Contracts I - Kim

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Contracts I - Kim
2013-12-07 16:31:51

First semester Cal Western - Contracts 1 - Kim
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  1. Contract
    Legally enforceable promise

    •                                                             i. A promise or set of promises for the
    • breach of which the law gives a remedy, or the performance of which the law in
    • some way recognizes a duty

    • ii.  A K needs consideration to be
    • enforceable as such- a contract is a legally enforceable promise, a promise is
    • legally enforceable when there is consideration

    • iii.   Types of promises

    1.   Bilateral: promise for promise

    2.   Unilateral: promise for performance
  2. What IS Consideration
    • i.   A bargain for exchange- when one person views what they are giving up as the price they are paying for what the other
    • person is offering

    • ii.     Can be a benefit or legal detriment

    • iii.    Look at intent and motive

    • 1.     Courts will generally not review the
    • adequacy of consideration, merely the sufficiency
  3. What is NOT Consideration
    i.   Affective reasons

    • 1.Giving something for love, respect, or
    • social reasons

    • ii.   Nominal consideration

    1.The form of a bargain but not he substance

    2. Exceptions:

    a.  Options/guarantees

    • iii.  Past consideration

    • 1. Something that someone has done in the
    • past cannot be used for a present K

    • 2. EXCEPT: if you did have a bargain for
    • exchange in the past but one party’s promise is no longer enforceable because

    a.  Statute of limitations is past

    b.  Person was under 18

    c.  Person went into bankruptcy

    d.  Debt discharged

    • 3. Then if the debtor makes a subsequent
    • promise, that subsequent promise is enforceable

    • iv.  Moral obligation

    1. Not enough to create a legal obligation

    • 2. Exception: where services rendered but
    • not requested

    • a. Traditional View
    •                                                             donative promise, not enforceable

    b.  Modern view

    • If material benefit received, promise
    • will be enforced but only to the extent necessary to prevent injustice

    v. Donative promise

    • 1. Promise to make a gift is NOT
    • enforceable

    • 2. BUT once a gift is completed, cannot be
    • taken back
  4. Sufficiency of Consideration
    Refers to legitimacy of consideration or the legitimacy of the transaction.

    Why was the contract formed as opposed to how much consideration.
  5. Nominal Consideration
    NOT Consideration -  parties each make promises in the form of a bargain but neither party views their promise as the price they pay for the promise they receive. In other words, nominal consideration looks like a bargain and sounds like a bargain but it isn’t really a bargain

    Unless an option to buy is included / down payment.

    ie. $50 deposit to purchase car/computer/etc.

    Case = Schnell v. Nell
  6. Conditional Donative Promise
    A promise/gift that is dependent on the occurrence of an event. 

    Hammer v. Sidway
  7. Donative Promise
    A promise to give a gift - generally not enforceable due to lack of consideration.

    Caveat - If promise is/was relied upon then it maybe enforced.

    Case - Dougherty v. Salt
  8. Adequacy of Consideration
    Courts will not review adequacy but will look to see if a deal exists - not the fairness of the deal.
  9. "Unconscionable" Contract
    A contract which is so outrageous or immoral that it shocks the sensibilities of the courts.

    Case = Batsakis v. Demotsis; Post v. Jones
  10. Promissory Estoppel
    The principal that a promise made without consideration may nonetheless be enforced.

    Restatement 1 - Entire K is enforceable

    Restatement 2 - Only part of K that will provide "justice" 

    Case = Feinberg v. Pfeiffer

    • a. Promise that someone could reasonably
    • rely upon is made

    b. Party relies on that promise

    c. Detriment because of that reliance

    d. Unjust reliance
  11. Past Consideration
    A past promise or act which forms the basis of a future promise.

    • Three exceptions.
    • 1. BK
    • 2. Minor/Underage
    • 3. Statue of Limitations

    Case = Mills v. Wyman; Webb v. McGowin
  12. Reliance
    What a prudent person would believe and act upon if told something by another.

    Typically, a person is promised a profit or other benefit, and in reliance takes steps in reliance on the promise, only to find the statements or promises were not true or exaggerated. The one who relied can recover damages for the costs of his/her actions or demand performance if the reliance was "reasonable."

    Cases = D&G Stout, Inc. v. Bacardi Imports, Inc.; Walters v. Marathon Oil Co.
  13. The Bargain Principle
    The theory that a performance or a return promise must be bargained for.

    • Restatement 71, 72, 79
    • Cases-Hamer v. Sidway
    •             Hancock v. Shell

  14. Moral Obligation
    In conjunction with Past Consideration 

    Something was given even though it wasn’t asked for.

    ie - saving childs life / paying bills Enforcing only to the extent that justice requires

    Restatement - justice not required if gift value can’t be disproportionate to gift/benefit
  15. Mutuality
    The agreement by both parties to a contract to be bound in some way.

    Both parties are bound or neither party is bound. 

    Cases = Scott v. Moragues Lumber Co;

    Office Pavilion S.Florida v. Asal Prods., Inc
  16. Exceptions / Limits to Bargain Principle

    Contract NOT Enforceable
    • 1. Legal Duty - Can not collect on "promise/reward/contract" when one has an obligation to follow through. 
    •       ie. Police officer can't collect on reward because he was executing his duties. 

    2. Duress a. improper threat b. no reasonable alternative

    • 3. Unconscionability - Prevention of oppression and unfair surprise a. UCC gives courts permission to determine UC absence of reasonable choice / terms that are one sided
    • b. bargaining power
    • c. manner
    • d. industry standards courts can confirm some / none / all of contract
  17. Exceptions to Mutuality
    Limited Promise:A contractual promise where one party’s consideration is worth significantly less than the other party’s consideration.

    Voidable Contract:A contract that can be affirmed or rejected at the option of one of the parties.

    Alternative Promise:A contractual promise, made by the promisor, to do one of two or more things, any one of which can satisfy the promisee for the action or promise he gave in return for the initial promise.

    Implied Promise:A promise that is never actually expressed by the promisor but is created by law so as to render a person liable on a contract in order to avoid fraud or unjust enrichment.

    Requirement Contract:A contract in which the seller promises to supply all the goods or services that a buyer needs during a specific period and at a set price.

    Output Contract:A contract in which a buyer promises to buy all of the goods or services that a seller can supply during a specified period and at a set price.
  18. When there is NO consideration (Equitable Doctrine)
    i. Reliance/Promissory Estoppel

    • 1.NOT a substitute for consideration, but

    • 2. When, in the face of no consideration,
    • it would be unjust for the courts not to enforce a promise, the courts will
    • enforce it

    3. Elements under the Restatement

    • a. Promise that someone could reasonably
    • rely upon is made

    b. Party relies on that promise

    c. Detriment because of that reliance

    d. Unjust reliance

    • ii.  →Reliance Damages

    • 1. Puts the party back where they would
    • have been had the promise never been made

    • 2. Measured by opportunity cost and out of
    • pocket costs
  19. Expectation Damages
    Expectation damages is compensation that tries to place the harmed party in the position he would have been in had the breach not occurred. 

    Market price (minus) Contract Price = Remedy

    Typically on "general damages"

    • Modern View - looks at "special damages" -
    • the injured party can recover for these special damages only if, at the time the contract was made, the breaching party either knew or should have known that these damages would probably result from his breach.

    Expectation damages can only be recovered if they can be calculated to a reasonable certainty. Where damages cannot be calculated to a reasonable certainty, the injured party will only be able to recover nominal damages.

    Typically, the issue of certainty arises in cases where the damages suffered are in the form of lost profits. The general rule regarding lost profits and certainty in calculating damages is that if the injured party is an established business, lost profits are not treated as speculative because they can be estimated from past profits. Therefore, an established business will generally recover for its lost profits.

  20. Limits on the Bargain Principle:





    Prexisting Duty
    • a. Bargain Principle
    • i.  Bargains are enforced according to their
    • terms


    • i.  Courts will review the adequacy of
    • consideration if a K was entered into by a party against their will

    • ii. Elements

    1. Improper threat          

          a. Traditional view

    i. Bodily harm

        b.  Modern View

    • i. Bodily harm (something that would be a
    • crime/tort)

    ii. Threat of criminal prosecution

    iii. Threat to bring civil suit in bad faith

    iv. Blackmail/extortion

    2. No reasonable alternative

            a. Subjective- FACT intensive

            b. Hard bargaining is NOT duress

    • iii. If threat made by a third party

    • 1.  Voidable by victim unless the other
    • party have some value or relied materially

    • 2. BUT if the party to the K knew about the
    • third party threat, even if gave value or relied materially, still voidable

    c.                Unconscionability

    i. Common Law

    • 1.Absence of meaningful choice
    • (procedural)

        a. Circumstances of K, bargaining power

    •     b. Are terms hidden?
    •         Is one party ignorant?
    •         Was there notice of terms?

    • 2.Terms unreasonably favorable to one
    • party (substantive)

         a.The ACTUAL terms in the K

    • ii. Generally need BOTH types of
    • unconscionability to make the K void


    • 1.If a K or K clause is found to be
    • unconscionable, a court may limit the application of the clause, void the
    • entire K or dismiss the one clause

    2.Look at:

    •       a. Circumstances- what is typical in the trade
    •       b. Terms are one sided
    •       c. A K is unconscionable at the TIME OF K formation

    • d.                        Mutuality
    •             (applies to BILATERAL Ks only)  

    • i. Generally: both parties must be bound by
    • an agreement, or neither are- a promise must be real and must limit that
    • party’s realm of choice somehow

    • 1. Even if a K is good on its face, may
    • still not meet the mutuality standard if one of the parties is a minor or
    • legally insane

    • ii. Types of Ks that raise mutuality
    • concerns

    1.Satisfaction clauses

         a. Personal satisfaction: Ks that deal with personal fancy, taste or judgment

    •      b. Reasonable satisfaction: Ks that deal
    • with commercial value or quality, operative fitness

    2. Requirement and Output Contracts

         a. All that I need = ok

         b. All that I want = NOT ok

    3. Agency agreements

    • iii. Conditional/Illusory Promise

    1. Conditional promise: If, then

    • a.      
    • The obligation to perform the ‘then’
    • lies dormant until the ‘if’ happens

    • 2.     
    • Illusory promise

    • a.      
    • Looks like a real promise but isn’t
    • because it doesn’t limit a party’s realm of choice

    b. Traditional view

    • i.  A K is NOT enforceable if the promise is
    • illusory, period

         c. Modern view

    • i. Courts will read good faith and
    • reasonableness into a K- if SOMETHING can be called consideration, courts will
    • enforce it

    • ii. So even if party is bound lightly, K
    • will be enforced

         e.         Preexisting  Duty

    i.  Legal Duty

    • 1. If a party is already legally obligated
    • to do something, agreeing to do that something is NOT consideration

    2. Exceptions

    •      a. Agreeing to settle a good faith dispute
    • is ok

    • i. Part payment of an undisputed debt is
    • NOT enough to discharge the entire debt

    •     b. Agreeing to do something slightly
    • different than original K is consideration

    •      c. If parties rescind the original K and
    • make a new K with different terms

    • ii.  Modification

    • 1. When two parties have not fully
    • performed

    2. Traditional/Majority View

         a. In order to modify a K, there HAS to be new consideration

    3. Restatement/Modern View

    •     a. Modifications are enforceable without
    • additional consideration if

    • i.  K still in executory phase- modification
    • is voluntary

    ii. Terms fair and equitable

    iii. Due to unanticipated circumstances

    iv. Made in good faith

    •     b. OR will also be enforced if reasonable
    • detrimental reliance

    4. Not un-doable unless duress or coercion
  21. 3 Types of Damages
    1) expectation damages

    2) reliance damages  

    3) restitution
  22. Contracts the REQUIRE mitigation
    1) contracts for the sale of goods

    2) employment contracts 

    3) construction contracts

    Employment Contract - Duty to mitigate by finding a new job.

    UCC requires buyer to "cover" in order to mitigate losses
  23. Types of Remedies for Contracts
    1. Damages = Monetary awards

    2. Specific Performance = Court orders breaching party to "finish/fulfill" contract.
  24. Reliance Damages
    Reliance damages are damages awarded to someone who has foreseeably relied on an ordinarily unenforceable promise and they are awarded for the purpose of putting the promisee in the position he would have been in had the promise not been made in the first place.
  25. Restitution Damages
    Restitution is usually awarded where one party has provided a benefit to the other party and it is awarded to repay the party providing the benefit the reasonable value of the benefit he gave. Typically, restitution is awarded in situations where one party has provided a benefit to another party under a contract and that contract turns out to be unenforceable.
  26. Specific Performance
    Specific performance is an equitable remedy where the court orders the breaching party to actually perform on the contract.

    • Only used in 
    • Sale of Goods - UCC
    • Sale of Property 

    Not used in employment contracts

    In contracts for the sale of goods, the test for determining a buyer’s right to specific performance, according to the U.C.C., is whether or not the goods that are being contracted for are unique. See U.C.C. 2-716

    Please note that where an item is unique, the buyer who breaches the contract will be liable for lost profits even if the seller sells the item to someone else. With ordinary goods, if the seller covers and sells to someone else, the amount that the seller earns from covering will be deducted from the damages that the buyer in breach owes.
  27. Liquidated Damages
    Liquidated damages are damage amounts that are negotiated by the parties beforehand so that, in the event of a breach, the contract itself states how much damages the injured party can recover.

    In order for a provision that establishes damages to be valid, it must meet two requirements.

    First, at the time the contract is made, actual damages must be difficult to calculate and,

    second, the amount of damages established in the contract must be a reasonable forecast of what damages would have been.
  28. Nominal Damages
    Nominal damages are token damages whose purpose is only to acknowledge that the injured party has been injured.
  29. Punitive Damages
    The general rule is that an injured party cannot recover punitive damages for breach of contract. See General Motors Corp., v. Piskor, 281 Md. 627 (1977).

    However, there are two exceptions to this rule.

    The first exception involves torts in that, if the action breaching the contract is a tort in and of itself, punitive damages can be recovered.

    The second exception involves bad faith, in that punitive damages can be recovered for a breach done in bad faith.
  30. Statute of Frauds
    Usually, oral contracts are enforceable.

    However, the statute of frauds requires that five kinds of contracts be put in writing in order to be enforceable.

    If a contract falls into one of these five categories, the contract is “within the statute” and must be in writing. If the contract does not fall into one of these five categories, the contract is “outside the statute” and does not need to be in writing.

    The five categories of contracts that must be written down in order to satisfy the statute of frauds are:

    • 1) contracts for the sale of an interest in land
    • 2) contracts for the sale of goods for $500 or more (under the U.C.C.), 

    • There are, however, certain exceptions to this rule in which an oral contract for the sale of goods of $500 or more will be enforced.
    • (1) If the buyer receives and accepts the goods, the contract will become enforceable. If the buyer receives and accepts part of the goods, the contract will become enforceable as to the goods that were accepted and received.

    (2) If the buyer makes a partial payment for the goods contracted for, the contract is enforceable as to the goods for which payment has been made. 

    (3) If the contract requires the seller to specially manufacture goods for the buyer that are not suitable for sale to others and the seller makes a substantial beginning in the manufacturing process, the contract will be enforceable.

    If a contract involves the sale of goods and services together, the statute of frauds will govern if the contract is primarily for the sale of goods and will not govern if the contract is primarily for the sale of services.

    • 3) contracts in consideration of marriage
    • 4) contracts that cannot be performed within one year of the contract being made and

    • Under this provision of the statute of frauds, contracts that cannot be performed within one year of the contract being made must be in writing.
    • 5) contracts of suretyship.
  31. "Unconscionable" Contract
    A contract can be found unenforceable by virtue of it being unconscionable.The doctrine of unconscionability comes from U.C.C. 2-302. However, courts apply the doctrine to all contracts cases and not just in cases dealing with the sale of goods. U.C.C. section 2-302 basically says that if a court finds that a contract or any part of a contract was unconscionable at the time it was made, the court either:

    1) refuses to enforce the contract

    2) can enforce the contract without the unconscionable clause

    3) can limit the unconscionable clause so that the result is not unconscionable