Contracts review: Enforceability + Consideration

Phew, with just 5 days until my Contracts final, i present you part 1 of my class outline ;)

Principals of enforceability:

·         Party-based

o   Will principle: Commitments are enforceable because the party has willed or freely chosen to be bound by the commitment.

§  Limitation: Inquiry into the subjective state of mind of the promisor.

o   Reliance principle: Based on the theory that we ought to be liable for harm caused by our verbal behavior.

§  Limitation: Determining whether a person has reasonably relied upon a promise depends on what most people would do.

o   Restitution principle: Seeks to prevent unjust enrichment of a promisor who seeks to go back on their word.

§  Limitation: Applies only to unjust enrichment, thus more narrow than previous two principles

·         Standard-based

o   Efficiency principle: Do the benefits exceed the cost? Can interpret contracts generally (law as a whole) or particularly (individually).

§  Limitation: Can observers ever have information about value-enhancing exchanges independent of the demonstrated preference of the market participants? If such information is available, why bother with contract law at all?

o   Fairness principle: Attempts to evaluate the substance of the transaction to see if it is fair.

§  Limitation: Presupposes a standard of value by which the substance of an agreement can be objectively measured.

·         Process-based

o   Bargain principle: To constitute consideration, a performance or return promise must be bargained for.

§  Advantage: Existence of a bargain is evidence that parties intended to be bound.

§  Limitation: Does nothing for promises to keep offers open, promises to release a debt, promises to modify an obligation, etc.

Consideration:

·         Distinguish from gratuitous promises: Gift promises, only effective upon actual delivery of the thing that was promised. They are revocable any time before delivery.

o   Johnson v. Otterbein University: $100 donation to university

·         Bargain theory: A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise, and is given by the promisee in exchange for that promise.

o   Kirksey v. Kirksey: Sister Antillico

o   Performance: May be an act other than a promise; forbearance; the creation, modification, or destruction of a legal relation.

o   Performance may be given to a third person. May be given by a third person

·         Detriment: The abandonment of a legal right, or refraining from exercising a legal right by one party. Must be induced by the other promise.

o   Hamer v. Sidway: Nephew gives up drinking

·         Past consideration: Past consideration cannot serve as the requirement for consideration; unless the parties had previously agreed that the performance was rendered with the understanding that compensation was made. What was done as a mere favor cannot be later turned into consideration.

o   Moore v. Elmer: Clairvoyant prediction man will die before 1900.

·         Moral consideration: For moral obligation to be sufficient consideration there must have been some pre-existing obligation, which has become inoperative by positive law. Is acceptable when a material benefit is received.

o   Permissible: Debts barred by statute of limitations, debts incurred by infants, and debts of bankrupts.

o   Mills v. Wyman: Son falls ill, father promises to pay for the son.

§  Kindness and service was not bargained for. Not done at dad’s request.

o   Webb v. McGowin: Man saves another man’s life. Man promises to pay to support

§  Permissible here, because a material benefit was received, and a subsequent express promise to pay was made.

·         Pre-existing duty: A common law doctrine that renders unenforceable a promise to perform a duty, which the promisor is already legally obligated to perform, for lack of consideration. One who has a legal duty to perform an obligation cannot recover additional funds for performing that duty.

o   Stilk v. Myrick: Captain of ship attempts to reform contract with sailors.

·         Contract modification: Modification of the contract after it has been properly formed. Permissible where unforeseen circumstances make performance of the contract unduly burdensome.

o   U.C.C. 2-209: “an agreement modifying a contract within this Article needs no consideration to be binding”

o   Brian Construction v. Brighenti: Construction contract to perform all work requisite, discovered excavation that needed to be done, neither foresaw.

·         Adequacy of Consideration: In order for a contract to be valid, valuable consideration must be exchanged between the parties.

o   Newman & Snell’s State Bank v. Hunter: No valuable consideration, worthless piece of paper of husband’s insolvent stock.