PART ONE: FOUNDATIONS OF CONTRACT AND RELATED OBLIGATIONS
CHAPTER ONE: INTRODUCTION
Elements of a Contract
Mutual Assent on sufficient terms
*(Writing – signed writing: may be required by statue, i.e. Statute of Fraud)
Elements to Enforce Breach of Contract and Obtain Recovery
Contract was valid
Contract was breached
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.
General Theories of Obligation
Obligation arising from an agreement with consideration (and any required writing).
Obligation arising from justified reliance on a promise – “Promissory Estoppel”
Obligation arising from unjust enrichment.
Obligation arising from promise for benefit [already] received
Obligation arising from tort, may be same as
Obligation arising from “form”
– to have every element of K except writing
Obligation arising from statutory warranty
– when a K already exists with another
Primary duty – obligation or duty to perform
Remedial duty – damages, etc.
Remedies: To put the innocent non-breaching party in the position he would have been had the contract been performed. In other words, make the innocent non-breaching party “whole”.
Types of Remedies
Lost expectancy damages designed to put the plaintiff in the monetary position he or she would have been in if the agreement or promise had been performed
Reliance damages designed to put the plaintiff in the monetary position he or she would have been in if the agreement or promise had not been made
Sum equivalent to the value of any benefit the plaintiff conferred on the defendant, thereby restoring this value to the plaintiff.
Specific Performance: Court will not grant specific performance except the performance is unique, e.g. if A Ks to buy Elvis car from B and B breaches, and A cannot find such a car anywhere, it is unique. Ct. don’t grant SP because it calls for court to spend time and labor on the case
Case #1: White v. Benkowski (p. 5-26)
Facts: Whites purchased new home without water service. Had K with Benkowskis to obtain water from Benkowskis. K stated that Whites would agree to pay $3/mth for water and 50% of any repairs to water system for water supply from Benkowskis. Subsequently, water supply was shut off in White’s house. Whites file suit.
Reasoning: Inconvenience suffered by Whites when they were without water is enough to award compensatory damage, but punitive damages can’t be awarded for a breach of contract (Exception: a promise to marry).
Prima facie – at first sight, on first appearance, but subject to further evidence or info.
Quid pro quo – a thing that is exchanged for another, for another thing of more or less equal value; a substitute
CHAPTER TWO: OBLIGATION ARISING FROM AN AGREEMENT WITH CONSIDERATION
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.
As a general rule, a K will not be enforceable unless it is supported by “consideration.” A promise is supported by consideration if:
Detriment: The promisee gives up something of value, or circumscribes his liberty in some way (i.e. he suffers a “legal detriment”); and
Exchange: The promise is given as part of a “bargain”; i.e., the promisor makes his promise in exchange for the promisee’s giving of value or circumscription of liberty.
B. Uses of Doctrine: The requirement of consideration renders unenforceable two main types of transactions:
1. Promises to make gifts (which do not satisfy the “bargain” element); and
2. Business situations in which one party has not really promised to do something or given up anything, even though he may appear to have done so (the “detriment” element is missing here).
b. Bargained for principal
Case #1: Hardesty v. Smith (p. 45-46)
Facts: A third party came up with an invention improving lamp. Smith signed promissory notes, which were then assigned to Hardesty, who is now trying to collect on the said notes.
Rule: 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.
a. if something of want is bargained for, and a price reached, there is consideration
b. it is not the court’s responsibility to determine whether a bargained for price is fair or not
c. The promisor must manifest an intention to induce the performance or return promise and to be induced by it, and the promisee must manifest an intention to induce the making of the promise and to be induced by it
d. The fact that someone bargains for something they really don’t want does not prevent it from being consideration
c. Quid pro quo – something for something
Case #2: Dougherty v. Salt (p. 47-48)
Facts: Dougherty was promised $3,000 by his aunt payable at her death or before, simply for bringing her joy. A written agreement was made in the term “for value received” included. Upon his aunt’s death, the executor of the will refused to pay him claiming gratuitous promise. Boy brings suit to recover.
Rule: i. Promise of a gift is without consideration, no quid pro quo, and thus is not enforceable.
ii. Promise to pay for services done in the past are not consideration
Generally, contracts survive the death of the parties, exceptions are service contracts.
A K bw an ageable and a minor is voidable by the minor when he reaches the right age.
A K between an ageable and a minor is voidable by the minor when he reaches the right age.
Ks have to do with the intents of the parties.
d. Condition of a promise as consideration
Case #3: Maughs v. Porter (p. 54-56)
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.
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. However K not enforceable because lottery or raffle is illegal (legal purpose).
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
e. Forbearance of a right as consideration
Case #4: Hamer v. Sidway (p. 56-58)
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 appropriate time with interest accruing. Uncle dies, nephew seeks money from uncle’s estate.
Rule: Giving up a lawful freedom to do as you wish is form of consideration. P had given up something in return for $5,000. Thus, K is enforceable, not just a mere promise of gift.
Questions: How did uncle benefit? In forbearance, benefit to promisor is not necessary, only as long as there is forbearance by promisee
Restatement (2nd) of Contracts § 81 (p. 58)
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 itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
Case #5: Baehr v. Penn-O-Texx (p. 59-61)
Facts: P leased gas station to Kemp who was indebted to D. D was helping Kemp with his finances after he became too indebted to them. D told P orally that he would get P’s rent from Kemp. All writings from D to P however denied knowledge of rent due and continued to contend that they (D) had not taken over Kemp’s business, but were merely helping P with finances. P threatens to file suit in December and finally does so on July of the next year.
Holding: Ct. holds that although forbearance of a suit made in “good faith” can be grounds for consideration, in this case, the reason P didn’t file immediately seems to be a matter of convenience rather
contract did not indicate that the plaintiff had to do anything, the court implied from the language of the contract that there was an implied promise that the plaintiff would try to sell Lady Duff’s designs, and therefore there was mutuality
Case #10: Weiner v. McGraw Hill (p. 74-76)
Facts: P, former employee, sued D, employer, for breach of an employment agreement. P alleged that he was discharged w/out sufficient cause or the rehabilitation requirement set forth in the personnel handbook which was discussed upon his hiring and that he rejected other employment offers in reliance on such policies. D contends that the said handbook was not sufficient K, and that this was an at-will employment, terminable by both parties at any point with prior notice.
Rule: D’s agreement in the handbook created a K and in fact did not create an employment-at-will D’s claim that the K was not valid because it didn’t create a mutual obligation fails. Mutuality simply means that both parties have an obligation, not that said obligation are of the same type/nature.
At-will Employment: If an employer made a promise, either expressed or implied that the employment should continue for a period of time that is either definite or capable of being determined, that employment is not terminable by him “at will”. This is true even though the employee has made no return promise and has retained the power and legal privilege of terminating the employment “at will.”
Mutuality in terms of reciprocity was not necessary when a promisor receives other valid consideration
Mutuality of obligation does not require equal sacrifice
Case #11: Mattei v. Hopper (p. 76-78)
Facts: An agreement by P to buy D’s shopping center. Clause in K states that purchase is conditional on P’s ability to secure satisfactory leases to fill the shopping center from vendors w/in 120 day period. D decides not to sell to P, but P says that the “satisfactory” leases were obtained in time allotted and he once again offers to buy the ppty.
Rule: Questing is whether K lacks mutuality or is illusory because D has the option of backing out based on determination of what is “satisfactory” lease. Ct. says that “reasonable” definition of “satisfactory” has to be used and thus the K is enforceable and not illusory. Mutuality argument fails due to other consideration being present (D was to rx $ and P did work to obtain
Leases as well as the fact that he was to rx shopping center)
Although contracts which make the duties performance of one or more of the parties conditional upon his satisfaction, such “satisfaction” clauses have been given effect
Where the question is one of judgment, the promisor’s determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on a contract
Further notes on promises with consideration
Pre-existing duty rule: If a party does or promises to do what he is already legally obligated to do, or if he forbears or promises to forbear from doing something which he is not legally entitled to do, he has not incurred a “detriment” for purposes of consideration. Thus, sufficient consideration is not present to enforce a return promise.
i. Pre-existing duty
Neither the performance of a duty nor the promise to render a performance already required by a pre-existing legal duty is a sufficient consideration for a return promise
RESTATEMENT (2ND) OF CONTRACTS § 79
Adequacy of Consideration (“Peppercorn=consideration” idea)
If the consideration is met, there is no additional requirements of equivalence in the