PART ONE: FOUNDATIONS OF CONTRACT AND RELATED OBLIGATION
GENERAL THEORIES OF OBLIGATION
1. OBLIGATION ARISING FROM AN AGREEMENT WITH CONSIDERATION (and any required writing)
Must have:
1. Contract
(1) Mutual assent on sufficient terms
(2) Consideration
1. Consideration for a promise is
a. an act other than a promise, or
b. a forbearance, or
c. the creation, modification, or destruction of a legal relation, or
d. a return promise
2. Bargained for and given in exchange for the promise
3. Consideration may be given to the promisor or some other person. It may be given by the promisee or some other person.
(3) Legal purpose
(4) Capacity
(5) [Statute of Frauds Writing]
2. Breach
3. Damages
Buyer’s Judgment, Bargained for Consideration (Hardesty v. Smith pg. 45)
· 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
Unilateral Contract
· One in which only one person has an obligation
· Hypo: Before Webb mows Cardi’s lawn, neither Webb nor Cardi had an obligation
Naked Promise, Assent on Consideration (Dougherty v. Salt pg. 47)
· Case: Aunt gave nephew promissory note for being “a good boy.” Not enforceable because it was not bargained for
· Nothing is consideration that is not regarded as such by both parties
· “When one receives a naked promise and such promise is not kept, he is no worse off than he was before the promise was made. He gave nothing for it, loses nothing by it, and upon its breach he suffers no recoverable damage.” pg. 48
Completed Gift v. Promise of a Gift (Maughs v. Porter pg. 54)
· Case: The attendance of the plaintiff at the sale was sufficient consideration to support the promise of a gift (automobile)
· 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
Forbearance as Consideration (Hamer v. Sidway pg. 56)
· Case: Uncle promised nephew money for refraining from drinking and smoking. Enforceable—a waiver of any legal right at the request of another party is sufficient consideration
· 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) of Contracts §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 prevent the performance or return promise from being consideration for the promise
a. Bargained for 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.
Promise to Pay (Baehr v. Penn-O-Tex Oil Corp. pg 59)
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.
· Consideration requires that a contractual promise be bargained for
· The fact that a promise was given does not necessarily mean that a contract was made because not every promise is legally enforceable
Forbearance of Suit (Neuhoff v. Martin Lumber and Cedar Co., Springstead v. Nees pg 63)
· Case: Owners claimed they would forebear suit on manufacturer for not replacing windows. Not enforceable because there was no consideration since the alleged promise to replace the windows was not given to induce the other party to relinquish a claim.
· An agreement to forbear to sue may be implied when the circumstances are such as to lead to the reasonable conclusion that the thing of value was given to induce the other party to forbear.
· 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
· Case: Siblings claimed they would not bring suit for a share in a property they had no stake in. Not enforceable—no consideration because a promise to forbear doesn’t mean anything when they weren’t giving up anything because they didn’t have legal right to anything
· A claim of forb
n for the promise made to him
· If any employer makes a promise, either express 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” after 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 (Mattei v. Hopper pg 75)
· Case: buyer/developer’s purchase of seller’s home based on the acquisition of satisfactory leases. Contract was not illusory nor lacking in mutuality of obligation because the parties inserted a provision in their contract making plaintiff’s performance dependent on his satisfaction with the leases to be obtained by him.
· A contract where promises are exchanged as consideration, the promises must be mutual in obligation—if one party is free to withdraw or to perform at his own unrestricted pleasure, the promise is illusory because there is no consideration
· 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
Preexisting Duty Doctrine pg 77
· Neither the performance of duty nor the promise to render a performance already required by a duty is sufficient consideration for a return promise
· Hypo: Cardi agrees to pay Brown $10,000 to paint his barn. Brown asked for an additional $2,000 and Cardi says ok. Cardi paid $10,000 and Brown said he was still owed $2,000. This is unenforceable because Cardi did not get anything extra—he still got what he contracted for—his barn painted.
