CONTRACTS- Brubaker- Spring 2013
I. Enforcement of Promises
Common definitions:
Consideration = bargained for exchange for something of value. (quid pro quo)
Performance = any act, forbearance, or changed legal relation
Gratuitous promise = promise without consideration
History
Benefit-Detriment Approach *standard not useful anymore*
Detriment: relinquishment of a legal right – act, forbearance, or promise.
Benefit: party gets what they bargained for.
A. Consideration
· Purpose of Consideration
o Evidentiary function = provides evidence of the terms of the K
o Cautionary function = brings home the significance to the parties of their dealings.
· Elements of Consideration – Requirement for Exchange §71(2)
o Sought by the P’sor in exchange for the promise/performance
§ Hamer v. Sidway: Uncle promised nephew $5K if he gave up smoking, drinking, etc. until he turned 21. N gave up activities and asked for money. Held: Binding K. Consideration = N abandoned present legal rights and promised to abandon rights as inducement for promise.
o Given by the P’see in exchange for the promise/performance
o Exceptions:
§ A peppercorn (something of no value to either parties) cannot be exchanged
§ Familial ties (usually has gifting motivations, and not bargaining motivations)
· Inducement does not need to rest solely on the terms of consideration. §81
o Shadwell v. Shadwell: Uncle promised nephew to pay him startup $$ if he were to get married to F. N married F and asked for $$. Held: Binding K. Consideration = N got married to F. It does not matter if N was already going to marry F, as long as one tiny reason he went through with it was to get $$. How do we know this was a reason? He got married.
· Consideration is not used to police fair dealing §79
o Exception: Mere pretense of a bargain does not suffice (peppercorn)
· Gratuitous promises are not binding
o Not enforceable by a mere token payment arranged in order to satisfy the requirement of consideration. (peppercorn)
§ Fischer v. Union Trust Co.: Dad wanted to convey land worth $5K to son. D sold land to S for $1. Held: No consideration. Grat promise bc he used a peppercorn in attempt to satisfy consideration.
o Purpose of grat promises
§ Assurances are good, even if not enforced in a court of law
§ To weed out the promises that tend to be “small potatoes”
B. Past Consideration
Past consideration is no consideration. It is a gift.
Feinberg v. Pfeiffer: F worked for company for 39 years, and company made an unconditional promise to give a “surprise” pension to her. F retired, and company stopped paying pension. Held: No consideration bc there is no language predicating F’s right to a pension upon her continued employment aka “no mutuality of obligation” (But, reliance.)
Solution: “F will receive $X.XX in dependant on your future service.”
Hypo: Co. has to reduce money and announces “we will give $200 /mo to anyone over 40 who retires at the end of the month.” 2K E’ees retire. Co. liable?
Solution: Yes. This is a conditional promise. The co. is bargaining for retirement. At least one of the reasons the E’ees retired was to get retirement pay. The co. needed to reduce payroll and get E’ees off the books, and so the P’sor received a benefit.
Exceptions:
Necessary to prevent injustice.§86 See “Promissory Restitution”
Moral obligations
Webb v. McGowin: W saved M’s life in an emergency and became disabled. M promised to pay W for rest of W’s life and pays W until M dies. Held: binding promise – consideration arose from W’s promise to pay for saved life based on moral obligation. (New rule for public policy – MORAL OBLIGATION.) This goes in promissory restitution
Employment Agreements
(Maj.) Ks are not enforceable after job begins bc E’ee lacks the ability to bargain for it before he renders his services.
Pine River: Need consideration to change in E’ee handbooks.
(Min) Ks enforceable after job begins if supplied by implied promise to continue work.
CAB v. Ingram: CAB hired Ingram and made him sign non-compete after beginning work. I continued work, was promoted, and quit. Held: Non-compete is enforceable. Consideration = (implied) promise to continue to work for a “reasonable period of time” and got promoted.
Dissent: No consideration because no bargain – employee lacks free will to bargain for non-compete after he begins work.
Bankey v. Storer Broadcasting: P was fired after employer changed handbook deleting the ‘for cause’ requirement. Held: Employer can change if he gives reasonable notice and fairly imposes (even if employee does not know of change). Consideration = employee’s continued work after policy change.
C. Consideration as Bargain
The Requirement of Bargain
Promises to give a gift are not consideration, bc they lack a quid-pro-quo
Kirksey v. Kirksey: Brother promised widow (his sister) a home if she moved family 60 miles. S moved and was later kicked out by B. Held: No consideration bc B’s promise was a just a “conditional gift prize” in that he just wanted to offer her a gift.
Solution: If defending S, make it clear that B was bargaining towards the “if.” For example, “he is pro family union and wanted visitation.”
Jennings v. Radio KSCS: Radio station promised its listeners 25K if they caught them not playing 3 songs in a row. J caught them, and demanded the $. Held: No consideration bc it was a “conditional gift prize” and no bargain for the “if”
Solution: If defending J, make it clear that Radio was bargaining towards the “if.” For example, “to increase audience by inducing them with an award for their vigilance/duration of listening.”
Hypo: You see a homeless man and offer to take him to McD’s for lunch. Once there, he orders a bagillion of everything so you say “forget it” and walk away. Breach of promise?
No, because this promise was a “conditional gift-prize” in that I just wanted to offer a gift. No bargained for exchange.
Exception: When the gift is made with a bargain towards the “if”
Tiffany’s: Estranged father promised to buy a ring for daughter if she met him for lunch. D met F, but F refused her a ring Held: F bargained towards the “if” bc D refused to see him otherwise, and he really wanted to see her.
Rewards
O’ee who learns of offer after rendering part-performance may accept offer by completing the rest of the performance. § 51
Broadnax v. Ledbetter: Sheriff offered reward for capture of prisoner and refused to give P reward because P did not know about contest. Held: No consideration because P did not know about reward until he turned in prisoner.
Exceptions:
If O’or manifests contrary intention.
Simmons v. U.S.: S caught prize fish in a tourney, but he was only fishing for personal pleasure and not a part of the tourney. Held: No money for S b/c evidence that the Tourney wanted more than just catching fish and returning; wanted acceptance of promise before began performance to increase competitors.
D. Bilateral Contracts and Illusory Promises
Bilateral K = a promise for a promise
Ask… “What are the parties bargaining for?”
If what parties are bargaining for is not clear, P’sor’s offer invites acceptance by a promise or by perf, whatever the P’see chooses. §32
An offer invites acceptance in any manner unless something specific indicated. §30(2)
Usually, “something specific” = a return promise.
In Bilaterals, conditions can be…
Expressed conditions
Implied conditions
implied in fact
implied in law
constructive terms = they say “this is the rule applicable to all instances of this type”
limit performance: Each performance is conditional on each other. Simultaneous performance condition satisfied by a tendered performance. You show up at the designated hour willing to perform. –OR-
2nd performance is conditional on the 1st. If the parties don’t specify the performance order, the longer performance goes 1st, and the shorter performance is conditioned on the 1st performing.
Illusory promises = A promise so lacking in substance that it indicates that no promise took place at all, and hence, there was no real bargain. Very narrowly construed.
If P’sor reserves a choice to not perform, the promise is illusory (P’sor appears to promise something but actually promises nothing) and there is no consideration. §77(a)
Strong v. Sheffie
r the detriments caused by his reliance on P’sor’s promise. Put P’see in the position he would have been in had no K been made.
Restitution interest
Make party whole again by restoring benefit conferred upon the other party.
F. Restitution
Restitution Defined: Recovery to prevent unjust enrichment; § 371
Elements of Restitution
A voluntarily confers a benefit upon B.
A expected to be paid. (A was not a ‘volunteer’ OR an ‘officious intermeddler.’)
B is unjustly enriched.
Implied Contracts = Court may imply a K even if no actual K was created. (quasi-Ks)
Creation = created when performance/aid is…
Excessively burdensome or expensive –OR-
In business or professional capacity
Cotnam v. Wisdom: C was thrown from car and rendered unconscious. Dr. W performed operation. W sued for medical services. Held: Implied K created because C was unconscious, and W should be reasonably compensated.
Categories of the implied K
Implied in fact
K made through intent, though not articulated. Ct. implies intention.
Implied in law
No K made. Ct gives restitution for unjust enrichment.
Schott v. Westinghouse: W promised E’ees cash prize for good suggestions. S gave W a suggestion W later implemented. W refused to pay S. Held: K enforced. (S expected cash and idea was novel)
Damages for restitution. Choose the easier/smaller one. §371
Cost Avoided
reasonable value of benefit received
Net enrichment
Extent to which property has increased in value.
Only allowed if no other reasonable alternatives.
Proving Unjust Enrichment
If arguing UE to a 3rd party not K’ed with, must prove a relationship b/w parties and the absence of another remedy.
Callano v. Oakwood Homes: P K’ed w/ 3rd party to plant shrubs. 3rd party did not pay, and D moved into house. P sued D for unjust enrichment – house increased in value w/out pay. Held: No unjust enrichment bc no relationship between P and D. Also, another remedy exists – P can sue 3rd party.
Paschall’s v. Dozier: (min.) P built bathroom in D’s house at D’s daughter’s request. Daughter did not pay, and P sued D. Held: Restitution because of unjust enrichment (In D’s house so there is a relationship b/w parties. Also, no other remedy exists since daughter filed for bankruptcy.)
Spousal agreements: When there is extraordinary, unilateral effort by 1 spouse that benefits only the other, restitution may be appropriate.
Pyeatte: Wife supported husband in law school based on promise that H would support her in grad school. Held: H was unjustly enriched by W’s unilateral effort, so must pay restitution. (Dissent: W= ‘mere volunteer’.)
G. Promissory Restitution
Mix between past consideration and restitution
Past consideration is binding if necessary to prevent injustice §86
Moral obligation does not serve as the basis for binding promise
Exception: If the law would have enforced a promise based on a bargained for exchange and consideration
Decide that the bargained for exchange is no longer enforceable because some sort of technicality.
P’sor makes a new promise to P’see that is still based on the consideration made.
We cannot enforce the new promise based on consideration bc past consideration is no consideration.
We enforce the new promise based on the moral obligation.
Elements of Promissory Restitution
