Contract Law § 1 Fall 2006
-Contract law is the study of consensual obligations (Ex contractus)
-It is defined in the Restatement (Second) of Contracts as:
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. -§ 1.
II. Part One: What promises should the law enforce? (Doctrine of Consideration)
-Donative promises are generally not enforced (merely gratuitous—no bargain, no consideration)
-A promise to make a gift is not enforceable (Dougherty v. Salt), but an actual gift (inter vivos) is irrevocable
-A condition on the promise still does not make it enforceable
-If there is no exchange, then it is a promise of a gift
-Form alone does not make a contract enforceable
-Requirement of Exchange (§ 71):
(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 promise or by some other person.
-Courts will generally reject nominal consideration (Schnell v. Nell 1¢ for $600) where the “consideration” is so disproportionate with what is being given that it is clear that the promisor never intended to be bound by the contract (promisor did not view what he got as the price of his promise).
-Exceptions to this include options contracts and guarantees
-Classical contract theory generally regarded nominal consideration as enforceable (form more important than function).
-A seal historically bound a promise as enforceable even if it was donative
-In most states there is no legal significance which make a document “under seal” any more enforceable, although in some states special provisions are granted.
-In most states there is no longer available any legal device that can be employed with
onsideration 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 promisee; or (b) equivalence in the values exchanged; or (c) “mutuality of obligation”
-Hamer v. Sidway saw the court uphold the nephew’s giving up of his right to engage in certain vices as valid consideration for his uncle’s promise
-Suffering a legal detriment is what matters, not if the forbearance is actually beneficial to the party
-The courts will not invalidate a contract simply because one of the parties made a poor deal. Likewise, mere inadequacy of consideration will not void a contract (disparity in Batsakis v. Demotsis), although duress will.
-When Duress by Threat Makes a Contract Voidable (§ 175):
(1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.