Contracts, 2012
Professor Mehra
Temple Law
I. The Basis for Enforcing Promises
I. What is Consideration?
A. Rsttmt §1 (definition of contract): “A promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty”
1. Promise: Something that legally must be performed
2. Performance: Fulfillment/accomplishment of a promise, contract, or other obligation
B. §71 and bargained-for-exchange model
1. “A benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (forbearance) can be consideration, such as “I will pay you $1,000 not to build a road next to my fence.” Sometimes consideration is “nominal,” meaning it is stated for form only, such as “$10 as consideration for conveyance of title,” which is used to hide the true amount being paid. Partial or complete abandonment of a legal right can be consideration,
2. Contracts may become unenforceable or rescindable (undone by rescission) for “failure of consideration” when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not made properly (as when the mechanic does not make the car run properly). Acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. Examples: prostitution, gambling where outlawed, hiring someone to break a skater's knee or inducing someone to breach an agreement (talk someone into backing out of a promise).
3. Promisee suffers a detriment if she is left poorer in some way, because property, money, or some legal right has been given up by the promisor
a. Both parties must have bargained for an exchange of detriment for promise
b. Promisor benefits by getting what he bargained for
c. Each party's promise must induce the other
4. Sham and Nominal/peppercorn Consideration
a. Sham is when contract mentions something exchanged for consideration, when there really was none.
b. Nominal/peppercorn consideration is something relatively worthless given as consideration
(1) While courts tend to not investigate relative economic values of both sides of bargain, as long as a 3rd party is not defrauded and the promisor was not tricked or coerced, §71 holds that a false detriment cannot reasonably be conceived as inducing the return promise
C. Hamer v Sidway (1891)
1. ∆ promised π that if π refrains from smoking, drinking, etc until 21 y/o, he will pay $5,000. π performs (forbears right to drink/smoke) and executor for ∆ refuses to pay on grounds that it was a gratuitous promise. π sued ∆ for breach of contract.
a. Gratuitous promise – A promise to perform/forbear without requiring any consideration in return. Generally not enforceable as a contract. Compare with illusory promises. May be enforceable in cases of promissory estoppel
2. Court holds that π forbore his legal rights, constituting consideration
a. Whether or not ∆ actually got anything of material value out of the contract is irrelevant
b. Objective theory
D. Distinguishing gift from valid consideration
1. Whether offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, then there is consideration and the promise is enforceable
E. Fiege v. Boehm (1956)
1. π sued ∆ for breach of contract to provide child support to π's (and supposedly ∆'s) child. They initially agreed that π would not sue for bastardy (forbearance of legal right) if ∆ paid. ∆ stopped paying when he found out he was not father and π initiated bastardy proceedings.
2. The forbearance from asserting a good faith legal claim constitutes a valid consideration
a. Even though claim was invalid, which usually is not consideration, in this case there was a good faith intention and mutual belief that claim was valid. Bastardy charge made in good faith.
II. Past Consideration and Moral Obligation
A. Traditional bargained for exchange model holds that past consideration is not to be construed as consideration in a later contract
B. Feinberg v Pfeiffer Co (part 1)
1. π worked for 40 years for ∆. Board of directors granted a pay raise and a pension for the rest of her life post-retirement. She was under no pressure to retire and could do so at her pleasure. She then worked for 2 more years and received pension upon retirement. ∆ decided to revoke pension under pretense that they were grifts without consideration and could be discontinued without enforcement. π sued on grounds that she a) relied on pension [promissory estoppel; addressed in next section], and b) her many years of loyal service were consideration
2. Past consideration is not consideration
a. Because exchange is the basis of consideration, each party's detriment must induce and be induced by the other's. Therefore, if the promisee suffered the
es on the protection of reliance, the remedy should be confined to reimbursement of actual loss, with fuller enforcement reserved for cases when justice so demands
E. Estoppel – preclusion of asserting a right when, by deliberate words or conduct, he has misled the other party into the justifiable belief that the right does not exist or would not be asserted
F. Kirksey v Kirsksey (1845)
1. No benefit to giver -> mere gratuity
2. π gets screwed over because promissory estoppel doctrine has not yet been developed. If §90 was in place, π could be shown to be reliant on promise
G. Ricketts v Scothorn (1898)
1. Defendant executed a promissory note for $2000 payable with 6% annual interest. Plaintiff sought to enforce the note and alleged that the consideration for the note was her promise to quit her job as bookkeeper and to stop working for a living. Defendant would rely on the interest as a means of support.
2. Promissory estoppel bars a party from asserting lack of consideration where reliance was induced by the party asserting there was no requisite consideration.
H. Types of cases in which reliance supersedes the need for consideration:
1. Family promises -> i.e. Ricketts; one member promises something to another and the promisee relies on it
2. Promises to convey land -> recipient relies on promise to convey land and make improvements. Kirksey?
3. Promises coupled by gratuitous bailments (the act of placing property in the custody and control of another, usually by agreement in which the holder (bailee) is responsible for the safekeeping and return of the property.) -> A entrusts B with something, B promises to respect and protect the property, A relies on that promise and has grounds for suit if B is responsible for losing/destroying the property
4. Charitable subscriptions -> courts tend to rule in favor of not-for-profits when they rely on a donation promises
I. Feinberg v Pfeiffer co (part 2)
1. While her claim for enforcement of past consideration was rejected, the court accepted the claim for enforceability on promissory estoppel
