Prof. Page – Contracts I – Fall 2011
- A legal contract only exists when there is an exchange – whether that’s a promise for a promise, performance for a promise, etc… this is called consideration. The promises/performance have to be influencing the other party to act/promise. *i.e. the ‘fuzzy coughdrop’ rule*
i. RESTATEMENT §71
There needs to a ‘bargained for’ exchange: a performance or promise for a performance or promise. - This return performance or promise must be ‘sought for’ by the promisor in exchange for his promise (sought for means it must influence him to act – if something is provided which does not influence him to enter in to the K, then it is not a K at all. *i.e. fuzzy coughdrop*) - Both parties must be ‘after’ something – if not, no K. Motivation Test:
- Is there something motivating on both sides to make the party enter in to their
agreement/promises? Benefit/Detriment Test:
- Is one party to the K receiving a benefit while the other is suffering a detriment? If so = K.
- If the promisor has a goal in mind, there is consideration.
- i.e. Hamer v. Sidway: Uncle promised newphew $5000 to quit smoking/gambling. The
‘detriment’ was the nephew giving up legal rights to smoke/gamble – benefit: Uncle had peace
of mind knowing his nephew wasn’t doing that = enforceable.
- A promise not to do something (forbearance) counts as consideration.
- If you create, modify or destroy a ‘legal relation’, this counts as consideration.
- Promises can be made from or given to either the promisor/promisee, or 3rd parties to the
promisor/promisee. ‘If-Then’ Test:
- If an agreement between two parties can be placed in to an ‘if-then’ statement, there is a good
possibility that it is an enforceable K. (Not ALWAYS the case: “if its hot, I’ll give you a lemonade”
– NOT enforceable as there is nothing inducing the promisor to give lemonade)
ii. PROMISES THAT DON’T HAVE CONSIDERATION
1. Gratuitous Promises
- When a promise is made as a gift (there is nothing motivating one side of the K) it is considered a gratuitous promise. - There is no exchange present: The promisor is not getting something out of the deal, or there is no applicable benefit/detriment analysis.
2. Past Events (the ‘Brass Bull Rule’)
- A promise cannot be based on a benefit previously conferred prior to the K being ‘bargained for’ – the one who conferred the benefit was not acting so because of any K (it was a gratuitous gift) and any performance or promise which influences that after the fact cannot constitute consideration.
3. Nominal Considerations (the ‘Fuzzy Coughdrop Rule’)
- If the consideration provided is ‘nominal’ meaning that although it appears to be influencing the other party, it really isn’t. This is NOT consideration and therefore = NO K. - The inducement cannot be a ‘fuzzy coughdrop’ (which nobody wants) – it needs to ACTUALLY induce the other party to act or promise something, then there would be a contract. - ex: In Re Greene, where mistress would pay $1 a month for a house, a car, etc… The $1 rent cannot seriously be influencing the sugardaddy to be in this K – therefore NO K.
4. Illusory or Alternative Promises (restatement §77)
- A statement which appears to be an enforceable promise, but where the promisor does not actually have to do anything, is an illusory promise. i. Escape/Cancellation Clause:
- If the promise contains an open-ended escape or cancellation clause then it is not enforceable. (note that promises can contain escape clauses but they must not be within the offerer’s exclusive control: i.e. Omni – the purchaser had an escape clause but they had to initiate a feasibility report first and make good faith decision to reject purchase.) ii. Exclusive Control:
- If the offeror has exclusive control over the conditions...
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