I. BASES FOR ENFORCING PROMISES
A. Consideration as a Basis for Enforcement
1. Fundamentals of Consideration
a. Benefit/Detriment Approach (Old test, not applicable anymore)
(Ex) D argues that, b/c the promisor, P’s uncle, did not benefit from the promise and the promisee, P, did not suffer detriment, there was no consideration. Hamer v. Sidway
Note: P could argue that the promisor’s willingness to enter this contract shows that he benefited from the contract. Or there could be other material evidence that benefited him such as prestige of his family name.
b. Bargain Theory – Modern approach
Sought by the promisor, forbearance of one’s legal right or limiting one’s freedom of action is enough to constitute consideration.
(Ex) P’s uncle sought P to refrain from drinking and smoking and P exercised forbearance from his legal right by not drinking and smoking. Therefore, there was consideration. Hamer v. Sidway
This case is a transition case departing from benefit/detriment to the idea of inducement
Note: Reason by analogy focusing on the fact pattern and language of the case at point and the case you are comparing with. How the result will come out is unpredictable.
c. Restatement (second) § 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 given by the promisee in exchange for that promise
Note: Restatement (second) § 79: If the requirement of consideration is met, there is no additional requirement of a gain to the promisor or a loss to the promisee.
d. Reasonable and Good Faith Belief in Validity
Forbearance from a legal right can be consideration but, in addition to bargained-for exchange, reasonable and good faith belief in validity of claim is necessary
(Ex) D’s promise to pay and P’s forbearance to file suit constituted consideration. However, P also had to have a reasonable belief that D was the father of the child.
Fiege v. Boehm
Note: That D found out he was not the father after the deal was made isn’t per se decisive of the case.
2. Implications of Bargain Theory
a. Gratuitous Promises – Promises to make a gift are unenforceable
Father promises to pay his daughter $5000 when she turns 21 w/o any conditions. Knowing how parents can change mind when they mess up, she forbears from drinking to avoid the risk. Is there consideration? No, b/c it was a gratuitous promise. Also, unsolicited b/c father did not induce her to do so.
b. Peppercorns – Sham performance is not consideration
Promise to pay $5000 in exchange of a book. This will be unenforceable. What the law requires is the bargain for exchange. Formality is not all that is needed.
c. Past Action – No consideration
Alternative theory: moral obligation and restitution interest
(Ex) P gave 37 years of service to the company. This is not consideration because the promisor cannot be seeking to have it happen. It already took place in the past.
Feinberg v. Pfeiffer Co.
d. Unsolicited Action – No consideration
Alternative theory: Reliance Interest
(Ex) P continued to work for 1½ years and forbore from retiring and looking for other work. There is no consideration b/c the promisor wasn’t seeking her to work for 1½ years more or to forbear from retiring and looking for other work. Feinberg v. Pfeiffer Co.
1) Tough decisions to make between unsolicited action arising from gratuitous promises and promises the promisor induced the promisee to perform
(Ex) Court ruled that there was no bargained-for exchange even though brother-in-law asked P to leave her stuff and move over to his location and she did that. The language used indicates that it was a mere gratuity. Therefore, no consideration and unenforceable Kirksey v. Kirksey
Note: Kirksey case falls in between Williston’s tramp and Tiffany’s case. And these cases are expressive and so, tougher to decide than Pfeiffer case.
1) Traditional Approach: Literal reading of promise
(Ex) Uncle promised to forbear from collecting debt as long as he felt like it. This was like peppercorn exchange because Uncle could turn around right after this promise and demands it. Therefore, Uncle’s promise was an illusory promise and wife’s promise was not enforceable. It says consideration is to be tested by the agreement, not by what was done under it.
Also, here, Uncle’s forbearance was an unsolicited action b/c wife wanted uncle’s promise. Strong v. Sheffield
Note: In this case, if wife promised to be responsible for husband’s debt in exchange for Uncle’s forbearance from collecting debt for “two years”, then consideration.
Or specific promise not to collect it for two years.
2) Modern Approach: Implies missing terms based on good faith and reasonable person standard.
(Ex) Developer’s promise to pay vendor based on obtaining “satisfactory” leases. Basically, this is an illusory promise like the above case. However, court comes out opposite stating the fact that parties thought they had a deal (mutuality) and implying “good faith” term in the contract. Mattei v. Hopper Developer P
(Ex) P was given an exclusive right to sell D’s design but no words in the deal that formally, expressly showed P’s responsibility and, so, D says no contract. Court says that D’s sole compensation comes from P’s rendering half of profits to D for granting P that right was an implication of promise. Wood v. Lucy, Lady Duff-Gordon Wood P
Note: The fact that termination clause was accompanied by requirement to give notice (or restrict the right of termination) was significant in avoiding illusory promise.