Contracts, Fall 2008 Professor Claire Hill

1. Contracts, Fall 2008Professor Claire Hill Class 2

2. Overview of Semester • 1) Formation • 2) Interpretation • 3) Enforcement Issues • 4) Remedies

3. a) Equitable Grounds not to Enforce a Contract b) Justifications for Nonperformancec) Enforcement by, and Against, Third Parties Topic 3: Enforcement Issues

4. a) Equitable Grounds not to Enforce a Contract1. Problems with the Parties: Capacity to Contract 2. Problems with the Process 3. Problems with the Substance of the Contract Topic 3: Enforcement Issues

5. Topic 3: Enforcement Issues • b) Justifications for Nonperformance • 1. Mistake • 2. Impossibility/Impracticability/Changed Circumstances/Frustration of Purpose • 3. Enforceability of Modifications • 4. Other Party’s Actions/Express Conditions Not Met

6. a) Expectation Measure b) Reliance c) Restitution d) Specific Performance/Equitable Relief e) Agreed Remedies: Liquidated Damages; Agreement to Arbitrate Remedies

7. TOPIC 1: Contract Formation Requirements are Consideration (or substitute) and Manifestation of Mutual Assent

8. Consideration: different formulations • “Consideration consists of a benefit to the promisor or a detriment to the promisee. Consideration must actually be bargained for as the exchange for the promise.”

9. Consideration: different formulations • “Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.”

10. Contract Formation: Consideration Courts “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone.”

11. Contract Formation: Consideration Classic formulation: Bargained-for exchange of ‘legal detriments’ Legal detriment=mutual promises. Bilateral contract Legal detriment=promise by one party, performance by other party. Unilateral contract

12. Examples • Bilateral Contract: • Smith promises to buy car from Jones for $ • Jones promises to sell car to Smith for $ • Bargained-for exchange: car for money • Legal Detriment: subjecting self to breach under this contract if don’t take car/pay for car

13. Unilateral Contract: Fred promises to pay George $10 if George mows his lawn donates blood George Mows Fred’s lawn? Donates blood? Bargained for exchange: money for performance Legal detriment: performing; paying upon performance

14. Reconciling the formulations of the doctrine • Better view: Actual bargain/bargaining isn’t needed • Each party must ‘induce’ behavior of other by its promise, and must have other’s behavior as its desired/intended end (not necessarily “benefit” from it) • BUT: in most cases, there is something that looks like some sort of bargain. And reciprocal inducement can be viewed as a bargain.

15. Consideration vs. Condition Distinguish consideration from “conditions” Conditions: • Usually, no bargain • Promisor doesn’t particularly desire to induce the other party to act in that way. • ‘if you pass me that needle, I’ll sew your pants’ • if you tell me what kind of sandwich you want, I’ll go to the store and buy one for you.’ • ‘if you use the (my) office at night, I’ll let you do your business mailings from there for free.’

16. Other rules about consideration • “For value received” isn’t consideration • Donative/gratuitous promises generally not enforced, at least without reliance • “Illusory” promises aren’t consideration • “I’ll buy wheat from you, in such amount as I order from you” • Agreeing to do, or not do, or doing, or not doing, something illegal isn’t consideration • “I’ll pay you that $100 I owe you rather than making you sue me for it” isn’t consideration • “I’ll pay you the $100 a day early” IS consideration