Contract – FALL 2008
Contracts- RSC § 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.
I. The Basis for Enforcing Promises
1. RSC § 71 To constitute consideration a performance or return promise must be bargained for.
1. “Bargained for” = sought by the promisor in exchange for his promise AND given by promisee in exchange for that promise.
2. “Performance”= (Legal Detriment)
· an act other than a promise OR
· a forbearance, OR
· the creation, modification, or destruction of a legal relation
§ Requirement of consideration makes two types of transactions unenforceable:
o Promises to make gifts (does not satisfy bargain element)
o Where one party has not really promised to something or given up something (no bargain nor detriment)
a) Hamer v. Sidway
[Uncle promised his nephew $5,000 if he didn’t drink, smoke, gamble etc.. this forbearance of a legal right = performance. ] end of the Benefit/Detriment model → Bargain for Exchange Model.
· Peppercorn – term used to deride consideration that is of a trifling value.
o As long as the promisee suffer some detriment, no matter how small = consideration
Bargain for Exchange model (new test)
o Forbearance or promise – waiver of legal right
o At the request of another
· bargain for = causal relationship between promise/forbearance and
b) Fiege v. Bohem
[ D promised to pay child support to P, in exchange for P not filing a bastardy claim against D,(forbearance of a legal right). When D found out he was not the father he stopped paying child support and P sued ] Court held that waiver of a legal right in good faith is consideration
B. Past Consideration and Moral Obligation
1. Past Consideration = No Consideration
a) Feinberg v. Pfeiffer Co – PART 1
[Office workers is promised a pension when she retires, she later retires and D stops paying pension]Promises bases upon past would be without consideration. Service was not in exchange (causal) for the Pension. → Past consideration = NO consideration
b) Mills v. Wyman
[sailor get sick and Mills takes care of him, after the fact sailors father, Wyman promises to pay Mills for his expenses but later changes his mind. Mills sues Wyman. Mills has no consideration because he has already done the deed. → Past consideration = NO consideration AND moral obligation ≠ legal obligation.
· Past consideration = No consideration →no exchange. Not bargained for.
2. Moral Obligation ≠ legal Obligation unless:
a) Webb v. McGowin
[P saved D’s life in work related accident, in sparing D’s life, P was seriously crippled] Past Consideration = No consideration BUT this is an exception because:
i. No time to Bargain → applying bargain for exchange model would be pointless.
ii. Material Benefit → Court ruled Moral obligation is sufficient Consideration when D received a material (tangible) benefit. (contrast to Mills)
Why exception? To encourage behavior
3. Conditional Promises
a) Kirksey v. Kirksey
[“If you come and see me, I’ll give you a place to raise your family.” ] → just a conditional promise which is not enforceable.
· Traveling wasn’t bargained for (not motive of the promise →was incidental to the promise)
o did not request P waive legal right to land
o Distinguishing Bargains from Conditional Promises- TEST: Whether the occurrence of the condition is of benefit to the promisor?
· Hypo: Lunch at Tiffany’s/Coat for a bum
Estranged father promises daughter an expensive ring if she’ll come to Tiffany’s and have lunch with him. Consideration? YES – the thing he’s bargaining for is her company.
Rich man promises a bum a winter coat if bum walks around corner to store. Consideration? NO – the walking around the corner is incidental to the promise.
C. Reliance – (Promissory Estoppel)
1.RSC § 90: A promise which the
· (1) promisor should reasonably exp
party, they must both assume some legal obligation.
a) Strong v. Sheffield
[Uncle makes niece cosign a loan for her husband. In exchange, uncle says he won’t close on the loan until he “wanted his money.” Is this consideration? →For a promise to be valid consideration, it must be substantial. You can’t simply promise to do what you were going to do anyway
· Illusory promise – a statement that appears to be promising something, but in fact does not commit the promisor to anything at all.
o P did not bind himself to refrain from collecting therefore there was no consideration.
§ (however, today under promisory estoppel D would probably be able to collect)
· (Contrast to CAB)
o Strong was examined ex ante (expectations at time of K) It is irrelevant here that P waited 2 years to collect, b/c he could have collected at any time.
§ Consideration should be tested by the agreement, not what was done under it.
o CAB was examined ex post (what actually happened)
b) Mattei v. Hopper
[Mattei (mall-developer) consideration: 1) Performance of paying $1k now & 2) Promise to pay balance in 120 days, IF I find “satisfactory” leases. Is this consideration?]→ Subjective promises (“satisfactory”) can be binding if executed in good faith.
c) Eastern Airlines v. Gulf Oil
[The fuel-sales contract says Gulf will supply Eastern’s “requirements,” and when the oil crisis hits, Gulf tries to get out of contract, saying that “requirements” doesn’t place a legal obligation on Eastern. ] → this “gap” is filled by the UCC, which states that it’s okay as long as it’s done in good faith