Kay – Contracts – Fall 2013
What Promises are Enforced?
Consideration
Either a benefit to the promisor OR a detriment to the promisee.
A promise is supported by consideration if it is determined by a BARGAIN
1 Hamer v. Sidway
Facts: P sued D for breach of contract and D contended that the promise was not supported by consideration.
Rule: A waiver of any legal right (FORBEARANCE) at the request of another party is sufficient consideration for a promise.
Analysis: The forbearance is a performance (backed up by Restatement 71, Requirements of Consideration and Restatement 72, Exchange of Promise for Performance). Under the bargain test for consideration, P’s forbearance was arguably both a benefit to D and a detriment to P. D benefited by having his nephew refrain from certain conduct while P suffered a detriment by denying himself the enjoyment of that conduct.
2 St. Peter v. Pioneer Theatre
Facts: P sued D for breach of contract and D contended that the promise was not supported by consideration.
Rule: The sufficiency of consideration lies wholly within the discretion of the one who offers to pay the prize. When a promisor makes a promise contingent on another performing an act he is not legally obligated to perform, an affirmative act by a promisee constitutes consideration.
Analysis: It doesn’t matter how insignificant or nominal the benefit may be to the promisor or how slight the inconvenience may be to the promisee. Promisor got what he asked for, without regard to its intrinsic worth. Courts do not evaluate consideration, but only require its presence. This unilateral contract (promise for a performance) was sufficient consideration (signing register, waiting outside for prize).
RESTATEMENTS / UCC
Restatement 1: Contract defined as a promise or a set of promises for the breach of which the law gives as a remedy, or the performance of which the law in some way recognizes as a duty.
UCC 1-201: Contract defined as the total legal obligation which results from the parties’ agreement.
Not any contract can be enforced. Only enforce promises with good content. No token, illegal, fraudulent contracts.
Restatement 2: Promise is a manifestation of intention to act or refrain from acting in a specified way (promise for FORBEARANCE), so made as to justify a promise in understanding that a commitment has been made.
Manifestation of intention adopts an external or OBJECTIVE standard of interpreting conduct – an external expression of intention vs. undisclosed intention.
Words of warranty, like other conduct, must be interpreted in light of the circumstances and the reasonable expectations of the parties.
ILLUSORY promise; mere statements of intention do not make a promise. Even if a present intention is manifested, the reservation of an option to change that intention means that there can be no promisee who is justified in an expectation of performance.
CONDITIONAL promises, however, where no duty of performance can arise unless some event occurs (Restatement 224, 225), may be enforced.
Restatement 3: Agreement is a manifestation of MUTUAL ASSENT on the part of two or more persons. Bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
BARGAIN is ordinarily made by an offer by one party and an acceptance by the other party or parties (OFFER AND ACCEPTANCE), the offer specifying the two subjects of exchange to which the offeror is manifesting assent.
Restatement 71: CONSIDERATION requirements
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 promisee in exchange for that promise.
3 The performance may consist of
a an act other than a promise (otherwise it is a return promise, vs. performance)
b a forbearance
c the creation, modification, 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.
A typical bargain is comprised of reciprocal relation of motive or inducement, or RECIPROCAL MUTUAL INDUCEMENT. The consideration induces the making of the promise and the promise induces the furnishing of the consideration. Both elements must be present, or there is no bargain.
Mixture of bargain and gift – ordinarily courts do not inquire into the adequacy of consideration, particularly where one or both of the values exchanged are difficult to measure. Even where both parties know that a transaction is in part a bargain and in part a gift, the element of bargain may nevertheless furnish consideration for the entire transaction.
Other notes: Our legal system is negative. It is unconcerned with how people behave. If restrain / restrict them, do so only when it is explicitly prohibited. If there is no law, person has a legal right to behave how she wants.
Bargain Consideration
Either a benefit to the promisor OR a detriment to the promisee.
A promise is supported by consideration if it is determined by a BARGAIN
Anything can be consideration, but it has to be BARGAINED FOR.
Promises that are enforced are those that have been BARGAINED FOR.
Consideration for making a promise is NOT a psychological motor that induces the offer
ONLY interested in formal, OBJECTIVE reason.
POLICY REASON: Bargained-for promises serve useful economic purpose (consistent with and encouraging the market economy, and free voluntary exchanges)
3 Mills v. Wyman
Facts: P cared for son of D when son was ill. After son died, D promised to pay P for care P gave to son. P sues to recover payment promised by D.
Rule: PAST CONSIDERATION and MORAL OBLIGATION alone are NOT sufficient consideration to make a promise enforceable.
Analysis: Because the services had already been performed before D made promise, they are PAST CONSIDERATION and do not constitute consideration to make the promise enforceable. Moral obligation is also insufficient consideration. This was then a GIFT PROMISE, an unenforceable promise NOT supported by consideration.
However, there are cases where MORAL OBLIGATION may constitute sufficient consideration – debts barred by the statute of limitations, debts incurred by infants, and debts of bankrupts. AND SEE 4 5 WEBB MCGOWAN. In such cases, enforcing promises based on preexisting equitable obligations may be enforced because they merely remove an impediment created by the law to enforce debts that are due, but which public policy protects debtors from being compelled to pay.
4 5 Webb v. McGowan
Facts: P brings suit against D for payments that D promised to P after P suffered serious bodily harm in preventing a block from falling on D.
Rule: MORAL OBLIGATION IS sufficient consideration to support a subsequent promise to pay where the promisor has received a MATERIAL BENEFIT. Benefit conferred is a promise (but no officious intermeddling!)
Analysis: A MORAL OBLIGATION is a sufficient consideration to support a subseque
ill NOT apply when there are unforeseen circumstances and the opposing party agrees to compensate for those unforeseen circumstances (compare to Linz v. Schuck, while contrast with Alaska Packers, where pre-existing duty governed by duress and coercion).
Analysis: Court looks to the factors set out in Restatement 89D(a) which allow enforcement of an agreement if the parties voluntarily agree and if (1) the promise modifying the contract was made before the contract was fully performed; (2) the underlying circumstances which prompted the modification were unanticipated by the parties and (3) the modification is FAIR AND EQUITABLE. Also UCC 2-209 applies here, which states that an agreement modifying a contract needs no consideration to be binding, BUT it must be made in good faith (what is good faith? Honesty in fact and the observance of reasonable commercial standards in fair dealings).
RESTATEMENTS / UCC
Restatement 89: MODIFICATION of Executory Contract
UCC 2-209: MODIFICATION, Rescission and Waiver
8 Kirksey v. Kirksey
Facts: P Kirksey was sister-in-law of D Kirksey. After husband of P died, D offered to put up P on his land. P gave up her land and moved to D property, but two years later D made P leave his property.
Rule: MERE GRATUITOUS PROMISE is without the consideration necessary for enforcement as a contract.
Analysis: Justice dissenting writes the he would consider P’s inconvenience valid consideration to enforce D’s promise. Policy-wise maybe court was reluctant to interfere in a family dispute. Today the facts would likely be analyzed under promissory estoppel (doctrine that provides if a party changes his or her position substantially either by acting or forbearing from acting in RELIANCE upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present…)
9 Simmons v. United States
Facts: There was a fishing contest and P caught the fish. P knew about the contest when he went out to go fishing, but wasn’t explicitly trying to catch the special fish. He didn’t want to have to pay taxes on the prize, so he argued in court that the $25,000 was a GIFT PROMISE because there was no consideration.
Rule: MERE KNOWLEDGE is enough. If someone knows of an outstanding offer, they may accept the offer by rendering performance even if the performance is done for other reasons.
Analysis: “If S catches a fish…” clause constitutes consideration, and CONVENTIONAL RECIPROCAL INDUCEMENT existed in this transaction. Since P knew about the contest before he went fishing, his catching the fish constituted performance of the contract, and thus there was consideration and the $25,000 WAS NOT A GIFT.
10 Broadnax v. Ledbetter
Facts: D offered $500 for capture/return of Vann (fugitive). P caught / returned him, but didn’t know about the $500. D didn’t pay.
