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Contracts
University of Mississippi School of Law
Bradley, John R.

Contracts

John Bradley

Fall 2011

University of Mississippi School of Law

1. Contract

a. A promise or 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.

b. Formation of a K requires a bargain in which there is manifestation of mutual assent to the exchange and a consideration.

2. Bargain

a. An agreement to exchange.

b. Promises, promises for a performance, performances

3. Agreement

a. Mutual understanding between two or more persons about their relative rights and duties regarding past or future performances.

b. A manifestation of mutual assent by two or more persons.

4. Consideration

a. Something of value sought by a promisor and received by a promisee in exchange for the promise.

i. Types of consideration

1. A performance

2. A forbearance

3. A return promise

b. Consideration (or a substitute) is necessary for an agreement to be enforceable.

c. Consideration must either be a detriment (like forbearance of a right) to the promisee or benefit conferred upon the promisor.

d. If requirement of consideration is met, no additional requirement.

5. Performance

a. Successful completion of contractual duty;

b. May be given to the promisor or to some other person.

c. May consist of

i. An act other than a return promise

ii. A forbearance

iii. Creation, modification, or destruction of a legal relation

PART ONE: WHAT PROMISES SHOULD THE LAW ENFORCE?

SIMPLE DONATIVE PROMISES

1. Promise to make a gift is unenforceable, revocable.

2. A gift already made is enforceable, not reversible.

THE ELEMENT OF FORM — NOMINAL CONSIDERATION

1. General rule: Form alone doesn’t make a contract enforceable.

2. Nominal consideration

a. Consideration that’s so disproportionate with what’s being given that court says promisor never intended to be bound.

b. Nominal consideration has the form of a bargain, but not the substance.

3. Schnell v. Nell

a. Promisor felt moral obligation to pay promisee. To make it enforceable, initiated consideration of 1 cent. The contract is not enforceable because the 1 cent is not what was bargained for.

b. If the promisor actually wanted the 1 cent, then there would be a bargain. But promisor didn’t care about the 1 cent, just wanted to make it enforceable.

THE ELEMENT OF RELIANCE (PROMISSORY ESTOPPEL)

1. Reliance is not consideration, but is a reason to enforce a K.

a. Reliance is a substitute for consideration.

2. General rule – Doctrine of Promissory Estoppel

a. When a person breaks a promise that the other party reasonably relied on, it’s binding if injustice can only be avoided by enforcing it.

3. Remedies

a. Limited to the extent to prevent injustice.

b. Measure damages as to the extent of reliance, not the terms of the promise.

4. If a promisee substantially relies on a promise, promissory estoppel can be enforced even if there was no consideration for the promise. Ex: ¶ was promised pay for life if she chose to retire (Feinberg).

EQUITABLE ESTOPPEL (ESTOPPEL IN PAIS)

1. Differs from promissory estoppel

a. Equitable estoppel involves statements of fact, not a promise.

b. When someone relies on a false statement made by a person, the person who stated falsely is estopped from introducing evidence that his statement was true.

i. A alleges facts X,Y,Z. If they’re true, A has a claim against B. A proves X and Y, but can only prove Z by showing that B said Z was true and A relied on Z. B is then estopped from introducing evidence that Z isn’t true.

THE BARGAIN PRINCIPLE

1. A performance or return promise is bargained for if it’s sought by the promisor in exchange for his promise, and is given by the promisee in exchange for that promise.

2. Consideration

a. If the requirement of consideration is met, there’s no additional requirement of

i. A gain, advantage, or benefit to the promisor

ii. A loss, disadvantage, or detriment to the promisee

iii. Equivalence of the values exchanged

iv. “Mutuality of obligation”

b. Giving up your right to do something (like engage in vices) is consideration if the promisor sought that in exchange for a promise (Hamer v. Sidway).

c. Mere inadequacy of consideration won’t void a K (Batsakis)

i. Courts won’t relieve contractual duties merely because a party made a bad deal.

ii. Inadequate consideration is different from nominal consideration, because 1 cent consideration isn’t what’s being bargained for. You only bargain for something if you actually want what’s being bargained for.

3. Use of duress will void a K

a. If a party’s assent is induced by improper threat that leaves the victim no alternative, the contract is voidable (not void).

b. Exception

i. Rule doesn’t apply when one party falls on hard times and the other party takes advantage of it.

ip. Promise is enforceable since Δ bought the vessel.

3. Wood v. Lucy, Lady Duff-Gordon

a. Wood promised to use “reasonable efforts” to market Lucy’s designs.

b. Even though there was no expressed promise, there was an implied obligation, so both parties were bound.

c. While an expressed promise may be lacking, the whole writing may be instinct with an implied obligation so as to form a valid contract.

4. Cancellation clauses

a. Will not void a contract for want of mutuality, unless it’s unrestricted.

THE BARGAIN PRINCIPLE: LIMITS OF A BARGAIN:

PERFORMANCE OF A LEGAL, PREEXISTING CONTRACTUAL DUTY AS CONSIDERATION

1. Preexisting Duty Rule (PDR)

a. Performance of a legal duty owed to promisor which is neither doubtful nor the subject of honest dispute, is not consideration.

b. If it’s already your duty, can’t be consideration for a new contract.

c. Purpose is to prevent extortion.

d. Lingenfelder

i. C is under contract to perform to S in return for $10k. C and S then agree C will perform for $12k. S only pays $10k, so C sues for $2k. The second agreement is unenforceable under PDR.

1. What if S was under duress at the time of payment? S could recover the $2k

e. Foakes

i. C owes S $10k for past due debt under the original agreement. C and S agree if C pays $8k, S will accept that amount as full satisfaction of the debt. C pays the $8k, and S sues for remaining $2k under the original agreement. The second agreement for the $8k is unenforceable.

f. Exceptions

i. A promise modifying a duty under a contract not fully performed on either side is binding…

1. If it’s fair (because unanticipated circumstances).

2. If it’s legal under existing statutes.

3. If other party’s position changes due to reliance on the promise.

ii. An agreement modifying a contract for the sale of goods is binding if it is a reciprocal change and done under good faith.

iii. If the preexisting duty is going to a third party, it’s enforceable because it’s unlikely it’s extortion