Chapter 1. Bases for Enforcing Promises
The Meaning of Enforce – Compensation v. Punishment
1. U.S. Naval Institute v. Charter Communications, Inc. – Goal of K law is not to punish, but to compensate the injured party for the loss created by the breach.
Disgorgement – when someone profits from your loss, you want ALL the profits. Not allowed because it would be punitive.
Ex: Berkley made $100K, NI only would have made $40K, but NI wants all $100K.
3 Different Measures of Damages
1. Expectation Interest – Put the promisee in the same economic position he would have occupied if the promisor had kept his promise
2. Reliance Interest – Put promisee in the same position he would have been if he had not relied on the promise
3. Restitution Interest – Require promisor to return the value of any benefit the promisee gave to the promisor.
Alternative Measures of Compensation
2. Sullivan v. O’Connor – Reliance interest. Plastic surgery gone bad, wanted to compensate her for the damages/losses she suffered from the breach of the doctor’s promise.
Consideration as a Basis for Enforcement
Consideration = Exchange/Bargain + Benefit to Promisor + Detriment to Promisee
Consideration might be a promise, or something other than a promise ($, goods, services)
Promise in exchange for a promise = Bilateral K
Promise in exchange for something other than a promise = Unilateral K
Simultaneous exchange without promises = NOT a K
3. Hamer v. Sidway – Family Contract. Unilateral K, Promise for $5K if the nephew abstains from doing the bead things. $ for act of abstaining. There must be quid pro quo for a contract – gotta give to get.
Subjective – What the actual intent was, regardless of what was said
Ex. Uncle wants to give money to the nephew period
Objective – What people would think the intent was based on what they heard.
Ex. Family members at the party
Consideration as the Basis for Enforcement – Fundamentals of Consideration: What is Consideration?
4. Fiege v. Boehm – promise not to assert a claim for which you have an honest belief IS consideration. Because she honestly believed that he was the father, her not instituting bastardy proceedings was sufficient consideration for him paying the child support.
Requirement of Exchange Action in the Past
5. Feinberg v. Pfeiffer Co. – actions in the past are not sufficient consideration for a contract.
6. Webb v. McGowin – Boss received material benefit from the actions of the employee. The actions of the employee are consideration.
1. Injury to the promisee
2. Benefit to the promisor
3. Circumstances precluded advanced negotiations
4. Restatement 86
a. Enforcment necessary to prevent injustice
b. Not a gift
c. Promise cannot be disproportionate to the benefit received
The Requirement of Bargain
7. Kirksey v. Kirksey – Promise with no exchange is not a contract. He was giving her the land, she was doing nothing in return.
8. Central Adjustment Bureau, Inc. v. Ingram – Unilateral K, employee makes promise not to compete, in consideration of this promise, they didn’t get fired. The promise for something else was the continued employment.
9. Strong v. Sheffield – No request for forbearance and Π never agreed to forbear, so there was no consideration. Ct said that in cases where a note is signed by 3rd party, that requests forbearance, and forbearance on the note is granted, it’s legally enforceable. She was giving the promissory note without getting anything in exchange for it.
10. Mattei v. Hopper – Satisfaction contract. Mattei had to get the leases, if he didn’t, it would be the only way he could get out of the contract.
Illusory Contracts lack mutuality.
Illusory Promises (Escape Clauses)
If the Promisor’s promise is conditional on his own actions or actions he exclusively controls, the promise is illusory and does not constitute consideration.
Escape Clauses: An offer may contain an escape clause as long as the condition is not within the Offeror’s exclusive control.
Omni: They had to obtain and analyze the feasibility report in good faith-the results of which were out of their exclusive control.
Cancellation Clauses: A clause that allows cancellation at any time is probably not an illusory promise if the cancellation is restricted in any way.
Eg. “Only after 60 days”
A conditional Promise that the Promisor knows cannot be satisfied is not consideration.
Illusory Promises (Escape Clauses) cont.
A promise that allows the Promisor to choose between alternate performances is not consideration unless each alternate performance would have qualified as consideration alone.
A promise that allows the Promisee to choose between alternate performances is consideration if at least one of the alternatives qualified as consideration.
11. Eastern Airlines Inc. v. Gulf Oil Corp. – Requirements Contract – Did not lack mutuality, it was a valid contract. Eastern had to buy all fuel from Gulf at K price, it was not a vague or indefinite contract.
12. Wood v. Lucy Lady Duff-Gordon – fashion designer alleges illusory contract. It was actually a valid contract – an implied promise that he had to fulfill his end of the bargain. Exchange was her giving exclusive rights in exchange for him giving her ½ the profits.
13. Ricketts v. Sco
ing in return.
18. Lucy v. Zehmer – Objective expression of seller was that he was selling the farm, his subjective intent was that it was a joke. Fly on the wall would have thought that he was really selling it.
Gentleman’s Agreement – parties intend to have an agreement but not to be legally bound by the agreement because it’s either an agreement on illegal activity, or maybe they just don’t want to be.
– Nonbinding agreements, because neither party intends to be legally bound.
– Promise of a raise by an at-will employer
– There are circumstances that may come up that could prevent the person from completing the agreement. You know this going into it, so you don’t want to be legally bound.
• Agreement not to raise
prices or wages.
• Unwritten agreement to
certain wage for union’s
agreement not to strike.
• Agreement to exclusive
• Neighbors’ agreement to use matching decorations.
Ramifications – If person doesn’t follow through – they could get bad reputations, etc.
Formal Contract Contemplated
Agreeing Before We’ve Agreed?
– The problem: Complex transactions requiring extended negotiations (e.g., purchase of a going business).
– Agreement in stages: Basic terms, then details.
– Example: The Getty, Pennzoil and Texaco story.
– Worked out sale of oil and crap on a cocktail napkin, ct. held it to be binding because all parties had intent to be bound.
– Must contain set of terms to constitute a contract
– If accepted by the other party, it must be able to conclude negotiations
Restatement §24 – once you say yes, it’s a done deal
Restatement §26 Preliminary negotiations – I haven’t empowered you yet.
19. Owen v. Tunison – willingness to discuss is not same as commitment to sell.
– Not a valid offer
– Sent it to multiple parties, if he had just sent it to one person, it would be a valid offer.
20. Fairmount Glass Works v. Crunden Martin Woodenware Co. – Was an offer because it contained enough details to be a valid contract.
Advertisments v. Offers
– Limited quantity, unlimited audience
– Ads are not usually offers unless they say “First Come, First Serve”, they are an invitation to “treat” or bargain, even if there are no terms left to negotiate.