Outline, Contracts, Kelly, Spring 2012
I. Breach
A. Elements for a Breach of K
1. Enforceable Promise
a. Assent, Definiteness, Consideration
b. Assent implies willing. to enter mutually beneficial exchange (value that received more than that gave up)
c. D may raise Defenses
2. Performance Due: Conditions of performance satisfied
3. Nonperformance
a. Failure to achieve the promised result; unexcused nonperformance; D must raise excuses
4. Damages
a. When the first 3 elements proved, liability established
b. If no actual damages, then nominal damages
c. If P wants the K ENFORCED, then will seek expectation interest (unless ct lowers to reliance interest)
d. If P wants K VOIDED (rescinded), the P will seek Restitution.
B. Misc. Notes
1. Innocent breach is still a breach
a. failure to perform = breach even if everything possible done to perform
2. Limitation of Promises
a. Parties can limit their promises to efforts & not results; doctors usually sell services, not cures
b. Anticipate events that would impede performance; ex: bad weather; parties could specify completion by certain date as long as weather remains mild
3. Assumption of Limitations
a. Some limitations are so rare that parties fail to mention them
b. If parties want performance even in the most extreme circums, must expressly provide for them
II. Contract Defined
A Promise that the law will enforce, or that it recognizes as creating a duty
A. Definition: a promise (or a 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. Promise (§2)
a. a manifestation of intention to act (or refrain from acting) in a specified way, made in a manner that justifies the promisee's belief that the promisor has committed to act in that way
i. Manifestations: words and actions (§ 18, 19)
ii. Justifying manner: if it would be reasonable for a person examining the manifestation to believe a party made a commitment to act; does not give preference to private thoughts
b. If a reasonable observer would not recognize a lack of commitment
c. Do not need absolute terms, but cannot use ambiguous terms either
B. Elements of K
1. Assent (offer & acceptance)
2. Definiteness (certainty)
3. Consideration (bargain)
C. Implied Promise (based on a manifestation of intent)
1. Implied in fact: conduct expresses promise even though words did not
a. Is it a regular part of the promisor's business?
2. Implied in Law (quasi-K)
a. Unjust enrich: an otherwise unenforceable K, but ct concludes D would have made a promise if asked:
i. Must be a benefit to D from P
ii. Must be unjust to allow D to keep benefit w/o compensating P
b. Usu. need request in advance; some excepts: i) emergencies, ii) D unconscious, iii) request not feasible
3. Implied K: seeking service implies promise to pay, reason to believe the service is being sold; consider donative intent: Does the alleged donor usually offer these services for compensation?
4. Courts must balance b/t encouraging actual negotiations and reconstructing a plausible agreement
5. Must distinguish from gifts: Donative Intent + Delivery + Acceptance
6. Volunteers: when people bypass negotiations/failure to bargain upfront
III. Doctrine of Consideration
· Enforces only promises that are part of a bargained-for exchange (not gifts)
· Bargains are enforceable from the time both parties assent to agreement
· Where P has not performed, only the promise serves as consideration
A. Consideration Defined
1. Consideration consists of a bargained-for exchange of promises or performances
2. A consideration exists if:
a. performance or a return promise AND
b. bargained for (§71(1))
3. 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 (§71(2))
4. Questions to Ask:
a. What did the promisee give the promisor?
b. Did the promisee give it in exchange for the promise? Ask why the promisor promised
c. Did the promisor seek what the promisee gave?
i. Reciprocal gifts are not consideration
ii. Conditional gifts are not bargains
d. Did the promisor seek it in exchange for the promise? A promise made on account of some prior action by the promisee is never part of the bargained for exchange.
B. Promise
1. a promise which is bargained for
2. Exception for certain types of conditional promises (§76) and illusory/alternative promises (§77)
C. Performance (can consist of)
1. Act other than a promise
a. Any act requested by the promisor may constitute performance.
b. Could be doing something (work, delivery, etc) or refraining from doing something
2. Forbearance (§74)
a. Inaction when requested may constitute performance.
b. Refraining from pressing a legal claim, right, obligation, etc.
3. Creation, modification, or destruction of legal relation
a. Anything that changes the rights b/t two people.
D. Third Parties
performance/return performance may be given to the promisor or some other person. It may be given by the promisee or by some other person.
Policy behind enforcing a K: decentralization
1) economy motivates K law: efficient allocation of goods & expressions of demand
2) Individual approach: they permit individual pursuit and individualistic approach; general assumption that Ks reflect peoples' needs (people know best); allowing parties to decide for themselves/govern themselves
3) Enforcement prevents people from changing mind: 1) Allocation of Risk: can lock in acceptable price to avoid low prices in future; 2) Reliability: locks in supply and allows for smoother function of markets; Predictability: limits litigation.
E. Common Misconceptions
1. The exchange need not be: equal, mutual, beneficial or detrimental, or the motivation for the bargain
Once consideration is met, no additional requirements
a) Benefit is not required, but it helps show a reason why the promisor requested promisee's action. It also helps distinguish b/t a conditional gift and a bargain.
b) Don’t look at fairness of deal: K's are independent exercises; the law won’t concern itself w/ what’s fair
c) “mutuality of obligation” does not matter: where one party could appear not to have a duty; as long as bargained-for exchange exists, no mutuality requirement matters
2. As long as a party gets what it seeks, then the law will not look to the subjective intent or value.
a) Unfair bargain? if party shows unfair bargaining practice, may serve as a “red flag” for duress/fraud
b) sufficiency refers to the objective value, adequacy refers to the fairness of the exchange.
F. Misc.
1. Sham Consideration: if promisor feels that enforceability is important enough to include consideration, even nominal amount, in order to secure a promise, then maybe the law should recognize the promisor's feeling and enforce the promise; raises questions of whether a payment was not sought in exchange
a. could just be symbolic formality where parties don't realize liability
2. Conditional Gifts: unless the promisor's words seek the future occurrence and the promisee causes the condition to occur, the condition will not likely create an obligation to perform.
3. General Rationale: exchanges increase societal wealth; b/c exchanges increase societal wealth, society has an interest in encouraging people to perform once they have promised to make an exchange.
G. Exceptions to the Consideration Requirement
1. Past Consideration: K already existed
a.
aterial change of position in reliance on the promise; requires a material change (unlike normal action in reliance)
ii) Where a 1-sided adjustment, does not look like a bargain; must have agreement by both parties
· Except in UCC §2-209 where no consideration required (only good faith required)
iii) Solution to situations where we might have duress or mistake
Ways to evade prior K: 1) cancellation: once old K cancelled, new deal not subject to limitation of old; 2) waive original obligation: P waives right to performance as a gift. once duty disappears, can promise same thing again as consideration
4.
1. PROMISE
2. ACTUAL RELIANCE
3. FORESEEABLE RELIANCE
4. INJUSTICE AVOIDED
Reliance: if the promisor reasonably should expect (foreseeability) the promisee to rely on a promise, and the promisee does rely to her detriment, the promise often will be enforceable, despite the lack of consideration; court enforcement is necessary to avoid injustice
a) ELEMENTS:
1. A promise
2. Actual reliance by promisee
3. Foreseeable Reliance; AND
4. Injustice can only be avoided by enforcing the promise.
b) Careful: The Remedy MAY be limited as justice requires!
· D could negate P's damage interest to Reliance instead of expectation
· There is a possibility that the courts will limit recover to the reliance interest
c) Actual Reliance: requires reliance must be the kind that the promisor should have reasonably foreseen
d) Foreseeable Reliance: Promisor reasonably should have expected to induce the reliance on the promise
i) Subjective: whether the promisor had reason to expect
e) Injustice: Usually would require that the promisee acted to its detriment b/c the promise was made.
5. Charitable Contributions §90(2)
Promises to charitable orgs (and marriage settlements) may be enforceable w/o consideration or reliance.
6. Formal Promises: made in formal manner (writings/seals) may be enforceable w/out consideration
IV. Defenses
A. Incapacity (§12)
1. Rationale: person may be unable to assess the value of what she receives/gives up; incapacity precludes rational choices & undermines confidence that the bargain was a mutually beneficial exchange; protects those who are unable to make wise choices; a concern: protecting from K may end up denying the right to K.
2. Rule: where a party lacks the capacity to enter a K, any agreement she makes is voidable (at best) (Except for Guardianship where always void)
3. Guardianship (§13)
Ct appointed someone to manage a person's affairs; by reason of an adjudication or mental illness or defect
4. Infancy (§14): persons under the age of 18 lack capacity to enter K's, w/ some exceptions, unless a statute provides otherwise, can only make voidable K's; age, not appearance; until the day before the 18th B-day
· Exceptions:
o K may be enforceable against a minor who misrepresents age
o In some states marriage removes incapacity regardless of age
· Damages: persons who enter K's w/ minors generally can receive specific restitution of the thing they gave the minor, but cannot recover restitution of the value of the item if the specific thing is not available; (this would be equivalent of enforcement)
