Contracts, Fall 2012, Dr. Adams
Introduction
Contract law is a promise or set of promises for the breach of which the law gives remedy
· Sources of Contract Law & Authority (primarily state law, not federal)
o Common Law -Judicial opinions
o Restatements – produced by the ALI to bring clarity & consistency to CL
o Statutory law- always supersedes CL; UCC only applied to the same of goods
o International commercial law & the CISG- applies mainly to international contract issues
Consideration
· Consideration as Benefit or Detriment 21–32
o Appeal of Clark
§ Court defines consideration via benefit-detriment analysis
§ Court allows individuals to place a value on services, the court has no right to limit the values a contracting individual puts on the services they receive
o Dougherty v. Salt
§ In order for there to be consideration, both parties must understand that a bargain has happened (a child cannot understand a bargain)
o Why is consideration required
o Hamer v. Sidway I
§ Gratuitous transfer (i.e. to give someone something) is not consideration
§ Consideration must be something of value (a benefit for a detriment trade-off)
o Hamer v. Sidway II
§ Forbearance from a legal right (drinking, smoking, pressing charges) can be consideration because it counts as the detriment element of consideration
§ Consideration to enforce a K “consists of a right/profit/benefit accursing to the one party, or some forbearance/detriment/cost by the other party”
§ The benefit elements does not have to be pecuniary
· Consideration as Bargain 33–48
o Baehr v. Penn-O-Tex Oil Corporation
§ Consideration must be the product of a bargain
§ Forbearance from a legal right is not consideration if that forbearance was out of convenience of the forbearing party
o United States v. Meadors
§ A K was signed but the K was formed without the knowledge or requirement of the extra signature so, the extra signer is not liable for the K because there was no bargain involved in her signature there was no consideration
§ However: consideration doesn’t always have to flow btwn the promisor & promise & same action can be held to constitute consideration for a number of promises
o Under the Restatement, consideration requires reciprocal conventional inducement
o Bargain: an agreement of between parties for the exchange of promises or performances – a bargain is not necessarily a contract because the consideration may be insufficient or the transaction may be illegal.
o Restatement (2nd) § 71: Requirement of Exchange; Types of Exchange
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 & is given by the promise in exchange for that promise.
3. The performance may consist of
(a) an act other than a promise, or
(b) 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 promisee or by some other person.
o Restatement (2nd) § 81: Consideration as Motive or Inducing Cause
1. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
2. The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
· Distinguishing Bargain from Conditional Gift 48–62
o Tomczack v. Kooching County Highway Dept.
§ No K between parties because D made a gratuitous promise, there was no consideration because there was no benefit to the promisor. The P agreed not to sue for damages caused by the item given by the D but this was just a condition- not forbearance etc.
o Pennsy Supply, Inc. v. American Ash Recycling Corporation
§ There was reciprocal conventional inducement- the promise induced detriment then detriment induced a promise
§ Distinguishing consideration from a condition: if the occurrence of the condition would benefit the promisor, then it is a fair inference that the occurrence was requested as consideration
o Does the UCC apply?
§ Only for the sale of goods
§ Goods: tangible or movable personal property other than money, esp. articles of trade or items of merchandise. Does not include real property & intangibles
§ Sales; the transfer of property or title for a price OR the agreement by which such a transfer talks place. Sales are not the same as leases, gifts, or mortgages
§ If the K involves sale of goods & installation/services à predominant purpose test: language of K, primary reason the parties entered K, relative costs of the goods vs. services, nature of the provider’s business, other relevant circumstances
· Refining the Requirement of Consideration 76–87
o Batsakis v. Demotsis
§ Court ruled there was consideration for a large loan because the monies were in different currencies, thus it was a sale of goods for one currency to another. If the unfair loan was in same currency, unlikely that K would be enforceable
o Schnell v. Nell
§ Nominal consideration, moral consideration (love & affection) & past consideration generally cannot enforce a K
§ Nominal consideration: consideration that is so insignificant as to bear no relationship to the value of what is being exchanges (e.g. $10 for a piece of prime real estate)
o Dyer v. National By-Products
§ Unreasonable forbearance is consideration if made in good faith, esp. if it is forbearance from court actions
o Williston view: (formalist) emphasizing the application of general principles of law sometimes seen as divorced from normative & policy consideration
o Corbin view: (realist) concerned that the law reflect the changing social & economic context
o Illusory Promises
§ Vassilkov v. Woodfield Nissan
· D wrote itself out of the K leaving no mutual obligation
· Illusory promise: looks like a promise in the form of a promise, but in reality one party gives up nothing (if there is no mutual obligation à illusory promise)
· Illusory promise: a promise that appears on its face to be so insubstantial as to impose no obligation on the promisor; an expression cloaked in promissory terms but actually containing no commitment by the promisor – an illusory promise typically, by its terms, makes performance optional with the promisor.
o Termination Clauses
§ Termination-for-clause clauses: do not make a promise illusory because the events that give either party the right to terminate are listed. (Typically enforceable)
§ Termination-for-convenience clauses: may make an illusory promise because parties can end performance of obligation for any reason. Illusory when obligations are only on one party. Not illusory when there is a specific obligation requirement to terminate (e.g. notice, sales numbers that must be met, etc.)
· Contract Modification & The Pre-Existing Duty Rule 87–105, 114–16
o Under CL, modification generally requires consideration just like initial formation
o Birdsall v. Saucier
§ Modification requires new consideration
§ An agreement in satisfaction of a debt will be recognized when its rests on new & adequate consideration
o Accord & Satisfaction
§ Accord: agreement to settle a debt using a different method that originally agreed on
§ Satisfaction: fulfilling/performing this new promise
§ Generally, the agreement cannot b
ly justifiable, for which the beneficiary must make restitution or recompense
o Quasi-contract: an obligation created by law for the sake of justice; specifically an obligation imposed by law because of some special relationship between the parties because one of them would otherwise be unjustly enriched. An implied-in-law contract is not actually a contract, but instead is a remedy that allows the P to recover a benefit conferred on the D.
o Drake v. bell
§ Repairman, hired by P, accidentally fixed D’s unlivable house. D then promised to pay, D had no legal obligation to pay until he promised to do so
§ A subsequent promise founded on a former enforceable obligation, or on value previously had from the promise, is binding- Court holds defendant responsible for his promise to pay
§ A promise that becomes unenforceable due to statute of limitations or bankruptcy can be enforceable if the same promise is made again
o Webb v. McGowin
§ P saved Ds life & crippled himself in the process. D agreed to compensate P for the rest of Ps life. Once D died, court allows P to recover past D’s death in the promise because:
· Promisor was unjustly enriched
· Previously received benefit was not meant to be a gift
· Promisor made a promise in recognition of the benefit previously received
· That promise is binding to the extent necessary to prevent injustice
· Liability for Restitution 169–95
o Nursing Care Services, Inc. v. Dobos
§ There was no express contract for P to get paid but court allowed P to recover on theory of restitution because there was a contract implied in law (quasi contract)
§ Court examined:
· Reasonableness of the cost
· Competency of nurses
· Necessity of services
· If the D objected to the services
· Were the nurses officious intermeddlers? (Emergency doctrine is exception to officious intermeddlers)
o In re Estate of Cleveland v. Gorden
§ D intended to be reimbursed for her services from the beginning, D took the advised steps to insure her reimbursement, both parties expected that D would be reimbursed
§ Because D was acting out of a sense of moral obligation she was not an officious intermeddler & the payments were not gratuitous
§ Generally services between family members is gratuitous
o Lucent Technologies, Inc. v. Mid-West Electronic, Inc.
§ D is liable to P for a room that D used as a value to market & sell the property because D was not a passive beneficiary
§ Elements of a quasi-contract/quantum meruit claim:
· Benefit conferred by one party on another
· Appreciation/recognition by the receiving party of the fact that what was conferred was a benefit
· Acceptance & retention of the benefit in circumstances that would render that retention inequitable
o Brady v. State of Alaska
§ One who renders services in the expectation of gaining a future business advantage cannot recover the value of those services in quantum meruit, even if her expectation goes unrealized
