Contracts Outline

Brief Outline for Contracts

1. Introduction
1.1 Objective theory of the K

Learned Hand: A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.
Case-Lucy v. Zelmer

Ø Drunk and sold Ferguson farm for $50,000. Ruling: Zehmer sold it, wife was sober. Look at: “Outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention”
1.2 Fault: sometimes it plays an important role in contract liability decision. Generally contract regime is one of strict liability.
1.3 Delchi Carrier v. Rotorex:

Sold Italian company nonconforming goods in K governed by CISG. Italians got damages: “any reasonable person could foresee that shipping non-conforming goods (would be bad).”

2. The Bargaining Theory of K

2.1 Definition
o Restatement 2d& 1: 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.

Reliance could be the substitute of the consideration.

2.2 Consideration
2.2.1 RS

Restatement 2d&71 – bargain theory of the consideration

The core of the bargain is exchange.
o Restatement 2d&79 Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is no additional requirement of
a) A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promise; or
b) Equivalence in the values exchanged; or
c) Mutuality of obligations.
Ø The aim of this rule is to clear away some wrong conceptions of consideration. The above elements are not essential to make a promise enforceable.
Ø There is no requirement of detriment. Even we say detriment, it means legal detriment. Actual detriment is not necessary.
Ø Usually the court does not require the equivalence in the value, but gross inadequacy of consideration may be relevant in the application of other rules, like issue of capacity, fraud, mistake, misrepresentation, duress or undue influence, or against some statutory law, especially in the public utilities K.
Ø Pretended exchange: a mere formality or pretense. Such a sham or nominal consideration does not satisfy the requirement of &71 – bargain theory of the consideration.
Ø Mutuality of obligation is not required. It is only stated in &76– conditional promise and &77 illusory and alternative promises.

RS 77 Comment (a) Illusory Promise and Mutuality

Ø Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise. Mutuality is not needed to escape a K where there is illusory promise.

Output K and Requirement K – UCC 2-306(1)

Ø Output contract: where a seller agrees to sell all of its production to one buyer; Requirements contract: where a buyer agrees to buy all of its goods from one seller; Both of these types of contracts, despite the apparent lack of mutuality and indefinite terms, are universally accepted and enforced today Both parties shall perform this K in good faith. Some O K and R K have an estimate of output and requirement. Neither party can dramatically expand or decrease it.
Ø Petroleum Refractionating Corp v. Kendrick Oil Co., 1933, p.42
2.2.2 Refraining from a right is adequate consideration

Hamer v. Sidawy

Ø Refraining from drinking alcohol is a consideration.
Ø The court won’t ask whether the thing which forms the consideration does in fact benefit the promise or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.

Restatement § 74 (1) forbearance of an invalid lawsuit

”Forbearance of an invalid claim is consideration only if (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.”
Ø Fiege V. Boehm, 1956, p.36- abandoning the bastard suit is a consideration
Ø Petroleum Refractionating Corp v. Kendrick Oil Co., 1933, p.42
Refraining from continuing producing this kind of oil is a consideration
2.2.3 Moral consideration and past consideration

Although not bargained for, might seem worthy of enforcement:

Ø moral consideration: if the promisor acts from a strong sense of duty toward the promisee; or
Ø Past consideration: if the promisor is seeking to recompense the promisee for a benefit previously conferred

Harrington v. Taylor, 1945, p. 46 – P saved D’s life and got injured. D promised to pay all her bills and then stopped paying. Promise came after life saved so no consideration. voluntary humanitarian act was not sufficient consideration to make the contract enforceable; no consideration
Webb b. McGowin: Exact opposite ruling by Ala. court. P saved D’s life but was crippled in the process. D paid P’s bills for 11 yrs then stopped. Ala court ruled payments had to continue b/c of moral consideration…the opposite of the normal rule.
Reason for difference: Legal realism; discrimination against the black

2.2.4 Option K and Firm Offer
o Consideration for option contracts
Ø Principle: A promise that is in form an option requires consideration in order to be binding. Relatively small sums have been held to constitute consideration even for large potential deals. But this rule is widely criticized.
Ø Reform: RS 87(1)(a