CONTRACTS
I. BASIS FOR ENFORCING CONTRACTS
A. CONSIDERATION: bargained-for exchange for something of value (quid pro quo). D must prove either that a promise (only if promised performance would = consideration RST 75) or a performance is bargained for exchange.
i. Benefit-Detriment Approach:
1. Detriment: relinquishment of a legal right – act, forbearance, or promise.
2. Benefit: party gets what they bargained for.
ii. Bargain approach: exchange for promises, acts, or both(act, forbearance, or changed legal relation). (Must be sought by promisor and given by promisee.) RST 71
1. Purposes of consideration: evidentiary function, cautionary function. (p. 23)
2. Court does not measure adequacy of consideration or compare values, but mere pretense of a bargain does not suffice. (peppercorn) RST 79
a. Fuzzy rule, context matters, (future gift not binding?)
b. Sweetheart Stadium Case: Bargained for gift of bond ordinance to stadium builders = huge difference of values, BUT Held: valid contract because of future consideration of home game profits.
3. Doesn’t matter if party’s secret motives are not the same as what is bargained for. RST 81
4. Can be promise or performance.
a. Hamer v. Sidway: Uncle promised nephew $5,000 if he gave up smoking, drinking, etc. until he turned 21. N gave up activities and asked for money. Held: Binding contract. Consideration = N abandoned present legal rights and promised to abandon rights as inducement for promise.
i. Forbearance and motive do not have to benefit promisee or have substantial value to anyone. Determining factor = objective view of a bargain.
b. Old Cases
i. Dahl v. HEM: free drug trial for drugs à consideration.
ii. Gottlieb v. Tropicana Hotel: P gave casino personal info to get gambling card. P won contest, and casino refused award. Held: Personal info = consideration
iii. Tiffany’s: Estranged father promised to buy ring for daughter if she meets him for lunch. Possible bargain (estranged father) or not (changing positions not.)
5. Promise/performance may benefit 3rd party, not promisee.
i. Shadwell: U promises N money if N marries A. Held: binding – consideration because N gave up right to stay single or marry someone else.
iii. Invalid Claims Exception: Good faith/reasonable grounds: RST 74
1. At time of promise, belief in invalid claim must be honest OR reasonable.
a. Fiege v. Boehm: F promised to pay B’s expenses for child in exchange for B’s promise not to sue for bastardy. At time of promise, parties believed claim was valid and reasonable; no unfairness or fraud. Held: Binding w/ consideration – forbearance from the right to sue. Valid if claim is reasonable OR honest.
2. 1 RST 76: Belief must be honest AND reasonable.
iv. Action in the past is not consideration. RST 86
1. Promise made in recognition of past benefit is not consideration and is only binding to extent necessary to prevent injustice. W/ no bargain, LOOK at relative values!
2. Promise based on past action is a gift. Exception: Moral obligation & material benefit & promise based on that.
a. Mills. v. Wyman: A gives emergency care to B’s son while son is sick at sea. B promised to reimburse A. Held: not binding because no consideration from past services even though moral obligation exists. (RST 82 (a): conferred benefit as gift)
b. Feinberg v. Pfeiffer: F worked for company for 39 years, and company promised pension. F retired, and company stopped paying pension. Held: no consideration because past/continued employment is not a bargained for exchange or mutuality of obligation. (But, relianc
out reward after part performance, he may accept reward by finishing.
1. 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 after he turned in prisoner (completed performance).
viii. Illusory promises not consideration:No consideration if the promisor reserves a choice to not perform (promisor appears to promise something but actually promises nothing.) RST 77
1. Strong v. Sheffield: Sheffield’s wife signs a promissory note for Strong’s promise not to enforce debt until he wanted money. Held: Not binding because Strong’s promise was illusory (reserved right to change mind), so no consideration. (No obj or subj standards.)
2. Satisfaction clause is not illusory if it has objective standard (reasonable person) or subjective standard (good faith).
a. Objective standard: Satisfaction as to commercial value, quality; Reasonable person test. (Ex: buying dictionary w/ missing pages)
b. Subjective standard: Satisfaction as to fancy taste or judgment. Good faith test. (Ex: buying wallpaper)
i. Mattei v. Hopper: Seller promised to sell land if developer obtained satisfactory leases. Held: Contract was binding w/ consideration & not illusory because had subjective standards.
Requirement/output/exclusive agency contracts not illusory because of implied good faith. UCC 2-306
