I. UCC Section 2 pertains only to the sale of goods
II. Enforcing Promises
A. Early English law
1. Covenant: contract made under seal.
2. Debt: used to enforce some types of unsealed promises to pay a definite sum of money. The promisee gave the promisor something of value, and the promisor now owes the promisee a debt.
3. Assumpsit: An action brought when the promisor fouls up the fulfillment of the promise to the detriment of the promisee (misfeasance)
4. In summary, English law regarding consideration began as an analysis of benefit vs. detriment, but evolved into an analysis of barter for exchange
B. Enforcing a promise (theories we can use):
2. reliance (promissory estoppel)
3. for benefit received (moral obligation)
C. Restatement §71: Requirement of Exchange; Types of Exchange
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 promisor in exchange for his promise and is given by the promisee in exchange for that promise.
3. The performance may consist of:
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal relation
4. The performance of return promise may be given by the promisee or by some other person.
D. Restatement §81: Consideration as a Motive or Inducing Cause
1. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
2. The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
E. Hamer v. Sidway: D promised P that if he would refrain from drinking, smoking, etc. until he turned 21, D would give P $5000. P refrained, and informed D of this upon turning 21, and D affirmed his obligation, but kept the funds until P would be capable to manage them properly. D dies without paying a P seeks payment. Held: P’s abstention from legal, yet harmful behavior was sufficient consideration for contract to be binding. D argued that P was benefited and not detrimented by performing the contract, thereby conferring a double benefit on P by enforcing the contract, but see Restatment §79 below.
F. Restatement §79 Adequacy of Consideration; Mutuality of Obligation
1. If the requirement of consideration is met, there is no additional requirement of
a. A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
b. Equivalence in the values exchanged; or
c. “mutuality of obligation.”
G. Restatement 1st talked about “sufficient consideration”. Restatement 2nd abandons this and says there’s either consideration or there’s no consideration.
H. Gratuitous Promises – generally, courts do no inquire into the amount of consideration, meaning that a relative pittance could be given in exchange for a promise, and it would count as consideration.
I. Fiege v. Boehm: P became pregnant and D agrees to pay child support as long as P doesn’t file a bastardy suit (which was criminal at the time). P began payment, but stopped when he found out the baby wasn’t his. P then filed a bastardy suit, and D was found not guilty. P sued to enforce the promise for child support. Held: P’s promise not to sue was sufficient consideration for D’s promise to pay child support, even though her potential suit was based upon an invalid claim. The only requirement was that P act in good faith, under a reasonable belief that D was the father. See Restatement §74, below.
J. Restatement §74: Settlement of Claims
1. Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
a. The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
b. The forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.
2. The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
K. The Requirement of Exchange: Action in the Past
1. Feinberg v. Pfeiffer Co.: P worked for D for 37 years. Without P’s knowledge, D’s board of directors voted to guarantee P a certain amount of income for life once she retired. P was later informed of this, and told she was free to retire whenever she saw fit. P worked another 18 months, then retired. In her decision to retire, the guaranteed income was a major factor. After several years, D got a new president who stopped payments. P sues for the money because she can no longer secure employment and relied on the money. Held: Since the promise by D at least in part induced P’s retirement, and since P relied on the money (promissory estoppel doctrine), the contract is enforceable.
a. promissory estoppel. The principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment. — Also termed (inaccurately) equitable estoppel. [Cases: Estoppel 85. C.J.S. Estoppel §§ 92-93.] “The doctrine of promissory estoppel is equitable in origin and nature and arose to provide a remedy through the enforcement of a gratuitous promise. Promissory is distinct from equitable estoppel in that the representation at issue is promissory rather than a representation of fact. ‘Promissory estoppel and estoppel by conduct are two entirely distinct theories. The latter does not require a promise.’ ” Ann Taylor Schwing, California Affirmative Defenses § 34:16, at 35 (2d ed. 1996) (quoting Division of Labor Law Enforcement v. Transpacific Transp. Co., 88 Cal. App. 3d 823, 829 (1979)).
2. Old view of moral obligation: Mills v. Wyman: P cared for D’s sick son. D agrees to pay P’s expenses but changes his mind. P sues for expenses. Held: A moral obligation is generally not sufficient consideration for a promise.
i. Promise to pay a debt that is no longer legally enforceable because the statute of limitations has run out (see Restatement §82)
ii. Promise to perform a duty imposed by a promise the promisor made as a minor, and would otherwise not be enforceable.
iii. Promise to pay a debt that has been discharged in bankruptcy (see Restatement §83, but don’t necessarily believe it because there are a lot of special rules reg
bargain for exchange
2. conditions (express or implied)
a. bargained for consideration
3. Central Adjustment Bureau v. Ingram: Ingram (D) signed a non-compete agreement a week after beginning work for CAB (P), when told he would lose his job if he didn’t and after objecting to signing the covenant. D left company and began his own competing company, even using customer lists taken from P. P sues. Held: non-compete covenants are enforceable even if signed after employment has begun, as long as they are reasonable under the circumstances. The continued employment of someone who has signed such an agreement may be taken to be consideration, but courts are divided. – bargaining for cov. ntc and continued employment “at will” for reasonable time – reasonable is implied (in fact) – explicit terms trump implied terms
a. Courts don’t like restraints of free trade (i.e. limiting a person from doing what they are able to) – employer has to show a pretty darn good reason why they have to have non-competition protection – doctrine of consideration does not police well in cov ntc that other doctrines deal with things better
b. Distraction in Ingram case of employer sandbagging by not telling employee about cov ntc until after working
4. Bankey v. Storer Broadcasting: Held: An employer may unilaterally change its written policy from one of discharge for cause to termination at will, provided employer gives notice to employees.
M. Promises as Consideration
1. Promise given in exchange for performance = unilateral promise – only 1 enf. promise – only P’or is bound
2. Promise given in exchange for a promise = bilateral promise – both promise are enforceable and are supported by consideration
3. Both a promise or performance can constitute consideration (see Restatement §71 above)
4. Strong v. Sheffield: D signed a note as a security for an antecedent debt owed by D’s husband to P in exchange for P’s promise to forbear collection of the first debt (no time limit for forbearance was agreed upon). Two years later, P demands payment of the first debt, and D fails to pay, prompting P to bring suit. Held: The promise to forbear was illusory because there was no time limit set. Thus, P could have forborne for one minute, then collected and fulfilled his obligations.
5. An illusory promise is not a real promise, therefore no contract can be made.
6. Restatement §77: Illusory and Alternative Promises
a. A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
i. (a) each of the alternative performances would have been consideration if it alone had been bargained for; or