I. THE IMPORTANCE OF PROMISE
II. BASES OF CONTRACT LIABILITY
1. The Consideration Requirement
A. Bargain Requirement (Kirksey v. Kirksey; Hamer v. Sidway;Langer v. Superior Steel; Rest. §§17, 71, 79)
B. Limits of the Consideration Doctrine
1. Adequacy of Values Exchanged (In re: Greene; Fiege v. Boehm; Rest. §74(1))
2. Pre-existing Duty Rule (Levine v. Blumenthal; Alaska Packers’ Assn. v. Domenico; Angel v. Murray; Rest. §§ 71,73, 89; UCC §2-209(1) (SM 37))
3. Mutuality of Obligation (Rehm-Zeiher v. F.G. Walker;McMichael v. Price; Problem on Mutuality of Obligation;Wood v. Lucy, Lady Duff-Gordon; Omni Group v. Seattle-First National Bank)
2. Moral Obligation: Promise Plus Antecedent Benefit
A. Restitution and the Scope of Quasi-Contract (Bailey v. West) 12-17 (to note 4)
B. Moral Obligation (Mills v. Wyman; Webb v. McGowin; Harrington v. Taylor; Rest. §§82, 83, 86)
3. Promissory Estoppel: Promise Plus Unbargained-For Reliance
(Ricketts v. Scothorn; Rest. §90)
4. Formal Requirements: The Statute of Frauds
(Focus on UCC §§2-201- Rest. §139)
I. THE IMPORTANCE OF A PROMISE
II. BASES OF CONTRACT LIABILITY
1. The Consideration Requirement
A. Bargain Requirement
Promise + antecedent benefit – moral obligation
· The dual notion of consideration as either a benefit to the pormisor or a detriment to the promise has persisted and has become an integral approach to the enforceability of contracts
· Valuable consideration may consist of some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by other
· Consideration has two elements: (1) The thing element; act, forbearance, or promise (2) Motive element; you did the thing to get the other party to do what they said they would do
· Limits of consideration: Adequacy of values exchanged, pre-existing duty, mutuality of obligation
Restatement §17: Requirement of a Bargain (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
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 promisee in exchange for that promise.(3) The performance may consist of (a) an act other than a promise, or(b) a forbearance, or (c) the creation, modification, or destruction of a legal relation.(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Restatement §79: Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged; or (c) “mutuality of obligation.” Nothing is included about joy or misery – the simple question is whether there one party did something to get the other party to do something.
Hamer v. Sidway (1981) – Court of Appeals of New York
Consideration – YES
ISSUE: Whether there was consideration when the Nephew (P) incurred a benefit by not performing the acts promised to his uncle?
HOLDING: Yes. Reversed and Affirmed.
Consideration consists of “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by another.” The court will not look if there is a benefit or detriment in the action taken, just if there was an abandonment of some legal right
RULE: The surrender of a right is a promise and by continuing to abstain from doing something is sufficient consideration.
Kirksey v. Kirksey (1845) – Supreme Court of Alabama
FACTS: After Plaintiff’s husband died, the Defendant wrote brother’s wife a letter saying that if she would like to abandon her current place of residence and live with him, he would provide her with a place to live until her children grow up. The Plaintiff abandoned her place of residence and moved in with the Defendant. After 2 years, the Defendant asked her to move out.
ISSUE: Is the Defendant’s promise enforceable?
HOLDING: No. The promise is gratuitous and not enforceable. There was no mutuality in the agreement and thus no consideration. No consideration for a gift because the person making the gift is not relying on behavior of the other party.
RULE: A promise of mere gratuity is not an enforceable promise
DISCUSSION: The court sees this transaction as a conditional gift and not a promise. A condition exists where there is absence of a benefit to the promisor. Here, a benefit to the promisor was not found by the court and thus no consideration. Additionally, there was no bargaining between the parties and the Plaintiff’s promise to move did not induce a promise from the defendant.
How is Hamer v. Sidway different that Kirksey v. Kirksey?
Kirksey didn’t bargain for the widow’s performance. The widow had a motive but the brother-in-law had no motive. There were no strings attached – there was no reciprocal motive of inducement. Courts generally considered that there was no tangible benefit to giving a gift.
Langer v. Superior Steel(1932)- Superior Court of Pennsylvania
Consideration – YES
FACTS: Langer – Former employee of the SSC (P) brought an action for Assumpsit, (an express of implied promise not under seal by which one person undertakes to do some act or pay something to another) to recover damages for breach of contract. The complain aroused from a letter from Defendant stating that the Plaintiff would receive $100 per month for life or until he began to work for any competitor. Plaintiff adhered to the terms of the letter, but the company ceased payment after 4 years.
ISSUE: Was the letter a gratuitous promise or an enforceable contract?
HOLDING: The letter is an enforceable contract because it was a result of a bargained for exchange. Consideration was present by the Plaintiff refraining from working for a competitor in exchange for the payment of $100 per month. (Restricted covenant or Covenant not to compete). Likewise, the company received a benefit by barring its former skilled employee to work for its competition. This differs from Kirksey v.Kirksey because there was benefit derived by the promisor. (The fact that Mr, Langer did not work for the competition)
RULE: For a gratuitous promise to be enforceable, there must be valid consideration resulting from a bargained for exchange.
(Principle that a promise made w/out consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to her detriment).
Key to Class: Hamer talked about thing, Kirksey and Langer talked about motivation.
· 3 cases exploring the concept of bargain. (1) Hamer v. Sidway, (2) Kirksey v. Kirksey, (3) Langer v. Superior Steel Corp.
· In terms of consideration: Hamer v. Sidway,has both elements – the thing (if not smoking or drinking) and the motive (make uncle proud or intrinsic rewards). Kirksey v. Kirksey, has a thing (the house to live with children, but has not motive (no benefit to sister in-law). Langer v. Superior Steel Corp.,Has both elements too. – the thing (if do not work receive money) and the motiv
A PRE-EXISTING DUTY DOES NOT CONSTITUTE CONSIDERATION.
· The exceptions to the rule are explained in the UCC below:
DISCUSSION: The court follows a growing trend to weaken the pre-existing duty rule as seen in §2-209 of the Uniform Commercial Code (UCC). This rule allows (does not require) modification on sale of goods. The emphasis is not longer upon consideration but upon good faith. For example; it is noted that a mere technical consideration cannot support a modification done in bad faith.
UCC § 2-209 (1): Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article (SALES CONTRACT) needs no consideration to be binding. (HWV, modifications after the original sales contract need to met the test of good faith imposed by this act).
1. This section seeks to protect and make effective all necessary and desirable modifications of sales contracts without regard to the technicalities which at present hamper such adjustments.2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding.However, modifications made there under must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a “modification” without legitimate commercial reason is ineffective as a violation of the duty of good faith. Nor can a mere technical consideration support a modification made in bad faith.
Restatement §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 promisee in exchange for that promise.(3) The performance may consist of(a) an act other than a promise, or(b) a forbearance, or(c) the creation, modification, or destruction of a legal relation.(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Levine v. Blumenthal (1936) -Supreme Court of New Jersey
Consideration – NO
FACTS: Defendant agreed to pay $2100 1st year and $2400 2d year rent for two years. Defendant was unable to pay for the increase. It was found as a fact in district court that there was a verbal agreement to allow the defendants to pay the original year’s amount of rent for the second year.
ISSUE: Can the promise to perform a preexisting duty count as consideration?
HOLDING: No. A promise to do what the promisor is already bound to do is an unreal consideration. A creditor’s mere fear that the debtor will fall into bankruptcy is not enough to form sufficient consideration. Any consideration to perform the new undertaking is satisfactory consideration.
RULE: A preexisting duty cannot count as consideration for the purposes of contract formation.
POLICY: Even when things go wrong a K is enforced – The idea is for people not to try to re negotiate the terms just b/c something did not go the way it was suppose to. If judges allow the second K to be valid it would have led to mass erosion of the certainty of contract law.