Académique Documents
Professionnel Documents
Culture Documents
Text: Studies in Contract Law, Sixth 6th Edition, Murphy, Speidel, Ayres (2003)
• When approaching a contracts question, first ask what is the applicable law?
o If for sale of goods, look at UCC
o Otherwise look at the common law (case law, then R2k)
• Afterward, look at formation of the contract
o Offer
o Acceptance
o Consideration
o Intent to be bound
o Promise
• Then look at the terms of the contract
• Then look at performance
• Then look to see if performance excused in any way
Promise
I. The Restatement (2nd) on Promise, Agreement and Contract Defined
• §1 - A contract is a promise for the breach of which the law gives a remedy, or the
performance law recognizes as a duty.
• §2 – A promise is manifestation of intent to act or forbear, made so promisee
understands a commitment has been made.
• §3 – An agreement is a manifestation of mutual assent. A bargain is an agreement to
exchange promises or performance.
• § 4 - A promise may be oral or written, or may be inferred from conduct.
• §5 – (1) a term is part that relates to a specific matter
II. UCC - Definitions
a. §1-201 (3) - "Agreement" –the bargain of the parties as found in their language or by
other implications from custom or conduct.
b. §1-201(11)"Contract" means the total legal obligation of the parties.
c. §2-103 – (1) Buyer - person who buys or contracts to buy goods, (2) Good faith in the
case of a merchant means honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade, (a)"Receipt" of goods means taking physical
possession of them. (b)"Seller" means a person who sells or contracts to sell goods.
d. §2-106(1) – "contract" and "agreement" limited to the present or future sale of goods.
"Contract for sale" includes both a present sale of goods and a contract to sell goods at
a future time. A "sale" consists in the passing of title from the seller to the buyer for a
price. A "present sale" means a sale which is accomplished by the making of the contract.
e. §2-102 – UCC article 2 applies to transactions in goods
f. §2-105 – Definitions
i. "Goods" – are all movable things, other than money, investment securities, and
things in action.
ii. "Lot" means a parcel or a single article which is the subject matter of a separate
sale or delivery, whether or not it is sufficient to perform the contract.
iii. "Commercial unit" means such a unit of goods as by commercial usage. Can be a
single unit, but also can be a set of articles if necessary.
1
Contracts I Outline Fall 2007
g. §2-104. Definition of merchant – a person who deals in goods, or by his occupation holds
himself to have knowledge or skill of specific goods or practices
Consideration
Elements of Consideration
I. Bargained For and Given in Exchange –
i. Detriment induces the promise (promisor bargains for detriment in exchange for
promise)
ii. Promise induces a detriment (promisee acts or forbears b/c of the promise, there
must be knowledge of the promise)
2
Contracts I Outline Fall 2007
iv. Langer v. Superior Steel Corp – Consideration here, not a gift; the promise
($100/mo) induced the detriment (forbears from legal right to work from
competitor). So, there was a detriment to promisee and benefit to promisor
(former employee wouldn’t work for competitor).
ii. The benefit to the promisor doesn’t have to be an economic benefit. Peace of
mind, or gratification that promisee did or didn’t do something is sufficient.
3
Contracts I Outline Fall 2007
iv. UCC §2-203: Seal inoperative. The seal is no longer used to enforce a
contract/writing, just because it had a seal affixed. The writing/seal would still
have to show consideration.
II. Legal value – that which is bargained for must constitute a benefit to the promisor or a
detriment to the promisee.
a. Adequacy of Consideration – If there is consideration courts will normally not look into
the adequacy of it. Freedom of contract; laissez-faire attitude (Peppercorn Theory).
i. Haigh v. Brooks (paper) – There was a promise (to pay £9995), and CS (paper
of guaranty). There was a bargain, and thus it shows D had value assigned to the
paper, that he would bargain for it. Value of what is exchanged is established by
the value the party places on it; this is sufficient for consideration.
iii. Fiege v. Boehm (baby mama) – There was a promise (to pay childbirth costs)
and consideration (forbearance from pursuing legal claims). Forbearance from
pursuing legal claims counts as valuable consideration, even if the legal claims are
no longer valid, as long as at time K was made, there was good faith & reasonable
belief that she could pursue those legal claims.
b. However, courts may still look into the adequacy of consideration if they think there is an
objective disparity. The purpose of consideration is to police unfair bargaining - to ensure
that promise has not been extracted by unfair illegitimate means.
i. Jones v. Star Credit Corp. (freezer) – The CS (the price paid for the freezer),
was unfair. K unconscionable b/c unequal bargaining power. Under UCC-2302,
court may refuse to enforce K if unconscionable.
4
Contracts I Outline Fall 2007
III. Preexisting Legal Duty – A preexisting, enforceable duty cannot count as consideration for the
purposes of contract formation (and is thus not binding)
a. UCC §1-107 - Waiver or Renunciation of Claim or Right after Breach. - Any claim or right
arising out of an alleged breach can be discharged in whole or in part without
consideration by a written waiver or renunciation signed and delivered by the aggrieved
party.
b. Existing debt - payment of smaller sum than what is due is not sufficient as consideration
for relieving the debt (if debt is $1k and agreement to only pay $500, this is not
consideration, debtor can still enforce for $1k). However, if the consideration is in any
way new or different, then ok (like paying earlier).
c. Modification
5
Contracts I Outline Fall 2007
IV. Mutuality of Obligation – Consideration must exist on both sides of the contract; that is,
promises must be mutually obligatory. An agreement where one party has been bound but the
other has not lacks mutuality, since at least one of the promises is “illusory.” Without mutuality
of obligation there is no consideration because consideration is a promise bargained for and
given in exchange for a promise. Only applies to bilateral, not unilateral contracts.
b. Mutuality can still be found to exist in certain situations even though the promisor has
some choice or discretion. Here, CS exists. Promisor is suffering a legal detriment; he
has parted with a legal right to buy (or sell) the goods he may need (or manufacture)
from (or to) another source.
1. If you fail to state qty under the UCC (2-201) then the contract will fail for
indefiniteness; the exception is requirements and output contracts.
However, the quantities subject to these contracts may not be
unreasonably disproportionate to what is expected.
iii. McMichael v. Price (sand, requirement K) –Buyer will buy all that seller can
sell, provided good quality (output K). Although there is some discretion, buyer
has a good faith obligation so would still be liable for breach. If both parties can
be held liable for breach of contract, then mutuality of obligation exists and the
contract is enforceable (UCC §2-306(2).
1. UCC § 2-306 (2): A lawful agreement by either the seller or the buyer
for exclusive dealing in the kind of goods concerned imposes unless
otherwise agreed an obligation by the seller to use best efforts to supply
the goods and by the buyer to use best efforts to promote their sale.
6
Contracts I Outline Fall 2007
iv. Wood v. Lucy, Lady Duff-Gordon (fashions) – K where P has “exclusive right”
to make profit for D. K doesn’t specify P’s duties. A contract does not necessarily
have to explicitly state the duties of the parties that are needed for mutuality, as
long as you can imply a duty of good faith from terms of the contract
(exclusivity), and from the parties’ actions (UCC §2-306(2)).
V. Moral Obligation: Promise plus Antecedent Benefit - Past or Moral Consideration is not
sufficient to satisfy the “bargain” requirement. It was not given in exchange for the promise
when made.
a. Restatement §86 – (1) promise made for past benefit (CS) binding only to extent
necessary to prevent injustice, (2) A promise is not binding if (a) intended to be a gift or
promisor hasn’t been unjustly enriched, or (b) to extent that value is disproportionate to
the benefit.
b. Mills v. Wyman (sick son) – Father only has moral obligation to pay for, but no legal
duty. Father had only a moral obligation to pay, no legal duty. Moral obligation in the
absence of material benefit to the promisor is not sufficient consideration.
i. A moral obligation may only form consideration for an express promise in three
cases (none of these were the case here, so cannot be used):
c. Manwill v. Oyler (free land) – P paid for D’s land, and gave D land. P later promised to
pay. Past or moral CS not sufficient to support a K, and no other CS existed. Also, P failed
to prove he reasonably expected to be compensated, so it looks like a gift.
d. Harrington v. Taylor (my hand! axe) – P butted her nose (or hand) into domestic
fight. Injured hand. D promises to pay P. A voluntarily performed humanitarian act is not
a legally recognized consideration for a later promise.
e. Webb v. McGowin (hero employee) – P saves employer, who later promises to pay P.
A moral obligation is a sufficient consideration to support a subsequent promise to pay
where the promisor has received a material benefit, although there was no original duty
or liability resting on the promisor.
7
Contracts I Outline Fall 2007
i. Use of the “material benefit” rule: if you get a direct antecedent benefit, it is
sufficient consideration for a subsequent agreement to pay for the service.
f. Exceptions:
i. If a past obligation would be enforceable except for some technicality (like statute
of limitations), the courts will enforce a new promise if it is in writing or has been
partially performed.
ii. If acts have been previously performed by promisee, at the promisor’s request, a
new promise will be enforceable. Also, sometimes unrequested acts ok if rendered
during an emergency
iii. Most courts will apply the terms of the new promise, not the original.
VI. Promissory Estoppel: Promise plus Unbargained-For Reliance – Promise w/ no CS, but
reliance. The greater the strength of commitment by promisor, the greater the reliance of the
promisee.
a. Restatement §90 –
8
Contracts I Outline Fall 2007
9
Contracts I Outline Fall 2007
10
Contracts I Outline Fall 2007
11
Contracts I Outline Fall 2007
12
Contracts I Outline Fall 2007
13
Contracts I Outline Fall 2007
14
Contracts I Outline Fall 2007
15
Contracts I Outline Fall 2007
16
Contracts I Outline Fall 2007
17
Contracts I Outline Fall 2007
18
Contracts I Outline Fall 2007
19
Contracts I Outline Fall 2007
and parties hadn’t agreed on method. Parties are free to contract, court
shouldn’t impose. Court doesn’t want to use UCC, b/c not goods, and real
estate more susceptible to market. Dissent says court should fix a reasonable
rate so as to avoid injustice.
iv. Oglebay Norton v Armco (iron ore) – Parties enter into service contract for
P to ship goods for P, based on reasonable price, and gives 2 ways to calculate
this. The parties intended to be bound b/c of long-standing and close
relationship. The methods in contract to calculate price are no longer available,
but court says since they intended to be bound, so still enforceable, and court
will apply a reasonable rate, and a mediator for future agreements. Court can
do this since they intended to be bound, and court is only helping them carry
out their contractual duties. Court analogizes UCC§ 2-204 (though not for
goods), for gap-fillers court can imply.
d. UCC § 1-205 – Reasonable time under UCC depends on circumstances. An action is
taken seasonably if taken at or within agreed time, or within reasonable time.
e. Restatement § 178 – A term may be unenforceable on grounds of public policy. To
figure this out, look at interest in enforcement of the term, and weighing public policy
against enforcement of the term. (Balancing of interests).
f. Restatement § 179 – public policy against enforcement of some term because of
legislation or need to protect public welfare
g. Restatement § 249 – Payment can be made in legal tender or other manner ok in the
context, unless oblige demands legal tender, and gives reasonable time to procure it.
h. Restatement § 362 – Specific performance or injunction will not be granted unless the
terms of the contract are sufficiently certain to provide a basis for an appropriate
order.
20