to keep employee for reasonable time (Frier)

Unfair? consideration BUT GO TO unconscionability

Labor (/50) View: no true bargain-> no consideration (Lake Land, dis.)

Past Consideration? purported consideration precedes promise -> no bargained for exchange (Ricketts)

Moral Consideration?

Majority Rule: purported consideration before promise made -> no consideration, not bargained for (Harrington)

Webb (Min.) Rule: consideration if promisor received material benefit (Webb)

Restatement (X-Min.) Rule: consideration if promise (1) made in recognition of benefit previously received (2) by promisor (3) from promisee (4) not gift and promisor not otherwise been unjustly enriched BUT only binding to extent necessary to prevent injustice AND not beyond value disproportionate to benefit (R2K § 86)

Incidental? usually not bargained for but issue of common sense and fact (e.g., stop by office, gold watch) (Fisher)

Benefit/Detriment? better case for consideration especially if promissor knew of detriment (Collins, P2-5)

Non-Traditional Setting?

Cohen I Rule: no consideration if parties not thinking offers/acceptances in commercial/business sense (Cohen I)

Restatement Rule: real/apparent intention promise be legally binding not essential for K (R2K § 21) (Frier)

Settlement of Invalid Claims?

Fiege Rule: consideration if (1) forbearing party had honest intention to prosecute litigation that is not frivolous, vexatious, or unlawful and (2) that forbearing party believed to be well founded (Fiege)

Restatement Rule: consideration if forborne claim/defense was in fact doubtful because of uncertainty as to facts or law (objective reasonable person standard (R2K § 74(1)(a)) OR forbearing/surrendering party believes claim/defense may be fairly determined valid (R2K § 74(1)(b)) (Dyer, P2-2) UNLESS in writing

In Writing? consideration simply if (1) by written instrument (2) and bargained for notwithstanding forbearing/surrendering party believes no valid claim/defense (R2K § 74(2))

Exception?

Technicality? promise usually enforceable if debtor promises to pay debt barred by statute of limitations or if minor’s promise voidable for lack of legal capacity but renews upon majority or if debtor who’s undergone bankruptcy promises to pay pre-bankruptcy creditor

Charity?

Restatement 2d Rule: no consideration necessary, promise binding (R2K § 90(2)) (also marriage settlements)

Majority (Disfavored) View: consideration if continuing work or using funds in specified way (Allegheny College)

PROMISSORY ESTOPPEL

Restatement 2d Test: promissory estoppel if (1) promise, (2) promisor “should reasonably expect” promise to induce action or forbearance on part of promisee or 3P, (3) such action or forbearance occurs, and (4) injustice can be avoided only by enforcing the promise (R2K § 90) BUT remedy “may be limited as justice requires” (R2K § 90) AND practical restrictions

Promise? only if clear and definite (Ypsilanti, P2-7)

Reasonably Expected Reliance? very low bar (e.g., even if informed in writing no contract) (Midwest Energy, maj.)

Injustice Only Avoided by Enforcement? rarely used to deny recovery (Midwest Energy, maj.) (Hoffman)

Practice Restrictions: (1) most require justifiable reliance on legal enforceability of promise and (2) some of the most require plaintiff to have not been able to obtain bargain contract promise (P. Delong)

Restatement 1d Test: R2K test BUT (1) induce action/forbearance “of a definite and substantial character”, (2) no 3P option, and (3) no remedy “as justice requires” limitation (R1K § 90)

Virginia (Min.) Rule: not cognizable cause of action (W.J. Shafer Associates)

UNJUST ENRICHMENT

Unjust Enrichment: if (1) benefit conferred upon defendant by plaintiff, (2) appreciation by defendant of benefit, and (3) acceptance and retention by defendant (4) under circumstances where inequitable to retain without payment (Bailey)

Officious Interference? no recovery for conferring unrequested benefit unless valid reason (R1R § 2) (Bailey)

Valid Reason? if parties would have come to terms in absence of transaction costs prohibiting bargain, ascertain terms and apply; if not, don’t (e.g., doctor saves unconscious life, violin player) (Posner, ~Frier)

GOOD FAITH IN FORMATION

Civil