CONTRACTS, Mehra, Fall 2011
Contract= promise or set of promises for the performance of which the law recognizes as a duty and the breach of which the law offers a remedy (Restatement 2d §1)
Bases for contract enforcement
-consideration
-moral obligation
-promissory estoppel
-implied contract
-reliance
I. The Basis for Enforcing Promises
A. Consideration
1. What is it?
a. Conditions necessary for promise to be enforceable
b. Bargained model of consideration
i. Hamer v. Sidway
(a) Facts: Uncle promised nephew $5K to refrain from drinking, using tobacco, swearing, playing cards or billiards for money until 21; nephew fulfilled promise, uncle held money until later but then died
(b) Rule: A waiver of any legal right at the request of another party is sufficient consideration for a promise to be enforceable
(c) gift= promise that is not enforceable; No gratuitous promise, nephew had to give up something
(d) if contracts not able to be properly enforced, ppl might stop making them
(e) economic efficiency/social issue if ppl stop making contracts
(f) shift from benefit/detriment model
(i) easier b/c hard to determine if party benefited
(ii) seems more respectful of parties’ interest to value certain things
(iii) gives parties guideline for making agreements
(g) Restatement §71=promise must be bargained for there to be consideration
(h) peppercorn: 1st Restatement-allows b/c waived right at request & exchanged for building; binding even though no belief in value of peppercorns; 2nd Restatement-does not allow–makes sure benefit/detriment is balanced b/c person with detriment knows this explicitly
(i) sometimes rule covers obligations it shouldn’t—bargained
for/exchange was to separate gift from promises—includes
peppercorn but shouldn’t
ii. Fiege v. Boehm
(a) Facts: Father agreed to support mother and child for her not to bring bastardy suit; stopped paying when learned not father; she brought bastardy suit
(b) Rule: Forbearance to sue for a lawful claim is sufficient
consideration for a promise to pay for the forbearance if
the party forbearing had an honest intention to bring
litigation which he believed was well-founded
(c) Informs Hamer rule: waiver of legal right but must be real legal right and
be bona fide agreement (subjective belief by promisor that it was a valid claim and objective facts that support claim)
(d) Legal right=right to bring bastardy suit
(e) Settlement does not rely on 100% certainty of good faith; party trying to
overturn settlement must prove subj. or obj. aspect missing
(f) Still thinking about how much claim is worth to each party even though
benefit/detriment is gone
B. Past Consideration and Moral Obligation
1. When can these support enforcement, if ever?
a. Past consideration is no consideration b/c you can’t bargain for it (can’t rely on this completely; e.g. Feinberg)
i. Feinberg v. Pfeiffer Co.
(a) Facts: D promised to pay P monthly for life upon retirement; successor paid lower amt b/c believed it was gratuity, not based on contract
(b) Rule: Reliance provides sufficient consideration for promise based on past services
(c) No bargained for/exchange b/c past consideration; cannot go backwards
ii. Mills v. Wyman
(a) Facts: P cared for D’s sick son who died ; D later promised to pay expense, didn’t pay
(b) Rule: A promise made in recognition of a moral obligation arising out of a benefit previously received is not enforceable
(c) Not bargained for/exchange b/c M cared for W before money promise
(d) Court wrote opinion to tell ppl that if you make promises like this and don’t follow through you will be judged by community b/c you have moral obligation to follow through
iii. Webb v. McGowin
(a) Facts: P prevented block from falling on D; D agreed to support P; when D died, payments stopped
(b) Rule: Where the promise cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service because of the material benefit received
(c) Not bargained for/exchange b/c W acted first and moral obligation
(d) McG gives gift b/c directed emotional state exception to consid. model
(d) Diff. from Mills b/c detriment to hero, success; maybe shaming doesn’t work; Mills had no direct moral obligation; Mills tried to separate moral & legal obligations; can’t determine if one strengthens other; thinks not everything should be legal obligation, need moral obligation too
(e) Court wants to protect good ppl to keep their gratuitous promises from being enforced
(f) Combines bargained for/exchange w/ benefit/detriment—moral obligation ratified by McGowin’s promise
(g) Court says you cannot clearly separate moral and legal obligations; do not want legal obligations broadened, want moral obligations bolstered
C. Reliance
1. What is it? When can it support enforcement?
2. Rewards
a. making promise of money in exchange for doing something, seeking someone who knows about reward and exerts effort
b. if person doesn’t know about reward, no consideration b/c that was not what was sought, person did not expend effort pursuant to promise
c. bargained for/exchange exists in tension with morality and people’s expectations
3. Substitutes for consideration
a. if something bargained for, you are put on notice
b. if something written, you are put on notice but prob. b/c ppl would fear writing things down
c. can change default rule by writing something down and saying it’s legally enforceable (takes away necessity for consideration to enforce promise)
d. allows gifts to be transformed into legally enforceable promises—feels wrong b/c it crowds out non-legal promises and not doing something b/c you want to but b/c you have to
4. Promissory estoppel– if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present—issue with avoiding injustice—introduces subjective intent
a. Charitable subscription
i. implicit bargained for/exchange b/c college set up memorial fund b/c of donation
ii. afraid that if enforce implicit promises would eliminate consideration
iii. promissory estoppel could make bargained for/exchange unnecessary
iv. every bargained for/exchange has element of reliance
i. Kirksey v. Kirksey
(a) Facts: D offered P house, she relied on promise & moved, later he took
away house
(b) Rule: Reliance on a gratuitous promise is not sufficient
consideration
(c) judge thinks what she gave up is enough consideration; some others think
D is bargaining for her to abandon settled land, just gratuity
(d) she performed on reliance of the promise
(e) parties’ expectations are one reason to enforce contract
(f) giving D chance to exercise charity is not consideration b/c would be over
inclusive and would include gratuitous promises
(g) Lunchtime at Tiffany’s-he looking for her company, she seeking ring (b/e)
(h) Tramp- not b/e b/c going around corner is incidental, not bargained for
(i) Million Dollar Swipe-returns to benefit/detriment; moral/legal obligations intertwined b/c of rep. of casino
(j) more like tramp than Tiffany’s b/c nothing sought for—more gratuitous
ii. Ricketts v. Scothorn
(a) Facts: grandfather promised to pay granddaughter so she could stop
working, she relied on promise, quit work, he died
(b) Rule: If promise induces action of other party in reliance on
promise and inducement is in accordance with the
promisor’s intent that is sufficient consideration
(c) contemplated response, not bargained for (expresses intent/expectation)
(d) not bargained for/exchange b/c not forcing her to quit work
(e) estoppel= about ppl making representations (can rely on this rep.)
(i) inducement
(ii) inducement accords with intentions of promisor
(f) bargained for/exchange too restrictive b/c ppl can make promises they do not intend to follow through on
(g) Kirksey is better for reliance on inducement/intent theory b/c she ends up
worse than she was in beginning b/c relied on promise
5. Restatement §90 (1st)
a. promise which promisor should reasonably expect to induce action or forbearance of a
definite & substantial character on the part of the promise & which does induce action
or forbearance is binding if injustice can be avoided only by enforcement of the promise
(a) Feinberg v. Pfeiffer Co.
(i) focuses on her reliance on the promise
(ii) Rule: Reliance on a promise that puts the person in a
worse position is sufficient consideration
(iii)court says reasonable that she relied on promise & retired
5. Restatement §90 (2d)
a. 2d eliminated “definite and substantial character” to broaden application of reliance
b. avoid injustice
c. promisor’s reasonable expectations standard expands what can be enforced
d. not subjective intent, what reasonable promissor should expect, not this promissor
(b) Cohen v. Cowles Media Company
(i) P told reporters of bad thi
What constitutes assent?
a. Lucy v. Zehmer
i. D wrote agreement selling land to P, thought it was joke, P didn’t
ii. Rule: If a party’s words & acts, judged by a reasonable standard
manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind
iii. For purposes of contract, what was in your head doesn’t matter
iv. Must be objective manifestation of subjective intent
v. Would have been objective manifestation if said it was joke
vi. Pepsi—showing points in commercial was objective manifestation of intent;
revised commercial saying joke was objective manifestation of intent; does
not matter what person intended, matters what person manifested; doesn’t matter what person watching saw manifested, matters how “reasonable person” would interpret manifestation
B. The Offer
-UCC 2-204: “An agreement sufficient to make a contract for sale may be found even though the
moment of its making is undetermined”
-generally offer can be accepted only by person offeror has invited to furnish the consideration
1. Owen v. Tunison
a. P asks to buy D’s store for price, D replies not for less than another price, P accepts & sends
money, D decides not to sell
b. Rule: An offer is an act that must express the will or intention to allow
an offeree to reasonably believe that he has the power to create a contract; excludes situations that evidence intent to deal or open negotiations
c. Owen should shave said “I’ll give you $16K & Tunison would accept
d. court hesitant to define offer too easily b/c if negotiation defined as offer, negotiation would
be too limited—helps be more precise & decide what you want
e. no offer—Tunison’s statement didn’t make objective manifestation of intent to sell
2. Harvey v. Facey
a. P asked D for lowest price, D told lowest price, P agreed to pay but D sold to someone else
b. Rule: The mere statement of the lowest price at which the vendor would sell
contains no implied contract to sell at that price to the persons making the inquiry
c. not offer, can’t interpret literally (reasonable person would not think can name $0 as price)
d. diff. than Owen b/c here will pay whatever price named
e. Facey’s statement means “maybe”–no offer unless Facey manifested intent to sell
f. like Owen b/c never answered question, will you sell?
g. like promissory estoppel (Kirksey, Ricketts; not enforceable b/c not bargained for exchange)
C. THE OFFER
1. Advertisements as offers
-general rule is that an advertisement is not an offer, but rather an invitation by the seller to
the buyer to make an offer to purchase
a. Lefkowitz v. Great Minneapolis Surplus Store
i. P saw ad, went to store to buy stole
ii. Rule: Where the offer is clear, definite, and explicit, and leaves nothing
open for negotiation, it constitutes an offer, acceptance of which will complete the contract
iii. Contract, terms are definite-1 stole, 1st to arrive can buy (names L w/o naming
specifically)
iv. Supermarket fliers are not binding contracts, method to advertise price
v. Store could change terms before L arrived at store to buy stole
vi. Store can’t change terms after L has manifested his intent to buy stole
vii. Offer can’t just be price quotation—becomes offer when you limit it
viii. If L didn’t know about offer & was just 1st person, probably could not rely on it
ix. Pepsi-did not mention steps potential offeree would be required to take to accept
alleged offer, absence of words to limit makes offer indefinite that no contract could be formed
