Contracts Outline

CONTRACTS

LINDER

FALL 2011

Basis for Enforcing Promises

What Does It Mean to Enforce a Contract?

The goal or purpose of protecting a promisee’s expectation interest is to put the promise “in as good a position as he would have been in had the contract been performed.”

· What makes a statement a promise?

o Restatement §2: 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

§ In Hairy Hand case, D contends that no reasonable man would have understood that the statements by the D were ‘manifestations of his intention to justify the P in understanding that the D made a commitment to his hand being 100% after surgery’

· How may a promise be made?

o Restatement §4: a promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct

§ Conduct of the doctor in soliciting the P to agree to surgery, may have be conduct inferring a promise

Remedies

· Expectation Interest – being put in as good a position as you would have been in had the contract been performed (difficult to apply in non-commercial settings)

· Reliance Interest – a promisee has a reliance interest if it has changed its position to its detriment in reliance on the promise – be put in as good a position as he would have been in had the contract not been made

· Restitution Interest – the promise has a restitution interest to the extent that the promise conferred a benefit on the promisee – restored any benefit that he has conferred on the other party

· Punitive Damages – not recoverable in actions for breach of contract cases

o Would put the breached party in a better position than if the contract had been performed

Calculating Damages example (p.19 note #1)

Doctor’s fee – $300 Hospital Fee per operation – $100

Pain and suffering per operation – $3,000

Increase in value of appearance if enhanced as promised – $20,000

Loss in value of appearance due to disfigurement – $10,000

Restitution (putting the promisor, doctor, in the situation he was before the contract was made)

$300 doctor fee only (not even a hospital fee because the P has no claim against the hospital)

Reliance (return the party to position they were prior to the contract – as if the contract had not been performed)

$300 doctor fee

+ 3*$100 from hospital for 3 operations

+3*$3,000 pain and suffering of 3 operations

+$10,000 for loss in value

Expectancy (if the contract had been performed as promised)

Don’t get:

$300 doctor fee

$100 for first two operations because you didn’t expect the operation to be free

$6,000 for pain and suffering for first two operations

Do get:

$100 for 3rd operation hospital fee

$3000 pain and suffering for 3rd operation

$20,000 for lost benefit

$10,000 for worse nose

Consideration

àconsideration sufficient to support a contract may be either a benefit to the promisor or a loss or detriment to the promisee

àpast consideration is NOT sufficient consideration to make a promise enforceable

Restatement Definition

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, or

d. A return promise

Hamer v. Sidway (Uncle told his nephew if he refrained from using alcohol, tobacco, swearing, or gambling he would give him $5,000)

· Executor claims there was no consideration in the contract b/c the nephew refrained from drinking and smoking and therefore actually benefitted from this relationship

· Court in this case states that refraining from doing things which he had the legal freedom to do (drink, smoke, etc.) – is suffering a loss and therefore there is consideration

o “in general, a waiver of any legal right at the request of another is a sufficient consideration for a promise.”

· This case would have been decided differently if the law said it is illegal for anyone under 21 to drink or smoke

o if these freedoms were taken away, his freedoms would not have been restricted due to this contract – therefore there would not be consideration

Fiege v. Boehm (P entered into contract with D to not reveal he was the father of her baby if he paid her money – turns out D wasn’t the father)

Holding: Forbearance from asserting a good faith legal claim can be valid consideration.

· Court says that if at the time the promise was made, both parties were acting in good faith and thought the claim was true, it is valid consideration – P believed the claim, and a reasonable person would have believed the claim at the time of the “contract”

· Forbearance to sue for a lawful claim or demand is sufficient consideration for a promise to pay for the forbearance if the party forbearing had an honest intention to prosecute litigation which is not frivolous, or unlawful, and which believed to be well founded.

Feinberg v. Pfeiffer Co. (lady worked for 37 years and was told she’d get payments the rest of her life for her performance)

àHolding: past performance is not valid consideration to render a contract enforceable.

· 37 years of past performance cannot constitute consideration

o There is nothing ‘bargained for’ – she doesn’t have to do anything to get the $

§ She did not have to work another day in order to receive the pension

· If the agreement would have been that she worked one more day in order to receive it – that may have worked (It would have been very thin/small consideration)

o But, at least now there is something bargained for – pension for one more day of service

Mills v. Wyman (P took care of D’s son when he fell sick. D wrote letter, after the care, thanking the P and telling him he’d pay for the services. D never paid, so P sued.)

· Past consideration is NOT sufficient to make a promise enforceable

· Can’t have expectation/reliance interest on acts that took place before the promise made

o If Mills expended $10 on the care of Wyman, those expenses were incurred before the promise, so reliance and expectation interests can’t help you

o Restitution puts the promisor in the position he was before he made the promise – but Mills performed not having made a promise

· Moral obligation is sufficient consideration under the following circumstances

o Debts barred by the statute of limitations

o Debts incurred by infants

§ In this case, the child was no longer an infant or in the father’s care, so there was no moral obligation

o Debts of bankrupts

Webb v. McGowin (P prevented D from getting crushed by a block in a factory, permanently crippling the P. D promised to pay P $15 every week for rest of his life – payments took place for 9 years. When D died, his children stopped the payments.)

àHolding: A moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.

· A material benefit converts the promise made after the fact into consideration

· Some very significant consideration in this case was created by the action of Webb and the service he provided

o Saving life and preservation of the body from harm have much more than just a sentimental value

o That is why there is a special rule about doctors – they save life, and whether there’s a promise or not, they expect to be paid and the law requires you to pay

· McGowin was benefitted, Webb was injured. Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promisor’s agreement to pay

· Distinguishes itself from Mills v. Wyman

o The promise after the fact is OK in this case because the person making the promise was the one who directly received the material benefit

Restatement – s.86

1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice

2) A promise is not binding under Subsection (1)

A. if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched, or

B. to the extent that its value is disproportionate to the benefit

Bargained-for exchange v. conditional gratuitous promise

· Bargained-for exchange (consideration)

o Restatement – s.71 – “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”

§ In the Tiffany’s case (p.57, note #2), the father definitely wanted the daughter to show up, so there is a bargain

· Conditional gratuitous promise (no consideration)

o ”If a benevolent man says to a tramp, ‘If you go around the corner to the clothing shop there, you may purchase an overcoat on my credit,’ no reasonable person would understand that the short walk was requested as the consideration for the promise; rather the understanding would be that in the event of the tramp going to the shop the promise would make him a gift.

Mattei v. Hopper (P was a real estate developer – put down deposit on shopping center owned by D with a clause that said he had 120 days to get leases, otherwise no contract. D breached.)

àHolding: t