Formation of a Contract requires 3 elements: offer & acceptance (mutual assent) & consideration
I. Consideration (Bargain Theory) – was the promise broken legally enforceable?
A. Introduction
i. promise not enforceable unless supported by consideration
1. old defn: benefit received by promisor or detriment incurred by promisee; now is any factor that will make a promise enforceable (incl. reliance)
2. equivalent to bargain: exchange of promises, acts, or both, in which each party views what she gives as the price for what she gets
3. Rest 2d § 71 (1) – to constitute consideration, a performance or return promise must be bargained for
ii. If promise was apparently given as a bargain, ask these Q’s which might make the promise unenforceable
1. nominal promise – in form but not in substance
2. illusory promise – appeared to be a real promise but did not in fact commit the promisor to do what, later, he might not have done anyway or give him a free way out of his commitment – if so, unenforceable for lack of mutuality
iii. If promise was not apparently given as a bargain, these might make it enforceable:
1. reliance – on promise to promisee’s detriment
2. past or moral consideration – given in recog. of material benefit conferred on promisor that gave rise to an obligation to compensate
3. waiver – if promise merely waived a nonmaterial condition under a bargain
B. Legal treatment of gifts
i. ordinary, promise to make a gift is not enforceable
ii. completed gift recognized by the law as legally binding & valid; donor cannot recover after gift has been completed
>>Dougherty v. Salt: guardian of little boy sued to recover $3000 from promissory note given to the boy by his Aunt before her death.**Held: note was simply a voluntary & unenforceable promise of an executory (not yet carried out) gift, despite the note’s form language of being for “value received” **Analysis: promise to make a gift is unenforceable b/c one-sided & lacking in consideration.
iii. Policy issues: simple, donative promises raise problems of evidentiary proof; legal enforcement of carries social consequences & moral implications that are not usually part of the legal system
iv. distinguish b/w a condition precedent to getting the gift & a return promise: if someone says, if you get into a university costing less than 10,000/yr., I will pay your tuition – performance (getting into the college) is not the price paid but only a condition precedent to getting the gift
C. The Element of Form
i. parties to a K generally do not know or understand K law
ii. even though nominal (essentially worthless) consideration is not generally sufficient to meet consider. requirement (Schnell v. Nell) – 2 exceptions:
1. in the context of an option K
2. a guaranty
D. Reliance
i. in older cases, reliance was not recognized as a validating device. Kirksey v. Kirksey
>>Kirksey v. Kirksey: widow attempts to enforce promise made by brother in law which i
ced some action or forbearance upon the part of the promisee. Hayes v. Plantation Steel
3. Remedies available under Reliance
a. promisee must have suffered some injury attributable to the making of the promise
i. reliance interest – injury occurs b/c promisee worse off than he would have been if the promise had never been made
ii. expectation interest – promisee is worse off than he would have been if the promise had been performed
b. Compensation usually measured in terms of $
i. reliance damages – how much money will it take to put promisee back in place he was before promise was made
ii. expectation damages – how much money will it take to put promisee in posn he would have been had promise been performed
c. Reliance damages – components:
i. out of pocket costs – incurred in reliance prior to breach, less the value produced by those costs after breach
ii. opportunity costs – opportunities foregone b/c of promise
d. Rest. 2d – donative promise may be enforced only to extent of recovering reliance damages
i. § 90 – remedy for breach may be limited as justice requires
easily calculated in cases involving financial interests but more difficult in non-financial interest
