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

CONTRACTS I
Fall 2004
Professor Bradley

PART I: WHAT PROMISES SHOULD LAW ENFORCE?

I.                  Donative Promises, Form and Reliance
a.      Simple Donative promises
i.      General rule: Donative promises are generally not enforced
– A gratuitous contract; no bargain; no consideration
1.      promise to make a gift not enforceable, BUT a completed gift is irrevocable
2.      A condition on the promise still does not make it enforceable
3.      A moral obligation to keep a promise is not sufficient ground for concluding that there is a legal obligation to keep the promise.
b.      Element of Form
1.      General rule:  Form alone does not make a contract enforceable
ii.      Nominal Consideration
1.      General rule: Nominal consideration does not make a promise enforceable
(1)   A “warm glow”
2.      A transaction that has the form of a bargain, but not the substance of a bargain
i.      Promisor did not view what he got as the price of his promise
(a)    Two exceptions: options and guaranties
3.      Classical contract theory generally regarded nominal consideration as enforceable
(1)   As long as it had the form of a bargain it made a promise enforceable
iii.      Consideration and the Seal
1.      Historically: A promise under seal was enforceable even though donative
2.      Modern: Most states grant seal no legal significance in making document enforceable (by statutory provision)
i.       some states grant varying benefits for having agreement under seal
3.      In most states there is no longer available any legal device that can be employed with certainty that it will bind a promisor to a donative promise
c.       Element of Reliance
i.      Promissory estoppel
1.      Restatement (2nd) Section 90:
(1)   A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. 
i.      The remedy granted for breach may be limited as justice requires
– Measure damages as to the extent of reliance
2.      A party that relies on a promise to their detriment sometimes can substitute reliance (R.S. 90) for consideration
3.      Historically: Reliance has been reserved for only donative promises
4.      Modern: Most courts will apply reliance to a commercial context
i.      Example: Bacardi Imports case
ii.      Estoppel in pais (equitable estoppel)
1.      If a party has foreseeably relied upon a promise, then the other party is “estopped” from denying the truth of that statement
2.      Similar to an evidentiary rule

II.               Bargain Principle and its limits

a.      Bargain Principle
i. Restatement (2nd) Section 71
(1)   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)   Performance can be:
(a)    An act other than a promise
(b)   A forbearance
(c)    Creation, modification, or destruction of a legal relation
ii.      Consideration can be in the form of a forbearance on the part of the promisee
1.      Example: Hamer v. Sidway
(1)   Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise
i.      A legal detriment or forbearance constitutes consideration
iii.      Courts won’t invalidate a contract simply because one of the parties made a bad deal
i.      No equivalency of values as long as not grossly disproportionate
2.      Restatement (2nd) Section 79
(1)   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 promisee
(b)   Equivalency of the values exchanged
(c)    Mutuality of obligation
ii.      Inadequacy of consideration

                                                       i.      Is the predominant factor the rendition of service with goods incidentally involved; or is transaction a sale with labor incidentally involved
ii.      Either applies UCC fully, or not at all
(2)   Allow contract to be severed into different parts applying UCC to goods and common law to non-goods

c.       Problem of Mutuality
– Principle of mutuality: Generally, both parties must be bound, or neither is bound
– NO application to a unilateral contract
– NO free way out
– R.S. § 79 = Adequacy of consideration
– 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 promisee; or
(b)    equivalency in the values exchanged; or
(c)     “mutuality of obligation”
–  A contract for sale is mutual where it contains an agreement to sell on the one side, and an agreement to purchase on the other
–          Cancellation clause:
o       An arbitrary cancellation clause may invalidate a contract for lack of mutuality
§         Each party must restrict themselves in some reasonable way
§         Ex. Cancel with two weeks notice of termination
i.      Illusory Promises
1.      R.S. § 77 = Illusory promises
–          A promise is not consideration if by its terms the promisor reserves a choice of alternative performances unless
o       (a) each of the alternative performances would have been consideration if it alone had been bargained for
2.      Buyer must commit to something, must circumscribe their freedom of action
(1)   No free way out
(2)   Shrink their realm of choice
ii.      Requirements Contract
– UCC 2-306(1) allows for requirement contracts for the sale of goods