Contracts class Outline
FOUR THEORIES ON REMEDIES:
1. Bargain for Exchange
2. Rule 86 Theory (Justice, or moral obligation).
3. Reliance Theory
4. Restitution Theory
I. FUNDAMENTALS OF CONSIDERATION .
Restatement 2d § 71 = Requirement of Exchange; Types of Exchange
Elements of a contract : “Promise” responded to by “Consideration.”
“To constitute consideration, a promise or a return performance must be bargained for.” Bargain means both parties are trying to induce the other.
§ 79- Adequacy of Consideration; Mutuality of Obligation
– If consideration is met, there need be no subjective “equivalence” on values exchanged, as long as there’s the intent to induce. But there need be no “mutual obligation,” or objective gain to one and loss to the other.
§ 81 – Consideration as Motive or Inducing Cause
(1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
§ 81 – There may be other motives outside the “bargain” that actually drive the parties. But as long as each manifests intent to induce a performance or be induced by a promise, motive is immaterial.
NOTE: (There are two bases for enforcement of contracts without consideration – Reliance and Unjust Enrichment.
Hamer v. Sidway
RULE: It is enough that one restrain his lawful actions in response to another’s promise, and in expectation of reward. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future, as an inducement for the promise.
GRATUITOUS PROMISES
– Courts will not inquire into “adequacy” of consideration. But “gross inadequacy” may indicate fraud…
– A “Gratuitous Promise”, even with nominal “consideration,” is not enforceable. Inducement is the key.
“Peppercorns”: A mere token payment, out of all proportion to the promise, will not be consideration. It’s a “pretense.”
Fiege v. Boehm
Woman offered not to sue father of her child, in exchange for child support. Blood tests proved he was not the father.
RULE: If a claim or defense is “doubtful”, i.e. possibly valid, OR if a party reasonably believes it may be valid, then forbearance or surrender of that claim or defense is performance for the promisee’s consideration.
§ 74 – Settlement of Claims
(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless:
– If a claim or defense:
o Is “doubtful”, i.e. possibly valid, OR
o A party reasonably believes it may be valid,
then forbearance or surrender of that claim or defense is performance for the promisee’s consideration.
– The execution of a written instrument surrendering a claim or defense, by one under no duty to execute it, is consideration if it is bargained for, even though he believes no valid claim or defense exists.
II. THE REQUIREMENT OF EXCHANGE: ACTION IN THE PAST .39
Feinberg v. Pfeiffer Co.
RULE: Past performance does not constitute consideration for a present bargain.
– There was no element of bargain, so the promise is essentially a gift, a gratuitous promise, unenforceable.
Mills v. Wyman
Mills cared for Wyman’s dying son; Wyman promised to repay Mills’ expenses; then reneged.
RULE: Past action, without bargain, does not constitute consideration on any “moral obligation” theory. A mere verbal promise, without consideration, cannot be enforced.
– (Plus, Wyman himself was not the beneficiary of Mills’ performance. Wyman’s son would have had to make any bargain).
Three possible exceptions to “no moral obligation” rule:
1. Promise to pay a debt that is no longer enforceable due to statute of limitations
2. A promise by an adult to perform a duty imposed by promise he made as a minor
3. Promise to pay a debt that has been discharged in bankruptcy.
Webb v. McGowin – 1935
Webb was permanently disabled in the act of saving McGowin. McGowin promised him support payments for life.
RULE: The element of moral obligation, where Promissor has received a material benefit and Promisee has sustained a detriment, does make a subsequent promise to pay qualify as consideration, and presumes that a bargain was made.
§ 86 – Promise for Benefit Received [Moral Obligation]
– A promise made in recognition of a benefit previously received from the promisee is binding to the extent necessary to prevent injustice. (Rule 86 Exception).
III. THE REQUIREMENT OF BARGAIN .50
§ 24 – Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that assent to the bargain is invited and will conclude it.
Kirksey v. Kirksey
– Court ruled the phrase “if you will come and see me” was merely to tell her how she could avail herself of a gift. A gift is not a bargain, and a promise to make a gift cannot be enforced.
RULE: Unless the promissor is attempting to induce a return performance or promise, there is no bargain.
– “Lunch at Tiffany’s” – Father promised his estranged daughter that if she would meet him for lunch, he would buy her a ring. Enforceable – Bargain for Exchange.
– Benevolent man to tramp: “If you will walk around the corner to the store, I’ll buy you a coat” – Gift, not bargain
CAB v. Ingram
RULE: Continued, at-will employment after employee signs is consideration for the non-compete clause. Once one party has performed, continuance under the contract by the other party constitutes acceptance.
– The court held that if the agreement is signed within a short time after hiring, it is part of the original employment agreement. If the promise of continued employment is ful filled (although at-will) for a reasonable time, it’s consideration.
– “Where there has been full or substantial performance by one party to a bilateral contract, originally invali
PPEL
Ricketts v. Scothorn:
RULE: If one intentionally influences another to alter his position for the worse in reliance on his promise, the promisor is estopped from claiming lack of consideration
Grandfather promised to give granddaughter $2000 if she wished to quit her job.
Promissory Estoppel – If Promissor has intentionally influenced the promisee to take actions to his own detriment in reliance on the promise, Equity will not allow the promissor to default on the promise claiming lack of consideration.
· Estoppel is: “A right arising from acts, admissions or conduct which have induced a change of position in accordance with the real or apparent intent of the party…”
Feinberg v. Pfeiffer:
– An act on the part of promisee, induced by and in reliance upon the promise, is enforceable by estoppel.
o Restatement 1st, § 90:
· Restatement 2d, § 90: Promise Reasonable Inducing Action or Forbearance
Bacardi v. Stout:
Bacardi promised to use General as its distributor, then defaulted; Cost General a $500,000 sale.
Promissory estoppel will not support “Expectation” damages (Put P in same position as if promise had been fulfilled) in an at-will employment case. If one party can terminate at-will, there IS no “Expectation” of future benefit.
But “Reliance” damages (put party in such position as if promise had never been made) can be assessed (Bacardi pays Stout the money lost after the promise, in reliance upon it). The foregone opportunity could be made right.
FOUR THEORIES OF ENFORCEMENT
Bargain for exchange – Promise for performance, or promise for promise (Rule 71)
· Measure of recovery = “Expectation interest”
· Goal = Pay for harm to P
Reliance – Promise – Reliance on promise (Rule 90) – [“promissory estoppel” used in § 90]
· Measure of recovery = “Expectation” (to position as if promise were kept), or “Reliance” (to position as if promise were never made).
· Goal = Pay for harm to P
Moral Obligation – Benefit conferred – promise (Thank you promise) (Rule 86)
· Measure of recovery = “Expectation interest”
· Goal = Pay for harm to P
Restitution – Benefit conferred [but no promise – beneficiary is unjustly enriched]
· Measure of recovery = “Reasonable value” – Objective (how much you’d pay others), or subjective (how much it benefited you).
· Goal = Take unjust benefit from D.
