Baradaran
Contracts
Fall 2014
I. Intro Examples:
A. Sullivan v. O’Connor:
1. RULE: reliance may be a better measure of damages in some non-commercial settings
2. RULE: punitives are not available for breach of K usually, but there is no general rule barring pain and suffering—if it’s a case where you are messing with someone’s body, it may be more recoverable
3. P enters into K with doctor for nose job. He promised her two operations, better nose, she got three and worse nose. Court does not have to choose bt reliance and expectancy but leans towards reliance.
4. Policy: expectancy is too speculative. Would force jury to use imagination too much. Would force doctors to practice defensive medicine when speaking to patients about what to expect. Fee is disproportionate to expectancy damages
B. Non commercial specially drafted agreement:
1. White v. Benkowski
a) RULE: cant get punitives in K except for marriage exception and tort exception
b) Entered into K for well water, P sued when they cut off the well water, the trial court found 10$ compensatory and 2K punitive but the judge reduces to $1. End up getting the 10, and upholding the no punitives.
c) Policy—as a lawyer you should know what to sue under—should have sued under tort here to get the punitives
C. Reasonable person standard:
1. Embry v. Hargadine:
a) RULE: if a reasonable person believes a K was formed, then intent does not matter. Words>intentions
b) Embry employed in a company, entered in to salesman’s office one day and salesmen said, “go ahead, you’re alright” one day when Embry went into his office. Then the employer denied a K was made. Court said a K was made bc of the language and bc he had always tried to talk before about renewing his K
c) He is inducing reliance.
2. basketball coach hypo:
a) Girl is crying before tryouts bc she wants to make the team, coach says go ahead, you’re alright, don’t let that worry you. That’s not a K.
3. Lucy v. Zehmer:
a) RULE: same as Embry—look to acts, not intentions
b) Defendant was supposedly drunk, signed little note that said he was going to sell his land. He put a price on it. But then he didn’t want to sell it bc said he was drunk and it was a joke. Court said he had to sell it (specific performance)
c) Didn’t say it was a joke til after it was signed, under discussion for forty minutes, price was reasonable. Even if Zehmer thought it was a joke, Lucy did not.
d) Reliance—would have gotten lawyer’s fees and five dollars. Restitution—5 dollars
III. General Theories of Obligation
A. Agreement with Consideration
1. Consideration – getting a something in return
2. RS—one person makes a promise, the other gives something:
a) Besides a promise
b) A forbearance
c) Creation, destruction, or modification of a legal relation
d) A return promise
3. Must be sought for by the promisor
4. Fuller’s 3 Policy Reasons for Consideration:
a) Evidentiary – Provides evidence that the promise took place.
(1) Note – If there is part performance of the promise, it may be valid absent consideration b/c it would fulfill this function.
(2) Satisfy with writing, attestation, notarization
b) Cautionary – Ensures that promise was made with caution and not “on a whim.”
(1) Allows time frame for decision
c) Channeling – You must channel your intentions to legally sufficient means.
5. Adequacy of Consideration
a) Courts generally don’t examine value of consideration
b) Hardesty v. Smith – right to useless lamp invention = valid consideration
c) On rare occasions Ct. will examine consideration if unconscionable or mere pretense
6. Forbearance of Consideration
a) Giving up some legal right is valid consideration if sought for by the promisor
b) Hamer v. Sidway: Nephew forbears on drinking, smoking, gambling, etc in exchange for money from his uncle.
(1) Value of forbearance doesn’t matter. Only matters that the boy forebore a legal right and forbearance was sought/given in exchange.
(2) What induced you to forbear doesn’t matter – the reason for promise is personal choice
(3) May have more than one motive to forbear, as long as each party knows the consideration is real
c) Maughs v. Porter: π attends the car auction of the D
(1) In case of doubt where the promisee has incurred a detriment on the faith of the promise, courts will naturally be loath to regard the promise as a mere gratuity and that the detriment incurred as merely a condition
(2) Valid consideration (woman went to auction; which was sought/given in exchange) – not just a condition (Commercial self-interest benefit is sufficient consideration)
d) Forbearance must be of a VALID claim to constitute consideration
(1) Neuhoff v. Marvin Lumber and cedar co
(a) Forbeared their right to sue
(b) Abandonment of a well founded claim is the surrender of a thing of value and is sufficient consideration
(c) But, never threatened a suit or anything
(d) Needed express terms or fair implication from all circumstances for it to be valid
(e) Not every benefit is consideration (P claims benefit to D’s reputation) – must be bargained for
(2) Colorable Claim Doctrine – Forbearance to bring a suit is not sufficient consideration if it is w/knowledge that the claim is ill founded and void. (Corbin)
(a) Ps had no right in the property and at no time threatened or attempted to assert any claim. Ps were surprised that the deed was in trust to only 2 of the children, and without further reason, Ds made the promise in question.
(b) Because π had no rights to the property, the forbearance was not sufficient consideration.
(c) Corbin standards:
(i) Forbearance must be honest belief—subjective
(ii) Must be reasonable ground for belief in claim—objective
(iii) Court uses second standard here—say there was no reason for P’s to believe they had a colorable claim
7. Invalid Consideration
a) Consideration as mere pretense
(1) RS § 81: Consideration invalid when both parties know it’s mere pretense.
(2) $1 consideration for a deed of land is questionable and the courts will declare worthless consideration.
b) Gratuitous Promises
(1) Invalid & Unenforceable – a gift has no consideration
(2) When a naked promise is not kept, the promisee is no worse off. He gave nothing and suffers no recoverable damage.
(3) Dougherty v. Salt
(a) Aunt Tilly sued for 3000 promissory note given to nephew.
(b) Note was neither bargained for nor accepted, thus no consideration. Not an enforceable K.
(c) Nephew gave nothing in return – no consideration
(d) Policy: though the court won’t look at adequacy of consideration, they will look at sufficiency (make sure there actually is consideration)
c) Co
eloper) enters into agreement to buy ∆’s land. There is a “satisfaction clause” in K, which says that π has to arrange “satisfactory”. π deposits $1K, gets the leases, and then ∆ refuses to sell. ∆ says that there was no valid K b/c of lack of mutuality (π did not have to do anything if he did not secure leases — conditioned on his satisfaction).
(a) Satisfaction Clauses can be binding (Normally not b/c π free to perform or withdraw the agreement) – no consideration
(b) Not nullified b/c π had duty of good faith to perform once he got satisfactory leases
(c) Satisfaction clause is more than a nothing
(i) He must be genuinely dissatisfied with the leases or he has to buy the property – requires good faith
(d) Valid K: promisor’s duty to exercise his judgment in good faith is adequate consideration to support K.
(e) Also, $1000 could be consideration
(f) Corbin: Promise made conditional on promisor’s satisfaction is not illusory.
9. Preexisting duty doctrine: promise to do something that is already a preexisting legal duty is not sufficient consideration.
a) American Idol Hypo
b) If you already have a duty to do something for $x, you can’t ask for more money later b/c no new consideration
IV. Prom E
A. Legal Fiction when no valid K
B. Alternative COA when BOK is not available
C. Kirksey v. Kirksey – Before Prom E
1. π’s bro-in-law (D) promises that he will let her live on land if she gives up her house and moves to him. π does, eventually D kicks P off of the land.
2. Promise is not enforceable under breach of K theory b/c it is gratuitous (and therefore, there is no consideration for promise)
3. Labeled as conditional promise
4. Pufendorf would say reliance on promise to own detriment is consideration
D. Requirements
1. Reliance must be of a definite and substantial character.
a) There must be a promise
b) The promise must, in fact, produce action or forbearance.
c) There must be a breach of this promise.
2. Promisor must have reasonably expected his promise to induce action or forbearance from promisee.
a) Reasonable person would have expected promise
b) Foreseeability of action/forbearance
3. Enforcement must be necessary to avoid injustice. (fairness)
a) reasonableness of reliance,
b) definite/substantial character in relation to remedy sought
c) formality with which promise is made
d) The extent to which the action or forbearance corroborates evidence of the making of the terms of the promise, or the making of the terms are otherwise est. by clear and convincing evidence. (more formal the promise the more likely that uphold PE);
e) extent to which other policies/other remedies such as UE are relevant.
