I. Enforcement of Promises
R§1 – A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
R§71 – (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 or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person
R§79 – 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”
R§81 – (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
-as long as one small part of why the promise was made was to get the promisee to act then there is consideration. Why the promise was made is not important. Conditional promises help to indicate this. “I will do x IF…”
The Consideration Doctrine: assumes that the parties themselves are the best situated to place their own values on the items being exchanged. (other doctrines assess fairness)There is only consideration if it is bargained for and if it is both sought by the promisor in exchange for the promise and given by the promisee in exchange for the promise
Legal benefit and detriment are consequences of the exchange. The only required legal benefit is they get something out of the promise. Legal detriment to the promisee is giving the promisor what he is bargaining for.
a. Fundamentals for consideration as a basis for Enforcement
1. Consideration is required for the enforcement of a promise (alternative theories may be used I the absence of consideration: Promissory Estoppel, Restitution, Moral Obligation)
2. 3 Common Law actions were used as a basis for consideration
i. Covenant – originally used to enforce contracts made under seal
a. 2 functions were performed by instruments like the seal
1. Evidentiary – provided trustworthy evidence of the existence and terms of a contract
2. Cautionary – provides significance to the acts of the parties involved
b. Debt – Principle that one party owes something to another
c. Assumpsit – Idea that one party owes another for recovery of damages for physical injury to person or property on the basis of a consensual undertaking. Was modified to require detriment in reliance on the promise. This was extended to those cases in which a promise was given in response to a previous promise, since the second promise may be reliant upon the first for completion.
3. Regarding consideration, Debt eventually developed the notion that there must be benefit to the promisor while Assumpsit developed the notion that there must be detriment to the promisee
b. R71(1) is the foundation of consideration
c. R71(3)(a) defines what form of performance consideration may take (act, forbearance, modification of legal relationship)
d. R79 if consideration is met then there is no analysis of benefit/detriment to the promisor/promisee
ii. Consideration through the Bargained For Exchange (BFE)
a. R71(2) Bargained for Exchange – the promise is bargained for if:
1. Sought by the Promisor in exchange for the promise (81(2))
i. Make a promise to get it (did Story Sr. make the promise to obtain to Story 2nd’s forbearance)
ii. NOT: a sham, pretense, nominal “consideration”, past consideration, conditional gift promise
2. Give by the Promisee in exchange for the promise
i. Do it to get what’s promised (81(2))
3. If there is no benefit to the promisor or promisee and no equivalence of value no consideration
4. R81 further defines consideration in bargained for exchanges. R81 Only applies to BFE’s, does not apply to Promissory Estoppel
5. R81(1) states the reason sought by the promisor does not need to be a significant reason why the promise is made (other reasons why the promise was made may outweigh the promise). As long as the reason had some small part in the creation of the promise.
i. Hamer v. Sidway, Story Sr. created a conditional promise so the forbearance of the activities was evidenced to be part of what was sought.
ii. If there was a true bargain Story Sr. could sue his nephew if he didn’t refrain from activities.
6. R81(2) the promise does not need to be the primary reason why the act was performed. As long as the act is performed it can be consideration for the promise.
b. R79(b) holds that the equivalence of the values exchanged is not required if the requirement of consideration has been met. Essentially, if consideration has been met, the benefit/detriment to either party or values exchanged does not concern the court.
1. Shadwell v. Shadwell (pg 30)- Uncle promised nephew he would pay him if he got married. Even though he was going to get married anyway, we can assume the money did influence him at the least in a small way.
c. Look at the facts around the promise to see if it is a bargain or not.
iii. Gratuitous Promises
a. Promise without consideration. This is an unenforceable promise as there is no consideration.
b. But if the good is actually exchanged (actually delivered) then it is a gift. The delivery action of the gift serves 2 functions 1. evidentiary and 2. cautionary.
c. Consideration serves a similar function in the case of a promise
1. Once there is Delivery àirrevocable Gift (Gifts à Delivery)
2. Delivery of property serves two functions
i. evidentiary – the fact that the act was performed shows that the promisee was at least in part motivated by the promise (gives evidence that promisor made to part with property)
ii. Cautionary – should serve to the donor as something significant; they should realize they will be unable to revoke the gift
iii. Admin costs, iv. Non-mkt trans, v. non-legal enforcement, vi. No real economic loss
3. Promise à Consideration
d. There is no enforcement of Gratuitous promises because:
1. Evidentiary (lack of)
2. Cautionary (lack of)
3. Administrative Costs (incurred if enforced)
4. Non-market Transactions (usually occur outside the commercial realm)
5. Non-legal enforcement mechanisms exist eg societal presssure
hange for the promise thus consideration.
c. Jailhouse case: prisoner listened to radio station in return for possibility of winning $25,000. Listening to station was given by P in exchange for the promise of $25,000. – If a prison guard had turned the radio on there probably would not be consideration.
d. Central Adjustment Bureau v. Ingram – covenant not to compete
i. Facts: Ingram signed covenant not to compete after starting work at CAB, but then quit and set up competing business after leaving work at CAB.
ii. Holding: There was consideration
iii. Rule: There is consideration if 1) non-comp agreement signed prior to or shortly after employment or 2) if there is continued employment of employee for appreciable period of time after signing. In this case P received promised benefits of continued employment as consideration.
iv. Dissent rule (what most people think is right): no consideration since no bargaining before employment (gave up old jobs already), no consideration if contract is terminable at will, most agree with dissent that this was a unilateral contract.
e. Employer promises in employee handbooks
1. Mettille case – court found that these were valid unilateral contracts when employees found out terms after employment. Employees continued performance of her duties (after finding out terms of handbook), and not quitting, constitutes acceptance to bank’s offer and constitutes necessary consideration.
2. Bankey v. Storer Broadcasting
i. Facts: Employer changed employment in handbook from one of discharge with cause to one of discharge at will
ii. Holding: Court found that the handbooks are not binding contracts – policy can be unilaterally changed by employer at anytime (employer gets benefits and detriments of its policies)
f. Knowledge of offer:
1. Rule: There is no consideration if promisee finds out about promise after completing performance – there is no bargaining in this case – promisee did not perform in exchange for the promise.
i. Sheriff Ledbetter case – man read about found out about reward after capturing and turning in bad guy – no reward
ii. if he had read, then captured and turned in he would get reward
iii. if he had captured, read, then turned in criminal under § 51 he would get reward
D. Bilateral Contracts and Illusory Promises
R§2(1) (Promise; Promisor; Promisee; Beneficiary) – (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made
R§30(2) (Form of Acceptance Invited) – (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances