OVERVIEW
· Common law contracts
o Employment
o Construction
o Services
o Franchise Agreements
· Statutes
o Sales of Goods- Removables
o International Sale of Goods – gov by intl treaty
o Lease of Goods
· Every state has enacted Article 2 – except AZ
· Our book is just model statute – other states have modifications – choice of law problem
· Must focus on the statute!
· Restatement 2nd are not law – private organization
· Read the comments in the UCC sections
CONSIDERATION EVOLUTION
· Which Promises Should be Enforceable?
· English Law was tied to common law actions of
o Covenant: Used to enforce Ks made under seal
§ Once sealed – bargain/reliance didn’t matter
§ Was wax seal – then written/printed symbol
§ Two functions –
· Evidentiary
· Cautionary
§ (which no longer serves either now) – Seal has been supplanted by consideration – which has been supplanted by reliance
o Debt: used to enforce type of unsealed promise to repay definite sum of money
§ One sided – seen as promisor (debtor) had something belonging to the promisee
§ Receipt of benefit from the promisee
o Assumpsit: promisee sought to recover damages for physical injury to person or property on basis of consensual undertaking
§ Based on misfeasance– having undertaken (assumpsit) to do something – had done it in a determinant manner
§ Did not originally cover when the promisor did nothing
· Later extended on basis the promisee had incurred detriment
o Finally – promise in exchange for other’s promise had incurred detriment by having freedom fettered
§ – began to enforce exchanges of promises
§ Consideration, when no seal, was just conditions that had to be met
§ Exchanged by way of bargain
————————>
· Debt inspiration = must be benefit to promisor
· Assumpsit inspiration = detriment to promisee
CONSIDERATION DEFINED
· Consideration = bargained-for-exchange for something of legal value
o Consideration is required – if either party fails – agreement is unenforceable (unless one of the exceptions)
o A promise is supported by consideration if:
§ 1. The promisee (the party who’s receiving the promise being analyzed – gave up something of value – or circumscribed her liberty – legal detriment
§ 2. The promisor made his promise as a part of a “bargain” – aka, made his promise in exchange for the promisee’s giving of value or circumscribing of liberty – bargain
o Mutuality of Consideration Required
o Functions of consideration
§ 1. Evidentiary Function: Provide objective evidence that parties intended to make a binding agreement
· Distinguishes btwn agreements parties intended to be enforceable vs just mere obligations/honors – w/ no expectations to be enforceable or legal consequences
§ 2. Cautionary Function: If see that consideration of other makes it legally enforceable – then will act more carefully – not make bad bargins/mistakes
· Also take fewer precautions at the beginning stages – lower costs
o Bargain: promissee’s detriment must have been bargained for by the promisor
§ Purpose: to prevent enforcement of promises that are in reality promises to make gifts
§ Restatement (2d) S 71: bargain – 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
§ Distinguish bargains from pre-conditions
· Must look into facts –
o If act done is something the promisor actively desired – then probably bargained for
o If act done is not something the promisor actively desired – then a necessary pre-condition
o Hammer v Sidway : Uncle promises his nephew $5k if the latter will refrain from smoking, drinking and gambling until 21
§ Held: Was bargained for and therefore supported by consideration
§ Rationale: Although uncle may not have derived actual economic benefit from the abstention – he was attempting to obtain something he regarded as desirable (his morality)
· Aside from any benefit-detriment analysis – bargained for in exchange
§ Notes:
· Sufficiency of consideration – adequacy and sufficiency – not looked at by Restatement – just consideration – no 2nd guessing
o Peppercorn: Restatement 1 and Holmes accept – Restatement 2 does not
§ Dahl v HEM Pharmaceuticals: promised year supply of drug if participated in year long research
· Unilateral K – if u submit to our experiment – we will do this (like Hammer)
§ Marine Contractors Co v Hurley: If u don’t compete w/ our company after u leave – will pay your benefits now
· Held: There was consideration b/c there was a benefit to the employee who received his share then and there
o Conditional Gift – No Bargain
§ Gift Cases: promises is not part of the bargain (not trying to obtain anything) and there is no detriment
§ In conditional cases – detriment – but no bargain – only conditions that if met, which are not part of promisor’s motive
§ Kirksey v Kirksey: P’s husband died – and his brother invites them to move in w/ him – and promised they could live there till they grew up
· Held: P moving was a detriment, but no bargain – he was not bargaining you come see me and I’ll do this – simply a precondition of accepting the gift (gratuitous promise subject to a condition)
· Rule: A gratuitous promise is not legally enforceable after P has suffered loss and inconvenience in reliance on the promise
· -> Condition of promise for gift vs bargain for exchange (intent based – issue of fact)!!!
o Her exchange for gratitious promise – not bargain for exchange
· Could argue altruistic motives – or could defend that it was done out of care à It’s about arguing what was his intent
o Intent = Issue of fact – purely subjective state of mind– what would a reasonable person in these circumstances come to understand his intent to be
§ Was he making a deal or was he being nice??
o Conditional Gift or Bargained for Exchange:
§ Hypo: Father says if You meet me at x, I’ll give u ring – that is more of a bargain for exc
t. might well hold that such a promise made on account of moral obligation should be enforced
§ Where Benefit and Cost are substantial – Ct. that may be reluctant to hold moral obligation enforceable – may do so where costs substantial
· Webb v. McGowin: A save’s B’s life in an emergency and is totally disabled in doing so – B promises to pay weekly – then estate refuses
o Held: B’s promise is enforceable, even without consideration, because B incurred a substantial material benefit from A’s act, even though B did not request the act
o Rule: a moral obligation may be sufficient to support a promise given in recognition of a past economic benefit received by the promisor.
o Differences vs Mills:
§ 1. Benefit to defendant himself
§ 2. Kept his promise
§ 3. Life was saved in exchange not for money but for injury to himself – hurt more
o Yet same – same type of fact pattern = still past consideration (thing given in past has already been given; cannot be given in exchange)
o If same facts – different outcome – court is changing the law (creating exception/ some even have statute)
§ Back to benefit that suffices as consideration
§ Benefit of the promisor or injury to the promisee is a sufficient legal consideration for the promissor’s agreement to pay
§ Sufficient consideration: promisee does something w/o promisor’s request – and promisor later agrees b/c of material benefits received
———> Based on Benefit and Detriment Alone
· Restatement S 75: Exchange of Promise for Promise
o (Subject to exception in S 76 and 77) – Promise which is bargained for is consideration if, but only if, the promised performance would be consideration.
· Restatement S 79: Adequacy of Consideration; Mutuality of Obligation
o If requirement of consideration is met – there is not addtl requirement of
§ A. Gain, advantage or benefit to the promisor – or a loss, disadvantage, or detriment to the promisee
§ B. Equivalence in the values exchanges; or
§ C. Mutuality of obligation
o Rewards
§ Broadax v Ledbetter: Caught criminal for who reward was out for, but did not know of reward
· Rule: Notice or knowledge of the existence of the reward is essential
· Restatement 71 (2): the service that he rendered was not given by him in exchange for the promise
· Rationale:
o One Sided bargaining – but there is no exchange – you did not act based on that promise – you did it on something you learned later on
