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Contracts
St. Louis University School of Law
Baxter, Teri Dobbins

(Section 1) Consideration

Chapter 1: Basis for Enforcing Promises

I. Section 1: The Meaning of “Enforce”
A. Put non-breaching party in position they would have been in had there been no breach
B. Three interests of recovery
1. Expectancy
a) default measure of recovery
b) gives the plaintiff the value of what he expected to receive from the contract
2. Reliance
a) Gives P what he had before the contract or the promise was made
3. Restitution
a) Gives back (restores) any benefit conferred under the promise
C. Cases:
1. United States Naval Institute v. Charter Communications Inc.
2. Sullivan v. O’Connor
II. Section 2: Consideration as a Basis for Enforcement
Restatement (Second) § 71 p. 219
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Restatement (Second) § 74 p. 221
(1) Forbearance of the ability to assert a right, or surrender of a claim or defense, which proves to be invalid is not consideration unless
(a) the claim or defense is doubtful due to the uncertainty of the facts or the law, or
(b) the forbearing or surrendering party believes the claim or defense may be fairly deemed valid
(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution thereof is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

A. Fundamentals of Consideration
1. Defined:
a) “bargained for exchange of promise or performance”
b) One party abandons some legal right to induce a promise
2. Restatement, 2nd § 79. (Adequacy of Consideration; Mutuality of Obligation)
(1) If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
3. Typical Categories of Agreements
a) Contracts for the sale of goods
b) Real estate transactions
c) Construction contracts
d) Employment agreements
e) Family Contracts
4. Family Contracts
a) Hamer v. Sidway
(1) Promise supported by consideration
(2) Promise ($5000) in exchange for performance (refrain from drinking, etc.)
(3) Rule: Any suspension or forbearance of a legal right in exchange for a return promise or performance is sufficient consideration.
5. Gratuitous Promises
a) Peppercorn Theory
(1) No pretense to a promise will satisfy the consideration element or make an unenforceable promise enforceable
(2) A mere token payment arranged by the parties for the sole purpose of satisfying consideration = unenforceable
b) Feige v. Boehm
(1) Forbearance to sue is consideration so long as the lawsuit is not frivolous or vexatious and is in good faith
(2) Rationale: You cannot give up a legal right to something you have no legal right to do
(3) Good faith is determined by judge or jury
c) See also Kirksey v. Kirksey
d) Lunchtime at Tiffany’s
(1) Father promises his daughter a ring if she meets him for lunch
(2) Not gratuitous because the ring was “in exchange” for her meeting him and her meeting him was “bargained for” the ring.
B. The Requirement of Exchange (Action in the Past)

Restatement (Second) § 86 (Promise for Benefit Received), p. 227
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.
1. Feinberg v. Pfeiffer Co.
a) Promise could not be enforced based on Consideration – No consideration
(1) 40 years of employment was not in exchange for the pension
(2) She did not continue to work to get the pension
b) Promise was enforced on Reliance Interest
(1) She retired in part because she was relying on the pension
2. Mills v. Wyman
a) Mills sues for Wyman’s failure to pay medical bills as promised
b) Past Performance = No Consideration
(1) Mills did not treat the son expecting to get paid.
(2) Wyman promised to pay after Mills’ performance
3. Recognized Exceptions to Past Performance as Consideration:
a) Moral Obligation, Contracts entered as minor, an enforceable contract in which the statute of limitations has run.
b) Webb v. McGowin
(1) Rule: A moral obligation is sufficient consideration to support a subsequent promise to pay when the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.
(2) Material Benefit:
(a) Does not have to be monetary in nature
(b) Preservation of property or life
(c) Must have been conferred to the person making the promise (i.e. cannot be a benefit to the estate)
C. The Requirement of Bargain (a bargained for exchange as consideration)
1. Kirksey v. Kirksey
a) D’s promise to let her stay on his land and provide a house for her was gratuitous in nature
b) Lacked consideration because nothing was bargained for.
2. Rewards
a) If a performance is not given in exchange for a reward, there is no bargain, therefore, no consideration
b) Ledbetter v. Brodnax
(1) No Consideration – Brodnax learned of the reward after he returned the fugitive so his performance was not induced by the promise to pay.
c) Restatement 2n

ch oil Gulf was obligated to supply. Court applied UCC §2-306 (1) and ordered specific performance for Gulf to meet Eastern’s supply requirements.
(2) There is a good faith element of requirements contracts, and
(3) cannot be unreasonably disproportionate to the estimated requirement
(4) Gulf’s argument that the contract lacked “mutuality of obligation” does not hold up under UCC §2-306 because Eastern was under a good faith obligation.
(5) Specific Performance appropriate because:
(a) Previous history of operations b/w the parties
(b) Eastern would be put out of business if their oil requirements were not met.
(c) Instability of oil prices made damages difficult to calculate.
UCC § 2-306 (Output, Requirements and Exclusive Dealings)
1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

c) Wood v. Lucy, Lady Duff-Gordon
(1) Issue: whether the contract is valid since P did not explicitly obligate himself to anything under the contract?
(2) Rule: An implied obligation is sufficient to support the agreement and make the contract enforceable.
(3) There was an implied obligation:
(a) The parties’ intentions were for the contract to be enforceable (why would they make the contract otherwise)
(b) It is assumed that Wood would make reasonable efforts to sell her line.
(4) Courts will look to implied intentions to enforce a contract (particularly in cases of exclusive agency) even in the absence of expressed language in the terms.
d) Termination Clauses
(1) Promises are illusory if one party has the right to terminate the contract at any time with no restriction
(2) There must be some requirement such as notice in a termination clause for it to be a valid contract.
III.Section 3: Reliance as a Basis of Enforcement
A. Alternative method for enforcement when there is no consideration