bloomberg contract outline

8/10/2019 Bloomberg Contract Outline

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Introduction to Contracts

In general, a contract is a promissory agreement that is legally enforceable.

Kinds of contracts

o

An express contract is formed by written or oral language

o An implied-in-factcontract is manifested by the actions of the parties but is not

explicitly stated.

o An implied-in-law contract is an obligation created by the law for reasons of

justice.

Sources of contract law

o Common law has traditionally been governed by common law, although many

important areas have been superseded by statute

o All states except Louisiana have adopted provisions of the Uniform Commercial

Code, which governs many aspects of commercial transactions.

Consideration

Elements of Consideration

Bargained for exchange

A performance or return promise is bargained-for if it is sought by the promisor in exchange

for his promise, and it is given by the promisee in exchange for that promise. (Rest 2d. 71(2))

The bargain requirement serves the purpose of distinguish between enforceable promises and

ordinary gifts.

1. GiftsA promise to make a gift is unenforceable, not only because it is not bargained-

for but also because the offeree suffers no legal detriment.

2. Bargain v. preconditionPerformance of a bargain benefits the promisor and

therefore is valid consideration. Performance of a precondition does not benefit the

promisor and is not consideration.

3. BenefitThe benefit a promisor receives as part of a bargain does not have to be

economic in nature. However, the benefit must be more than just altruistic pleasure;

moral obligations do not constitute valid consideration

4.

Adequacy of Considerationa. Nominal ConsiderationAlthough courts will not ordinarily examine the

adequacy of consideration, courts will do so in cases involves purely token

consideration, in order to thwart attempts to make gratuitous promises appear

legal enforceable. Nominal consideration is usually evidence that a gift is

masquerading as a bargained-for exchange.

b. Recited ConsiderationA majority of courts allow a promisor who is

opposing enforcement of a contract to prove that the consideration recited in the

agreement was not actually given.

c. Past considerationAs a general rule, past consideration is not consideration.


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i. Pre-existing debtA promise to repay a debt that was excused

because of a technical defense is enforceable without consideration.

(Rest. 2d. 82, 83).

ii. New promise for benefits receivedA new promise to pay for

benefits will sometimes be enforceable without consideration on grounds

of moral obligation to prevent injustice. (Rest 2d. 86).

Legal Detriment

The second requirement for valid consideration is that it must constitute a legal detriment to the

promisee. Legal detriment is liberally construed to mean either a promise to do something that

one is not legally obligation to do or to refrain from doing something that one has a right to

doThere is no requirement that the promisee suffer any actual hardship. Likewise, the

promisor does something that he does not have to do.

1. Minority viewSome courts broaden the test such that valid consideration exists if the

promisor receives a benefit, even if the promisee does not suffer a detriment.

2. Unilateral and Bilateral contractsIn a bilateral contract, the detriment is in the form

of a promise.In a unilateral contract, the detriment is in the form of an action.

3. Pre-existing duty ruleGenerally, there is no legal detriment if aparty promises to do

something that he is already obligated to do. (Rest. 2d 73).

a. Disputeif there is an honest dispute as to whether the promisor is already

legally obligated to do the promised act, the promise or act may be consideration.

b. Unforeseen CircumstancesUnforeseen circumstances make it fair and

equitable to allow a promisor to modify a contract without giving new

consideration.(Rest. 2d. 89).c. New or different considerationEven a slight change in the terms of a pre-

existing duty will satisfy the requirement of consideration.

4. Partial Payment as Satisfaction of a DebtA promise to pay part of a debt, instead

of the whole, is not consideration for a return promise by the creditor to relinquish the

debt, because the debtor is obligated to pay anyway. Courts will consider a promise of

partial payment to be valid consideration if:

a. The payment terms are slightly changed.

b. The debtor refrains from declaring bankruptcy.

c. There is an honest dispute as to the debt.

d.

A check marked payment in full is cashed.5. Forbearance to Bring SuitA promise not to sue, made in exchange for some return

benefit, is valid consideration if either;

a. The claim is valid

b. The claim is invalid, and

i. The parties reasonably believed the claim was valid (majority rule).

ii. The validity was uncertain or the promisor subjectively believed that it

was valid (Rest. 2d. 74).

Mutuality

1.

An illusory promise is not sufficient consideration, because it only appears to bind the

promisor when, in fact, it commits him to nothing at all. (Rest. 2d. 77).


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2. An alternative promise allows the promisor to choose among several alternative

performances will satisfy mutuality only if each alternative has valid consideration. (Rest.

2d 77.)

3. A promise that gives the promisor the right to withdrawal from the agreement can

still be valid consideration for a return promise if:

a.

Termination is allowed after performance is rendered.

b. Termination is dependent on ability to perform.

c. Termination occurs with notice

4. Avoidable promise at a partys election is valid consideration and satisfies the

requirement of mutuality. (Rest. 2d. 78).

5. A conditional promise that makes performance dependent on the occurrence of a

future event is valid consideration

a. Condition is Outside the Promisors ControlThere is valid consideration,

even if a promisor eventually does not have to perform, unless the promisor

knows that the condition cannot occur.b. Condition is Partially Within the Promisors ControlA court will imply

such a promise to mean that the promisor will use reasonable efforts to satisfy

the condition.

6. A promisee who receives an irrevocable offer (an option contract or a firm offer) is not

always required to give consideration in exchange for that offer. (Rest. 2d. 87). Even

in cases where consideration is recited, courts do not require that it be paid.

7. Requirements and Output Contracts

a. Traditional RuleA promise to buy goods from a specific seller over a period

of time is insufficient consideration for the return promise to supply those goods,

if the quantity term was to be determined by what the buyer required over that

period. Mutuality was lacking because, although the seller has to provide the

goods, the buyer does not have to buy if he required nothing.

b. Modern RuleRequirements and Output contracts are valid consideration and

do not lack mutuality of obligation. UCC 2-306 implies that the buyer has a

good faith duty to:

i. Maintain reasonable requirement levels

ii. Buy exclusively from that seller, and

iii. Not take advantage of the seller by increasing demand to benefit from

fluctuating market prices.c. Output ContactSeller promises all of his output to one buyer. A mutuality

problem exists because the seller never promised to have any output let alone a

certain amount. Such contracts are valid, UCC 2-306 implies that sellers have a

good faith duty to maintain a certain level of output.

d. Unilateral ContractPart performance of a unilateral contract is sufficient

consideration to keep a promise open, even though the promisee is not obligated

to complete performance. Once part performance is render, however, the

promisor cannot withdraw the promise unless the promisee revokes.


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Promissory Estoppel

Promissory estoppel is an equitable doctrine that is used to avoid injustice by enforcing

otherwise unenforceable promises. It estops the promisor from claiming that no consideration

was given (Rest. 2d. 90)

Requirements for Promissory Estoppel

1. That there was actual relianceon the contract or promise

2. That the reliance was foreseeableto the breaching party.

3. That it was clearly detrimental.

4. That injustice can only be avoided by enforcement.

Case overviews

1. Hamer v. Sidway (1891).

a. Facts:A young mans uncle promised to pay him $5,000 if he abstained from

drinking, smoking, swearing and gambling until the age of 21. The uncles

executor refused to honor the promise, claiming no consideration.

b. Issue: Does voluntary forbearance of a legal right constitute consideration?

c. Rule: Forbearance of a right is sufficient legal detriment to constitute

consideration.

2. Batsakis v. Demotsis (1949).

a. Facts: During World War II, Batsakis loaned Demotsis 500,000 drachmas to get

back to America. Demotsis promises to pay $2,000. Demotsis refused to repay

the debt, claiming that inadequate consideration was given for her promise.

b. Issue: Is a contract void if the consideration furnished by one party is

substantially disproportionate to that given by the other?c. Rule: Inadequacy in a contract does not void a contract, as long as the

consideration has some value. A party that receives the benefit it seeks will not be

relieved from a bad bargain.

3. Dougherty v. Salt (1919)

a. Facts: Dougherty, at eight years old received a promissory note from his aunt for

$3,000 payable at her death. Note marked value received.

b. Issue: Is the note enforceable?

c. Rule:Although a note states that value has been received, if value has not in fact

been received, the note is unenforceable as a contract for lack of consideration.

4.

Schnell v. Nell (1861)

a. Facts: Nell was granted $200 in a will made by Schnells wife. The will was

invalid but Schnell promised to make the payment in exchange for one cent

consideration. Schnell revoked his promise.

b. Issue: Is nominal consideration acceptable?

c. Rule: Nominal consideration is not acceptable?

5. Kirksey v. Kirksey (1845)

a. Facts:The defendant wrote to his sister-in-law, If you will come down and see

me, I will let you have a place to raise your family. Two years after her

relocation, he changed his mind and made her leave. The plaintiff claims that theexpenses she incurred in moving were valid consideration.


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b. Issue: Is an act necessary to accept a promise simply a precondition to a

gratuitous act or consideration given in exchange for the promise?

c. Rule:Acts that are required before fulfillment of a promise are preconditions to

accepting the promise, not valid consideration.

6. Mills v. Wyman (1825)

a.

Facts: Mills provided board, nursing, and care to Wymans adult son. After the

services had been rendered, Wyman wrote to Mills, promising to pay for them.

Wyman later refused to pay.

b. Issue: Is moral obligation sufficient consideration to support a promise?

c. Rule: Moral obligation is not sufficient consideration to enforce a promise to pay

for services already rendered. Past consideration is no consideration.

7. Webb v. McGowin (1935)

a. Facts:Webb was crippled in the course of a heroic act to prevent harm to

McGowin. Consequently, McGowin promised Webb $15 every two weeks for

the rest of Webbs life. McGowin made payments until his death, whereupon hisestate refused to honor the promise.

b. Issue: Is moral obligation sufficient consideration to enforce a promise?

c. Rule: Minority Rulemoral obligation is sufficient consideration to support a

subsequent promise when the promisor received a material benefit.

8. Wood v. Lucy, Lady Duff-Gordon (1917)

a. Facts: Lady Duff-Gordon agreed with Wood that he would have exclusive

agency to place her endorsements on clothing designs, to place her designs on

sale and to license others to market them, hi exchange, Wood promised to keep

the books and to split the profits evenly with Duff-Gordon. Duff-Gordon

breached by endorsing designs herself and keeping the profits

b. Issue: Is a contract void for lack of mutuality because one party did not promise

to use reasonable efforts to perform his duties?

c. Rule:A promise to use reasonable efforts can be implied from a contract and,

therefore, a contract does not fail for lack of mutuality because it does not

contain explicit clauses requiring good faith efforts (UCC Section: 2-306(2))

9. Scott v. Moragues Lumber Co. (1918)

a. Facts: Scott agreed to charter a vessel to Moragues on the condition that Scott

was able to buy it. Scott purchased the vessel but rented it to a third party.

b.

Issue: Is a contract void for lack of mutuality when it is conditioned upon anevent whose occurrence is at the will of one of the parties?

c. Rule:A contract that is conditioned upon the occurrence of an event at the will

of one of the parties is not void for lack of consideration. Once the condition is

met, an obligation exists.

10.Grouse v. Group Health Plan, Inc. (1981)

a. Facts: Grouse resigned from his job because Group offered employment. The

offer was revoked.

b. Issue: Does the Plaintiff have a promissory estoppel cause of action?

c. Rule:An illusory promise can still be enforceable where the promisor should

reasonably expect to induce action on the part of the promisee and which does


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induce such condition action if injustice can be avoided only be enforcement of

the promise.

11.Clark v. West (1908)

a. Facts:West promised Clark $6 per page if he did not drink while drafting a

manuscript and $2 if he did drink. West later told Clark not to worry about

drinking. West later refused to pay more than $2 per page. West claimed

abstinence was a consideration for the contract.

b. Issue: May a condition of a contract be waived?

c. Rule:A condition to a contract can be expressly waived. Waiver must be explicit.

12.D & G Stout, Inc. v. Bacardi Imports, Inc. (1991)

a. Facts: Defendant promised Plaintiff would continue to be Defendants

distributor for Northern Indiana. Based on that representation, Plaintiff turned

down an offer to purchase the company. Defendant subsequently withdrew its

account and General was forced to accept a substantially lower offer.

b.

Issue: Can promissory estoppel be used to enforce a promise made between twoparties in an at-will relationship?

c. Rule: If a promise induces reliance, then the promise can be enforced through

estoppel. Damages would be for reliance not expectation.

Policing the Bargain

Capacity to Contract

1. Minors can disaffirm any contract, except for necessities, during minority and within a

reasonable time after reaching majority (Rest. 2d. 15).

a.

Exceptions are statutory or involve contracts that deal with duties imposed bylaw.

b. Upon a minors disaffirmance, the non-infant party is limited to restitution, and

only if the minor still possesses the goods.

c. A minor can ratify after a contract coming of age, expressly or by conduct that

causes reliance by another party.

2. Mentally incompetent parties can disaffirm a contract if, by reason of mental illness

or defect:

a. They are unable to understand in a reasonable manner the nature and

consequences of the transaction, or

b.

They are unable to act in a reasonable manner in relation to the transaction, and

c. The other party has reason to know of the condition. (Rest. 2d. 15).

3. An intoxicated party can also avoid contractual duties if he does not understand the

transaction. (Majority rule).

Revisions of Contractual Duty

Pre-existing duty rule

If one party promises another that he will do what he is already legally obligated to do, the

promise is not a detriment sufficient to satisfy the requirement of consideration (Rest. 2d.

73).


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1. Courts have held that modifications of rents and wages are invalid because of the pre-

existing duty rule.

2. An agreement to accept payment of a lesser sum on or after the due date is not binding

for lack of consideration

a. This rule is severely criticized because it discourages settlements. It has been

overruled in some jurisdictions.

b. Most jurisdictions follow it, but hold that sufficed detriment exists if payment of

a lesser sum is accompanied by some additional act of the debtor.

3. The pre-existing duty rule is not applicable if:

a. The original contract is rescinded and a new contract is executed.

b. Contraction modification is a partial rescission and therefore supported by

consideration.

c. Some new detriment can be found for consideration.

d. Rest. 2d. 89(a) allows a modification to be binding if compelled by unforeseen

circumstances.e. Under promissory estoppel, a modification is binding to the extent that justice

requires enforcement because of reliance on the modification.

f. Some state statutes allow modifications without consideration as long as written

and signed.

g. Dropping an invalid claim serves in most courts as consideration for

modification if the party has a genuine and reasonable subjective belief that the

surrendered claim in valid.

Economic Duress

1.

Rule:A contract is voidable if a party was forced to agree to it by use of a wrongfulthreat precluding his exercise of free will.

2. Proof:A party must show that immediate possession of needful goods is threatened and

that the goods could not be obtained from another source

3. The remedy is usually restitution

4. Exercise of a legal right is not duress

Check Tendered as Payment in Full

1. Common law RuleIf there is a good faith dispute over the amount of a debt and the

debtor tenders a check for a lesser amount than the creditors claim, cashing the check,

even under protest, discharges the debt.a. A debtors intention that the check be full satisfaction of the debt must be

cleared indicated to the creditor.

b. Partial payment by a fiduciary will not result in an accord and satisfaction.

2. UCC 1-207 -A creditor can cash a check tendered as payment in full and still reserve

the right to sue for the balance of the debt by righting words of protest on the check.

Unconscionability and Adhesion Contracts

1. Judges decide the issue of unconscionability as a matter of law.

2. Unconscionability is determines by circumstances at the time the contract was made.

3.

Parties are entitled to a reasonable opportunity to present evidence of the circumstances

to aid the court in making its decision


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4. The doctrine is used mostly in consumer cases.

5. Rest 2d. 208, using similar language as UCC 2-302, allows a court to refuse to enforce

all or part of an unconscionable agreement.

Types of Unconscionability

1.

Procedural unconscionabilityin the bargaining process is required before courts refuse

to enforce a contract.

2. Once procedural unconscionability is found, courts look for substantial

unconscionability in the bargaining outcome.

a. Unconscionability has been recognized to include an absence of meaningful

choice on the part of one of the parties, together with contract terms that are

unreasonably favorable to the other party.

b. Courts have used price unconscionability to invalidate agreements.

3. Waivers of defenses and cross-collateral clauses have been found unconscionable.

Case Overviews

1. Austin Instruments v. Loral Corp. (1971)

a. Facts: Loral had a contract to produce radar for the Navy. Austin was a

subcontractor. When Loral received a second contract, Austin threatened to stop

delivery on the first contract if it did not receive a price increase on the second

contract. Loral forced to accept.

b. Issue: Is a contract modification enforceable if it was agreed to under economic

duress?

c. Rule:A contract is voidable if the party claiming duress was forced to agree by

means of wrongful threat. The existence of duress is demonstrated by proof thatimmediate possession of the goods is threatened and the goods could not be

received from elsewhere.

2. Williams v. Walker-Thomas Furniture Co. (1965)

a. Facts:Appellants purchased household items from Defendant Walker-Thomas

furniture, alleged that the installment contracts that were entered into with

Defendant were unconscionable and should therefore, be unenforceable.

b. Issue:Whether the contracts were unconscionable, and thus unenforceable, due

to the boiler plate language on back of the installment contract.

c. Rule:Where the element of unconscionability is present at the time a contract is

made, the contract should not be enforced.3. Ligenfelder v. Wainwright Brewery Co. (1891)

a. Facts:Wainwright hired architect to build new brewery. Architect walked off

after different job awarded to his competitor. Wainwright promised additional

compensation for resumed work. Wainwright reneged.

b. Issue: Does the resumption of work contractually obligated constitute

consideration.

c. Rule:A new contract that was signed to prevent breach of earlier contract lacks

consideration.

4.

Foakes v. Beer (1884)


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a. Facts: Beer agreed to forgive interest on Foakes debt if he entered installment

plan. Beer later sued for interest.

b. Issue:Will an agreement to forgo interest in exchange for payment of the

principle fail for lack of consideration.

c. Rule:An agreement to forgo interest in exchange for repayment of a principal

fails for lack of consideration due to previous obligation.

5. Gray v. Martino (1918)

a. Facts: Defendant offered plaintiff, a police officer, reward if given help solving

crime.

b. Issue: Can a public servant enforce a private offer of reward for performing duty

encompassed by employment?

c. Rule: Public policy forbids outside remuneration for official duties.

6.Angel v. Murray (1974)

a. Facts:After signing a five-year collection contract, Maher requested increased in

pay due to extra houses. Increase granted but sue brought later.b. Issue: Can a contract be modified because of unanticipated difficulties?

c. Rule: If a party to a contract encounters unanticipated difficulties and the other

party voluntarily agrees to pay, the contract is enforceable.

Remedies

If an agreement, or part of it, is unconscionable, the court may:

1. Refuse to enforce the whole contract

2. Refuse to enforce the unconscionable part of the contract

3.

Limit the application of an unconscionable clause to avoid an unconscionable result.4. When remedies are limited:

a. UCC 2-719(2)When a limited remedy fails of its essential purpose because of

the circumstances, remedy may be had as provided by this Act.

b. UCC 2-719(3)Consequential damages may be limited or excluded, unless the

limitation or exclusion is unconscionable.

Remedies

Equitable Remedies

Although the standard relief for breach of contract is monetary damages, they may be

inappropriate in certain situations, such as where the amount of damages is too speculative, or

the contract was for unique goods. In such cases, courts will grant primarily two forms of

equitable relief: injunctions and specific performance. A primary consideration in granting

equitable relief is the issue of justice and fairness.

Specific Performance (Rest. 2d. 359; UCC 2-716)

Instead of giving monetary damages, a court can force the breaching party to perform as

promised in the contract. Specific performance is usually granted where a contract involves a

unique good, such as land. Before granting this remedy a court will consider several issues:


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c. Rule: Once notified of repudiation, other party may not continue and has

obligation not to increase damages.

4. Parker v. Twentieth Century Fox Film Corp (1970)

a. Facts: Parker contracted to star in musical. Fox cancelled movie and offered

different role for same amount of money. Parker refused.

b.

Issue: Must a party mitigate damages by accepting alternative employment?

c. Rule: Party is entitled to recover compensation less the amount employer can

prove would be earned from other employment. Employer must show that other

employment was comparable.

5. Hadley v. Baxendale (1854)

a. Facts: Mill shut down after shaft broke. Baxendale contracted to bring shaft for

repairs. Carrier negligently delayed, keeping mill closed. Hadley sued for lost

profits.

b. Issue: Is a party liable for all consequences resulting from breach of contract?

c.

Rule:The amount of damages awarded is limited to those that were fairly andreasonable contemplated by the parties at the time of contracting. Special

circumstances must be communicated beforehand.

6. Neri v. Retail Marine Corp.

a. Facts: Neri wrongfully repudiated a contract to buy a boat. Retail sold boat to

third party but refused to refund deposit to Neri.

b. Issue: Can a seller recover lost profits from a breaching buyer if he sells the item

at the same price?

c. Rule:A seller can recover lost profits from a breach even if item was sold for the

same price because the seller could have sold two of the same item but for the

breach (UCC 2-708(2)).

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