BASIS OF PROMISSORY LIABILITY CONTRACTS OUTLINE – KELSO– FALL 2001
I. CONSIDERATION Typically Immutable – not a default rule that can be bargained around.
1. Bargain (express or implied) AND
2. Exchange (no adequacy requirement – must be more than mere pretense or sham)
a) Return Benefit to Promisor (or third party) OR
· Must be legal benefit (“feeling better” benefit is NOT a legal benefit).
· Third Party –
o A bargains with B.
o B has C (third party) do something for A.
b) Detriment to Promisee (or third party)
· Must be legal detriment (gave up legal right to vices – drinking, swearing, smoking).
o If uncle had made nephew only give up gambling which is not legal anyway, then no legal detriment, thus no consideration = no K.
· Third Party –
o A will do something for B
o In Exchange – B will do something for C (on A’s behalf).
c) TRAD/MAJ– merely feeling better (love/affection) is NOT enough for Exchange
MOD – Family promises exception– merely feeling better (love & affection) w/b enough for
d) HYPOS –
· Ex1: If uncle had made nephew only give up gambling which is not legal anyway, then no legal detriment, thus no consideration = no K.
o MOD – if you gave up any right at all = that’s enough.
· Ex2: Nephew swears once. In general, substantial performance usually enough.
· Ex3: Old woman down the street offers you $ to come & visit with her. Perhaps, try to extend family promises exception to this case & hope the court sides with you. Good faith argument, but atty w/h an uphill battle.
· Ex4: Nephew gambling the whole time, but had given up smoking, drinking, swearing – still valid K? Yes– /c he gave up the legal detriments (gambling wasn’t a legal detriment)
2. Implied – even if one party remained silent.
· Ex: injured mechanic – “I’ll take care of you.” [Pls don’t sue me…]
C. SUFFICIENCY OF EXCHANGE
1. NOMINAL CONSIDERATION – must be more than mere pretense or sham.
· Ex: Selling a Mercedes
o $10 – nominal consideration/sham – NOT enforceable
o $500 – would probably work – just not very adequate – but enforceable
· Ex: $5000 for worthless book — it’s not K – it’s a gift (NOT enforceable).
a. No adequacy requirement – just must be more than mere pretense or sham.
b. Peppercorn Theory (same as Nominal Consideration) – must have more than a mere
peppercorn for consideration.
(1) OPTION CONTRACTS for land
· Nominal consideration is routinely accepted in common day to hold land.
(2) MODIFICATION OF CONTRACTS
· Nominal consideration is okay – but there must be something.
· Ex: LL lets tenant pay less rent b/c business is failing. Tenant did not for consideration – nothing different. Even paying on a different day w/h worked.
2. PAST ACTS ARE NEVER CONSIDERATION
· Ex: Proud Grandfather – “I’ll give you the painting ($5000) if you name the baby after me.” They already had named the baby after him b/f he made the offer. NOT enforceable.
3. MODIFICATION OF CONTACT MUST HAVE IT’S OWN CONSIDERATION
· Nominal Consideration is OK for Modifications of K.
· Ex: Initial setup of promises – Later something happened & add’l promises.
o Modification must have its own consideration.
· Ex: Hard-Bargaining – Alaska workers – using their position to take advantage of the situation (waited until they were it Alaska with no other alternatives). BUT- modification of K – they could have done anything to make it valid, BUT no other consideration was given, therefore, modified K was NOT valid.
o To Make Valid Could Have – torn up old K for $60 (both parties must agree to tearup) AND then, make new K for $100. This would have worked.
o You want to renegotiate your employment K – NOT modify.
· Ex: Garbage collector – additional houses – he asked for more money – but offered no other consideration.
o TRAD/TX – would deny him b/c no new consideration for modification.
o MOD – extra homes w/h/b sufficient for add’l consideration.
· Don’t need consideration for modification if unexpected special conditions.
o UCC (sale of goods) – no new consideration needed for modification but
modification must be bargained for in good faith.
4. GIFTS – one sided K & is NOT enforceable.
· Cannot promise to make a gift & have it be enforceable by law.
· Ex: “I buy you a coat – you go pick it up.” This is not a bargain for exchange. No legal detriment or benefit. It’s a gift & NOT enforceable.
· Ex: Mixed Motives – bargain for exchange as part of the agreement.
o If K has a severable bargain – court will break it out.
· Treat gift as a gift – treat bargain as bargain.
o If cannot be severable – all of it will be enforceable.
· Penny case – The letter will not be supportive of bargain for exchange b/c no specific bargain.
· Cannot claim to receive something that you don’t have, therefore, no consideration – so NOT a bargain (he didn’t have penny at time he wrote the letter.).
· EXCEPTION – Charity Gifts (promissory estoppel)
5. “IDEA” DOES NOT HAVE TO BE NOVEL TO BE VALID CONSIDERATION FOR K.
· If idea has value, it’s valid consideration. (Ex: computer system)
6. RELEASE FROM IMAGINARY CLAIMS IS NOT CONSIDERATION.
· Ex: Mistress sues married man’s estate.
(a) $1 will not support promise to pay thousands of dollars
o nominal consideration won’t work.
(b) “Other good & valuable consideration” will not serve as consideration when
nothing good or valuable was actually given
o just saying you gave consideration is not enough for consideration.
(c) Release from imagery claims is not consideration for a promise
o She didn’t even have any claims anyway.
(d) Immunity from paying taxes on the house is not consideration b/c he was never
liable for those taxes anyway.
(e) Fact that parties intended to make an agreement means nothing. We don’t care
if they intended to – must have actual consideration.
oduce – are you satisfied w/ the lettuce you’re buying?)
o TX – in a General K – TX is TRAD & will NOT apply “Good Faith” – only for output, requirement & satisfaction clauses & any sale of goods (UCC).
o MOD/UCC – will require that K be completed in good faith.
· Ex5: Illusionary Bonus – not part of any of the 4 Exception Contracts.
o Literal language – not express obligation
o Implied – only can withdraw if in “good faith”
o Exam Answer:
§ P would lose in a TRAD state (like TX), but in a MOD state under UCC would likely win unless co had a “good faith” reason to withdraw the bonus plan.
E. SUMMARY OF TYPES OF CONTRACTS
1. In General
o TRAD – nominal okay
o MOD/TX/MAJ – more than pretense or sham BUT no requirement for adequacy.
2. Option Contract
o TRAD/TX – nominal okay
o MOD – nominal okay § 87
o No Clear Majority
o TRAD/TX – nominal okay
o MOD – nominal okay § 89 (UCC 2-209)
o No Clear Majority
4. Imply Bargain for Exchange
a) Output Contract “Good Faith”
b) Requirement Contract “Good Faith”
c) Exclusion Contract “Reasonable Efforts” “Best Efforts”
d) Satisfaction Clause “Good Faith” “Reasonable to Industry Standards”
o TRAD – reluctant to imply
o MOD/MAJ/TX – willingness to imply
F. MORAL OBLIGATION – cannot bargain for past consideration (life-saving act – then bargain)
1. Implied–in-Fact – follow the standard contract doctrine.
o If you don’t have Implied-In-Fact – you may have to use restitution/quasi-K/Implied-in Law (all the same thing).
o Usually your restitution remedy – you get back the benefits conferred.
2. Some Exceptions:
a) Waiving an Impediment Created by Law – can waive these defenses w/o new consideration
& it will be enforceable.
(1) Debts barred by SOL
(2) Debts incurred by infants
(3) Debts of bankruptcy
o Ex1: D says it could use SOL to not pay debt, but D promises to waive SOL & pay debt anyway. ENFORCEABLE – even though no new consideration b/c the promise is just removing an impediment created by law. There was consideration initially – for initial K.