CONTRACTS – EXAM OUTLINE
1. BASES FOR ENFORCING PROMISES:
B. CONSIDERATION AS A BASIS FOR ENFORCEMENT:
1. Promise or Performance Bargained for in Exchange
Fiege v. Boehm (Page 34):
· Girl had baby & guy assumes responsibility for it.
· Man agrees to pay child support (on grounds that she will not sue under paternity act)
· Man then finds out he’s not the father – stops payments – She sues based on his PROMISE to pay.
· Contract – Was a bi-lateral contract (2 promises made – Man (to pay) & Woman (not to sue – this promise is conditional on his performance)
· Was there CONSIDERATION?
o YES – she wouldn’t bring a paternity suit on him if he continues to pay for child support)
· He claims he doesn’t have to honor promise b/c its not enforceable
· She sues – HE WINS (quasi-criminal case)
· Round 2: Civil action based on ‘the promise’
o Is the promise enforceable? Do we have a contract?
o COURT’S HOLDING: page 37 – Rule = need honest and reasonable (both) belief for consideration (Since this case doesn’t have both elements – judgment goes to defendant.
o She did not act in good faith – she didn’t disclose she had intercourse with another man and Boehm may not have been the father
2. Distinguishing Bargains from Non-Bargains:
Feinberg v. Pfeiffer Co. (Page 39):
· Promise made by Pfeiffer co. through its Board of directors (called a resolution)
o After ∏ retires, they promised $200/month for retirement
o Promised was fulfilled for a while (as long as president was alive)
o President dies and wife (along with sons-in law) stopped payment
· ∏ sues
o Argues that consideration did exist – she can point to the promise made
o Corporation did not deny the promise, but argued that it lacked consideration and was merely a gratuity (GIFT)
o GIFT = NO CONSIDERATION
· Her argument in favor of consideration was all of her past work for the company (“I worked for ‘x’ years…”)
· PROBLEM: Cannot have consideration for past events
o Consideration has to happen at the time of the contract (performance)
o Page 31 – Note 2: Promises have to induce each other – need CONTEMPORANEOUS BARGAIN – ∏ work in the past does not induce this bargain (does not provide mutual inducement for this promise)
o In order for there to be consideration – she has to promise something at the point of the offer made (i.e. promise to work for another 5 months/weeks/days… or promise to retire)
o Without any inducement/exchange/barter – it looks too much like a gift
· Another consideration ∏ argues: RELIANCE on promise of pension:
o She relied on $200/month to make ends meet
o Said if $ wasn’t there she would have not retired (couldn’t afford it)
· PROBLEM: Still not mutual inducement!
FOR CONSIDERATION TO EXIST: there must be mutual inducement and cannot rely on past performance
Mills v. Wyman (Page 44):
· Wyman was sailor (came home sick, Mills took care of him – Wyman died shortly thereafter)
· Wyman’s father hears of “Good Samaritan” work that Mills had done for his son and promised to pay Mills for all his work and expenses he incurred.
· Wyman’s father changes his mind, and doesn’t pay him – Mills (∏) sues!
· Argues RELIANCE (Like Pfeiffer case)
o No consideration for this either b/c no mutual inducement
o Mills incurred all of the expenses before the promise was even made to him – so incurring costs was not based on the promise
o Again, past performance does not count!
· Court’s Holding: Judgment goes to defendant (Wyman’s father) – Mills’ case lacks contemporaneous consideration (his past performance doesn’t count)
Kirksey v. Kirksey (Page 50):
1845 Case – Facts:
· Husband dies – brother-in-law writes letter to wife saying he feels bad and offers her a house and some land to cultivate on if she would come out to his land.
· She leaves all her possessions
· He does not follow through on promise – she sues!
· ∏ Argument:
o Unilateral contract (1 promise made – promise to have land and house for her)
o Performance: She moved out there based on this promise
· Does the promise in the letter constitute a contract?
o Does her “leaving and moving 60 miles” (performance) provide consideration for his promise?
· Defendant argues: it was a GIFT
o Did the brother-in-law benefit from her moving out there?
· Court’s holding: Judgment goes to Defendant!
o Promise was considered a mere gratuity
· Important to note – Dissenting opinion – “her picking up and moving 60 miles was consideration enough to enforce the promise”
Central Adjustment v. Ingram (Page 53):
· Case of non-competition clause: looks @ consideration given for the agreement after employment has begun.
o Defendants are 3 former employees of Central Adjustment (CAB) that left the company and started their own collections agency that competes with CAB. (All 3 employees had signed agreements not to compete with CAB).
o Ingram: Mar. 1970 he began working for CAB. 1 week later they asked him to sign the agreement and he refused. Under threat of termination, he signed it 2 weeks later. June 1972 he was promoted, and June 1977 was promoted again. Feb 1979 he resigned from CAB – was 5th highest paid in co. @ that time.
o Goostree: Hired March 6 1972, and signs the agreement March7th. Promoted Apr. ’73 and again Jun ’77.
o Bjorkholm: Hired May ’77, and signed the non-comp 3 weeks later. Received a raise but no promotion.
o The Non-competition clause stated that they couldn’t work for or own a company that competed with CAB for a period of 2 years after leaving the company. They couldn’t give any information about CAB’s business, and they can’t contact any customers/clients of CAB.
they signed the non-compete contract, after the employment commenced
o ISSUE: Does continued employment offer sufficient consideration?
§ There was no promise of continued employment, there was just ‘continued employment’
§ Did the court take into account the raises and promotions given to the 3 employees?
§ Dissenting opinion talks about bargaining: Page 57 (middle)
· There can be no bargain for exchange if the covenant…
o Arguing for Ingram: The employer exercised its coercive power to negate the bargaining process by springing the non-competition contract after the employment has started.
Lucy v. Zehmer (Page 66):
o Buyer and seller of real-estate – entered into a contract of sale
o According to seller – after mutual promises, the seller decided not to sell IMMEDIATELY
o According to buyer – after mutual promises, the buyer argues the seller decided not to sell after 3 days (trying to argue reliance)
o Is there a contract in place – YES!
o Was there reliance? NO
o What provides consideration?
§ Bi-Lateral agreement (2 promises)
· Promise to sell (transfer title)
· Promise to buy (transfer money)
§ Consideration for seller’s promise to sell the property is the buyers promise to pay the money (executory contract)
· ***Each promise is the consideration for the other***
· Court held that the Buyer (Lucy) was entitled to specific performance. Since there had been a bargained-for exchange of promises, the Zehmer’s refusal came too late.
· Was there an exchange of promises in the Ingram case?
o We have to look for some consideration other than the promises to make the employees promise enforceable!
§ Continued employment, promotions, and salary raises = CONSIDERATION
§ Dissenting opinion says that there was no exchange or bargain
· Garden variety contract = and exchange of promises. In the Ingram case and others, there are no exchanges of promises.
o We need to find something to substitute for a promise to make the agreement enforceable (Like in Ingram case – use raises and salary…)
§ Unilateral contract
o 1 promise (I promise to pay you $100 to cut my grass – to make it enforceable, I would have to cut the grass)
§ Bi-Lateral Contract
2 promises (I promise to pay you $100 to cut my grass