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Contracts
West Virginia University School of Law
Cardi, Vincent P.

Contracts Professor Cardi Fall 2009

PART ONE: FOUNDATIONS OF CONTRACT AND RELATED OBLIGATION
GENERAL THEORIES OF OBLIGATION
I. Obligation Arising From an Agreement with Consideration

Elements of a Contract
·         Mutual Assent
o   Mutual Assent to the same terms, usually manifested by offer and acceptance
o   Objective test to determine reasonable meaning of the contract
o   Subjective test to determine the parties’ intent (no K without subjective intent)
·         Consideration
o   Bargained for + detriment
§ consideration is a bargained for or return promise which is given by the promisee in exchange for the promisor’s promise
§ Even if the promisor’s promise induced performance or a return promise by the promisee, if such inducement was not sought by the promisor, there is no bargained exchange.
§ A legal detriment exists where the party
·         engages in an act that the party was not previously obligated – whether statutorily or contractually – to perform; or
·         refrains from exercising a legal right
·         Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person
·         Capacity
·         Legal Purpose
·         (Signed Writing) – sometimes required by statute, i.e. the statute of frauds

Elements of a Right to Recover
1. Contract
2. Breach
3. Damages

Buyer’s Judgment, Bargained for Consideration
·         The parting with a right, which one possesses, to another, at his request, is good consideration
·         When a party gets all the consideration he contracted for, he cannot say he did not get any consideration (allows freedom of contract without interference from courts)
·         Buyer’s judgment is his own best guide as to what he should give to obtain an item

Naked Promise, Assent on Consideration
·         Case: aunt gave nephew promissory note for being “a good boy.” Not enforceable.
·         Nothing is consideration that is not regarded as such by both parties
·         When one receives a naked promise and it is not fulfilled he is no worse off than he was before


Completed Gift v. Promise of a Gift
·         Case: If an auctioneer wants to attract people to an auction in order to derive a benefit there is sufficient consideration for the giving of a gift raffled as an attraction mechanism
·         Title to personal property of all kinds may be passed by gift, and, when so passed, it is as irrevocable as if passed by purchase; but in order to possess this quality the gift must be complete
·         An agreement for future delivery is nothing more than a promise to make a gift
·         Delivery may be actual, constructive, or symbolical depending on the nature of the thing given

Forbearance as Consideration
·         Case: Uncle promised nephew money for refraining from drinking and smoking. Enforceable.
·         Any damage, or suspension, or forbearance of a right is sufficient to sustain a promise
·         Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first
·         The language of the promisor is to be interpreted in the sense in which he had reason to suppose it was understood by the promisee

Restatement (Second) § 81: Consideration as a Motive or Inducing Cause
·         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
·         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
o   “Bargained For.” Consideration requires that a performance or return promise be “bargained for” in exchange for a promise; this means that the promisor must manifest an intention to induce the performance or return promise and to be induced by it, and that the promisee must manifest an intention to induce the making of the promise and to be induced by it. In most commercial bargains the consideration is the object of the promisor’s desire and that desire is a material motive or cause inducing the making of the promise that similarly induces the furnishing of the consideration.
o   Immateriality of motive or cause. This section makes explicit a limitation on the requirement that consideration be bargained for. Even in the typical commercial bargain, the promisor may have more than one motive, and the person furnishing the consideration need not inquire into the promisor’s motives. Unless both the parties know that the purported consideration is mere pretense, it is immaterial that the promisor’s desire for the consideration is incidental to other objectives and even that the other party knows this to be so.



Promise to Pay
Case: assignment of ability to receive rent from subleases in order to pay debt did not make third party liable for rent of leasee to landlord.
·         The mere assignment, as security for a debt, of the right to receive rents from a sublessee is not sufficient to amount to an assignment of the lease
·         Consideration must be given for a promise to be bargained for
·         The fact that a promise was given does not necessarily mean that a contract was made

Forbearance of Suit
·         Case: Owners claimed they would forebear suit on manufacturer for not replacing windows. Not enforceable, no consideration. Maybe promissory estoppel (reasonable reliance)
·         A contract must have consideration to be enforceable and in order for a contract to have valid consideration, the contract must be a bargained-for exchange in which there is a legal detriment to the promisee or a corresponding benefit to the promisor
·         Abandonment of a claim believed to be well founded is the surrender of a thing of value and is a sufficient consideration for a contract
·         The mere forbearance of a claim, without any promise either in express terms or by fair implication from all the circumstances does not form sufficient consideration
·         A warranty of merchantability is implied in two situations
o   when title to goods passes for a price, or
o   when a contract is made for the future passing of the title to goods for a price
·         Case: Si

the employee has begun or rendered some of the requested services or has given any other consideration
·         An agreement on the part of an employer not to dismiss an employee except for good an sufficient cause only and, if such cause was given, until the prescribed procedures to rehabilitate has failed, does not create an ineluctable employment at will
Good Faith Judgment
·         Case: buyer/developer’s purchase of seller’s home based on the acquisition of satisfactory leases. No illusory, not void, just required good faith judgment
·         A contract provision making the performance of the buyer subject to his/her judgment is not automatically invalid for lack of mutuality or illusoriness, but rather is a binding contract requiring the buyer to exercise good faith judgment
·         The standard of a reasonable person in using good faith judgment should apply in cases where one party retains a reservation of power as to whether they will act

The Preexisting Duty Doctrine
·         The very frequently stated rule is that neither the performance of duty nor the promise to render a performance already required by duty is sufficient consideration for a return promise

II. Obligation Arising From Justified Reliance – Promissory Estoppel

Elements of Promissory Estoppel (replace consideration)
·         Promisor makes a promise
·         Promisor should reasonable believe promise might induce promisee to change his position to substantial detriment
·         Promisee reasonably relies on promise and materially or substantially changes his position to his detriment
·         Promise is found to be binding if it would be unjust not to make the promisor pay

Limitations of Promissory Estoppel Damages by the Court
·         When damages are awarded in promissory estoppel, instead of specifically enforcing the promisor’s promise, they should be only such as in the opinion of the court are necessary to prevent injustice

Mere Gratuity
·         Minority: One offering a mere gratuity cannot be held liable for reliance

Reasonably Relied on Promise
·         Case: defendant encouraged plaintiffs to build a church and promised a gift of $100 if they did so
·         Reasonable reliance on a promise can only be compensated by enforcement o the promise

Promise to Sell
·         Case: Defendant gave plaintiff a portion of land on which plaintiff accepted and took possession of. Plaintiff erected a house, barn, and stable on property.
·         There is no distinction between a promise to give and a promise to sell