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Contracts Outline
"Naked sales" are excluded from the law of contracts Contacts law (according the Uniform Commercial Code) "does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction" UCC cover goods that are things which are movable at the time of identification to the contract for sale If there is a mix, some courts have held things partially under the UCC and partially under common law -- but this risks implying divisibility There is a general trend to view transactions heavily weighted towards goods under the UCC
if contract accomplished, then entitled to warranties and protections in following contracts. Warranties speak to merchantability, including implied warranties
Formation of Contracts – if there is doubt, it is bilateral Existence of Bilateral contracts require mutuality and consideration Existence of contract (or how to get into contract land) Void contracts Illegal subject matter -- violates public policy Type of illegal contracts Aletory (gambling) Based on events that have no connection to the parties Argument is that there needs to an economic connection, or it needs to serve an economic purpose Something is not fortuitous if both sides believes that the result is not fortuitous.
Usury Unfair restraint of trade 3rd-party tort indemnification unlicensed parties if the lack of license is due to a technical mistake, a court make grant recovery
crimes indirection connection to the crimes does not make the contract illegal
if one party is unaware of the illegality, the innocent party can recover on the contract, if they can show that they were "ready, willing and able" to fulfil the contract. If one party knows that the other is entering the contract for illegal purposes, he is not barred from recovering for breach, unless the intended purpose involves serious moral turpitude or he takes action to further the illegal purpose of the other. If there is ambiguity, the legal meaning will be preferred when a court interprets the contract A contract can be reformed to make it legal
Sham contracts purely accounting purposes are not real
Contracts implied in fact are real (including §2-207 knock out rule contracts) Little difference between a contract implied in fact, and an express contract In one implied in fact is any agreement that people entered into without using words1)a)i)(1)(e)(ii)3 below
Ian McNeil speak of "relational contracts" which people enter into every day whose terms are too numerous to codify
Express contracts -- requiring offer and acceptance Making offer (offers are based on objective standard) -- must create immediate power of acceptance (offers effective on receipt) Theories of communication vis-à-vis offers Old theory: meeting of the wills New theory: All one can do is look at what a person does or says risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission the common carrier or means of transmission can be sued
General information about pricing does not constitute an offer which binds the offeror Except for biding offers to specific people (Uniform Commercial Code’s Firm merchants offer) (must include PARTIES, SUBJECT MATTER, Time of Performance, Price) Manifestation of intention is intended to be an offer – it cannot be construed as a contract, unless the terms are reasonably certain. Terms of an offer are reasonably certain, if they provide a basis for a breach – and an appropriate remedy
Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance. Offers must be "present manifestations of intent to contract with recipient" Jokes do not count
time non-option offers open Mailbox rule of offers of Adams v. Lindsell Offers effective on receipt (European approach: communications are effective upon receipt, and every offer is an option) except in the absence of any contrary intention of the parties Under normal circumstances, an offer is good from when it would be received – even if due to a defect in transmission Revocations of revocable offers Majority: effective on receipt Minority: effective on dispatch Note: mailbox rule does not apply to option contracts
offers expire if rejected anything after, is a counteroffer -- except under the UCC acceptances with immaterial differences in terms do not constitute counteroffers alterations are material if consent cannot be presumed
written offers expire when they are closed by virtue of what is stated offer expires in a reasonable time (depending on the good)
UCC: Firm merchants (in the subject matter) offer where they put the offer in writing and has a time in it of irrevocability. Needs offer (writing), words of firmness, and a signature – MAKE IT BINDING LIKE AN OPTION FOR UP TO 3 MONTHS -- only the offeror need be a merchant by law Incapacity of the offeror (death, insanity, etc.) note: if it is in doubt, it is bilateral – and contracts survive death (though offers do not) destruction of the subject matter product become illegal
oral offers: offers are open only during conversation in most cases -- an offer made in the course of a conversation is lapses when the conversation is terminated offer would remain open if there were an indication that such were intended by the offeror by act of parties
revocation: absent an option agreement, offeror is "master of an agreement’ and can revoke an offer Indirect revocation doctrine : Offer must have taken a direct act inconsistent with the proposed conduct, Offeree must have heard about the revocation from a reliable source, If offer made to public must revoke by same or similar means
Option offers Options are distinct contracts Note: options only have to be in writing Option is irrevocable if according to the Restatements on Options (§87):
In writing and signed by Offeree, Recites a purported consideration for the making of the offer Proposes an exchange on fair terms in a reasonable amount of time or is irrevocable by statutes
Mailbox rule does not apply to acceptances on explicit option contracts
Promissory estoppel and Reliance on offers : Once someone starts to perform, they are relying on the promise – and option contract is created Old view is that the offer’s could not give notice of beginning of performance and wouldn’t bind Original trend was that Promissory estoppel could not apply to offers
Majority view: if it were reasonably foreseeable to the offerer that the Offeree would change position in detrimental reliance upon the offer, there is sufficient ground to rend the offer irrevocable Restatement view: expectation interests should not be fulfilled – but ‘to the extent necessary to prevent injustice" should be the damages Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration Promissory estoppel vis-à-vis offers: An option contract exists if the offer expects people to perform, and they do, and it is substantial. Hence, Promissory estoppel. An offer which the offerer should reasonable expect to induce action or forbearance of a substantial character on the part of the Offeree before acceptance, and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice Red Owl View: If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.
Some offers that one relies upon become binding both implied in law, and by promissory estoppel ways Note: this will protect the winning sub from being bid-shopped as the contractor is bound.
Court can imply terms of offer (implied terms) into the contract E.g. – if ambiguous can say that a length of time starts at receipt ((in equity)
Acceptance (note: acceptances are on the subjective standard) -- effective on dispatch Acceptances must be of the offer -- not mirror image offers Acceptance of offers under common law An offer says (or implies) how one can accept it If no specific means is requested than the Offeree can use a means that is reasonable under all circumstances Words ‘"should be accepted" leave the door open to acceptance by other means (such as performance)
Common law only: Fact that one or more terms of a offer are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance. Mailbox rule of acceptance of Adams v. Lindsell Acceptances are effective on dispatch note: exercise of options are effective upon receipt letter must be property address and by appropriate conveyance even if an acceptance is mis-addressed, it will nonetheless be treated as effective on dispatch if it arrived within the time a properly addressed letter would have arrived if the acceptance is sent by an improper method, but gets there on time, it is still good if the letter is lost, the acceptance is still effective an countering acceptance is effective it arrives first the offeror loses power to revoke after a property dispatched acceptance If there is an acceptance, the acceptance is effective unless a rejection gets there first and offeror detrimentally relies on the rejection European approach: communications are effective upon receipt, and every offer is an option
Rejection -- effective on receipt effective on receipt common law: a countering rejection is effective it arrives first if there is a later acceptance, it is effective if it arrives first
rejection becomes more effective due to promissory estoppel restatements: rejection or counteroffer by mail does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter of acceptance started after the sending of an otherwise effective rejection is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer
European approach: communications are effective upon receipt, and every offer is an option
Deviant acceptances counteroffers are never acceptances (and hence, no contract) under the common law "mere inquiries" are not counteroffers under common law some courts (and the Uniform Commercial Code) find that additions of other terms constitute acceptances plus inquiries under common law, demanding an acknowledgement constituted a counteroffer Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.
Background to acceptance by performance (note, in some cases where the offers says "should" performance may be an alternative means of assent.) since the Offeree can stop performance at any time, he is not entitled to any protection when performance begins a bilateral contract is formed when tender begins a option contract is formed tender is defined as a manifest present ability to perform
Common law Common law "last shot rule of common-law:" last document on the table before performance is the document which constitutes the contract Some courts are looking to restatements which seem to apply a Uniform Commercial Code-style view of deviant acceptances (minority)
Uniform Commercial Code §2-207 Telephone conversations: When one has phone conversation, and reaches a bargain, it acts as a sort of "mandatory acceptance offer" that must be papered (email, fax, etc.) (to satisfy the Statute of Frauds) – the confirm acts as an acceptance, which is governed under Uniform Commercial Code §2-207 (if there are deviant or additional terms) If there is no delivery, it is a counteroffer Acceptances that are definite and seasonable but slightly deviant, and are not limited by "limits to the terms of the offer" and notification of objection has not been given a in a reasonable time become part of the contract -- If one party is a non-merchant, and there are immaterial deviations, than the offerora's terms apply If both parties are merchants, and there are immaterial deviations than the offeree's terms apply
If there are material deviations, If the parties performed, Terms of implied contract are based on knock-out rule Some courts say that gap-fillers should fill in the knocked-out terms Some courts say that no terms should be in the knocked out terms
Ways that an acceptance becomes voidable (must be plead) duty-to-read: makes the offeror assume that the signatory has accepted it. exceptions to duty to read Adhesion Contract and unconscionable contracts are voidable or terms will make it voidable if it violates public policy (clause is void as a matter of law) if: on the theory that there was not "true assent to a particular term" In contracts of adhesion, the Consumer agrees to all reasonable terms and can avoid unreasonable terms Exclusion of warranties: Reasonable person terms: bizarre or oppressive it "eviscerates the non-standard terms explicitly agreed to, or eliminates the dominant purpose of the transaction" Disclaiming a warranty places the risk of mistake either between the parties, or on the other party Note: under some logic, warranties are implied by the price -- as a certain price implies a certain subject matter. Can claim that by a given price there is an implied warranty. Policy issues about the courts redefining what a given product is Exculpatory contracts cannot exclude tort liability for everything—must be very specific in nature, and not completely exculpate for all negligence Some courts have held exculpatory contracts (placing "risk of negligence" on another party to be valid, if there is no policy reason why it should not be -- and it isn't a contract adhesion inconspicuous risk shifters will generally not be honored by the court. Disclaimers of warranties do not have to be in writing, but if they are, they must be conspicuous Disclaiming warranties under the UCC must be conspicuous and in writing. Contracts to indemnify can be valid if they are not of adhesion and they are bargained for If there was "extra coverage for extra price" clause courts give greater weight to enforcing it, and Some courts refuse to enforce on the grounds that it is not reasonable Economic losses that arise out of commercial transaction, except those involving personal injury or damage to there property are not recoverable, under the tort theories of negligence or strict product liability. Statutory limits in NY where liability cannot be limited: Elevator negligence and Refrigerator maintenance Courts do not like awarding tort damages, because of the conflict with warranties. But they will award tort damages under products liability doctrines. To allow tort liability would emasculate the warranty provisions parts of the Uniform Commercial Code. Limiting the application of strict products liability to consumers action or actions involving personal injury will allow the Uniform Commercial Code to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers. Plain language requirement: some jurisdictions deem an unintelligible contract unenforceable, some rescind it, plus give nominal punitive damages if the writer of the contract knows that that person would not have normally have assented to a term, than such term is unenforceable
form contracts: if an industry standard develops, whereby products are known by certain warranties and declaimers, it is assumed that the signer does know of these declaimers Where party to an agreement signs or otherwise manifests assent to a writing, and has reason to believe that like writing are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing Restatements presume, that wherever reasonable, parties are treated alike if they are similarly situated, without regard to their knowledge or understanding of the standard terms of the writing Form contracts might just be the creation of new products, which include or omit warranties
no "opportunity to read": in order to have a duty to read, must be aware that a contractual event is taking place If someone signs something that they are not aware is a contract, they may not be responsible for it (see contracts of adhesion) A factor to be considered in taking into account the "reasonable man approach to an contract of adhesion" is whether the party actually had an opportunity to read the contract Alternative position is that there is no duty to tell people that contractual stuff is happening Renewals become a complication as a reasonable person might expect the terms to stay the same
Absent meaningful assent, there are alternative forms of legal relationships that can happen by means of implied contracts: e.g. Bailments: The transfer of possession of something (by the bailor) to another person (called the bailee) for some temporary purpos Trusts: Property given by a person called the donor or settlor, to a trustee, for the benefit of another person (the beneficiary or donee). The trustee manages and administers the property, actual ownership is shared between the trustee and the beneficiary and all the profits go to the beneficiary.
Even with a meaningful assent, the offer and acceptance can be voidable due to unconscionability can also be handled at law, equity, but not with a jury, but there must be other elements than just superior bargaining power Substantive Unconscionability (oppression) is defined as an agreement that no sane person would enter and no honest person would propose Roman law had a doctrine of leseo enormous, American law does not -- Uniform Commercial Code §2-302 (Unconscionability) should always be read with §1-203 (good faith) UCC (has entered the general law of contracts): the court, as a matter of law can find the contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract, without the unconscionable clause, or it may so limit the application of any unconscionable clause to avoid an unconscionable result Uniform consumer sales practices act sort of combines the features of the UCC: consumer ignorance, high price consumer couldn’t get a benefit no reasonable probability of payment of the obligation transaction he induced the consumer to enter was excessively one-sided made a misleading statement of opinion on which the consumer relied
Parities should be able to present the court with evidence as to its commercial setting as to why it was okay Termination "for any reason" might not mean unconscionability (seems procedural, but could evaluate the value of this option) -- but it could render the contract illusory if both sides can terminate for any reason Nominal liquidated damages clauses (Courts differ: Some would view a nominal Liquidated Damages Clause as a "reasonable estimate of damages and might enforce the Liquidated Damages Clause as a reasonable estimate of damages to the promisee ,
Option contracts Unconscionability is judged only in terms of the underlyer of an option contract when it was entered
Procedural Unconscionability (surprise) is defined as (e.g. parties do not speak English) Contract can be violable when "due to a prodigious amount o bargaining power on behalf of the strong party, which is used to the stronger party's advantage and is unknown to the lesser party, the contract provision, or the contact as a whole, if the provision is not separate should not be enforceable on the grounds that the provision is contract to public policy. The party seeking to enforce such a contract has the burden of showing that the provision were explained to the other party and came to his knowledge and there was a real and voluntary meeting of the minds not merely an objective meeting.
When victim is under domination of other party Fiduciary responsibility: when the victim is justified in assuming that the other party will not jeopardize the victim's welfare Improper persuasion used: When one party seriously impaired the free exercise of judgment by the victim Examples of common features are unfair exchange, Unavailability of independent advice given to the victim before assenting to contract, Lack of time for reflection by the victim before assenting to the agreement, High degree of susceptibility to suggestion Might be unconscionable, if one party is aware that the other didn't understand it -- even if explained. It must be show that "the provisions were explained to the other party and came to a real and voluntary meeting of the minds and not just an objective meeting Remedy is restitution
Note: Procedural Unconscionability does not require that the contract be unfair to the weaker party
Fraud (duress) in the acceptance or modification or consideration Fraud and misrepresentation: Can avoid contract because the deal was obtained through fraud in the inducement – one wants to unwind the contract. (see remedies) Times when witholding information constitutes fraud rendering the contract voidable in general, it is caveat emptor some statutes relate to disclosure warranties of merchantability are implied -- for instance by price, or by appearance -- and that a given price assumes that the offeree will know something about it positive action to conceal constitutes fraud and makes a contract voidable a supervening action made something true -- if one knows the other is relying on it -- of course, under the UCC warranties cover this issue surretyship and insurance have broad duties of disclosure fiduciary relationships have broad duties of disclosure If there is a fiduciary relationship between the parties, courts are more likely to avoid a qualitative mistake in judgment as such a transaction must be fair (and fiduciaries have a relationship to act as if they were the person they are representing) there is probably an objective test as to whether one exercised a fiduciary duty -- did he act as another reasonable person did, evaluating the purchase as if it was his own
Duress -a contract is voidable on grounds of duress is forced to agree to it by means of a wrongful threat (in extreme cases of needful goods) Example of needful goods often included things such as violence to there person, withholding utilities Duress exists only when one deprives another of free will -- one can sue in equity for specific performance Withholding goods that belong to someone could be considered a crime, If the goods already belong to that party If the wrongful threat precluded the exercise of free will In common law was that the will could be overborne only by the threat of physical force
The only force that qualifies to get you out of the contract is the threat of physical force And ideally the commission of a crime The threat of physical force, is the crime of "ressault" (?) later this expands to being threaten with a tort -- torts can include interference with other business relationships (ie money due from other parties) defamation is not criminally unlawful, but it is civilly unlawful threatens with a breach -- usually doesn't count as duress since most goods can be obtained elsewhere -- goods that are not are "needful goods:" obsolete doctrine of "duress of goods" -- have you are stuff, but I won’t give it back Courts said that duress of goods might qualify for duress -- in the case of needful goods The existence of economic duress or business compulsion is demonstrated by proof that immediate possession of needful goods is threatened Note: that outside Delaware and states with quick procedures for settling procedures, goods quickly become needful
Mistake can warrant voiding or modifying contracts Miscommunication: we look at what a reasonable person would have understood and that the other party would have understood him to being doing, we look at the state of mind of the victim because of they delivered (the "shoes analysis" – as in what would the czar of the universe think.) Court will let someone testify about their subjective state of mind, so long as we make clear to the jury that we do not care about it -- such testimony may explain certain behavior, which caused the other party to think that there was a contract (if the Plaintiff was being reasonable in assuming what he assumed) risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission
the common carrier or means of transmission can be sued
Mutual Mistake: in the case of mutual mistake, there is no meeting of the minds, and no contract -- remedy is rescission (can be dealt with as an implied warranty) Misunderstanding Doctrine If one party known that there are different understandings of material terms, but doesn’t say so – a contract formed on the basis of what the "uninformed party" thought the contract was about -- restitution can be remedy for this -- One can argue that the mistake was in the subject matter being sold Some suggest that it is better for a court to allocate the risk of loss to the party that can take it best -- the offeree can more cheaply rectify the error, for instance in a bidding situation Misunderstanding as to subject matter: if the parties misunderstood what type of product was for sale, it is a mutual mistake -- if they thought they were getting something different it is a mutual mistake -- not just misunderstanding the value - risk of loss due to mistake can be contractually assumed by a party, especially when most contracts are made with some uncertainty Remedy for mutual mistake
the parties do not have to go through with the contract at all -- and hence no contract.
Unilateral mistake A party is not privileged to "snap-up" an offer which he knows to be the product of a mistake. Note: typos of quantity, under the UCC are enforceable (as opposed to the real amount). If one of the parties is completely incompetent vis-à-vis the subject matter, some courts have ruled that ignorance of market practice is a defense typos of quantity, under the Uniform Commercial Code are enforceable (as opposed to the real amount) Mistakes must be handled a reasonable time after discovery Mistaken party must show either that enforcement would be unconscionable or the non-mistaken party had either reason to know of the mistake or caused the mistake Remedies for unilateral mistake
Equity will not be used if one party entered to contract under a material mistake, and the enforcement would be harsh Reformation won't be granted if a contract, based on a mistake is entered into, and performed Right to correct mistakes dependent on the other party not relying upon it
Contracts implied in law and Constructive Conditions are not real, they are just device for doing justice 7)e)iii)(11) below Contract terms implied in law Judges can imply terms and conditions in a contract that are not stated Generally, conditions implied in law only have to be substantially performed Under the Uniform Commercial Code terms are implied Uniform Commercial Code §2-309 and 2-306 function as gap-fillers for ambiguous terms (reasonable time, and time of delivery). -- Note: gap fillers used only when physically necessary Common law is more skeptical: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy If delivery point is not specified, assumed to be sellers.
These are quasi-contracts such as "give me my money back" This is another name for what we have been calling restitution when one person has gotten a benefit (we do not care from where) that in all justice should have been given to another – a quasi-contract will give it to the right person this is broader than restitution – restitution is usually for restitution from a specific someone example: quantum meruit or quantum walabat for services that were done and agreed to without constructing a contract or deciding on a price
items implied at law into a contract can be discharged by frustration
Mutuality: A bilateral contract is enforceable or binding, if at any point in time during its tenure, it is binding. Is defined as "something that distinguishes one in terms of rights or duties, from the rest of the universe." Statute of Frauds requirements for enforceability (unless acted upon) Marriage, deal cannot possibly be performed within a year, Land, Executor's Promises, and Goods at or over $500 or contracts for SuretyShip A lease that can be performed within a year does not have to be in writing It is for intangibles over $5000
Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the statute of frauds unless written notice of objection to its contents is given within 10 days after it is received. Note: receipt and acceptance (with no writing) constitute taking the contract outside of the statute of frauds. If there is full performance, the statute is waived, or if the seller pays all or part of the purchase price and performs some act explainable only by the contract's existence Hence, specially manufactured goods take the transaction outside the statute of frauds (if they begin to produce)
This is a way out of promissory estoppel
The statute of frauds can be satisfied by writing that were never effective, or intended to be as an "integration of the agreement" -- i.e. signed memorandum, a will, a written and signed offer. The memorandum need only be signed by the party to be charged -- and can be supplied at any time prior to the action brought upon the contract (in some states prior to the trial.) Statute of Frauds is based on a memorandum by the party to be charged -- Parole evidence rule doesn’t require this
Statute of frauds must be plead as a defense, if not it is waived. If one part of the agreement is covered under the statute of frauds, and is rendered unenforceable, in most states the entire agreement is rendered unenforceable Some courts have held that non-compliance with the statute of frauds renders a contract VOID Exceptions to the statue of frauds (where things are binding), but not in writing Under the UCC §2-201, part performance takes the issue away from the statute of frauds Delivery Admission of the contract
There must be a state of the world, in which the parties are bound. A requirement simply giving "notice" to cancel (without a number of days notice) does not bind someone Something is enforceable if there is less than 100% of the time when either side can cancel Something is enforceable if there is some potential state of the world in which the parties would be bound (even if one party control this state) Equity might be the only way out: If one cancels in a contract that can be canceled at all times, they might have to resort to quantum meruit or quantum walabat In some cases the relationship between the two may preclude quantum meruit as both parties received the benefit from the work, and the person doing the work would have done it anyway
A contract is not binding, if it a condition precedent to the contract does not place any obligation on either of the parties e.g. no mutuality of sale of store depends on seller renegotiating lease Pre-existing legal duties are generally not enforceable Agreements to agree are not enforceable Uniform Commercial Code: More things left open, the less the parties wanted be bound Common law: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy
Letters of intent An agreement that is "subject to" a later agreement, is evidence of an intent not to be bound Exception: "lets put in writing" constitutes a contract TO make a writing. Hence, when parties to an oral contract contemplate a subsequent reducing of it to a writing as a matter of convenience, and prudence and not as a condition precedent, it is binding on them though their intent to formally express the agreement in writing was never carried out."
Red Owl View: If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.
Things that look illusory, but are not Input Contracts or Output contracts are not illusory -- and must be upheld, as all other contracts (even if they become losing contracts) But amounts demanded have to have in parity with either estimates or prior demands
best efforts clause are not illusory "best efforts to find a mortgage" is not illusory (exception) If one of these pre-contract deals falls through, there needs to be a release saying that the first contract is at an end Uniform Commercial Code implies good faith
Note: arbitrary cancellation that are according to the contract are not illusory
A contract is still binding, if the condition subsequent or precedent is more or less discretionary – e.g. "contract for satisfaction" are binding. Satisfaction is balanced by requirement that the test be "reasonable" -- otherwise there is a bad faith clause "Reasonable person standard" is used for commerical goods, and good faith is assumed when aethetics are involved
Parties may enter into a contract, which leave a term to be decided later (as good faith is implied). I.e. Uniform Commercial Code if the price was to be determined by agreement, the count could still fill in the reasonable price Good faith implies faithfulness to a common goal. Bad faith involves people violating common standards of decency Types of bad faith recognized: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specify terms, and interference with or failure to cooperate with the other party's performance
Consideration required, although it doesn’t need to be the sole inducement but it must play some role or other. If there is not consideration of some sort, the contract become illusory. Theories of consideration Benefit/Determent theory -- Contract is supported by consideration if Promisee either acts or promises to act in exchange for the promisor’s promise The promisee’s act or promised act is either a legal determent to the promisee or a legal benefit to the promisor "Consideration has to alter the rights and obligations and the wealth of the person giving it" must be bargained for -- so something that someone would have done anyway, usually would not be considered consideration
note: A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.
Bargain theory (restatements) Performance, or return promise must be bargained for Consideration of sham or petty amounts suspect A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it. In practice, nominal consideration doesn’t have to be exchanged
Expenses incurred in accepting a gift do not constitute consideration It must be sought by the promisor in exchange for his or her promise and It also must be given by the promisee in exchange for that promise A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.
The benefit/detriment theory and the Bargain theory might conflict if there was determinants to one side, to the benefit of another side, based on something that was not given in exchange for performance Some courts have held that both are true in that there needs to be a benefit and detriment that was bargained for rather than simply given "in exchange" as per the earlier Benefit/Determinant theory
Necessary characteristics of consideration Consideration of sham nominal amounts are suspect A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it.
Courts generally won’t judge the adequacy of consideration, but they will judge the whether it is indeed nominal or unconscionable of consideration Speculation and investment do not constitute nominal contracts! Gross overcharging will not be unconscionable unless some other factor of fraud are present Exception: In equity: courts require that specific performance for real estate have fair consideration (and will judge fairness of consideration)
Consideration can, obviously be the forbearance of a right (something that sets one apart from everyone else in the world)--- Forbearance (not to sue) based on a claim that later turns out to be invalid is considered valid consideration if Claim or defense is in doubtful because of uncertainties as to the facts of law The forbearing or surrounding party believes that the claim or defense may be fairly determined to be invalid Note: consideration that later that is illegal in the first place does not constitute valid consideration The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration.
Consideration can be a third party determining when the contract is fulfilled -- check this! Consideration must be exchanged after the contract is formed – promises grounded in the past are not supported by consideration. The problem with past consideration is that it breaches the problem of simultaneity When all or part of the performances to be exchanged under an exchange of promses, they are due simultaneously, unless otherwise noted When all or part of the performances are to be exchanged under an exchage of promises are due simultaneously, it is a condition of each party's duties to render such performance tht the other party either render or, with manifested present abuility to do so, offer performance of his part of the simultaneous exchange.
Rare Exception: accounted to some courts, some contracts grounded on "perfect moral obligation" are binding Actions against the estate of a promisor (of a gift) can be biding if all of these criteria are satisfied Promisor received a material benefit during his lifetime which motivated the subsequent promise Promisor thereafter commenced performance according to the terms of his promise Promisor died without ever evidencing an intention to repudiate the promise There were no superior moral claimants to the benefits of his estate
Restatement view Old view Restatement doesn’t distinguish between benefits requested by the promisor and those that aren’t Nothing is binding if it is a gift Nothing is enforceable if its value is disproportionate to its benefit (sic) Receipt of an unrequested material benefit, followed by the receiver’s promise to pay for the benefit, is enforceable without consider, but only to the extent necessary to the prevent injustice Modern Restatement’s view is that some gratuitous promises are enforceable if: §90 (note, only two states have adopted §90.2) The promissor made a promise which, although gratuitous was the time of promise that might foreseeable induce the promisee to rely or to take some action based thereon There promisee did, in fact rely thereon, and his reliance was reasonable under the circumstances As a result of such reliance the promisee has suffered a substantial economic determinant Injustice can be avoided only by enforcing the promise
Summary There is no longer a requirement that the action or forbearance by the promisee be of a "definite and substantial character" Faced with a patter of detrimental reliance a court is free to limit the remedy "as justice requires."
Permanent Employment contracts must have separate consideration from employee to employer -- otherwise they are employment at will
Employees at will’s acceptance of procedures in the handbook can be indicated by continuing to work This fudges the line between bilateral executory and unilateral Exception: employee handbooks (no matter what disclaimers) can be grounds for Promissory estoppel if people rely on them and do not do things Employment-at-will contracts can generally be terminated without cause because there is no consideration:
exception employees-at-will cannot be terminated for doing things they were legally required to do (or whistle-blowers) especially if they are being asked to commit illegal activities Exception: a loony court in Illinois held that someone with an employment at will contract could be terminated for filing an insurance claim because the relationship between the insurance company at the employer is "one of private and individual grievance rather than one affecting our society"
Equity: Meritorious Consideration -- Equity courts are more fussy about consideration – being skeptical of things that look like gifts Seal has no bearing in equity Exception is a trust Another exception is where donor attempts to give gift, but due to impossibility fails, and he dies in ignorance of this)
Seal can be substituted for consideration Contracts made under seal are enforceable It is evidence that there is an agreement, and that they took the agreement seriously It performs a cautionary and channeling function
Some version of the seal means that ½ of all states have abolished the seal and replaced it with General Obligation law In the General Obligation law, there is a statue which says that promisees in writing are enforceable – all one has to do is put it in writing – a promise to make a gift is enforceable, if the promisor puts it in writing
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