· Consideration-reason for a party entering a contract
· Value Received-phrase used to show some consideration(value) has been given without stating exactly what it was
Donative Promises, Form, and Reliance
1. Simple Donative Promises-Promises that are made for affective reasons (love, friendship); not in form which modern contract law gives significance; have not been relied upon
a. Dougherty v. Salt (Aunt promises little boy 3,000 with a promissory note, it was simply a voluntary gift) (Promise with no consideration, not enforceable)
a. if the aunt wanted to make it legally binding, she could have just given him $3000; this is b/c gifts, once made, are enforceable; but promises to give gifts are not enforceable b/c there is no consideration. We don’t enforce donative promises because we are worried about fraud.
b. the boy didn’t give anything in return other than being a good boy
c. since consideration plays no role in European contract law, this would have been enforced in Europe
d. but in the US, we don’t enforce donative promises b/c there is no consideration in a donative promise
e. we would have a returned promise if the boy said “in return for the money, ill be a good boy for the next five years”; this would be a bargain
v Section 17 – contract defined
i. The bargain is always the first thing you look for; section 17 requires a bargain, a manifestation of mutual assent, and consideration for there to be a contract
ii. A contract doesn’t need a bargain if under sections 82-94
v Section 71 Consideration and Bargain defined
i. To constitute consideration, a performance or a return promise must be bargained for
ii. 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
iii. The performance may consist of
1. An act other than a promise, or
2. A forbearance, or
3. The creation, modification, or destruction of a legal relation
2. Conditional Donative Promises – Parties view performance as the necessary means to make the gift, not as the price of the gift; “If you come to the clothing store, I will buy you a coke.”
a. Schell v. Nell (Wife made inoperative will (due to tenancy by the entirety) giving 200 to each of 3 people; the surviving husband, Schnell, promised to pay the 200 in exchange for a penny, then refused to pay; the court held one cent displays that he didn’t really want anything in return and that it is not enough for consideration) (Nominal consideration, or Sham consideration is insufficient to make a contract enforceable)
· Nominal Consideration-consideration that does not bear any real relationship to the value of the thing contracted for
4. Reliance is promissory estoppel
a. Kirksey v. Kirksey (Brother-in-law of widow told her he will give her a place to live if she comes, and D changed his mind after she moved and asked her to leave; widow sued for breach of contract; Held: was not binding b/c it was a gift) (Reliance does not impose contractual obligation in the absence of a bargained-for exchange)
· Section 90 was not in effect at this time, but if it were, the court probably would have said that there was reliance
v Section 90 – Reliance or promissory estoppel
o There must be three things for section 90 to be in effect: 1. Even if actor makes promise, if act or forbearance was not reasonably foreseeable, then doesn’t fit under section 90. 2. She must act or forbear from acting because of the promise. 3. The injustice from the breach can only be avoided by enforcement of the promise
o Easiest way to figure it out is to look at case to see if there is a bargain with consideration; most of the cases you look at will have consideration; only if there is no bargain do you start looking for alternative ways to form a contract
§ Sections 82-94 involve alternative ways of finding contracts (many, but not all, are based on reliance)
o If there is consideration, the remedy is almost always expectation damages.
v The Rickets case (pg. 25) is the starting case for reliance
o The testator promised his granddaughter that he will give 2000 so that she doesn’t have to work; she subsequently quit work. The testator died, and she presented the note to the executor. The executor said it was just a donative promise and that there was no consideration b/c he didn’t bargain for her to quit. The court said that b/c she relied on the promise; the executor was estopped from denying the existence of consideration. This is much different from section 90; it is only the starting point since reliance doesn’t make the contract enforceable, it just prevented the other party from defending.
v Equitable estoppel or Estoppel in pais (pg. 25)
· Doctrine used where one party makes a misrepresentation of a fact and the other party relies on it, then the first party is estopped from denying the fact’s existence even if it truly was not existent.
· There are times where there is no bargain but if they are covered by restatement sections 82-94, it may be enforceable (Section 17 (2)).
b. Feinberg v. Pfieffer Co. (After promising that the company would pay a retirement benefit of 200/mo for the rest of former employees life, and paying for several years, the co. decided to cease making payments and employee sued. Held: The employee could show negative reliance on the promise, so it is enforceable) (A promise that the maker knows is likely to be relied upon by the promisee and is so relied upon is enforceable under a theory of promissory estoppel)
· Even though there was no bargain or consideration, the plaintiff recovered b/c of reliance. Her past services are not relevant b/c past consideration does not count for consideration. Therefore, the court applies the alternate theory of promissory estoppel to reach the desired outcome.
· Promissory Estoppel-A doctrine that makes an otherwise unenforceable gratuitous promise enforceable when the promisee has relied upon the promise and thereby incurred injury
· Reliance Damages-the compensation necessary to put a promisee in a state just as good as he would have been in if the promise has not be
sible to pay full amount) (There is no requirement of an equivalent in value of consideration, and the inequality will not void a contract.)
a. Section 79 says that there does not have to be an added gain or loss
b. Parties are generally held to the resulting agreement, even though one has taken advantage of the others adversity, as long as the contract has been dictated by general economic forces
c. Without evidence of fraud, duress, or misrepresentation, the Court is unwilling to void the contract merely because there may be insufficient consideration.
v Section 175 – Duress – if a party’s assent is induced by an improper threat where the victim has no reasonable alternative, the contract is voidable
v Section 176 – defines when a threat is improper
o In Batsakis, an unequal exchange is not likely to be improper under the terms of section 176-1
o It might be argued that it is improper under section 176-2, but the law would probably not characterize the details of this contract to be under duress as defined in section 176
v Section 176-1 – A threat is improper if
a. What is threatened is a crime or tort
b.What is threatened is a criminal prosecution
c. What is threatened is the use of civil process and the threat is made if bad faith OR
d.The threat is a breach of the duty of good faith and fair dealings
v Section 176-2 – A threat is improper if the resulting exchange is not on fair terms and
a. The threatened act would harm the recipient and would not significantly benefit the party making the threat
b.The effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat OR
c. What is threatened is otherwise a use of power for illegitimate ends
2. Unconscionability – this allows a court to refuse to enforce a provision of a contract or the entire contract
§ Article 2 of the UCC is only used for the sale of goods
§ In both Walker-Thomas and Maxwell, there is a sale of a goods
a. Williams v. Walker-Thomas Furniture Co. (This case involved a cross-collateral clause, where you cannot pay off your old furniture until all the furniture is paid off. Williams bought furniture on credit and had to pay installments to receive title; if he defaulted on one item, Walker could repossess all of the items. Held: Court has the ability to void unfair contracts) (Contracts with apparently unconscionable terms are unenforceable)
· Unconscionability exists when there is an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.