Week 4: Facilitating Exchange; The Bargaining Requirement;
Interpreting Terms of the Deal; Third Party Issues
Reading: S&R Chapters 12, 15, 16
Outline:
I. Contracts (Continued)…
C. The Bargained-For Exchange (Consideration) – All business deals are not protected
by law! The law is concerned only with deals (and promises) that involve willful
exchange, trading, or swapping of one thing for another -- a “bargain.” It is the
bargaining that requires mutual assent. The bargained-for exchange can be a return
promise (bilateral contract) or the actual performance of an act (unilateral contract).
But people deal with each other in a multitude of complex ways over time. So, many
legal default rules have developed around this notion of bargained-for exchange, or
consideration.
1. Legal Sufficiency
a) Adequacy – “$1.00 and other valuable consideration…”
b) Unilateral Contracts
c) Bilateral Contracts
d) Illusory Promises [S&R 12 – Problems 5, 14]
i. Output and Requirements Contracts
ii. Exclusive Dealing Contracts
iii. Conditional Promises
e) Pre-Existing Obligations
i.
ii.
iii.
iv.
Modification of a Pre-Existing Contract [S&R 12 – Problem 7a]
Substituted Contracts
Settlement of a Liquidated Debt [Distinguish Payment Plans]
Settlement of an Unliquidated Debt [S&R 12 – Problems 4, 7b,
8, 15]
2. Bargained-For-Exchange [S&R 12 – Problem 1]
a) Past Consideration [S&R 12 – Problem 7c]
b) Third Parties
3. Certain Contracts Without Consideration But Still Enforced -- Promises to
Perform Prior Unenforceable Obligations, Promissory Estoppel, …
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D. Interpretation of Terms of Deal
1. Statute of Frauds – Many transactions in daily life are based on contracts and
entail binding spoken promises, even though no writing memorializes the parties’
understanding. All contracts need not be in writing to be enforced; some,
however, must be in writing. Conversely, nearly all exchanges with material
outlays or complexity (i.e. most commercial transactions) will be reduced to
writing and signed by the parties or their agents; but they don’t necessarily have
to be in writing. One rationale for writings, whether required or not, is that they
can minimize ambiguity and/or counteract the impact of default rules.
a) Contracts Subject To Statute of Frauds – Writing Required
i. Suretyship Provision -- Guarantees[S&R 15 – Problem 1]
1) Original Promise
2) Main Purpose Doctrine
3) Promise Made to Debtor
ii. Executor-Administrator Provision
iii. Marriage Provision
iv. Land Contract Provision
v. One-Year Provision [S&R 15 – Problems 2,7]
1) Possibility Test
2) Computation of Time
3) Full Performance by One Party
vi. Sales of Goods
1) Admission
2) Specifically Manufactured Goods
3) Delivery or Payment and Acceptance
vii. Modification or Rescission of Contracts
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b) Compliance with Statute of Frauds [S&R 15 – Problem 5]
i. General Contract Provisions
ii. Sale of Goods
c) Effect of Noncompliance
i. Full Performance
ii. Restitution
iii. Promissory Estoppel
2. Parol Evidence Rule – How much of the discussions leading up to a written deal
are actually part of the deal? Issues: alternate views, indefinite haggling, extensive
negotiation, give and take, elapsed time; also, agreement on core terms, leaving
remaining details to good faith. [S&R 15 -- Leitz v. Thorsen Case (270),
Problems 8,9]
a) The Rule – Prior or contemporaneous oral or written negotiations or
agreements that vary the terms of an integrated, written contract are not
admissible to change or vary the written contract
b) What Rule Does Not Apply To [Example: “Integration” clauses vs. true
intent]
c) Supplemental Evidence
3. General Rules Used by Courts to Interpret Contracts [S&R 15 – Problems 10,
19]
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E. Third Parties to Contracts
1.
Assignment of Rights
a) Law Governing Assignments
b) Requirements of Assignment
c) Rights Assignable
d) Rights Not Assignable [S&R 16 – Problems 1, 11, 19]
i.
ii.
iii.
iv.
Assignments That Materially Increase Duty, Risk, Burden
Assignments of Personal Rights
Express Prohibition [S&R 16 – Aldana Case (pg. 284)]
Assignments Prohibited by Law
e) Rights of Assignee
i. Steps in Shoes of Assignor
ii. Notice
2. Delegation of Duties -- [S&R 16 – Macke Case (pg.285), Problem 5]
3. Third-Party Beneficiaries – [Example: A, for consideration, promises C to pay
money or perform services for B; A & C sign a contract; B can sue A if A fails to
perform.] Problems arise in distinguishing between intended beneficiaries and
incidental beneficiaries (i.e. outsiders). Recognizing third party claims of
incidental beneficiaries is undesirable because it imposes costs and risks on
promisors that were not factored into expectations and contract price. [S&R 16 –
Problems 2, 6, 18]
a) Intended Beneficiaries
i. Donee Beneficiary
ii. Creditor Beneficiary
iii. Rights of Intended Beneficiary
b) Incidental Beneficiaries -- [Example: A contracts with C to build a beautiful,
decorative fence on A’s lot line with B. The finished portion of the fence
will face B’s property, by custom. Can B sue C if C fails to perform?]
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