Contracts Outline

CONTRACTS OUTLINE
I.         BASIS FOR ENFORCING CONTRACTS
A.     CONSIDERATION: Bargained for Exchange (quid pro quo). D must prove either that a promise or a performance was bargained for in exchange for something of value.
                         i.      RST §71 – Bargain approach: To constitute consideration – a performance or return promise must be bargained for.
1.     Bargined for = Sought by promisor [in exchange for his promise] and given by promisee [in exchange for that promises] 2.     Performance = act, forbearance, or creation/changed legal relation.
3.      Consideration – 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 = [Forbearance] N abandoned present legal rights and promised to abandon rights as inducement for promise.
                                                                                          i.      RST 81 – Forbearance and motive do not have to benefit promisee or have substantial value to anyone – Can benefit a 3rd Party.
b.      Dahl v. HEM: Unilateral Contract – like Hamer v. Sidway – HEM promised D that if he participated in a 1yr trial dug experiment, H would give D a 1 yr supply of the drug = Consideration – performance and forbearance
c.      Gottlieb v. Tropicana Hotel: P gave casino personal info to get gambling card. P won contest, and casino refused award. Held: Furnishing personal info = consideration
4.      Court does not measure adequacy of consideration or compare values [RST 79], but mere pretense of a bargain does not suffice. (Peppercorn)
a.     RST 71 – Pretense to a Bargain – Gratutitous Promises are not binding consideration – A desires to make a binding promise to give B $1000, A offers B $1000 for a book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. No Consideration.
                        ii.      RST 79 – If the requirement of consideration is met there is no additional requirement of – Benefit [to promisor] or Detriment [to promisee]:
1.      Promise/performance may benefit 3rd party, not promisee.
a.     Shadwell: U promises N money if N marries A. Held: binding – consideration because N gave up right to stay single or marry another.
2.      Mixture of Bargain and Gift – Element of the bargain may furnish sufficient consideration for the entire transaction – A offers to buy a book from B for $10, both know the book is worth $5 and that part of A’s motive in making the offer is to make a gift to B = Consideration b/c RST 79 & 81
a.     RST 81 – To constitute consideration, the actual bargain does not have to be the motive for the making of the promise or for performance of a promise [Motive can = Gift].BUT the Bargain must be more than pretense. Determining factor = objective view of a bargain.
                      iii.      RST 74 – Invalid Claims Exception: Good faith/reasonable grounds:
1.      Invalid claim – induces a promise is not consideration unless At Time of Promise:
2.      Validity of the claim is in fact doubtful to both parties, and both parties’ belief in the validity of the invalid claim must be Honest AND 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. Later Blood Tests revealed – F was not the father; However, at time of promise, both parties believed B’s claim was valid and reasonable made in good faith w/ no fraud. Held: Binding w/ consideration – forbearance from the right to sue. Valid if claim is H&R.
                     iv.      RST 86 – Action in the past is not consideration.
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 – b/c a benefit conferred before a promise is made can hardly be said to have been given in “exchange” for the promise.    
a.      Feinberg v. Pfeiffer: F worked for company for 39 years, and company promised pension. F retired, in reliance on the pension, and company stopped paying pension. Held: no consideration because past/continued employment is not a bargained for exchange or mutuality of obligation. (Enforceable under RELIANCE.)
b.      Dementas v. Estate of Tallas: D told P that he would leave money in his will for P because helped him in his old age, but did not leave promise in will. Held: no consideration for past services [No consideration b/c no promise in return, No reliance b/c nothing was forborne, and Moral Obligation doctrine does not apply when services are rendered w/o expectation of being compensated = performed gratuitously].
c.      Mills. v. Wyman: A gives emergency care to B’s adult son while son is sick at sea. After all the expenses were incurred, B promised to reimburse A. Held: not binding because no consideration for past services even though moral obligation exists. [Moral Obligation Exception doesn’t apply b/c adult son doesn’t meet Material Benefit standard – he would if son was still a child] 3.     Exception: Moral obligation+Promise based on Material Benefit = Consideration
a.      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 – Material Benefit.)
                                                                                      i.          Where the promisor receives a MATERIAL BENEFIT from the promisee [care for, improves, and preserves the property], though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service based on that moral obligation.
                                                                                     ii.          Disagreement in the States – Harrington v. Taylor – Wife is about to kill husband w/ axe and friend deflects axe w/ hand causing serious injury, Husband’s later promise to support friend for saving his life was not binding – humanitarian act, voluntarily performed is not sufficient consideration. 
b.      Booth v. Fitzpatrick: A finds B’s escaped bull and cares for it. [A gives a Material Benefit to B by taking care of his property] B’s subsequent promise to compensate A is binding. (MORAL OBLIGATION – Material Benefit)
 
v. Merely changing positions or promises to give a gratuitous gift not consideration RST 71 – Requirement of a Bargain:
1. Kirksey v. Kirksey: Brother promised widow (sister Antillico) a home if she moved family 60 miles. Widow moved. Held: No consideration because no bargained for exchange – Promise to give a gift. [Reliance would have been applied – but not developed at the time] [Possible to argue – loss and inconvenience of moving was sufficient consideration] 2. Tiffany’s – Estranged Father wrote to Daughter promising to buy her a ring if she would meet with him. Daughter met with Father at the specified time, but he refused to buy her the promised ring. Held – The short walk to the store was not sufficient consideration for the ring- Merely a PROMISE TO GIVE A GIFT.
vi. Consideration in Employment Agreements:
1. CAB v. Ingram: [Incorrect decision] CAB hired Ingram and made him sign non-compete after beginning work. Ingram continued work, was promoted, and quit. Held: [Incorrect View] (Majority – Non-Compete was enforceable b/c ACTUAL continued employment and promotions constituted sufficient consideration.)
a.      [Correct View] (Dissent: Promise of continued “at-will” employment was not enough to furnish sufficient consideration for an employee’s non-compete agreement, signed after employment began b/c No consideration – no bargain – employee lacks free will to bargain for non-compete after he begins work b/c at that point the employee has foreclosed his other options.)
b.      Public policy issue: freezes the labor market and creates an imbalance of power in favor of the employer.
2.     [Employee Hand Books] Pine River v. Mettille: Pine River failed to follow the handbook when firing Mettille – M argued that P was bound by the handbook and P argued that the handbook was a source of information for employees and was not apart of the employment contract b/c the handbook was unsupported by consideration [no bargained for exchange]. Held: For M, an employer’s offer of a unilateral contract may appear in a personnel handbook. Consideration-M’s continued performance of his duties constituted an acceptance of the bank’s offer.
a.      ENFORCEBAILITY arises from the BENEFIT the employer derives from establishing such policies, i.e., the enhanced employment relationship stemming from the establishment of known policies.
3.      [Modification of Employee Handbooks] Worely v. Wyoming Bottling Co., Inc.: [Majority Rule] An employer cannot change the terms of an existing employment contract that requires termination ‘for cause’ to reflect termination ‘at-will’ without furnishing sufficient Consideration.
4.      Bankey v. Storer Broadcasting: [Minority Rule] P was fired after employer unilaterally changed handbook deleting the ‘for cause’ requirement and changing it to termination ‘at-will’. Held: Employer can unilaterally change if he gives reasonable notice and uniformly applies the policy (even if employee does not know of cha