Contracts Outline

CONTRACTS CORNELL FALL 2016

I. INTRODUCTION

Four Basic Areas of Contract Law

What promises should the law enforce?
Remedies for breach of contract
How are contracts formed?
Performance and breach

Elements of a Contract

Every contract is a promise, but not every promise is a contract
Every promise involves 2 parties (promisee, promisor); every contract involves 3 parties (promisee, promisor, and the court)
Whether two parties have a contract now refers to whether there’s something a court could do

UCC

Model statute that a commission created—all states passed a version as a matter of their state law
Applies to commercial transaction and involves transactions in moveable goods
Land is not moveable (as well as things attached to land); services also are not encompassed
Predominant factor test: Is this a contract for goods vs. services? What’s the dominant factor? If goods, it’s governed by the UCC.

Statute of Frauds

Contracts that must be in writing to be enforceable:

Marriage contracts
Contracts for more than one Year (time between making the contract and the end of performance)
Contracts for Land
Contracts by Executor assuming a debt incurred by the decedent before his death
Goods beyond a certain cost (common law: $500; UCC: $2250)
Surety (a promise to take on someone else’s debt)

Possible Exceptions:

Reliance
Part performance
Restitution

II. CONSIDERATION

1. Definition & Form

The making of a contract itself is not enough to make it enforceable, there must be consideration (something that was bargained for). It generally allows us to distinguish between promises that merit legal enforcement and those that don’t.

Nominal consideration is not binding

Schnell v. Nell (1861)

D’s wife passed away and her substance-less will gave $200 to each P. D loved his wife so he entered into a contract with P that stipulated D would pay 3 installments totaling $200/ea, and the parties paid 1 cent to D.

The consideration of one cent did not support the promise, which was only the promise of a gift
1 cent compared to $200 is clearly intended as a pretense—would not be the case if 1 cent was an item of indeterminate value (heirloom)
That D’s wife was loved and industrious were past considerations
D also did not make the promise for his wife’s love in exchange—not consideration

Rule: Transactions that have the form (but not substance) of a bargain are unenforceable because they lack consideration. Courts will not necessarily enforce intent.

2. Donative Promises

Donative promises often fall outside the “bargain” configuration that underlies the formation of a binding contract; however, sometimes the promise to make a future gift is enforceable because either (1) the promisor and promisee have struck a “bargain” or (2) the promisee has made commitments in reliance on the promisor’s good faith.

Promise to make a gift is unenforceable, but once a gift is given it cannot be reversed and is a valid and binding legal transaction

Usually Unenforceable:

Problems of proof
Informal and gratuitous
Frequently made in transient emotional states
Circumstances post-promise are subject to change (financial situation, relationship)

Gift Promises Should be Enforceable

Gift Promises Should NOT be Enforceable

Fairness: Unfair promisor who cannot make legally binding promise; goes against free will; it’s Aunt Tillie’s wish to give Charlie the money and he was counting on it

Fairness: Reach of such a promise does not damage promisee, who promised nothing in return; also gift promises made at emotionally charged moments and might not reflect the will of the promisor; situations may also change

Consequentialist: People should be able to rely on promises, regardless of consideration

Consequentialist: Who wants a world in which every promise made must be enforced? Promisor needs ability in such circumstances to change mind; people will be more reluctant to make promises so less gifting

Role of courts: Who are the courts to say that the promisor did not get something in return (gratitude, recognition) for the donative promise? Aunt did not know the correct form to use so making everyone have access to this legal knowledge will greatly increase the complexity of issue and role of lawyers

Role of courts: Would overload court to enforce every promise made; also evidentiary problems of proving whether such a promise was made at all

Consideration predicates enforceability

Dougherty v. Salt (1919)

8-yr-old P received a promissory note from Aunt Tillie, D, for $3k for “being a nice boy.” Tillie didn’t know correct form to make gift legal, so filled out a form that judge held was unenforceable for lack of consideration

No value had been given (or asked for), and without value, the note lacked consideration
Look at substance of agreement, not just form in this case, since form looks like there was consideration

Rule: Recital of consideration is not enough to bind; a promise given in recognition of a past act lacks consideration and is unenforceable.

Waiver of legal rights is sufficient consideration

Hamer v. Sidway (1891)

D told nephew P that if he did not drink, smoke, gamble, or curse until he was 21, he would be given $5k. P performed and told D who wrote back agreeing to pay when he was older. D died without having paid.

D’s abstention from his legal rights constituted consideration

Rule: Valuable consideration may consist either of a right/interest/profit/benefit to one party, or some forbearance/legal detriment/loss/responsibility given by the other.

3. Reliance

RS §90: Promissory Estoppel

“A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”

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