Contracts Outline 2011- Professor Cardi
GENERAL THEORIES OF OBLIGATION
Contract-is a promise or an exchange of a promise between two or mjore parties, which the law through courts will enforce.
Elements of a Contract:
1. Mutual assent – parties have to agree on sufficient terms
– if they can’t express voluntary consent; you’re not held to contract promise. Subrule: if one party fails to perform, court can determine what terms were, then they can fashion out the agreement was.
EX: “Sell me a car.” But did not specify what kind, how much, what day. No K, because mutual consent wasn’t on sufficient terms.
2. K has to be for a legal purpose
EX: gambling is illegal in some states. Can’t force breaching party to pay money he gambled and lost because K did not have a legal purpose.
3. Parties have to have capacity to K.
-you must be in your right mind; over the age of 18.
EX: 10 and 14 year old kids make an agreement to sell and buy a car on sufficient terms – No K.
4. Has to be consideration
-Bargain for exchange; however, sometimes the court will find K bargain so unfair that it is consciously too ridiculous to enforce.
RULE: if you have all the elements of a K then the K is enforceable based on the dollar value of the K. The innocent non-breaching party should be able to get the court to enforce the performance of the breaching party in dollar amount. If parties have a K, then both have a legal obligation to perform.
33-34 Theories of Obligation and Their Relevance to the Lawyer’s Role
Theories of Obligation:
1. Agreement with consideration (enforcing K)
2. Justified reliance on a promise (the innocent non-breaching party changes his position to his detriment)
3. Unjust enrichment (perhaps they didn’t have the elements of K, but one party is enriched at the expense of the other, maybe there should be a remedy)
4. Promises for benefit already received
5. Tort – negligent or intentional act that injures the person or property of someone else.
6. “Form” – mere fact that you made the promise is a c/a, even without substantive facts, which sometimes is enforced without K elements.
7. Statutory warranty – if parties make K then….?
Elements to Enforce Breach of Contract and obtain recovery
1. Contract was valid
2. Contract was breached
3. Damages suffered (To help determine amount of recovery)
If #3 can’t be proven, but #1 and #2 are present then nominal damages shall be awarded.
43-58 Obligation Arising from Agreement with Consideration (Leading Theory)
A. Definition of Consideration
RESTATEMENT (1ST) OF CONTRACTS § 75 (1932)
1) Consideration for a promise is:
a) An act other than a promise, or
b) Forbearance, or
c) The creation, modification or destruction of a legal relation, or
d) A return promise,
Bargained for and given in exchange for the promise
2) Consideration may be given to the promisor or to some other person. It may be given by the promise or by some other person.
HARDESTY V. SMITH: PG. 45 (Principle of Bargaining)
Facts: Smith (plaint) promised to pay $100 dollar to Isham, and Isham delivered the patent to def., then assigned the promissory note to Harddesty. Def. said he wasn’t going to pay because the invention had no value.
Holding: “nothing gained, nothing lost.” There was nothing exchanged, and nothing benefited or lost. They got what they bargained for, Hadesty was suppose to collect some of the profit so the agreement was met – when a party gets all the consideration he honestly contracted for, he cannot say he gets no consideration.
The fact that something has no value now does not annul a past agreement. The original thought that it had value (in good faith) was present when agreement was originally made. Therefore there is consideration. If both individuals had the opportunity to consider value of exchange before agreement of the exchange, then agreement is valid and enforceable.
Dougherty v. Salt (p. 47-48) (Gratuitous promise is not Consideration)
Facts: Dougherty was promised $3,000 by his aunt payable at her death or before, simply for bringing her joy. A written agreement (promissory note) was made in the term “for value received” included. She died before payment was made. Upon his aunt’s death, the executor of the will refused to pay him claiming gratuitous promise. Boy brings suit to recover
Side note: promissory note – today such a note gives the bearer the right to collect whether thee is consideration or not. But this court did not talk about it as a promissory note or as being negotiable.
Holding: plaintiff’s request denied. No consideration.
1. Both parties have to acknowledge the promise and the receiver has to accept.
2. A promise given without an exchange of value is not an exchange.
He might have had something to exchange, but it was never mentioned in the testimony that the boy gave something in exchange for the promise.
3. This was a transfer gift – the giver has the power to give, this power to give is not consideration (something for something; bargain for exchange)
if the woman had given the boy the gift it would be his, not because of an exchange, but because the giver had the power to give it and performed.
4. a promise made in exchange for something that has already happened is not consideration.
EX: “you have always done good for me”
5. an eight year old cannot legally make an enforceable contract (lacks the capacity).
RULE: promise of a gift is not enforceable because there is no exchange. (a promise given without an exchange of value is not a K). there has to be a promise from the promisee and an act (to perform) that constitutes a K.
MAUGHS V. PORTER: PG. 54
Facts: Maughs attended an auction advertised by Porter. Along with the ad was a statement that a car would be given away to someone in attendance. Maugh was selected as winner of the car, but when D ordered the car, he refused to pay for it when it was ready for delivery. Maugh demanded to be paid the value of the car and D refused. D contended that the raffle was a lottery because names were pulled out of a hat, and when she gave her the ticket she had to give him $3 to start the process of ordering the car.
Rule: There was consideration. Consideration is established because Maugh was promised a car and she showed up at the site, D by advertising attracted more people, some there to bid. She had to prove that in exchange for a promise she performed by showing up a the auction. However K not enforceable because lottery or raffle is illegal (legal purpose).
Hamer v. Sidway (p. 56-58) (Forbearance)
Facts: Uncle promised his nephew, Hamer, that if he would agree not to drink, smoke, gamble, or swear until he was 21yrs. Old, then uncle would give nephew $5,000. Nephew observed the conditions, and uncle promised to hold on to the money until an appropri
i. Something for something
ii. Dougherty v. Salt
1. Promise of a gift is not consideration
2. Promise to pay for services done in the past is not consideration
c. Condition of a promise as consideration
i. Maughs v. Porter
1. In order to determine whether words of condition are consideration for a promise, it is reasonable to determine whether the condition is of benefit to the promisor
d. Forbearance of a right as consideration
i. Hamer v. Sidway
If the promisee forbears a legal right to something, like drinking and smoking in this case, then there is consideration
e. Promise for a promise as consideration
i. Springstead v. Nees
1. Parties have to have a legal right to that which they are forbearing in order for it to forbearance of a right
A. Illusory Promises: An “illusory” promise is not supported by consideration, and is therefore not enforceable. An illusory promise is a statement which appears to be promising something, but which in fact does not commit the promisor to do anything at all.
De Los Santos v. Great Western Sugar Co. (p. 70-71)
Facts: Trucker, an independent Kor, entered a K with the sugar co. that trucker would haul only such tonnage of beets as might be loaded by the sugar co. on trucker’s truck. Sugar co. terminated trucker after 2mths. of hauling. P doesn’t argue that he was entitled to haul all beats because he know D had K with other haulers, but he argues that he should have been able to finish the 4 term of the K. Trucker made a promise, but Co. did not. Co. gave nothing in exchange for to induce the truckers performance.
Court: both never specified amt. Of beets nor specific period of time beets were to be hauled. Crt. could see the 4 month not as a promise to haul beets every month of the term, but only that P could transport beets during this time/ you start at this time, but cannot exceed this time (not before or after).
Rule: Mutual Obligation: An agreement which depends upon the wish, will, or pleasure of only one of the parties, is unenforceable. Here D didn’t promise to actually give anything unless it wanted to. No mutuality of obligation, so no consideration. The K was unenforceable because neither the trucker nor the sugar co. intended to or did, either in fact or law, promise to transport a specific qty. of beets or promise to transport beets during a specific period of time. D could have chose not to load any beats month 2 and load 30lbs of beats month 3.The sugar co.’s right to ctrl the amt. of beets loaded onto the trucker’s truck was a right to terminate the K at any time, and rendered the K as to its unexecuted portions void for want of mutuality.
Mutuality is absent when only one of the parties is bound to perform, and the rights of the parties exist at the option of one only.