Contracts Flashcards
(216 cards)
1
Q
A ____ is a legally binding agreement between two or more parties who agree to perform or to refrain from performing some act now or in the future.
A
Contract
2
Q
When do contract disputes generally arise?
A
When there is a promise of future performance.
3
Q
The party making the promise is subject to the _______ if the promise is not fulfilled and may be required to _______ for failing to perform the contractual promise.
A
- Sanctions of a court
- Pay damages
4
Q
True or False: In limited circumstances, a party may be required to perform the promised act (specific performance)
A
True
5
Q
List the sources of contract law.
A
(1) Common Law
(2) Statutory/ Code Law
(3) Treaty Law
(4) Administrative Regulations
6
Q
What is common law?
A
Law developed by judges in response to a particular dispute.
7
Q
Common law governs contracts relating to what?
A
Services, real estate, and insurance.
8
Q
A body of statutory law drafted by the American Law Institute (ALI) and adopted by state legislatures to govern certain types of contracts.
A
Statutory Law (the Uniform Commercial Code (UCC)
9
Q
Statutory law or the UCC governs contracts for what?
A
The sale and lease of goods. (i.e. things that are moveable)
10
Q
When may common law still apply to contracts for the sale of goods?
A
Where there are no UCC rules to govern an issue.
11
Q
This is an international treaty adopted by the United States, and is federal law, which governs any contracts between a United States party, and a party in another country for the sale of goods.
A
The United Nations Convention on Contracts for the International Sale of Goods (CISG)
12
Q
Initially, contract law emerged from _____.
A
Common law
(decisions made by courts, not statutes passed by the legislatures.)
13
Q
Under the doctrine of _____, courts are bound to respect earlier decisions of similar cases.
A
stare decisis
(precedent)
New situations allow courts to refine or create exceptions to the rules applied in earlier cases.
14
Q
In a common law system, like the U.S, the cases are ____.
A
The law
15
Q
True or False:
Recently, legislatures in all 50 states have enacted laws applicable to contracts.
A
True
16
Q
List the different theories of contract law.
A
(1) Formalists (formalism)
(2) Realists (realism)
(3) Economic Theory
(4) Relational Theory (proponent: Judge Posner)
(5) Critical Legal Studies
17
Q
Cases must be decided according to a set of universal rules. Describe which theory of contract supra (above) states.
A
Formalists
18
Q
Legal rules should be decided on the basis of social interests.
A
Realists
19
Q
The “Chicago School - Contracts must be enforced to promote efficiency unless evidence of misconduct such as “fraud” or “duress.”
A
Economic Theory
20
Q
Law must become more sensitive to the values and goals of racial minorities and women and not only to serve the interests of white males at the expense of these groups.
A
Critical Legal Studies
(critical race and feminists theory)
21
Q
List the elements/requirements of a valid contract.
A
(1) Agreement
- Offer (one party must offer to enter into a legal agreement)
- Acceptance (another must accept the terms of the offer)
(2) Consideration (legal detriment)
(3) Contractual capacity
- Both parties entering into the contract must be legally competent
- Age,
- Mental competency
(4) Legality
- The goal of the agreement must be legal and not against public policy
22
Q
True or False:
Each state may regulate contracts in any way a particular state deems proper.
A
True
“Contract law is a creature of state law.”
23
Q
True or False:
Generally, states approach contract law in similar ways with subtle differences.
A
True
24
Q
True or False:
All matters of contract law are state regulated.
A
FALSE!
Some matters of contract law are federally regulated
25
True or False:
Government contracts is an entirely separate field of study.
True
26
Federal law regulates what?
- The sale of securities,
- Contracts with labor unions
- Certain maritime contracts.
27
A comprehensive body of statutes governing common business transactions, such as sales of goods, checks, and security interests (creditor's rights to take property if a debt is not paid)
Uniform Commercial Code (UCC)
28
Why are uniform rules that apply nationwide needed?
Because businesses sell across state lines.
29
What does Article 2 of the UCC govern?
Sales of goods.
30
What does Article 2 of the UCC not apply to?
Contracts for services, real estate, or intangibles (goods that have no physical substance such as intellectual property)
31
Which states have adopted the UCC to govern the sale of goods?
Every state, except Louisiana
32
What are "Goods?"
Things moveable at the time of identification to the contract.
33
Give some examples of Goods
- Goods can be really big (construction cranes, tractors)
- Goods can be intended for permanent installation (a machine to be installed in a factory is a good, a chandelier is a good)
- Goods can be attached to the land, if they will be severed from the land for delivery (crops, timber, oil, gas, minerals, ore)
- Good includes the unborn young of animals, even though the unborn animal cannot be severed from the mother at the time the contract is formed.
34
Is a contract to sell a calf a sale of goods, even if the calf is not yet born?
Yes
35
Is money a good?
Money is not a good when it is given for the price of the contract,
but money can be a good, if it being bought and sold (e.g. sale of a coin collection, or a currency exchange.
36
Are securities goods?
No
They represent ownership of a company - an intangible
37
List the categories of contracts.
(1) Express
(2) Implied
(3) Quasi-contract
38
# Define the described category of contracts:
Formed by language, oral or written.
Express
39
# Define the described category of contracts:
Formed by manifestations of assent other than oral or written language (by conduct)
Implied
40
# Define the described category of contracts:
- Not contracts at law (i.e. not formed according to law).
- Constructed by courts to avoid unjust enrichment.
- Permits a plaintiff to bring an action to recover any benefit unfairly derived by the defendant.
Quasi-contract
41
List the types of contracts.
(1) Bilateral
(2) Unilateral
42
Describe how Bilateral contracts are formed.
Exchange of mutual promises (a promise for a promise)
EX: I promise to sell you my car for $6000, and you promise to pay that amount for my car.
43
Describe how Unilateral contracts are formed.
Acceptance by performance.
- The offer requests a performance rather than a promise
- The offeror-promisor promises to pay upon completion of the requested act by the offeree/promissee.
* Enforced if offeree/promise substantially performs.
44
Explain the Objective Theory of Contracts
- The element of intent must be determined
- Intent cannot be determined by subjectivity or solely on the belief of one party.
- Judged by outward, objective facts as interpreted by a reasonable person.
45
True or False:
Intent can be determined by subjectivity or solely on the belief of one party.
False!
Intent CANNOT be determined by subjectivity or solely on the belief of one party.
46
Objective facts include, but are not limited to:
- What the party sad when entering into the contract.
- How the party acted or appeared (intent may be shown by conduct as well as by oral or written words).
- The circumstances surrounding the transaction.
47
List the three primary questions for contract formation.
(1) Was there mutual assent? - (a) Offer and Acceptance plus
(b) Was there Consideration or some substitute for consideration?
(2) Are there any defenses to the creation of the contract?
- E.g. fraud, duress, mutual mistake, unconscionability?
Case Law: Ray, Lonergan, Cook, Sateriale
48
Define assent.
Agreement or approval.
49
What is the function of contract law?
It was designed to provide stability and predictability.
50
True or False:
Depending on the transaction, courts differ about whether a digital download of software or music are considered goods or services.
True
51
True or False:
Debt instruments and insurance policies are NOT goods.
True. They are NOT,
52
True or False:
Admission tickets are not goods (the concert or game is a service, and is the core of the sale, not the ticket).
True
53
True or False:
Some contracts involve a mix of goods and services.
True
For example, construction contracts involve both supplies of materials and labor.
54
The ____ applies if the predominant purpose of the contract is a sale of goods as opposed to services.
UCC
55
True or False:
Sometimes, these contracts are severable to prevent confusion about the governing law.
True
Severable: capable of being divided into legally independent rights or obligations.
56
List the introductory cases describing hoq methods of contracting have changed over time.
(1) Allen v. Bissinger
(2) Meye v. Unber Technologies
57
List the case that present the "objective" approach to contract formation.
Ray v. William G. Eurice & Bros., Inc.
58
What was the Issue and Holding in Ray v. William G. Eurice & Bros., Inc.
Issue:
- Whether there is mutual assent where one party is mistaken about the terms of the contract?
Held:
- Absent fraud, duress, misrepresentation, mutual mistake, or any misconduct, one who makes a written offer which is accepted, or who manifests acceptance of the terms of a writing which he should reasonably understand to be an offer or proposed contract is bound by the contract though ignorant of the terms of the writing or its proper interpretation.
59
Describe mutual assent in subjective theory v. objective theory.
Subjective Theory: "Meeting of the Minds"
Objective Theory: Objective manifestation of assent
60
How was mutual assent determined in Allen v. Bissinger?
Mutual assent found where offer was accepted based on the reasonable person standard.
61
How was mutual assent determined in Meyer v. Uber?
Mutual assent where arbitration agreement not explicit and conspicuous because user on inquiry notice and by clicking on hyperlink manifested his assent to the agreement.
pp. 18-31
62
Who won in Allen v. Bissinger?
Who won in Meyer v. Uber?
63
What is an offer defined?
R2K 24 (Offer Defined)
"An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it."
Restatement (Second) of Contracts, § 24
64
To qualify as an offer, the proposal must be \_\_\_\_\_\_\_.
Sufficiently definite.
65
True or False:
To qualify as an offer, it also depends on all the surrounding circumstances.
True
66
What are the two principal requirements for an enforceable agreement?
(1) Assent
(2) Definiteness
(The nature of offers slide)
67
Describe the terms of definiteness.
(1) The identification of the parties;
(2) The identification of the object or subject matter of the contract;
(3) Quantity
(4) Work to be performed;
(5) Identification of goods, services, and lands;
(6) The consideration to be paid; (or any other form of consideration)
(7) The time of payment, delivery or performance.
68
Describe Acceptance
R2K § 50
(1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
(2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.
(3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
69
What are the three kinds of acceptance?
(1) Acceptance of the Offer Defined
(2) Acceptance by Performance
(3) Acceptance by a Promise
70
Acceptance of an offer is a __________ to the terms thereof made by the offeree in a manner invited or required by the offer.
Manifestation of assent
71
Describe the difference between offeror v . offeree.
The offeror is the party who makes the offer. The offeree is the person who either accepts or does not accept the offer
72
Describe what an acceptance by performance requires.
At least part of what the offer requests be performed
- Acceptance by a performance operates as a return promise.
73
What does acceptance by a promise require?
That the offeree complete every act essential to the making of the promise.
74
Professor Corbin elaborates on these doctrinal principles in the following terms:
An acceptance is a voluntary act of the offeree whereby he exercises the power conferred on him by the offer, and thereby creates the set of legal relations called a contract. What acts are sufficient to secure this purpose? We must look first to the terms in which the offer was expressed, either by words or by other conduct. The offeror is the creator of the power and at the time of its creation he has full control over both the fact of its existence and its terms. The offeror has, in the beginning, full power to determine the acts that are to constitute acceptance. After he has once created the power, he may lose his control over it, and may become disabled to change or revoke it; but the fact that, in the beginning, the offeror has full control … is the characteristic that distinguishes contractual relations from noncontractual ones. After the offeror has created the power [of acceptance], the legal consequences are out of his hands, and he may be brought into numerous consequential relations of which he did not dream, and to which he might not have consented. These later relations are nevertheless called contractual.
75
Describe R2K 36
Methods of Termination of the Power of Acceptance
(1) An offeree's power of acceptance may be terminated by
(a) rejection or counter-offer by the
offeree, or
(b) lapse of time, or
(c) revocation by the offeror, (before
accepted), or
(d) death or incapacity of the offeror or
offeree
(2) In addition, an offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer,
76
What case cites and applies many classical rules of offer and acceptance? What were they as expressed in the Restatement (Second) of Contracts?
Normile v. Miller
(1) The power of acceptance created by an offer will be terminated by the offeree's rejection. §36
(2) An acceptance must be unequivocal and unqualified in order for a contract to be formed. §§57 and 58
(3) A "qualified acceptance" constitutes only a counter-offer, §59, and as such will have the same effect as a rejection, insofar as the original power of acceptance is concerned. §39
77
Describe Rule §57
Effect of Equivocal Acceptance
Where notification is essential to acceptance by promise, the offeror is not bound by an acceptance in equivocal terms unless he reasonably understands it as an acceptance.
(R2C citation)
Equivocal Definition: Equivocal is **something that has double sense; that which is open to two or more interpretations**.
78
Describe Rule §58
Necessity of Acceptance Complying with Terms of Offer:
An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.
(R2C citation)
79
Describe Rule §69
Acceptance by Silence or Exercise of Dominion:
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intent to accept.
(2) An offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.
(R2C citation)
80
Describe Rule §59
Purported Acceptance Which Ads Qualifications:
A reply to an offer which purports to accept it but is condition on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.
(a) Qualified acceptance. A qualified conditional acceptance proposes an exchange different from that proposed by the original offeror. Such a proposal is a counter-offer and ordinarily terminates the power of acceptance of the original offeree.
(R2C citation)
81
Describe Rule § 39
Counter-Offers:
(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
(2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
(R2C citation)
82
§69 Continued:
Exceptional cases where silence is acceptance fall into two main classes:
(1) Those where the offeree silently takes offered benefits, and
(2) Those where one party relies on the other party's manifestation of intention that silence may operate as acceptance.
(R2C citation)
83
- The offeror is the ____ of the offer
- The offeree has the power of ______ that is created by the offer
- Master
- acceptance
84
The power of acceptance s terminated if:
(1) The offeree rejects the offer
(2) The offeror revokes the offer before acceptance
(3) Death or incapacity of either party (offeror or offeree)
§36
85
Describe R2K §§57 & 58
An acceptance must be unequivocal and unqualified for contract formation (i.e. must be clear, unambiguous, and unequivocal)
(professor slides)
86
Describe R2K §69
What are the exceptions?
Generally, silence is not acceptance
In certain limited circumstances, silence can be interpreted as acceptance, subject to the Statute of Frauds
(a) where the offeree silently takes offered benefits.
(b) Where one party relies on the other party's manifestation of intention that silence may operate as an acceptance
(slides)
87
Describe R2K §59
When a purported acceptance is not an acceptance: At common law, any modification to the offer constitutes a counter-offer
(slides)
88
A conditional acceptance is treated as a \_\_\_\_
Counter-offer
Which constitutes the original offer as void.
89
What does the UCC state regarding the additional or different term of the acceptance?
It is NOT treated as a counteroffer.
Under the UCC, construed as proposals for modification of the contract unless acceptance is dependent on the additional or different terms.
90
Describe the Mailbox Rule
At common law, in some circumstances, acceptance is effective on dispatch (mail, telegram, etc.)
See page 50
91
Define the issue, rule, and holding in Lonergan v. Scolnick.
* *Issue:**
- Focuses on the issue of what is an "offer"
**Overall Issue:** Whether a contract was formed between the parties for a sale of land?
* *Rule:**
- Relying on §25 (§26 is similar)
**General Rule:** There can be no contract unless there is _mutual assent,_ which consists of an offer and an acceptance to that offer.
* *Holding:**
- The Court holds that an offer is made only if the communication expresses an intention to be bound without further assent on the part of the offeror
Defendant's initial advertisement was a request to receive offers; his letter of April 8 did not amount to an offer because it merely answered the plaintiff's questions and stated that the plaintiff must act quickly.
92
Describe the facts of Lonergan v. Scolnick
The Ad:
- During March, 1952, the defendant (lived in NY) placed an ad in a Los Angeles paper
- "Joshua Tree vicinity 40 acres... need cash, will sacrifice."
- P responded with an inquiry to the Ad
- D's response to P's inquiry, dated March 26
- Briefly describing the property, giving directions as to how to get there, stating that his rock-bottom price was $2,500 cash, and further stating that **"This is a form letter."**
- On April 7, the plaintiff wrote a letter to the defendant saying that he was not sure he had found the property, asking for its legal description, asking whether the land was all level or whether it included certain jutting rock hills, and suggesting a certain bank as escrow agent **“should I desire to purchase the land.”**
- On April 8, the defendant wrote to the plaintiff saying “From your description you have found the property”; that this bank “is okay for escrow agent”; that the land was fairly level; giving the legal descriptions; and then saying, **“If you are really interested, you will have to decide fast, as I expect to have a buyer in the next week or so.”**
- On April 12, the defendant sold the property to a third party for $2,500. The plaintiff received defendant's letter on April 8 and April 14
- On April 15 he wrote to the defendant thanking him for his letter “confirming that I was on the right land," and stating that he would immediately proceed to have the escrow opened and would deposit $2,500 therein “in conformity with your offer,” and asking the defendant to forward a deed with his instructions to the escrow agent. On April 17, the plaintiff started an escrow and placed in the hands of the escrow agent $100, agreeing to furnish an additional $2,400 at an unspecified time, with the provision that if the escrow was not closed by May 15, it should be completed as soon thereafter as possible unless a written demand for a return of the money or instruments was made by either party after that date. It was further stipulated that the plaintiff was ready and willing at all times to deposit the $2,400.
93
In Lonergan, was the April 8th letter an offer?
No, the March 26 and April 8 letter were considered _preliminary correspondence._
**Per R2K §26:** A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a _further manifestation of assent._
March 26th did not contain a definite offer; (stated it was “a form letter”)
The letters were sufficient to let plaintiff know that some further expression of assent from the defendant was necessary.
The April 8th letter added nothing definite, answered questions asked by plaintiff, stated that the defendant expected to have a buyer in a week or so, and indicated that defendant intended to sell on a “first come first served basis”, and defendant plainly showed an intention to sell to another buyer and that plaintiff had to act fast if he was interested in buying the land.
Judgment affirmed.
94
Regarding Longergan v. Scolnick, why was the letter of March 26 not an offer? In particular, what is the significance of the language “form letter”?
This notation indicates that the letter was being sent to a number of individuals' communications to multiple addressees are usually classified as invitations to receive offers.
95
Describe the take away rules from Lonergan.
Generally, an advertisement is a mere request for an offer.
Preliminary Negotiations: §26
* A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. subject to exceptions.
96
Describe Rule §26
Preliminary Negotiations:
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
97
What is the general rule regarding advertisements?
Advertisements are invitations to receive offers rather than actual offers.
98
Advertisements are generally not offers unless….
They invite acceptance without further negotiations in clear, definite, express, and unconditional language.
99
True or False:
If the seller is engaged in “bait and switch” or other deceptive conduct, the court may treat the advertisement as an offer or may subject the seller to liability under unfair trade practice or other consumer protection statutes.
True
100
R2K 45 treats unilateral contracts as ____ contracts because of Llewellyn's influence
Option
101
Describe the Facts, Issues presented, and Holding/Rule of Cook v. Colwell Banker pg. 61
Facts:
Issue:
Holding/Rule: A promise to pay a bonus in return for an at-will employee's continued employment is an offer for a unilateral contract which becomes enforceable when accepted by the employee's performance.
Once the employee substantially performs, the offer is irrevocable.
102
What is the Rule and exception for advertisements as offers?
**General Rule:**
Advertisements are not offers. They are an invitation to the public to make offers.
**Rule + Exception:**
Where the offer is clear, definite, and explicit and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.
103
Describe the Facts, Issue, Holding/Rule, and Reasoning for Sateral v. R.J. Reynolds Tobacco Co.
Facts:
Issue:
Holding/Rule:
Reasoning:
104
Describe “bargained-for exchange"
The consideration and the promise bear a reciprocal inducement: the consideration induces the making of the promise, and the promise induces the furnishing of the consideration.
With consideration, as with mutual assent, the law is concerned with the external manifestation rather than the undisclosed mental state.
§71(b) *“Bargained for" :* Requirement of Exchange; Types of Exchange
105
True or False:
The consideration doctrine is based in Anglo-American contract law; (can be traced back to the 13th century)
True
106
Early English courts used a system of “\_\_\_” to enforce legal rights.
Writs
A plaintiff had to couch her claim to fit within one of these “writs” E.g. writs of covenant and debt.
* To obtain a remedy under a writ of covenant, a plaintiff had to establish that the defendant made a promise in a sealed instrument.
* Under the writ of debt, the plaintiff had to show that the defendant breached a promise to pay a sum certain of money.
107
By 1600, the _____ replaced these writs for breach of contract causes of action.
Writ of assumpsit
108
True or False:
The “seal” at this stage of legal development was exceedingly formal: Typically, wax was melted onto a document and, before it cooled, was impressed with a signet ring or other device. The sealed document was often referred to as a “deed," or “specialty.” Such documents were seldom employed in informal, day-to-day business affairs, so the action of covenant had limited utility for enforcing promises made in such transactions.
True
The “seal” as evidence of an enforceable promise
109
Describe what the term “deed” is used today to refer to.
A document that conveys an interest in realty, typically a formal, “legalistic” document)
110
The doctrine of consideration allows courts to what?
Decide whether certain promises are legally enforceable
111
A contract must consist of a…
Finish the sentence supra (above)
a bargained-for-exchange where the consideration offered by one party (the promise) induces the making of a promise by another party (promisor) and the promise having been induced by the promise gives this consideration.
112
What are the two concerns that underlie the consideration doctrine?
(1) ensuring that the promisor intended to become legally bound
(2) distinguishing promises that are socially valuable from those that are not.
112
What are the two concerns that underlie the consideration doctrine?
(1) ensuring that the promisor intended to become legally bound
(2) distinguishing promises that are socially valuable from those that are not.
113
The consideration doctrine is not always clear; in some cases, it is not an effective tool to determine whether a promise should be enforced.
Thus, courts may apply alternative theories such as ____ and _____ to enforce certain promises.
* reliance
* promissory estoppel
114
Describe §17
Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§82-94
115
The issue of consideration may not arise as frequently today.
Today, consideration is not a frequently litigated issue for most commercial contracts.
The issue arises more frequently in the \_\_\_\_\_.
Non-commercial context (family, friends, romantic relationships)
116
Describe the Classical View of Consideration.
Benefit/Detriment Analysis -
either benefit to promisor or detriment to promisee.
117
Describe who the Promisor is
The promisor is the party resisting enforcement of the contact, the one arguing that consideration is not satisfied (i.e. I didn't get anything for my promise)
118
Describe who the Promisee is
The promisee is the party trying to enforce the claimed promise.
(I did what you asked)
119
What is the General Rule for Consideration?
Where there is neither legal benefit to the promisor nor detriment to the promisee, there is no consideration.
* Whether the promisor receives a benefit or the promisee suffers a detriment, loss, or forbearance.
* Whether the promisor received something of legal value in exchange for the promise she made to the other party, the promisee.
120
True or False:
To support consideration, the promisee may also show a loss or detriment in carrying out the obligations based on the promise.
True
121
True or False:
A court must look for both benefit to the promisor and detriment to the promissee.
FALSE!
The Court may look for EITHER benefit to the promisor or detriment to the promissee.
122
Most courts require that a party _____ to satisfy the legal value element
A minority of courts hold that _____ on another party is legally sufficient.
* incur detriment
* conferring a benefit
123
The Classical Approach to Legal Benefit and Legal Detriment Theories asks what?
Whether or not the promisor receives a benefit or the promisee suffers a detriment, loss, or forbearance.
124
What does the Classical approach rule state?
(re: legal benefit and legal detriment theories)
The rule asks: whether the promisor received something of legal value in exchange for the promise that she made to the other party, the promisee.
125
Alternatively, to support consideration, the promisee may show what?
A loss or detriment in carrying out obligations based on the promise made by the promisor
126
What are the elements of Consideration?
Restatement (Second) 71-90
127
What is Consideration?
§71
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) 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 promissee in exchange for that promise.
(3) The performance may consist of
(a) An act other than a promise, or
(b) a forbearance, or
© the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promissee or by some other person.
128
Describe the Modern View of Consideration. What are the two required key features?
(1) Legal sufficiency
(Indicates that something of legally recognized value must be the foundation of the agreement between the contracting parties.) (§71)
(2) Bargained-for-exchange (reciprocal inducement)
129
In Modern View of Consideration, the legally sufficient value must be given as part of a what?
bargained-for-exchange between the parties
130
A bargained-for-exchange exists if what?
A party making a promise seeks a performance or a return promise given by another in exchange for that promise.
131
Under a bilateral contract, the parties are exchanging \_\_\_\_.
Promises.
132
True or False:
A promise to do what one already has a legal duty to do doesn't constitute legally sufficient consideration.
True
133
EX: I will teach you contract law if you show up on M/W at 12:30 p.m.
Is the above an example of consideration?
This is not consideration. I already have a legal duty to teach you at this time and even beyond the scheduled time.
134
EX: I will buy you a computer if you take the contracts class on M/W at 12:30 p.m.
Does the above example constitute as consideration?
No. There is no consideration because I already have a preexisting duty to come to class.
135
EX:
I will pay you $5,000 if you refrain from drinking alcohol.
Does the above example have consideration?
Yes. The performance of an action that one is otherwise not legally obligated to undertake (a forbearance). The above example is a forbearance which contitutes legally sufficient consideration.
(see Hamer v. Sidway)
136
EX: I will ship you 2,000 brown widgets and I will pay for the widgets when I receive them.
This is a bilateral contract, a promise in return for a promise.
Consideration is valid.
137
EX: After you paint my house, I will pay you $300.
Unilateral contract
The act of painting is the consideration that creates the contractual obligation to pay $300
138
Bargained-For-Exchange
See R2K 71, Comments a,b
* Reciprocal Relation of motive or inducement
* The consideration must provide the basis for the bargain between the contracting parties
* The promisor must induce the promisee to offer a return promise, a performance, or a forebearance
* In return, the promisee's promise, performance or forbearance must induce the promisor to make the promise.
139
A unilateral contract is one in which a promise is given in exchange for an ____ or \_\_\_\_\_.
Act or forbearance
140
In a unilateral contract, _______ or ______ is consideration.
the performance of the action or forbearance of legal rights.
141
What case is an example of a unilateral contract?
Hamer v. Sidway
* The uncle made a promise to the nephew in return for the nephew's forbearance of a legal right.
142
Case Law to Know:
Hamer, Dougherty, Pennsy
143
What was the general rule in Hamer v. Sidway?
In general, the waiver of any legal right at the request of another party is sufficient consideration. Consideration is satisfied where a party abandons a legal right in the present or limits his legal freedom of action in the future as an inducement for the promise.
144
Hamer v. Sidway
Who was the plaintiff and defendant?
What was the ruling?
Defendant: executor of the estate of William Story
Plaintiff: Louisa Hamer - Assignee of the funds
Ruling in favor of the plaintiff, the Court held that the right to use and enjoy the use of tobacco was a right that belonged to the nephew-promisee and was not forbidden by law.
The abandonment of its use was a sufficient consideration to uphold the promise because such abandonment was the inducement for the promise.
145
Hamer v. Sidway
Did the court find a detriment to the nephew?
Did the court find a benefit to the uncle?
Can you think of any “benefit” to the uncle?
Was not necessary to find a benefit to uncle, but the court suggests that such a benefit to the uncle might well be present.
146
Where's the consideration from the nephew to the uncle in Hamer v. Sidway?
No drinking
No gambling
No tobacco
No swearing
(all forbearance of a legal right)
147
List when there is no establishment of consideration.
* Some Reward Situations
* Gratuitous Promises/Conditional Promises
* Donative Gifts/Executory Gifts
148
Dougherty v. Salt
State the background, Issue, Rule, and Conclusion/Holding/Rationale
Issue:
* Whether a promissory note with the pre-printed words, “value received” issued by the aunt out of her love to her nephew sufficiently establishes consideration.
Rule:
Conclusion/Holding/Rationale:
* The Note was a Gift.
* No value given for the note even if preprinted form contained the words: “for value received.”
* If no actual value given, there is not consideration
Background:
In Dougherty, Tillie signed a blank promissory note (a standard form) under which she promised to pay $3,000, at her death or before, to her eight-year-old nephew Charley "for 'value received (these words were pre-printed b/c it’s a standard form promissory note.“’ )Tillie handed the note to Charley with the words, *"You have always done for me, and I have signed this note for you. Now, do not lose it. Some day it will be valuable."*Tillie died with the note still unpaid, and Charley brought suit against her estate. The New York Court of Appeals, in an opinion by Judge Cardozo, held that although Tillie's promise was in writing and recited that value had been received, it was "the voluntary and unenforceable promise of an executory gift.“
149
Why was there consideration in Hamer and no consideration in Dougherty?
150
Dougherty v. Salt
What can you argue if the nephew relied on the Aunt's promise? What if he entered into a contract to buy a home relying on the $3,000 as downpayment?
What is the argument here?
151
Pennsy v. American Ash
Background, Issue, Holding
Background:
Issue:
* Whether Aggrite Ash was a gratuitous gift or given in return to relieve the defendant of disposal costs?
Holding:
* TC held: Aggrite was not consideration but a conditional gift
* App. Ct. Reversed - R2K 71(2)
152
Define demurrer
**A defense asserting that even if all the factual allegations in a complaint are true, they are insufficient to establish a valid cause of action**.
EX: D filed a demurrer to P's complaint claiming that the complaint lacked sufficiency because P did not plead that D's avoidance of disposal costs was part of the bargaining process.
(Pennsy v. American Ash)
153
List the alternatives to consideration:
(1) Promissory Estoppel
(2) Reliance
(3) Requirement to Act in Good Faith
154
Describe the difference between Law v. Equity
**Law** is the body of rules which are regulated by the government and enforced by the courts while **equity** is a set of rules which follows **principles of natural law and fairness.**
155
In a court of law, defendants can be ordered to pay monetary damages. While in \_\_\_\_, if the complainant wants to get back something that was taken from him by the defendant instead of getting money, the court can order the defendant to do so. (specific performance)
Equity
156
Law can order ___ (formal written orders) while equity can order \_\_\_\_\_\_.
* Writs
* Injunctions
157
In an action at \_\_\_\_, a case can be heard by a jury with instructions about the law from the judge. While in ____ only the judge settles a case.
* Law
* Equity
158
Describe the general rule regarding Past and Moral Consideration
Past and Moral Consideration are not legal consideration.
Plowman v. Indian Refining Co.
159
What are exceptions to the general rule of Past and Moral Consideration are not legal consideration?
* New or different consideration is promised
* The promise is to ratify a voidable obligation (e.g., a promise to ratify a minor's contract after the minor reaches the age of majority; a promise to go through with a contract despite the other party's fraud)
160
# Define pre-existing duty and its relation with consideration.
Where do pre-existing legal duties come from?
* A promise to do what one already has a legal duty to do is not legally sufficient consideration
* Duty may arise out of law or out of a previous contract
161
Describe the general rule about Past and Moral Consideration.
* If a party is already bound by a contract to perform a certain duty, that duty cannot serve as consideration.
* The morality of a promise, unless the moral duty is also a legal one, does not constitute legal consideration.
162
Plowman v.
Issue, Holding, Rationale, and Rule
Issue:
* Whether there was legal consideration for a promise to pay a pension for life to retired employees based on their previous service and the desire of the corporation to provide for the employee's welfare.
Held:
* No. Promise was to make a gift that was revocable at any time at the will of the employer. There is no contract.
Rationale:
* While from a moral standpoint, society would benefit if employers took care of retired employees based on their past service, in the absence of a statute mandating this care, the court cannot legislate. (courts are not legislatures under separation of powers principles at both the federal and state levels).
General Rule:
* If a party is already bound by a contract to perform a certain duty, that duty cannot serve as consideration.
* The morality of a promise, unless the moral duty is also a legal one, does not constitute legal consideration.
163
Discussion and Analysis: Plowman
In Plowman, the court held that “travel to the defendant's office to pick up the check, did not constitute consideration, but was ” simply a condition imposed upon them in obtaining gratuitous pension." Do you agree?
How is this analysis different than Hamer (detriment to the nephew) and Pennsy (benefit to American Ash)?
Are there any facts that should have allowed the court to find detriment to employees or benefit to the employer? (see Note 1, p.125-26 for some factors that may help.
In Plowman, the court appears to find that even if the promises were made to the employees, the promises were made without authority and thus did not bind the company.
Were the people making the promise “agents” of the company?
164
Describe Agency 140
Liability of Principal to Third Persons (Contracts)-Restat. 2d. Of Agency 140
The liability of the principle to a third person upon a transaction conducted by an agent, or the transfer of his interests by an agent, may be based upon the fact that:
(a) the agent was authorized
(b) the agent was apparently authorized; or
© the agent had a power arising from the agency relation and not dependent upon authority or apparent authority
165
Describe Actual Authority - Restat. -3 of Agency §2.01
* An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act.
166
When does Actual Authority §2.01 exist?
Exists when agent reasonably believes he or she has authority to act on behalf of principal as a result of principal's manifestations.
167
Actual Authority Can be ____ or \_\_\_\_\_\_:
* **Express**: What the principal communicates to the agent regarding authority
* **Implied**: Authority necessary or incidental to achieve the principal's express objective
168
Describe Apparent authority
| (Restatement (Third) of Agency, 2.03)
Apparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when
(1) a third party reasonably believes the actor has authority to act on behalf of the principal AND
(2) that belief is traceable to the principal's manifestations.
169
When discussing Apparent Authority, Focus on the communication _______ and the reasonable interpretation of this communication by the \_\_\_\_\_
* by the principal
* third party
170
Apparent authority to do any act can be created only by _______ of the \_\_\_\_\_\_, which when reasonably interpreted, causes a _____ to believe that the principal consents to have the apparent agent act for her in that matter.
* only by some conduct
* principal
* third-party
171
Apparent authority requires…
that the principal engage in some conduct that the principal “should realize” is likely to cause a third person to believe that the agent has authority to act on the principal's behalf.
172
True or False:
As long as the information can be traced back to the principal, the third party does not have to receive the information from the principal herself.
Can receive it through some other source or method, as long as it can be traced back to the principal's conduct
True
173
Define Agency
Agency is a consensual relationship in which one person, the agent, agrees to act on behalf of, another person, the principal.
174
Define Ratifiy
Ratify means to approve or enact a legally binding act that would not otherwise be binding in the absence of such approval.
175
What happens if an agent acts without authority?
If the agent acts without authority, the principal can be bound if the principal ratifies the transaction.
176
Describe Ratification by Rst. (3rd) of Agency §4.01
“The affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.”
177
What does ratification require?
(1) Intent to affirm the contract (express ratification) (P must be aware of the contract) OR
(2) The principal accepts the benefit flowing from the contract (implied ratification)
178
When is a person not bound by ratification?
A person is not bound by a ratification made without knowledge of material facts involved in the original act when the person was unaware of such lack of knowledge.
179
Describe the Doctrine of Estoppel
Under the doctrine of estoppel, a business may be bound to a contract by a person or an agent lacking both actual and apparent authority.
180
Describe Promissory Estoppel §90
§90 “**A promise** which the **promisor should reasonably expect to induce action or forbearance** of a definite and substantial character on the part of the **promisee** and which **does induce such action or forbearance** is binding if **injustice can be avoided only by enforcement of the promise.”**
181
Under the Restatement(Third) of Agency:
“A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person's account is subject to liability to a third party who _________________________ because the transaction is believed to be on the person's account, if (1) the person intentionally or carelessly caused such belief, or (2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.” (See Restatement (Third) of Agency, 2.05)
182
Describe the General Rule regarding the Adequacy of Consideration.
General Rule:
In general, courts do not inquire into the adequacy of consideration (i.e. the comparative value of the promises and acts exchanged) if the consideration is legally sufficient.
182
Describe the General Rule regarding the Adequacy of Consideration.
General Rule:
In general, courts do not inquire into the adequacy of consideration (i.e. the comparative value of the promises and acts exchanged) if the consideration is legally sufficient.
183
How much consideration is given?
Consideration asks whether a bargain exists, not whether the bargain is equal or good value for both parties.
184
When is consideration legally sufficient?
If it supports the promise made, regardless of comparative value.
(Case Law: Dohrmann v. Swaney)
(concerns the fairness of the bargain)
185
What are the exceptions to the general rule regarding Adequacy of Consideration?
Courts will consider the adequacy of consideration if there are circumstances that point to fraud, duress, or undue influence or lack of good faith.
186
What policy is furthered by the general rule not to inquire into whether the consideration is adequate?
Freedom of contract
187
True or False:
Also, if the exchange is a mere sham, the promise is not enforceable (offering a miniscule amount, which is not a bargained for exchage) (Re: Adequacy of Consideration)
Must be a bargain in fact
True
188
Dohrmann v. Swaney
Describe the Issue, Rule
(Gross Inadequacy of Consideration)
Issue:
* Whether a promise to change children's name to preserve the decedent's family name is sufficient or adequate consideration given for valuable assets from the decedent's estate?
Rule:
* Court will not inquire into the adequacy of consideration unless there is fraud, duress, undue influence, or unconscionability that shocks the conscience of the court.
* R2K §79: If the requirement of consideration is met, there is no additional requirement of
* (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee;
* (b) equivalence in the values exchanged; or
* © “mutuality of obligation”
* (See also, Batsakis v. Demotsis at Note #2, p. 137)
189
What is another case example of the general rule of Adequacy of Consideration?
Batsakis v. Demotsis
Background: After the war Batsakis sued Demotsis to collect on the promise. (Demotsis borrowed 500,000 Greek currency (drachmae) from Batsakis giving in exchange her written promise to repay US $2000 plue 8% interest.)
Court of Appeals rejected Demotsis arguments of “want of consideration,” “failure of consideration,” and “inadequancy of consideration.”
The first two pleas did not apply because the Demotsis received 500,000 drachmae and this was exactly what she bargained for.
The third plea the Court held “mere inadequacy of consideration will not void a contract”
190
Describe R2K §79
If the requirement of consideration is met, there is no additional requirement of
* (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee;
* (b) equivalence in the values exchanged; or
* © “mutuality of obligation”
191
Describe Illusory Promises §77
Illusory Promises
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
* Generally, where a promise appears illusory, courts will imply a duty of good faith to limit the unfettered discretion of a party.
192
True or False:
Generally, where a promise appears illusory, courts will imply a duty of good faith to limit the unfettered discretion of a party.
True
193
Marshall Durbin Food Corp v. Baker
Issue, Holding, Rule, Rationale
Issue:
* Whether a recital of consideration for an employee's promise to employer not to seek other employment out of commitment to remain with the company during a volatile period is illusory.
Held:
* No. Company's promise was contingent, not illusory.
* (continency = **an event that may or may not occur in the future)**
Rule:
* A unilateral contract is created where the promisor who made an illusory promise accepts it by performance.
Rationale:
* The company benefited by retaining the services of Mr. Baker
* Marshall Durbin intended to maintain a secure work environment for his high level management team during a turbulent time
* Baker suffered detriment by refraining from seeking or accepting other employment.
194
Define Contingency
**An event that may or may not occur in the future**
195
What is a foundational requirement of a contract?
Good faith
Good faith is a foundational requirement of a contract, not a default term (i.e. not a gap filler)
196
All contracts are based upon what?
All contracts are based upon an implied promise of good faith and fair dealing (Restatement (Second) 205)
197
Under the UCC and the CISG (international sale of goods) good faith…
Cannot be waived or disclaimed by agreement of the parties.
198
Any a minimum, good faith requires….
At a minimum, good faith requires honesty in fact and often looks to reasonableness in conduct, such as reasonable notice and reasonable efforts to perform obligations.
199
What is the requirement for good faith?
The requirement for good faith is intentionally vague because it depends on the circumstances, subject matter of the contract, etc.
200
If the acceptance is not tainted by fraud or mistake, but reflects a person's honestly held belief, then courts will apply \_\_\_\_\_
subjective good faith to enforce a contract
201
Define Satisfaction Clauses of Good Faith
Clauses explaining how satisfaction will be measured.
202
Courts may imply an objective standard to the measurement
* An objective standard of the reasonable person is utilized by courts when:
* Contract involves commercial quality
* Operative fitness, or mechanical utility
203
In cases involving personal taste or aesthetics, a _______ of good faith is applied. (e.g. portraits, uniquely designed goods)
Subjective standard of good faith
204
How does one know if a charitable pledge is unconditional?
If no return promise or performance is sought, then the charitable pledge is unconditional.
205
Describe charitable pledges as conditional gifts
* Charitable pledges must be supported by consideration or reliance:
* Certain limits on the pledge is a conditional gift, not a bargained-for-exchange.
* If not return promise or performance is sought, then the charitable pledge is unconditional.
206
Contract Formation - The UCC
UCC 2-207 - Offer and Acceptance - Mutual Assent Under the UCC
207
§ 2-102: Article 2 governs ________ (other than those intended solely for \_\_\_\_\_) in goods.
* transactions
* security
208
§ 2-106(1): Article 2 of the UCC governs ____ or _____ \_\_\_\_\_\_ (passing title from the seller to the buyer for a price) of goods.
* present or future sales
209
What happens when the UCC is silent on a legal rule or principle?
The common law rules will apply to the contract (UCC 1-103(b)).
210
True or False:
In some states, consumer transactions in goods may also govern the contract under state consumer protection statutes as well as federal consumer protection statutes.
The common law rules will apply to the contract (UCC 1-103(b)).
211
UCC 1-103
* (a) The [Uniform Commercial Code](https://www.law.cornell.edu/ucc) must be liberally construed and applied to promote its underlying purposes and policies, which are: (1) to simplify, clarify, and modernize the law governing commercial transactions; (2) to permit the continued expansion of commercial practices through custom, usage, and [agreement](https://www.law.cornell.edu/ucc/1/1-201) of the parties; and (3) to make uniform the law among the various jurisdictions.
* (b) Unless displaced by the particular provisions of the [Uniform Commercial Code](https://www.law.cornell.edu/ucc), the principles of law and equity, including the law merchant and the law relative to capacity to [contract](https://www.law.cornell.edu/ucc/1/1-201), principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.
212
Describe “Goods” according to UCC §2-105(1)
“Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action.
“Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in [§2-107] (this is the “severance” test)
213
Describe “Things in Action”
An intangible property right derived from the common law, “chose in action”
The right to sue (used to describe property rights that can only be enforced by bringing a law suit)
214
What are Goods? (7)
* Goods are things moveable at the time of identification to the contract
* Goods can be really big (construction cranes, tractors)
* Goods can be intended for permanent installation (a machine to be installed in a factory is a good, a chandelier is a good)
* Goods can be attached to the land, if they will be severed from the land for delivery (crops, timber, oil, and gas, minerals, ore)
* Goods include the unborn young of animals, even though the unborn animal cannot be severed from the mother at the time the contract is formed.
* A contract to sell a calf is a sale of goods, even if the calf is not yet born
* Money is not a good when it is given for the price of the contract, burt money can be a good, if it being bought and sold (a commodity) (e.g. sale of a coin collection, on a currency exchange)
* Securities are not goods - they represent ownership of a company - an intangible property right.
* Debt instruments and insurance policies are not goods.
* Admission tickets are not goods (the concert or game is a service, and is the core of the sale, not the ticket)
* Depending on the transaction, courts differ about whether a digital download of software or music are considered goods or services.
