If there is a deal, is it enforceable by the courts? i.e. Is it a contract? Flashcards
2 elements for an enforceable deal
• For a “deal” to be enforceable, there must be
– A. Consideration
– B. No Valid Defenses
consideration (define)
• “Consideration” is a “bargained-for exchange of legal detriments,” which has two-parts:
– a bargained-for exchange: the promisor bargained for an exchange by the promisee in which
– a legal detriment: the promisee (1) promises to do something (or in fact does something) that, but for the contract, he or she is not obligated to do or (2) promises not to do something (or in fact does not do something) that, but for the contract, he or she is legally entitled to do (i.e., legal detriment).
• **note: its not about what the other party actually received its what the party offered
consideration (sufficiency; examples of insufficient consideration; and adequacy)
• Sufficiency
– Consideration must be legally “sufficient” for there to be a binding contract. To be sufficient, the consideration must be something that has value in the eyes of the law.
– Examples of insufficient consideration:
»> 1. Love and affection
»> 2. Performing a service the law believes does not exist (e.g., Voodoo curse)
»> 3. Nominal or token consideration (except for option contracts)
»> 4. A promise to forbear filing a law suit the plaintiff knows is frivolous
• Adequacy
– If the requirement of sufficiency of consideration is met, there is no additional requirement of equivalence in the values exchanged, unless the contract is so one-sided that it is unconscionable.
– As long as consideration exists, the parties’ motives for performance are irrelevant.
what does NOT constitute consideration (past consideration and 3 exceptions)
– Past Consideration (or Moral Obligation). If the promisee has already performed the act before the promisor makes her promise, there is no “bargained-for” exchange and thus no consideration.
– Exceptions: The “past consideration” rule is often viewed as harsh and unfair. As a result, courts have crafted several exceptions to the rule:
• Promise to Pay a Debt Barred by SOL: A WRITTEN promise to pay a debt barred by the Statute of Limitations is enforceable up to the amount of the new promise despite no new consideration.
»> In addition, making partial payments on a debt will renew the statute of limitations in many states.
- Promise to Perform a Voidable Obligation: If a minor or incompetent promises to perform a voidable obligation after reaching the age of majority or regaining competency, the obligation is enforceable despite no new consideration.
- Material Benefit Rule (Restatement § 86): A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice, unless the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched. - THIS IS A MINORITY RULE
what does NOT constitute consideration (pre-existing legal duty and 4 exceptions)
– Pre-Existing Legal Duty. If the promisee is legally bound to do (or not to do) the act either by a prior contract or statutory law, there is no legal detriment suffered by the promisee. This means that the modification of an existing contract requires new consideration.
»> If a modification is induced by improper threats, the innocent party may also raise the defense of economic duress if it had no reasonable alternatives.
»> **KEY NOTE: a duty is preexisting only if owed to the promissee – so if you already owe a PLD to a 3p to do something, and you use that something as consideration for a new promise, that is fine, because you didn’t owe this promissee that duty (baseball player hitting home runs for his ball club and for the kid in the hospital example)
– Exceptions. The “pre-existing legal duty” rule is often viewed as unjust and inequitable. As a result, courts have created several exceptions to the rule in which parties may modify a contract and the modification will be enforceable. Under these situations, the promisee is entitled to additional consideration because:
• the promisee agrees to add to or modify the original deal in any legitimate (i.e., non-pretextual) fashion - ***this would essentially be new consideration
• the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made
»> **cannot just be financial troubles of one party – must amount to something bordering on impracticability
• a third party agrees to pay additional consideration to the promisee
• UCC: sales contracts may be modified without consideration as long as the parties act in GOOD FAITH – huge difference from common law, basically voids the PLD rule!
»> good faith: honesty in fact and conformity with reasonable commercial standards
»> **aus, focus on good faith of the party modifying the contract (like asking for more money) and whether THAT was done in good faith
what does NOT constitute consideration (part payment of a debt - rule and exception)
– Part Payment of a Debt: If a creditor agrees to take less than full payment in exchange for a release, may the creditor seek the remainder from the debtor?
• If the debt is due (or overdue) and undisputed in amount, part payment does not constitute consideration for the release and thus the debtor owes the remainder.
»> however, if there is new/different consideration (such as payment in a different medium or to a 3p), that could be sufficient consideration for a promise by a creditor to discharge the debt
• But if the debt is not yet due (and the debtor agrees to pay early) or if there is a good faith dispute as to the amount of the debt, part payment would constitute consideration for a release (these are examples of an “accord and satisfaction”)
»> There would also be consideration if a different type of performance—transfer of goods or services—is agreed upon (this is also an example of an “accord and satisfaction”).
what does NOT constitute consideration (extra time to pay a debt; promise not to sue)
– Extra Time to Pay a Debt: A creditor’s promise to allow the debtor extra time to pay a debt is not binding, unless the debtor gives new consideration.
»> but an additional agreement to extra time plus interest will probably suffice
– Promise Not to Sue (i.e., a Settlement): A promise not to sue constitutes consideration ONLY IF the promisor has either a good faith (subjective) or reasonable (objective) belief that the suit is valid.
»> If a party executes a written instrument (i.e., a quitclaim deed) settling a claim that was bargained for by the other party, the instrument is sufficient consideration even if the executing party did not subjectively believe the claim was valid.
consideration and promissory estoppel (3 elements; damages; SOF)
***come here if there is no consideration
• Promissory Estoppel
– If there is no consideration, may the promisee enforce the deal? Generally, no.
»> But consider promissory estoppel, which applies where the promisor (1) made a promise; (2) the promisee reasonably, detrimentally, and foreseeably relied on the promise (i.e., the promise induced the promisee to act); and (3) enforcement of the promise is necessary to avoid injustice.
– Promissory estoppel damages are generally limited to reliance damages (as opposed to expectation damages) and only awarded to the extent needed to prevent injustice
– The Statute of Frauds (“SOF”) does not apply to promissory estoppel.
seven contract defenses (what they mean for a contract; list of defenses; and BOP)
• A valid contract is nevertheless unenforceable if there is a valid defense, such as: – 1. Lack of Capacity – 2. Statute of Frauds – 3. Illegality – 4. Duress/Undue Influence – 5. Misrepresentation – 6. Mistake or Misunderstanding – 7. Unconscionability
“Last Saturday In Michigan My Uncle Died”
• These defenses are typically affirmative defenses for which the defendant would carry the burden of pleading, the burden of production, and the burden of persuasion.
defenses - lack of capacity (3 main rules - who qualifies; power to disaffirm; where an incapacitated party may still be held liable)
• Lack Of Capacity
– The following parties lack capacity to enter into a contract:
• minors (under age 18)
• mental incompetents (unable to understand legal significance of their acts)
»> The contracts of a party who has been adjudicated incompetent are VOID
• intoxicated persons (unable to understand legal significance of acts and the other party knew or should have known of the intoxication)
– A party lacking capacity may disaffirm a contract (i.e., the contract is voidable by the incapacitated party) during disability or within a reasonable time thereafter
• In a minority of jurisdictions, the party lacking capacity is liable for any benefit he experiences or damage he causes prior to disaffirming
– Incapacitated parties are liable on contracts in two situations:
• If the incapacitated party retains the benefit of the contract after gaining capacity (e.g., reaching age 18) or fails to disaffirm the contract within a reasonable time after gaining capacity, he has impliedly “affirmed” the contract and it is enforceable
»> An affirmation by a minor or incompetent does not require new consideration
• The contract is for necessaries (a/k/a necessities); if so, the incapacitated party is liable in quasi-contract for the value of the goods or services, but not for the actual contract price
defenses - SOF Flowchart
– SOF Flowchart:
• a. Is the contract subject to the SOF?
• b. If so, has the SOF been satisfied? or have any exceptions applied?
• c. If the SOF applies and has not been satisfied, are there any remedies available to the plaintiff?
defenses - SOF - is the contract subject? (general rule; 6 exceptions)
– a. Is the Contract Subject to the SOF?
• General Rule: ORAL CONTRACTS ARE GENERALLY ENFORCEABLE
– Exceptions: The following contracts are subject to the Statute of Frauds (use MYLEGS):
• Marriage: Agreements to marry supported by some form of financial consideration (e.g., prenuptial agreements)
• Year: Service contracts that BY THEIR OWN TERMS are NOT CAPABLE of being performed within one year from the DATE OF THE CONTRACT (not the date of commencement of performance).
»> **doesn’t matter if the contract actually takes more than a year to be fully performed if, in theory, you could’ve gotten the job done within a year
• Land: A contract to convey an interest in land, except short-term (12 months or fewer) leases
»> can include sale of land, a mortgage, an easement
- Executor: Promise by an executor (or administrator) of an estate to pay the estate’s debts out of the executor’s own pocket.
- Goods $500+: A contract for the sale of goods when the purchase price is $500 or more (as ultimately modified).
• Sureties: Suretyship contracts (i.e., where one person “guarantees” the payments of another; e.g., a co-signer)
»> a surety will be bound by her promise to pay another’s debt as long as she makes her promise before the creditor performs or promises to perform (depending on whether the contract is bilateral or unilateral); the surety need not receive any separate consideration
»> EXCEPTION: if the “main or primary purpose” of the agreement is to benefit the “surety,” the contract does not have to be in writing
defenses - SOF - if subject, is the SOF satisfied? (writing signed by defendant - rule for non-goods contracts; signature requirement)
• i. a writing signed by the defendant (i.e. the party to be charged)
»> the SOF does not require the parties to sign a written contract; instead, any writing (e.g., a check, a memo to the file, a letter to a friend, notes scribbled on a cocktail napkin) that contains the essential terms and is signed by the defendant will suffice
- for non-goods contracts: all material terms must be in writing (i.e., the identity of the parties, subject matter, price, and time) and the writing must be signed by the defendant
- Under both the UCC and common law, the signature requirement may be satisfied by an electronic signature, such as a person typing her name at the end of an email message (UCC is even more generous and will allow preprinted letterhead signature or initials)
defenses - SOF - if subject, is the SOF satisfied? (part/full performance exceptions, 3 types - services; sale of goods; land sale)
- ii. Performance Exception: “Part Performance” may, in some cases, entitle the plaintiff to specific performance or damages despite the lack of a writing:
- Service Contracts: FULL performance by either party satisfies SOF; part performance does not (but quasi-contract damages may be available - i.e. restitution)
• Sale of Goods Contracts:
»> Ordinary Goods: part performance (i.e., part delivery/acceptance or part payment/acceptance) will satisfy SOF to extent delivered (and accepted) or paid (and accepted)
»»> Where a down payment is made on a single, indivisible item (e.g., a vehicle), a partial payment will satisfy the SOF for a quantity of one.
> > > Unique or Specialized Goods Not Suitable for Sale in the Ordinary Course: the contract fully complies with SOF when the seller substantially begins performance or makes commitments for procurement of the goods.
• Land Contracts (Specific Performance only – no damages):
– seller enforcement – a seller can enforce can oral land sale contract only if the seller conveys the property to the buyer
– buyer enforcement – a buyer can enforce an oral land sale contract if he can prove 2/3 of these:
»> payment (substantial or full),
»> possession, or
»> valuable improvements
– BUT NOTE: if the buyer is a CURRENT TENANT whose “purchase payments” are equal to his current rent, and his improvements are of the type that a tenant would normally make, this will FAIL TO SATISFY part performance because it does not show unequivocally that the acts of part performance unequivocally prove the existence of a purchase and sale contracts
defenses - SOF - if subject, is the SOF satisfied? (court admissions and modifications)
• iii. Under the UCC, an admission in court or court papers satisfies SOF (up to the amount of the admission).
»> This rule may also apply to common law contracts.
• iv. A modification to a contract must satisfy SOF if the contract, as modified, would be subject to SOF.
