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Contracts
Temple University School of Law
Mehra, Salil K.

Mehra_Contracts_Fall_2009

• General Contracts Policies
▫ freedom to contract
§ respect for the parties’ decisions, agreement, etc.
· exceptions
▫ tendency for ex ante view (when the contract was created)
§ occasional use of ex post view
▫ Rules for breach/partial breach encourage potential resolution of disputes that arise during the course of a contract
• General Notes
▫ The meeting of the minds is the matching of external signs of intent.
▫ nudum pactum – promise not enforceable for want of consideration
▫ Sometimes parties would not enter agreements / make promises if they knew all of the facts, about events that would follow, etc.
▫ The different parties also oftentimes have different amounts of information.
▫ In certain cases, a court may find a way to enforce a promise because it would be morally wrong to do otherwise.
▫ “The court’s conviction that the promisor ought to do the thing, plus the promisor’s own admission of his obligation [via the promise?], may tilt the scales in favor of enforcement where neither standing alone would be sufficient.”
• Trends
▫ Contract law has moved away from the pure bargained-for-exchange model and thus more amorphous rules / liabilities have been imposed.

The Basis for Enforcing Promises
• Definition of Contract
▫ RS § 1: A contract is
§ a promise OR 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
• Bargained-for-Exchange Model
▫ RS § 71: Requirement of Exchange; Types of Exchange
§ (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 promise in exchange for that promise
• General Rule: The promise for forbearance of a legal right is consideration; forbearance may constitute performance.
▫ Hamer v. Sidway, p. 34
§ introduced the bargained-for-exchange model, rejected the benefit-detriment model (elements still utilized in other cases)
▫ Peppercorn consideration:
§ Under both restatements, peppercorn consideration is valid as long as what it is exchanged for is truly bargained for.
· Under Restatement (First) Contracts, peppercorn is valid even if it is a mere pretext.
· Under Restatement (Second) Contracts, peppercorn is only valid as long as what it is exchanged for is truly bargained for (not a pretext).
▫ Extension of General Rule: Forbearance to assert an invalid claim by one who has an honest and reasonable belief in its possible validity is sufficient consideration for a contract.
§ Fiege v. Boehm, p. 40
· ex ante (before the facts; before the event) problem
o example: In Fiege v. Boehm, the defendant would not have entered the agreement if he had known that the child was not his. The court determined that the contract was still valid because the woman had a reasonable belief that the child was his.
• General Rule: Under the bargained-for exchange model, normally past consideration is no consideration.
▫ Feinberg v. Pfeiffer Co., p. 46
§ A promise to pay a pension where there is no return promise or performance is not consideration.
§ NOTE: Court used reliance to find for plaintiff.
▫ Extension of General Rule: Moral obligation does not normally support enforcement.
§ Mills v. Wyman, p. 50
· Facts: Father promised to pay plaintiff for care of sick adult child after child’s death.
· Exceptions:
o a promise to pay a debt no longer legally enforceable because the statutory period of limitations has run
o a promise by an adult reaffirming a promise made when the promisor was a minor and that could have been avoided on that ground
o a promise to pay a debt that has been discharged in bankruptcy
▫ Exception to General Rule: “Where the promisee 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…”
§ not a mere moral obligation -> exceptionally large material benefit
§ Webb v. McGowan, p. 52
· Facts: material benefit -> saved body from grievous harm
▫ Exception to General Rule: substantial personal material benefit + moral obligation = sufficient consideration
• General Rule: Gratuitous promises are generally not enforceable.
▫ Kirksey v. Kirksey, p. 56
§ Facts: defendant’s letters -> plaintiff’s sale of house, etc.
▫ Exception to General Rule: Reasonable reliance (to one’s detriment) may be used as a substitute for consideration and therefore to enforce a promise.
§ Ricketts v. Scothorn, p. 89
· Facts: Granddaughter quit job because grandfather offered to give her an annual amount.
§ charitable subscriptions: Person promises to contribute to a not-for-profit organization.
· “We have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions.”
· Courts have also enforced such a promise by finding that the charity has done or has promised to do something in exchange for the subscriber’s promise.
o 2nd ground: The donor expects the nonprofit to use the money in a certain way. -> implicit promise
§ RS (2d) § 90: Promise Reasonably Inducing Action or Forbearance
· (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third party and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
· (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
· In discussing § 90, courts often speak of detriment, as if reliance were not sufficient.
§ Feinberg v. Pfeiffer Co., continued, p. 94
· “The fact of the matter is that plaintiff’s subsequent illness was not the ‘act or forbearance’ which was induced by the promise contained in the resolution… Such action on plaintiff’s part was her retirement from a lucrative position in reliance upon defendant’s promise to pay her an an

or another service, to an accident victim, or when someone acts to protect another’s property from loss by fire or other casualty, courts assume that the services were intended to be gratuitous,” which “will ordinarily bar recovery.”
▫ Exception to General Rule: The services are excessively expensive or burdensome to the person rendering them.
▫ Exception to General Rule: The person rendering them does so in a business or professional capacity.
§ Specific Rule: In situations where persons cannot give consent (infants; incapacitated, unconscious, intoxicated people), courts will enforce implied promises (to assist), but will limit it to medical personnel (doctors/nurses) and will limit the remedy to reasonable cost.
· Cotnam v. Wisdom, p. 106
o “A person utterly bereft of all sense and reason by the sudden stroke of an accident or disease may be held liable… for necessaries furnished to him in good faith while in that unfortunate and helpless condition.”
o award for an implied contract: a reasonable compensation for the services rendered, not a compensation based on the ability of the recipient to pay
o Facts: A man was thrown from a streetcar, receiving serious injuries, rendering him unconscious. There was no agreement because it was an emergency situation. The plaintiffs were called on to perform an operation; they failed and he died.
• General Rule: A volunteer or intermeddler who acts officiously in conferring a benefit cannot get restitution from the recipient. – > No one “should be required to pay for benefits that were ‘forced’ upon him.”
▫ Specific Rule: A plaintiff is not entitled to employ the legal fiction of quasi-contract to substitute one promisor or debtor for another.
§ Callano v. Oakwood Park Homes Corp., p. 111
· Facts: shrubberies

The Bargaining Process
• General Rule: The courts use the parties’ words and actions according to their reasonable meanings. -> ‘The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.’
▫ Lucy v. Zehmer, p. 117 – objective
§ exception: “when an unreasonable meaning which he attaches to his manifestations is known to the other party.”
▫ Price may indicate seriousness or lack thereof.
▫ Absurdity of an “agreement” may indicate seriousness or lack thereof.
§ example: Pepsico commercial involving Harrier jet
• General Rule: If one does not intend to be bound by a contract, he must use a Gentlemen’s Agreement or Letter of Intent (not to be bound).