What is Breach of Contract under Arkansas Law?

Part 1 of the Arkansas Law School Memoirs

Many people don’t really understand the underlying principles of what breach of contract truly is. So, here is a memo I wrote during law school explaining one situation where breach of contract could have applied. This has to do with a promise to deed property to a girlfriend.
Mr. “X” contends that Ms. “Y” breached her contract by promising to move in with Mr. “X” in exchange for half interest in the newly purchased property. Before the purchase of the home, Ms. “Y” told Mr. “X” that she would move in with him if he bought a new home. In return, Mr. “X” promised to buy a home for them to live in and promised to make Ms. “Y” a co-grantee on the deed which would give her a one half interest in the property. In order to establish that there was a legally binding contract, it must first be determined whether there was an exchange of promises. American Transportation Corp. v. Exchange Capital Corp., 84 Ark.App. 28, 129 S.W.3d 312 (2003). Mr. “X” admits to promising Ms. “Y” one half interest in the house. Further, Ms. “Y” admits that she told Mr. “X” that she would move in with him after he purchased the home. However, the court must examine the intent of the parties before each promise will be given legal weightiness. In denial of a binding mutual promise, Ms. “Y” will probably contend that she made a mere statement of intention to move in and not an assurance that she would in fact move in. It is well settled that a mere statement of intention will not constitute a promise in the context of a binding contract. American General Life Ins. Co. v. First American Nat. Bank, 19 Ark. App. 13, 716 S.W.2d 205. However, the court will likely look to other theories of contract interpretation in order to determine the intent of Ms. “Y”.
The objective theory of contracts has been dominant for at least a century stating that the terms of the contract will be interpreted through the eyes of a reasonable person looking objectively at the words and actions of each party. J. Calamari and J. Perillo, The Law of Contracts § 12 (1970). Ms. “Y” and Mr. “X”, at the time, had been dating for a long period of time. Ms. “Y” did not indicate that her promise to move in with Mr. “X” was not what she intended until after the home was purchased and the deed was signed. A reasonable person would likely understand that the two parties had agreed on the terms of the contract and Ms. “Y” would only get the interest in the house if she moved into the house and lived with Mr. “X”. Therefore, a court will likely find that a reasonable person would find that a contract had been formed between the parties.
Moreover, there must be a meeting of the mind to form a contract. Ward v. Williams, 354 Ark. 168, 118 S.W.3d 513 (2003). Both parties were in constant contact throughout the entire process and were fully aware of the actions being taken in furtherance of the agreement to cohabitate. Ms. “Y” had many opportunities to confront Mr. “X” about the terms of the contract as he began to take the steps necessary to perform the contract. Ms. “Y” knew that he was looking for a house and knew that he thought she was going to move in with him after he made the purchase. Thus, a court will likely find that there was a sufficient understanding of the terms of the contract and that both parties had a meeting of the minds.
On the other hand, Ms. “Y” will argue that her promise was either a gratuitous promise or a conditional gift, both of which would admonish the necessary element of a promise required to form a legally binding contract. A gratuitous promise, unsupported by consideration, is not sufficient to impose a duty to carry out the promise. Stalter v. Akers, 798 S.W.2d 428. The promise made by Ms. “Y” is likely to be seen as gratuitous. The very nature of relationships is volatile and cannot be predicted. Ms. “Y” cannot control the future and the promise to move in with Mr. “X” was merely an intention to gratuitously accompany Mr. “X” with her presence after the purchase of the house. A court will likely find that Ms. “Y” will likely not be found legally bound to live with Mr. “X” by her promise to do so.
Although it is well settled that giving up a right such as the freedom to live wherever a person chooses may be consideration, the case at hand does not fit within these parameters. Here, the defendant told the plaintiff that she would live with him; however, it is very unreasonable to foresee her as being legally bound by that promise. Relationships, not bound by marriage, are not legally binding and promising to move in with another person without the security of a legally binding contract will likely not be held as a binding contract on which remedy can be sought. People frequently change their minds about relationships and cannot be forced to remain in the relationship if they no longer desire to remain. Furthermore, if not the promise is not found to be gratuitous, a court will likely find the promise to be illusory at best. Rest. 2d Contracts § 77. Courts equate illusory promises such as the promise made by Ms. “Y” to be equivalent to making promises that only have to be performed if the promisor wants to perform them. Id. Under this interpretation, promises of this nature cannot be held to be binding as the promise maker is without consideration.
Seemingly, the same logic could be applied to the deed contract itself rendering it invalid. Although Mr. “X” has given consideration for his half interest in the property, Ms. “Y” gave nothing in return as consideration of her half interest in the property. Therefore, the contract should be void for lack of consideration. However, it is noted that, generally, inadequacy of consideration is not a ground for setting aside a voluntary conveyance [of property]. Dyson v. Ferncliff Props., Inc., 16 Ark.App. 64, 696 S.W.2d 767 (1985). But, that rule applies only in the absence of fraud. Cuzick v. Lesly, 16 Ark.App. 64, 237, 700 S.W.2d 63 (1985). Here, there was a clear conveyance of land and a clear inadequacy of consideration given in return by Ms. “Y”. Because this inadequacy of consideration does not generally give grounds for reformation, a court will likely not find that the deed contract lacked the necessary consideration.
(In my then opinion…)
The court will likely find that Ms. “Y”’s promise to move in with Mr. “X” was either gratuitous or, more likely, illusory. Thus, the court will probably find that there was no contract to breach. Further, the court will likely find that the lack of consideration given by the Ms. “Y” was insufficient for the one half interest. However, the lack of consideration alone usually does not allow for grounds to rescind or reform the contract conveying the interest to her. But, the defendant’s fraud may be enough, combined with the lack of consideration given by Ms. “Y”, to reform the deed. Therefore, if the court finds that Ms. “Y” was fraudulent in inducing Mr. “X” to give her the one half interest in the property, the court will probably find that the contract between Mr. “X” and Ms. “Y” should be enforceable and Mr. “X” would have right to damages for breach of contract.