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Contracts
University of Kansas School of Law
Lucas, Quinton D.

Spring 2014 Contracts Reading Outline Professor Lucas

University of Kansas School of Law

Promises

I. Hawkins v. McGee (SC of NH 1929)

a. Facts

i. Hairy hand case

ii. Defendant stated that the boy would be out of the hospital between 3-4 days, no longer than 4. And then he would be back to work a couple of days after that. Neither happened.

iii. Defendant stated that he would guarantee a 100% perfect or 100% good hand. The hand ended up just as burned but now covered in hair.

b. Procedural History

i. Both defendant and plaintiff appealed from the original award of damages which included a jury instruction on pain and suffering.

c. Decision

i. Defendant’s statement concerning hospital stay did not constitute a promise but rather only his prediction or opinion.

ii. Defendant’s guarantee concerning the hand was seen as a binding promise. While the court conceded that Defendant had a question of law concerning whether that statement could be seen as a contractual promise given the difficulty any doctor would have in guaranteeing a particular outcome in a medical case, the court looked at other evidence in conjunction with this statement in finding as they did. Namely, that the Defendant repeatedly pursued the boy and his father to allow him the chance to work with skin grafts

d. Holding

i. Damages for breach of contract is designed to put plaintiff in as good of a position had the defendant not failed to deliver on his obligation. The only losses are those that the parties had in mind or expected in entering into the contract verses what they were actually delivered. In the immediate case, this means that Plaintiff was owed the difference between what was promised: a 100% good or perfect hand with what was delivered: a burnt, hairy hand.

ii. No damages for pain and suffering in cases involving surgery as the pain and suffering of the operation and recovery were implicitly part of the cost that the plaintiff gave up in his part of the bargain.

II. Major Mat v. Monsanto (7th Circuit Court of Appeals-1992)

a. Facts

i. Leon Shore began Major Mat with other investors as partners after he perfected a new golf mat using remnant scraps of astro turf manufactured and installed on sporting fields by Monsanto called SR-54.

ii. Concerned over his dependence on a steady supply Storm pursued a contract with Monsanto for such. He eventually was contacted by Fleck, a remnant salesman and installation contracts head for Monsanto.

iii. In their initial phone call Fleck assured Storm that they would have a infinite supply of such remnants, and that Monsanto was not going to compete with his business. Storm believes the result of this phone call is a contractual promise to sell his company SR-54 remnants at $1.54 and that Monsanto will not compete.

iv. Several successful years Storm and Company remained concerned over their dependence on SR-54 and had another conversation with Fleck after discovering Monsanto was going to enter the golf mat business. Fleck again assured them of the ample supply of remnant scraps for them, and barring that their ability to purchase freshly milled SR-54 for their business.

v. However, Monsanto began using all its remnant, depriving Major Mat of their raw materials. Monsanto offered them $4 a foot, but this would lead to a doubling of price so Major Mat refused and went out of business.

b. Procedural History

i. Major Mat sued for breach of contract as a result of the phone conversations with Fleck. They lost on Summary judgment and appealed.

c. Decision

i. Fleck’s statements were mere predictions or opinions based on his experience as a remnant salesman, not a promise or commitment.

ii. The actual supply of the remnant varied between 100k and 300k. It was too unpredictable to reasonably promise SR-54’s perpetual availability at the remnant price of $1.54. Court: Storm heard what he wanted to hear and not what was actual said.

d. Holding

i. “a promise is a manifestation of an intent to be bound and is measured by an objectively reasonable standard” (2nd Restatement of Contracts § 2)

1. Whether a statement is a promise or an opinion or prediction is a matter of fact for the jury to decide but when no reasonable jury could find for a party then a summary judgment is appropriate.

III. Problem #1 page 4

a. The defendant should prevail at trial in the case though he is unlikely to win a summary judgment. His statements regarding the statements of effective and permanent mooring of the Isle of Capri casino boat as well as his belief that the planned structures were sufficient for the intended purpose of anchoring the boat was a prediction or opinion based on his experience in the industry and not a promise or commitment. It is no more feasible for a contractor to be able or willing to commit to a perpetual guarantee of the casino boat in the face of such a powerful force such as Hurricane Katrina as it was for Fleck to promise remnant scraps in perpetuity in Monsanto or the Doctor to promise a exact time of recovery for the boy in Hawkins. As a result of this, it is highly doubtful that his statements reflected a manifest “intent to be bound” when judged on the objective standard that is what is required under the 2nd Restatement of Contracts for a promise to exist.

b. However, in summary judgment all inferences are drawn and all facts are viewed in a light most favorable to the non-moving party, here the plaintiff. As stated in Monsanto, the decision of whether the alleged promise was objectively reasonable is a matter of fact best suited for a jury. Only if NO reasonable jury could find for the non moving party is summary judgment appropriate. As a result defendant will likely lose his request for a summary judgment but will most likely prevail at trial for the reasons stated above.

Consideration

I. Benefit-detriment theory of consideration

a. Original common law approach

b. Either the promisor must benefit or the promisee must suffer a detriment for a promise to be legally binding. Basically the promisor must receive something or the promisee must give something up.

II. Bargain theory of consideration

a. modern theory

b. Consideration occurs when each promise or performance has been bargained for. When each party has been offered a motive or inducement to enter the contract by the other.

c. Hammer v. Sidway (Court of Appeals New York- 1891)

i. Facts

1. Plaintiff secured a claim from William Story the 2nd for a claim of $5,000 plus interest against his uncles estate through several intermediates. Her claim was rejected by the executor. In 1869 William Story Sr. promised his nephew William Story 2nd that if he abstained from liquor, tobacco, swearing and playing cards or billiards for money that he would receive $5k on his 21st birthday. The nephew fulfilled these obligations to the satisfaction of his uncle and sent a letter claiming the money when he turned 21. The uncle acknowledged that the money now belonged to him but wished to keep it safe and earning interest until William Story 2nd was capable of taking care of it. The nephew consented to this, but William Story Sr. died before delivering the money in 1887.

ii. Issue

1. Can consideration be satisfied when the actions of the promisee do not harm, but rather benefit him and/or the promisor does not benefit tangibly from such actions/restraint.

iii. Decision

1. Yes. A detriment from the promisee is satisfied not when actual harm is done to them by their obligations but may consist of sacrificing some legal right in the present, or some future freedom of action or some right, interest, profit or benefit accruing to the promisor. Here the benefit was the fulfillment of the uncles desire to see his nephew not engage in those activities.

2. The nephew abandoned his right to the above vices upon the strength of the bargain his uncle offered him. This reasoning, while couched in the traditional framework of benefit-detriment, is a transition to the bargain theory of consideration.

III. Implications of Bargain Theory: Past Action or Moral Obligation

a. Feinberg v. Pfeiffer CO. (Court of Appeals MO- 1959)

i. Facts

1. Suit brought by former employee of the defendant company who allege

ropped the block. The only way to avoid this was to hold onto the block and drop with it to the floor. He did so and in the ensuing fall was crippled for life, unable to perform mental or physical labor. In appreciation and recognition of his act McGowin pledged to give him $15 every two weeks for the remainder of his life, and he did so until he died 8 and ½ years later. After this time, McGowin’s heirs ceased payment of the obligation.

ii. Procedural

1. Trial court dismissed the action due to a lack of consideration in the promise.

iii. Issue

1. Under what circumstances, if any, is moral obligation a sufficient basis for consideration to render the promise enforceable?

iv. Holding

1. A moral obligation is sufficient consideration to render a promise enforceable when the promisor has received some matieral benefit despite a lack of original duty or liability resting on the promisor.

v. Discussion

1. Analysis seems to be more focused on benefit-detriment theory than bargain theory

2. Some jurisdictions hold that for a moral obligation to support a promise to pay, there must have been some prior legal or equitable obligation which for whatever reason became unenforceable.

a. This rule is still subject to the qualification that the promisor had received some material benefit that lead to the obligation and is thus morally obligated to pay for services rendered and in consideration of this obligation promises to pay.

3. McGowin’s express promise to pay appellant for services rendered was a ratification of what he had done raising a presumption that a previous request for service had been made.

IV. Bargained for Exchange

a. Kirksey v. Kirksey (SC Alabama -1845)

i. Facts

1. Plaintiff was the wife of defendants brother, had been a widow for some time with several children. She was residing on public land, as aholdover tenant looking to claim by adverse possession. Defendant (living in a county about 60 miles away) wrote to her and said if she would move, he would put her and the children up and give them land to tend until her family was raised. She did so and he obliged for 2 years. Then made her move to an uncomfortable house in the woods, she then was required to leave that.

ii. Procedural History

1. Plaintiff won at the trial level and received $200 in damages

iii. Issue

1. Was the loss and inconvenience plaintiff suffered in moving to defendant sufficient consideration?

iv. Holding

1. No. The promise was a mere gratuity and an action does not lie for it. Reversed.

v. Discussion

b. Allegheny College v. National Chautauqua County Bank (Court of Appeals NY -1927)

i. Facts

1. A college in Pennsylvania was conducting a pledge drive and called upon Mary Yates for a contribution. She made a pledge of $5,000, due 30 days after her death, and charged her executor (Defendant) with its completion. The pledge, in writing, instructed that the gift be known as the Mary Yates Johnson memorial fund, the proceeds from which were to educate students preparing for ministry either in the U.S. or a foreign field. A sum of $1,000 was paid early, and the college fulfilled her wishes vies a vie the memorial fund. Later, promisor gave notice that she repudiated the gift. Following her death the college sued for the rest.