I. Promise – an expression of an intention to act (or refrain from acting) in a specified way, a commitment (different from a statement of future intent)
a. Promisee → person to whom promise is made; Promisor → person who makes a promise
II. Contract – a promise which is legally enforceable
a. R2d § 1 – A contract is a promise or 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
Consideration – What promises should the law enforce?
I. Simple Donative Promises – promises made for affective reasons (friendship/love/etc.)
a. The Concept of Consideration –
i. Broad conception –collective term for all the various separate elements that can make a promise legally enforceable
ii. Narrow conception – equated w/single element of bargain – does not account for many other elements of enforceability, such as reliance → Soper will use this definition
iii. R2d § 17 – Formation of K requires bargain in which there is manifestation of mutual assent to exchange and a consideration
iv. R2d § 71 – Performance/return promise must be bargained for
v. R2d § 71 – Performance/return promise bargained for if sought by promisor in exchange for his promise and given by promisee in exchange for that promise
vi. Dougherty v. Salt – K unenforceable where aunt gave promissory note for “value received” b/cno consideration or bargain/exchange
b. Gifts –
i. Completed gift recognized as a valid binding transaction, irreversible by donor – if you have already given the gift, presumably you were acting deliberately and shouldn’t be protected from your own rashness
ii. Ways to make gifts –
1. Deliver possession to donee
2. Deed of gift or inter vivos document of transfer
3. Declare oneself trustee of property for the benefit of another
c. Donative Promises – Social questions of contract law → should enforcement be based on ensuring that promisors keep their promises because it is morally right to do so, or utilitarian considerations such as compensating promisees and increasing social wealth?
i. Why are simple donative promises unenforceable?
1. Reflects promisee’s moral obligation – to release a repenting promisor from a simple, affective donative promise
2. Administrative Problems of Enforcing Donative Promises –
a. Problems of proof (no context to judge purported exchange or bargain)
b. Problems of deliberativeness (promisor may have acted rashly, usually promisor is emotionally involved and looks more to interests of promisee)
3. Substantive Problems of Enforcing Donative Promises –
a. No real hurt to promisee if promise not kept
b. Promisor not usually unjustly enriched
c. Independent social interests (increase in public wealth, etc.) rare – a gift is a sterile transmission
ii. Conditional Donative Promises –
1. Conditional bargain promise – performance of condition as price of promise
2. Conditional donative promise – performance of condition as necessary means to make gift, not the price of the gift
3. We determine whether consideration occurs by making a judgment based on all the circumstances and on our knowledge of how people normally act (or it could be argued that anything is consideration)
a. The ‘Up the Ante’ Test – If it makes sense for the promisor to ‘up the ante,’ and still want to go through with contract if promisee says no, then the facts reflect a bargain as opposed to a gift
II. Enforcing Promises Even Without Consideration – The Element of Form –
a. Concerns about enforcing contracts without consideration –
i. Evidentiary – protect from difficulties resulting from insufficient proof
ii. Cautionary – protect individual against his own rashness and the importuning of others
iii. Channeling – ensure an awareness in the individual that his actions may have legal significance
iv. Deterrent – unwillingness to enforce transaction types considered suspect or of marginal value
b. Nominal Consideration –
i. Bargain – substantive transaction, exchange in which each party views what he gives up as price of what he gets and is deliberate in making the transaction
ii. Nominal consideration – form of a bargain but not substance, clear that promisor did not view what he got as the price of his promise
1. Schnell v. Nell – no consideration where promised $600 in return for one cent
2. R1 took view that mere form of a bargain would make promise enforceable
3. R2d reversed position and requires bargain in both fact and form → R2d § 72 – formality not essential to consideration and does not supply consideration where element of exchange is absent
a. Exception – nominal consideration makes a promise enforceable in options and guaranties if it is in a signed writing (adds cautionary element of deliberateness) and purports consideration; already in an exchange setting so it is also assumed that it is deliberate and not rash
i. Option contract (R2d §§ 87, 88) – offer accompanied by enforceable promise to hold the offer open
1. Firm offer – promise to keep open
2. Valid firm offer – under UCC § 2-205 no consideration required, just needs to be in writing and signed – not in form of bargain
ii. Guarantee – promise to take on someone’s debt, to be surety for the performance of a contractual obligation
b. Why no exception in Schnell v. Nell? – acting out of emotion for wife and not in exchange setting – doesn’t matter if jumped through all hoops (purported consideration, sealed, etc.), b/c emotion had affect on him and needs protection
c. Consideration and the Seal –
i. Prior to modern statutory reforms, promise under seal enforceable even though it was donative – raises unrebuttable presumption of consideration
1. If they take the time to seal it, it is presumed to have been entered into deliberately
ii. Statutory provisions depriving seal of binding effect –
iii. Gradual liberalization and
Difficult to determine ‘value’
2. Even if unequal:
a. It’s your own fault
b. Administrative reasons
ii. R2d § 79 – valuations of exchange left to private action, although nominal consideration does not satisfy; “gross inadequacy” of values may be relevant to other rules
iii. Hancock Ban & Trust Co. v. Shell Oil Co. – 15-yr lease agreement enforceable b/c in absence of statute a party should not be relieved of a K just because of bad or unequal consideration
iv. Batsakis v. Demotsis – K upheld where D gave P $25 worth of Greek money during war in return for $2000 payment after war → court does not check adequacy of consideration if knows there was an exchange
b. Legal Detriment –
i. Hamer v. Sidway – Consideration exists where uncle promises to give $5,000 to nephew in exchange for nephew stopping drinking, using tobacco, swearing, etc.
1. Consideration where one party abandons some legal right in exchange for promise; just because nephew was “benefited” because refrained from smoking, etc. doesn’t mean there was no consideration
ii. Davies v. Martel Laboratory Services, Inc. – Consideration exists where employer promises to promote employee if she gets MBA
1. Legal Detriment vs. Detriment in Fact – giving up something promisee was privileged to retain as opposed to ‘benefit’ of getting MBA
c. Improper Threats –
i. R2d § 175 – If improper threat leaves party no reasonable alternative, K voidable
1. R2d § 176 – When a threat is improper (amounts to a breach of duty of good faith and fair dealing imposed by K)
ii. Duress – traditionally defense of duress required promisor to be in distress but also put in distress by wrongful act or threat of promisee
1. BUT our society posits fairness (concern for others) and efficiency
iii. Chouinard v. Chouinard – no duress or improper threat where Fred had to negotiate ownership interest with Ed and Al in order to obtain loan for company; no wrongful act by Ed and Al to take advantage of situation
iv. Post v. Jones – K to rescue a vessel or its cargo reviewable for fairness of terms if entered into while promisor in distress . . . but couldn’t master of ship threaten to dump oil and then get more for it?
v. People v. Two Wheel Corp. – company violated price gouging law where sold power generators at inflated prices in anticipation of and during hurricane
Prices “unconscionably
