Contracts
Chomsky
Fall 2011
Consideration
I. Consideration as benefit or detriment
A. Need a benefit to promisor, detriment to promisee MAYBE at request of the promisor
1. Detriment doesn't have to be bad or difficult — restraining from allowed action is sufficient
2. Don't need to prove benefit
a) Not consideration only if absolutely no way there could be benefit to promisor
B. Not used now for consideration, but still see quoted
II. Consideration as bargain
A. An agreement between parties for the exchange of promises of performances
1. Each promise induces the other promise
a) The promise is an assurance of something that will be done in the future, not just intention but commitment
b) Need voluntary assumption of obligation
c) Need mutuality of obligation — not equal responsibilities, just an obligation on each side
2. Must be regarded as consideration by both parties
3. Courts’ preference
B. If (you provide consideration) then I promise (x)
C. Restatement (Second) § 71. Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or 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 is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
D. Restatement (Second) § 81. Consideration As Motive 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 for 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.
III. Conditional gift
A. When promisor asks the promisee to do something yet is not proposing a bargain
1. Condition done in order to aid receiving gift
2. The happening of the condition will not only be of no benefit to the promisor but is obviously merely for the purpose of enabling the promisee to receive a gift
B. Not consideration
IV. Refining the requirement of consideration
A. Inadequacy of consideration is not sufficient to make the contract void as long as it is not utterly worthless in fact and in law
B. A promise to make a gift at some future date is not enforceable
1. Person making promise may change mind, no longer be able to afford it
2. Law protects because is a purely voluntary subscription, so can change mind
C. Nominal consideration: Parties set up condition to act as consideration but it doesn't actually induce the other promise
1. I.E. I'll give you one cent not if you promise to pay me $5,000 in two years
2. Not enforceable if both parties know that the purported consideration is mere pretense
a) If the promisor's desire for the consideration is incidental to other objectives, it is immaterial and still enforceable.
D. Illusory promises: Bargain in language but not in action
1. Assume the form of consideration to try and make a contract instead of a gift, but the language is only on the surface, not really a bargain
2. I.E. Aunt promising to give nephew money if he's a “good boy” is really a conditional gift, nothing exchanged and no reliance on the promise by the promisee
E. Forbearance: Not asserting a claim is sufficient consideration if there is any reasonable ground for the claimant's belief that it is just to try to enforce his claim
1. Must assert in good faith
2. Bargain is to be judged as it appeared to the parties at the time
3. The fact that invalidity of a claim is obvious may indicate that it was known
V. Contract modification and the pre-existing duty rule
A. Termination-for-cause clauses: Gives one or both parties the right to end performance obligations when that party has “cause” in the form of any of several listed events
1. May be circumstances that lead one or both parties to be insecure about the likelihood of continued successful performance of the contract
B. Termination-for-convenience clauses: Gives one or both parties the right to end the performance obligations for any reason
1. Common in contracts of indefinite duration or set duration where one or both parties have the discretionary right to end the contract early for any reason
2. Danger that it will make the contract “illusory”
a) If a party can end the contract at any time, may not have made a commitment to any performance or promise, making it void of consideration
b) If parties appear to have reached an agreement of economic substance, with no over-reaching, courts may try to uphold by looking for any real commitment to support a finding of consideration
C. Agreement to Modify: is itself a contract that must satisfy the rules of contract formation
1. Pre-existing duty: When only changing the responsibilities of one part, need new consideration because the other promise is a “pre-existing duty” that formed the first contract but not the modification.
a) Modern trend moving away from this interpretation.
2. Courts moving to enforcing agreements modifying contracts when unexpected or anticipated difficulties arise even though there is no consideration as long as the parties agree voluntarily.
a) Promisee should give something more than what already owes in return for new promise or should vary preexisting duty (i.e. accelerating performance)
3. Financial Troubles Exception: Four-prong Test
a) Will ignore pretense if voluntary
b) Still executory – parties still have duties left
c) Underlying circumstances were unanticipated
d) Modification is fair and equitable
4. Preexisting duty owed to Third Party: Restatement view is that the new promise constitutes consideration because did not owe a duty to that person
5. Unforeseen Circumstances – Don’t need new consideration if it rises to the level of impracticability, such that the duty of performance would be discharged.
a) Mere unforeseen difficulty in performing is not enough
b) Payment of a smaller sum than due will not be sufficient consideration
6. Restatement (Second) § 89. Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
7. UCC § 2-209. Modification, Rescission and Waiver
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be signed by the other party.
a) Modifications must meet the test of good faith
Alternatives to Consideration
I. Promissory Estoppel
A. Concept preventing (estopping) a litigant from claiming no consideration when her promise (rather than her conduct) induced reliance
1. Implies a contract in law where no contract exists in fact
2. Still requires element of consideration to support it
B. Restatement (Second) § 90.
(1) A promise which
volunteered services when asked for or needed)
b) Recipient asked for or knew about and accepted
c) Benefit not meant as gift
3. Semi-exceptions that make unjust to retain
a) Emergency services
b) Unofficious – moral obligation
c) Intended to charge
d) No reason to know wouldn't consent
e) Couldn't seek consent
4. “quasi-contract” – treat as if it is a contract
B. Where services are rendered by one person for another which are knowingly and voluntarily accepted, the law presumes that such services are given and received in expectation of being paid for, and will imply a promise to pay what they are reasonably worth
1. I.E. Nursing Care Services v. Dobos where elderly woman accepted medical services but thought someone else was paying, still had to pay
C. A person who voluntarily and officiously pays another's debts is not entitled to reimbursements unless payment is made under the compulsion of a moral obligation, in ignorance of the real state of facts, or under an erroneous impression of one's legal duty.
1. Caring for family generally gratuitous part of the relationship
2. I.E. clear in Cleveland v. Gorden that niece expected to be reimbursed and actions weren't part of family obligation
D. Quantum Meruit: A claim or right of action for the reasonable value of services rendered. Requires:
1. benefit conferred by one party on another
2. appreciation or recognition by the receiving party of the fact that what was conferred was a benefit, and
3. acceptance and retention of the benefit in circumstances that would render that retention inequitable.
Manifestation of Mutual Assent
· Assent: Means a party's agreement to the proposed terms, which must be articulated with sufficient clarity and specification to qualify as assent
o Meeting of the minds
· Manifestation: Language or conduct that is directed toward the other party, who hears or sees or otherwise knows about the manifestation
o Law focuses on the parties' external demonstrations of assent — the communication of each party's assent to the other party
· Each party should have the opportunity to know and understand the terms of the proposed contract, to decide whether to agree, and to have its choice — to commit to the contract or not — be respected
I. Should mutual assent be judged objectively or subjectively?
A. Objective standard of a reasonable person
1. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind
a) So a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement
2. If his words or other acts have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.
B. Subjectivity
1. After look at manifestations (objectivity) look at what parties thought — did they believe the manifestations?
