Goals of contract law
Aims to make the plaintiff as well off as if the contract had been fulfilled
o Makes people enforce promises
§ Doesn’t include morality
· Holmes – “bad man” aim of contract law
o Contract law not supposed to make people good
§ Good men keep their promises
§ Bad men are rationally self-interested
o Only look at material consequences
o Don’t look at morals
o à Fuller – rejoinder to Holmes
o Bad men are also worried about loss of reputation
Why do we want to constrain legally enforceable promises?
o Don’t want all promises to be enforced
§ Burden on legal system
§ We might change our mind
§ Can’t integrate new information
o Want to have freedom to enter and to not enter into contracts
§ part of liberty of members of society
· By requiring consideration, taking away some freedom of making contract
o BUT not having all promises enforceable, giving freedom to not be in contract
o Can change legal background by making a contract
§ ex. I pay 5 dollars to be released from liability in car crashes
Extra-legal rules
o Outside of legal systems
§ Moral norms
· Hard to distinguish between moral norms and legal rules
§ Economics
· Economic extra-legal rules can be factored in by bad men
Grounds for enforcing promises
Rationale for Enforcing Promises
o Llewellyn — Reliance on promises part of usage and familiarity to them
§ No enforcement until particular reason was shown
§ Maintains peace and order
§ Development of credit economy where bargains and promises are part of the normal course of dealing
§ A bargain or promise is enforceable unless reason appears to the contrary
o Cohen — Intuitionist: promises are sacred per se
§ Properly organized society shouldn’t tolerate the breaking of contracts
· However, no legal system does or can attempt to enforce all promises
§ Kantian: the duty to keep one’s promise is a requirement of rational society
· However, people would prefer a system where they can take back some promises
o Couldn’t incorporate additional information if past promises were always kept
§ Promises constitute modern wealth
· Enforcement is a necessary way of maintaining wealth
o Businesspeople don’t want all promises enforced
§ Negotiations would be done in fear
§ Don’t want to be bound until the final stage
§ Issue depends on:
· relative simplicity of transaction
· speed with which it must be concluded
· availability of necessary information
§ Popular sentiment
· People expect enforcement of promises that have quid pro quo
o Sharp — 2 theories of contract enforcement
§ Religious: Promise is significant because it expresses a fixed purpose in the mind of the promisor
· Purpose must be objectively expressed to be significant in court
· When absent, one who gives the appearance of having such a fixed purpose may be liable in an action
§ Utilitarian: necessity that in a commercial society sensible expectations induced by a promisor should not often be broken
· The test for the existence of a promise would depend on whether words or other conduct should be expected to create a sense of practical dependability in another’s mind (reliance)
§ Promises should be enforced unless some intelligible and controlling practical reason for not enforcing them is made to appear
· From English precedent, some of them due to unexpressed but intelligible policy ends
o Standards for non-enforcement of promises with consideration
§ Duress
§ Fraud
§ Misrepresentation
§ non-disclosure in some relationships
§ mistake
§ impossibility
§ forfeiture
§ inconsistency with controlling rules of criminal or civil liability
§ inconsistency with other defined public policy
§ Motive marks off the nature of the undertaking
Formality
o Definition
§ Form offers a legal framework into which a party may fit his actions, or, it offers channels for the legally effective expression of intention
§ Can be more important than the obligation from the other party
· Ex. A will
o Fuller — 3 functions of formality
§ Evidentiary function
· Provides evidence of the existence and purpose of the contract in case of controversy
o Can be fulfilled by required writing, or notary, or other means
§ Cautionary function
· Acts as a check against inconsiderate action
o Ex. Seal
§ Channeling function
· Serves to mark or signalize the enforceable promise
o Rationale
§ People know what they’re getting into
· If there’s pain on both sides of the contract, people are more serious about the costs
§ Initially, consideration expressed the feeling that there should be some sufficient reason, ground, or motive that would justify enforcement of a promise
§ Question of benefit to the promisor and detriment to the promise
· 2 main situations
o Half completed exchange of debt
o Loss through fault situations of early assumpsit
· Detriment expanded to include more than visible and measurable losses
o Consequences
§ Legally liable for keeping serious contracts
· What are remedies for non-legal contracts?
o Extra-legal costs
§ Ex. Loss of reputation
o Writing
§ Formal
· Allows you to think about what you’re doing
· Ceremonial process
· Initially, no real decision one way or the other
o Consideration is required for oral and written contracts
o Now, writing is presumptive evidence of consideration
§ In 15 states, the incorporation of a written agreement is declared by statute to import or give presumptive evidence of consideration
§ Some require denial under oath that consideration existed in order for it to be raised as an issue
o Proposition that a written release or promise, signed by the releaser or promisor, shall not be invalid for lack of consideration if the writing contains an additional statement in any form of language, that the signer intends to be legally bound
§ Didn’t take off (only in 2 states)
o Seal
§ In early England, enforceability and formality were seen together
§ Seal developed in the late middle ages
· Used to authenticates transfers of ownership and to make promises enforceable
o For a breach of promise under seal the action of covenant was the standard common law remedy
§ Covenant
· Owes you a promise
· “I promise that I’ll paint your house”
· Have to have a contract under seal to be legally recognized
· Refuge for contested covenants in equity
· Result was judgment for damages
· The only remedy for breach of promise until 1500
§ Debt was limited
· Def: owed a duty
· Half completed exchange
· à “I’ve done my part, you haven’t”
· Based on Quid pro quo
· Ex. Promise to paint house for $100, no money has exchanged hands and I don’t pay the house
· Can’t it be enforced?
· No, not legally recognized
· Could only be used to recover a sum of money already due and fixed in amount
§ Special assumpsit
· Assumpsit (latin for promise)
· 16th century: New form of action for promise
· Not debt
· Breach of a promise to do something that is non-sealed
· Ex. If I promise to paint your house and I don’t, can you bring a promise of assumpsit against me?
· No, not if you haven’t done anything to rely on the promise
· à generalized damage remedy for breach of contract
· à Gave damages for breach of informal promises that didn’t fit into pattern of the half-completed exchange
§ Contract under seal prototype for consensual transactions
· Initially very formal (ex. Signet ring)
o Used as a ceremony that that was to produce persuasive evidence, make a sharp impression on the participants, and provide visible signs of authenticity
o If formalities were followed, only needed the seal to make promise enforceable
§ Should people who are fully competent have the power to bind themselves by promise merely because they seriously intend to do so?
· 15th and 16th c. common law doctrine made seal not only enforceable but invulnerable to attack
o Could show that the documents were forged
§ Fraud in factum: Could show that documents were misrepresented to the signer
· No other fraud could be shown by common law action
· Ex. Can’t complain that a buyer was shown a diseased horse that was described as healthy
· Couldn’t show that the other party’s performance hadn’t been received
· à relief against misuse or abuse of sealed instruments became a major activity of the chancery
· à Moved to bring sealed documents back into the framework of rational scheme of contract law
· Gradual erosion of the requirements of form drained solemnity and destroyed the usefulness of the seal
o Accepting substitutes seemed justified by result
§ increased the power of the promisors to bind themselves if they used the right words or right acts
· Irony was that the words and acts lost meaning
· Are about 20 states where can use a seal other than in a sale of goods
§ Most important consequence of using a seal is that consideration doesn’t need to be established
· Conscious that you may be legally bound
§ Why did the seal fall apart?
· People stopped using it and minimized the ceremony of it
· Legal formalism
o Hard to modify promises made under seal
§ Ex. What if the house is painted and forgot to rip up the contract, do you have to paint it again?
§ Yes
Consideration
o
otive or inducing cause
§ 1. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration of the promise
§ 2. the fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise
o Note: Section 81 is intended to explicitly define the limitation of section 71’s bargained for test of consideration
§ Unless both parties know that the consideration is a sham, it doesn’t matter that the promisor’s desire for consideration is incidental to other objectives and even that the other party knows this to be the case
· Does it have to be induced? (section 81)
o Because the promise was induced does not prevent consideration from being in the promise
§ Don’t need a nexus, that promise A induced promise B
§ 2nd restatement section 71 only talks about consideration
· Sufficiency of consideration was dropped
o Tension between sufficiency of consideration and adequacy of consideration
§ Sufficiency: required
§ Adequacy: inappropriate for the courts to judge
· à Consideration does not ensure a fair exchange
o Congregation Kadimah Toras-Moshe v. DeLeo (1989, p. 192)
§ D promised congregation $$ but died before giving it to them and never wrote it down.
§ No contract
· No benefit to promsior or detriment to promisee à no consideration
o Hope or moral obligation doesn’t equal consideration
§ Charitable subscriptions enforced when they are written promises and there is substantial consideration or reliance
o Hamer v. Sidway (1891, p. 204)
§ Valid contract
· Actions were for his benefit, BUT he suffered a detriment because he refrained from a legal action
· Cited in Allegheny but was a novelty at the time
o Earle v. Angell (1892, p. 206)
§ Nephew goes to aunt’s funeral
· Contract to pay $$ after one’s own death is valid in consideration of his promise to attend funeral
o Whitten v. Greeley-Shaw (1987, p. 207)
§ P loaned D (mistress) $$ for a house.
· No consideration cause D’s promise not to call P without his permission wasn’t sought after by P
o Fischer v. Union Trust (1904, p. 210)
§ Dad gave land to his retarded daughter that had a mortgage on it
· Deed was a gift made subject to the mortgages, not a contract
o The dollar wasn’t real consideration
o Simmons v. US (1962, p. 212)
§ P caught a prize-winning fish and turned it in.
· P got the $$
o doesn’t matter that P didn’t go out with the express purpose of catching the fish
§ as long as the outstanding offer was known to him, he can accept by rendering performance
o Embola v. Tuppela (1923, p. 218)
§ D made a promise and then went crazy.
· Contract was made cause he wasn’t crazy when he made the promise and he considered the exchange fair and to his advantage
o Duncan v. Black (1959, p. 219)
§ D sold land to P with a clause that he was supposed to get a cotton allotment
· Court: couldn’t bargain for cotton allotment cause it’s wasn’t theirs to bargain with
o Consideration has to have foundation and be in good faith and not against public policy
o Military College v. Brooks (1929, p. 222)
§ D had a promissory note to pay son’s military school costs. D thought son was wrongfully dismissed and had note to cover tuition
· dismissal raises a legit dispute of law and fact on D’s liability
o given D’s financial situation, having note instead of lawsuit is adequate consideration to support the note
Other issues in Consideration
o Exceptions to refusal of relief to a volunteer
§ Self-declaration of trust
· The owner of an asset creates a trust without using a 3rd party and holds the trust for a named beneficiary
o Declaration effective without any consideration
