I. The Bargain Theory of Contract
a) A Contract is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement 2d §1.
b) Consideration is the inducement of a contract, something of value given in return for a performance or a promise of performance by another, for the purpose of forming a contract. This is a required element in the formation of a contract.
c) Illusory Promise is a promise so indefinite that it cannot be enforced or which, by virtue of provisions or conditions contained in the promise itself, is one whose fulfillment is optional on the part of the promisor. Not adequate for consideration.
a) Restatement 2d §71(1) – to find consideration there must be a performance or return promise which has been bargained for by the parties.
b) Restatement §76 – Any consideration that is not a promise is sufficient to satisfy the requirement of §19 (c), except the following:
(1) (a) An act or forbearance required by a legal duty that is neither doubtful nor the subject of honest and reasonable dispute if the duty is owed either to the promisor or to the public, or, if imposed by the law of torts or crimes, is owed to any person;
(2) (b) The surrender of, or forbearance to assert an invalid claim or defense by one who has not an honest and reasonable belief in its possible validity;
(3) (c) The transfer of money or fungible goods as consideration for a promise to transfer at the same time and place a larger amount of money or goods of the same kind and quality.
c) Restatement §79 – A promise or apparent promise which reserves by its terms to the promisor the privilege of alternative courses of conduct is insufficient consideration if any of these courses of conduct would be insufficient consideration if it alone were bargained for.
(1) See Petroleum Refractionating Corp. v. Kendrick Oil Co., infra.
d) Restatement 2d §77 Comment (a) – Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise.
e) Restatement 2d §79 – If the requirement of consideration is met, there is no additional requirement of
(1) (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(2) (b) equivalence in the values exchanged; or
(3) (c) “mutuality of obligation.”
f) Restatement 2d §175 – a contract is voidable by the victim if that party’s “manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative.”
g) UCC §2-306 – Output, Requirements, and Exclusive Dealings
(1) A term that measures the quantity by output or requirements means actual output or requirements as may occur in good faith, cannot be disproportionate to a stated or implied estimate.
3. Refraining from a right is adequate consideration.
a) Hamer v. Sidway, 124 N.Y. 538 (1891)
(1) Facts: Uncle tells Nephew that if he refrains from certain vices until he is 21, he will give him $5000. Π is the executor of Uncle’s estate; Δ is the assignee of Nephew.
(2) Held: Nephew’s refraining from certain vices is a forbearance that amounts to consideration necessary for contract enforceability. The court “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party.”
b) Fiege v. Boehm, 210 Md. 352 (1956)
(1) Facts: Π and Δ entered an agreement for which Δ will pay support for her illegitimate child in return for Π not trying him for bastardy. Δ later proves the child is not his and stops paying.
(2) Held: Π’s promise not to sue for bastardy even though impossible was adequate consideration for his promise to pay support. There was no evidence of fraud. Giving up the right to take legal action is adequate consideration.
(3) Uses Restatement §76(b). A current defense could have used Restatement 2d 175.
c) Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 (1933)
(1) Facts: Δ contracted to buy 1.5M G of oil from Π unless Π should stop making that grade of oil. Δ states that the grade of oil is not correct and willnot accept further deliveries. (This is during the depression when the price of oil is falling fast.) Π then sells the remaining contract for much less than originally contracted and is suing for the difference.
(2) Issue: Δ argues there was no consideration.
(3) Held: A benefit to the promisor (Δ) or a detriment to the promisee (Π) is a sufficient consideration for a contract. Under Restatement 79, both need to be sufficient when promisor has alternative courses of conduct. Δ got oil, and Π gave up the right to discontinue producing that grade of oil. Giving up a right is adequate consideration.
4. Options Contracts
a) Firm Offers under UCC §2-205
(1) An offer by a merchant which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the stated time (or reasonable time if not stated, no more than 3 months). Must be signed.
b) Restatement 2d §87(a)
(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
c) Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183 (1973)
(1) Facts: Π entered a contract with Δ for a nominal fee for the option to purchase Δ’s land. Π never actually tendered Δ the money. When Π tried to execute the option, Δ refused.
(2) Issue: Is there consideration for the option?
(3) Held: a dollar is valid consideration for options for the purchase of land. However, no consideration was received, so there was no option, but simply an offer by Δ to sell, which is revocable.
5. Employment at Will
a) Permanent Employment is terminable at the will of either party without liability to the other.
b) Fisher v. Jackson, 142 Conn. 734 (1955)
(1) Facts: Δ told Π to give up his job and work for Δ (for less money) under an oral contract for life or until he was physically unable to work. Π complied and then was discharged. Π acts to recover damages. Δ says the employment was not “for life”, but a permanent position as was advertised.
(2) Result: giving up a job is not adequate consideration, but an incident necessary to accept the offer.
(3) JJ suggests that the plaintiff’s lawyer could have made more of the fact that he was giving up some salary. That could be consideration.
6. Moral Consideration and Past Consideration
a) Although not bargained for, there are two circumstances where a promise might seem worthy of enforcement
(1) Promisor acts from a strong sense of duty (moral consideration)
(2) Promisor is seeking to recompense the promisee for a previously conferred benefit (past consideration)
b) Harrington v. Taylor, 225 N.C. 690 (1945)
(1) Facts: Δ assaults his wife who hid in Π’s house. The wife then tried to kill Δ, and Π saved him, injuring herself in the process. Δ promises to pay damages, but fails to.
(2) Held: A voluntary humanitarian act is not consideration; implies that Δ should pay up anyways.
a) Equitable Estoppel is strictly, an estoppel which arises out of a person’s statement of fact, or out of his silence, acts, or omissions, rather than from a deed or record or written contract. Equitable estoppel is available when one party knowingly misrepresents material facts that are then predictably relied upon by the other. The misrepresenting party is “estopped” from asserting facts that contradict its misrepresentations.
b) Promissory Estoppel – an equitable doctrine declaring that “a promise which the promisor should reasonably expect [will] induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Restatement 2d §90.
2. Holmes on Reliance
a) “It would cut up the doctrine of consideration by the roots, if a promisee could make a gratuitous promise binding by subsequently acting in reliance on it.”
b) Some have argued that this prophecy has come true.
3. Equitable Estoppel and the emergence of Promissory Estoppel
a) Promissory Estoppel requires all of:
(1) A Promise
(2) Foreseeable reliance
(3) Actual reliance
(4) Injustice absent enforcement
b) Possible Applications
(1) Promise to make a gift: The P.E. doctrine is most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment.
(a) Intra-family promises: The doctrine may be applied where the promise is made by one member of a family to another. (Example: Mother promises to pay for Son’s college
one’s intention to do or to refrain from doing something. It can bind the person making the declaration to the thing declared.
a) An offer creates, in the offeree, a legal power of acceptance.
(1) An advertisement constitutes an offer when it is clear, definite, explicit, and leaves nothing open for negotiation.
(2) Ford Motor Credit Co. v. Russell, 519 N.W.2d 460 (1994)
(a) Facts: Π sold Δ a car with a higher APR than was advertised. Δ defaulted on the payments and sued for breach when Π gave them the higher APR. This is Π’s countersuit.
(b) Issue: Is an advertisement an offer?
(c) Held: An advertisement is not an offer. Because not everyone qualifies for financing, and Π did not have an unlimited number of the car in question to sell, it was unreasonable for Δ to believe that the advertisement was an offer binding the advertiser.
(1) Restatement 2d §26 comment (c): A “quotation” of a price is usually a statement of price per unit of quantity; it may omit the quantity to be sold, time and place of delivery, and other terms… The word quote is commonly understood as inviting an offer rather than making one, even when directed to a particular customer… In determining whether an offer is made, relevant factors include the terms of previous inquiries, completeness of the terms of the suggested bargain, and the number of people to whom the communication is addressed.
3. Counteroffers and Mirror Image Rule
a) A counteroffer destroys the original offer and replaces it for the original offeror to accept if he chooses.
b) Restatement 2d §36 lists five possibilities under which an offer is terminated
(1) The offeree rejects the offer or makes a counteroffer
(2) At the time specified in the contract, or, failing that, at the end of a reasonable time
(3) If the offeror revokes the offer
(4) If the offeror dies or becomes incapacitated
(5) If the terms of the offer include a condition for acceptance that has not yet occurred.
c) Mirror Image Rules
(1) Restatement 2d §59 states: “A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different fromthose offered is not an acceptance but is a counteroffer.”
(2) Restatement 2d §61 states an “acceptance request[ing] a change or addition to the terms of the offer” is not invalid “unless the acceptance is made to depend on an assent” to the new terms.
(3) Both the UCC and the CISG are more liberal.
d) Davis v. Satrom, 383 N.W.2d 831 (1986)
(1) Facts: Π and Δ were negotiating the sale of a mobile home park. Π sent an offer to Δ who made mods and returned it to Π. Π and Δ went back and forth again, and Δ’s final letter included a clause accepting the offer conditioned on his attorney’s recommendation. Π sends a check to begin performance, but Δ returns the check. Π wants specific performance.
(2) Result: Δ’s mods resulted in a counteroffer, not an acceptance. Π’s final response to Δ’s final response constituted the only acceptance, and those became the terms of the contract, including the attorney provision which was enforceable. Specific performance denied.
4. Meeting of the Minds
a) When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other’s understanding. Restatement §71(a)
b) Restatement 2d §20 states
(1) there is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other