Contracts
I. Interests Protected by Law (examples of each from car hypo)
A. Restitution – the breeching party has unjustly benefited; puts the nonbreaching party in the position they were in before the breach
1. Example: A car dealer that doesn’t deliver has to pay you back the down payment you gave him, but no garage payment because car dealer did not benefit.
B. Reliance – Any changes you made in reliance to the promise; putting the nonbreaching party in the position they were in before the breach (as if the contract had not been made in the first place).
2. Example: You spent money on a parking lot for the car you were expecting to receive; paid $500 for it also $1000 DP, under reliance $1500 to suffice.
C. Expectation (Usually what the law in our system protects) – Putting the non-breeching party in the same position it would have been in had the contract been performed
3. Example: I was going to resell the car for a profit (granted the difference which was 20k to 22k in the hypo, so 2k diff granted to put him in same position as if he got the car). Plus, gets his DP back so a total of $3k to buy the car for market value.
D. Punitive Damages – In our system punitive damages are not available (that is more for torts)
II.Consideration (required for a contract to be enforceable)
A. The Bargain Theory of Consideration (Restatement Second § 71(1))
1. To constitute consideration, a performance or a return promise must be bargained for (A bargained for exchange)
2. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and given to the promisee in exchange for his promise(Restatement 2d 71(2))
3. There must be inducement (if you change a behavior because you assume that what the other person wants, it is not consideration)
4. Restatement Second § 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 promise.
5. The Consideration approach replaces the old benefit/detriment approach (Hamer v. Sidway lead the change. Never say no consideration because no benefit
6. One implication of the Bargain Theory is that gifts are not enforceable in courts
B. Forbearance as Consideration
1. Giving up your right to do something can be consideration
a. You do not have to suffer a detriment (that was the old traditional way) in what you are giving up (Hamer v. Sidway – giving up drinking, smoking, and swearing actually benefited him, but it was his right that he gave up)
b. The promisee does not need to be directly benefited; the court can rule that he valued the changed behavior more than the money he promised (Hamer).
c. Forbearance must be specifically induced as part of the agreement (court will not enforce a mere promise to give you $1000 on your 18th birthday, even if you forbore from some acts to try and assure that you would get the money, has to be inducement).
d. There is some argument that you must at least be giving up something that you have a lawful right to be doing (Hamer v. Sidway) – this case does not address that issue specifically however.
e. This is the real reason the court accepted the outcome in Central Adjustment Bureau – the company forbore from firing the plaintiffs, in exchange for their signing the “do not compete” clause
2. PEPPERCORNS – Generally not enforced by courts
a. Adding the words “in consideration” – does not help (still a sham)
3. FOREBEARANCE TO PROSECUTE – a good faith non fraud claim is good consideration. Also, have to have a REASONABLE belief. (hypo of rubbing elbows and getting pregnant. She might think so but reasonable person would not.)
a. The claim does not need to be true, just good faith and objectively reasonable (Fiege v. Boehm). Fiege was willing to pay money because of the Risk that he was the dad. It is valuable to society that people can make deals based on risks.
b. It is good policy to enforce these promises even if the claim turns out to be untrue; it is valuable to society that people can make deals based on risks
c. The standard is objective and not subjective
d. Like an insurance deal, even if the claim is untrue we like to let people resolve UNCERTAINTIES in contracts
e. Mike Jordan example
f. Hypo- what if brings case and he has never looked at her, he pays because he does not want people to know. No consideration, if not a legal claim
C. Past Action and Future Promises (restitution and reliance questions here).
1. Under the bargain theory – Action in the past is NOT Consideration for a future promise
a. Feinberg v. Pfeiffer Co.; her 37 years of work did not change the fact that the promise to pay her retirement did not induce her to do anything
2. Moral Obligation: Although the court may recognize that a person has a moral duty to pay for treatment received, they will not enforce it (Mills v. Wyman). Wyman’s dad promised to pay Mills for the care he gave his son. There was no consideration because the action was in the past.
a. In Webb v. McGowin the court felt moral obligation may be enough. Court says no consideration but they enforced consideration through “moral benefit”, this is also diff from other cases because McGowan actually received the benefit. Moral benefit is enough when…. have to look for physical injury and it helps if pay for a long time.
D. Making a Future Gift – Must ask yourself, what is the P trying to enforce.
1. Williston’s Tramp & Kirksey v. Kirksey – “go to my tailor and get a coat” and “If you come down and see me and I will give you a place to live” are NOT consideration
a. The “if” clause was NOT to induce her, but rather to establish a condition upon which her receiving the future gift was based.
b. These promises are not enforceable in court because there was no consideration; these were mere gratuities
c. weak cases – Diff. facts for Kirksey – “Ill let you live in my place”; Homeless man seeking to get him a coat, but him one at the mall. (no inducement just trying to get him coat).
d. strong cases – “If you come down and see me, Ill let you raise your family here” or trying to get homeless out of store front you buy him a coat so he can go elsewhere. (good because you are inducing him to leave the store).
2. Lunch at Tiffany’s – IS CONSIDERATION
a. He induced her, not only to go to the store, but to see him which she did not want to do. His goal was to indu
quire compensation.
3. Promissory Estoppel and Reliance
a. Restatement First – Promissory Estoppel – so other party can’t use lack of consideration.
1) A Promise
2) Promisor contemplated reliance (had some reasonable idea that the actions would induce a behavior)
3) The reliance was of a definite and substantial character
4) It did in fact induce reliance
5) Grossly inequitable (if necessary to avoid injustice)
b. Restatement 2nd § 90
1) A Promise
2) Promisor should reasonably expect to induce action or forbearance
3) Did in fact induce reliance
4) Is BINDING if necessary to avoid injustice
5) Remedy may be limited as justice requires (you may get expectation interest, but you may just get reliance interest)
– Essentally this restatement is saying: “reliance by the promisee may be sufficient to create an enforcement right against the promisor, even though there is no consideration”
c. Reconciling the two Restatements
i. for your greater degree of reliance you may get expectation interest
ii. for a lesser degree of reliance you may get reliance only
d. A protection of your expectation interest
e. Contrast with Equitable Estoppel – which is based on a misrepresents the facts (you tell a car dealer you are 18 when you are really 17, so that you can later go back and say “let me out of the deal I was only 17.”)
f. Ricketts v Scothorn (86): Seeking to enforce grandfather’s promise to pay $2000. Grandfather wasn’t seeking to enforce that she quit her job, but she did, in reliance on the gift. No consideration, because grandfather wasn’t seeking anything in exchange for his promise, HOWEVER promissory estoppels allow the promise to be enforced. Apply RS 2d §90: promise; grandfather reasonably expected to induce forbearance; she did forbear (from her job). There would be injustice if the promise wasn’t enforced. PE is The doctrine of promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise and acted upon it. Promissory estoppel protects the expectation interest.
G. Illusory Promises – appearance of a promise – Promise for Promise Cases; diff between uni and bi contracts.
