Contracts Outline
I. PRINCIPLES OF PROMISSORY OBLIGATION
A. Grounds for Enforcing Promises
1. Introduction
a. Why enforce promises?
1) In some private settings, no outside enforcement necessary
2) Vindicate expectations
3) Reliance: Forgone opportunities
4) Future performance: in continuing relationships, the PR’s reputation means don’t need K enforcement
b. Ex Post vs. Ex Ante
1) Ex Post: Given that breach has occurred, how can fix things to remedy the situation
a) Fairness
b) Consequentialist/Efficiency Argument: Not efficient to have breach
2) Ex Ante: Don’t take breach as a given. How would an enforcement mechanism affect breach in the future? (e.g. if had a higher damages rule, would there be fewer instances of breach?)
a) Deterrence/Incentives: W/o damages, then the party will still have an incentive to breach.
b) Also have an effect on PE’s decision to act and keep her side of the deal.
c) Enforcement benefits the PR because it makes the promise credible. PR wants his hands to be tied, because then the PE knows that he will get damages for breach.
c. Executory promise: What happens when the K is made, and the PE breached. But PR has not given over anything yet so no harm. Why enforce?
1) Want to protect the “sanctity of promise:” protect expectations. However, if there’s no enforcement mechanism, there won’t be any expectation of performance. Thus, must ask whether there should be an enforcement mechanism
2) Is there something you want to protect before there is enforcement? Want to encourage reliance: want parties to start acting in anticipation of the promise.
· If we only honor relied-upon promises, then we encourage parties to move from executory promises.
3) Fried: Binding a person to her promises encourages her sense of autonomy and self-worth. Gives people power to make commitments.
d. Legal Enforcement vs. Informal Enforcement: Is it necessary to have legal enforcement when there are substitutes for law?
1) Damage to reputation of breaching party. In close-knit commercial settings, there are no legal damages. The actors gossip, and the breacher can’t do business anymore.
2) Self-help: state monopolizes the use of force. (Godfather)
3) Conscience/Moral Obligation
2. Gift Promises
a. Restatement §71: Only enforce promises for which consideration was given
· Consideration is a return promise that must be bargained for in exchange for the original promise
· Return promise may consist of an act, forbearance, or creation, modifation, or destruction of a legal relation
1) Process-based enforcement: how was the promise made
a) Promises will be enforced regardless of whether there is writing.
b) Bargain: Was something given in return for the promise. Mutuality is required.
c) Gifts are unilateral promises. Nothing is given in return, so there is no consideration.
2) Why are gifts given?
a) altruism
b) Giving of the gift sticks receivor with an obligation to reciprocate.
c) Solidarity: Enhance the cooperative nature of a relationship/ create a long-term relationship.
d) Gift given is an act of superiority (charity/hierarchy) if the receivor cannot reciprocate (there are no free gifts)
3) Why have gift promises instead of giving them right away
a) Induce favorable behavior
b) PE will undertake actions in anticipation of the gift (reliance)
c) PR might change mind because PE’s behavior is variable.
d) PR may want to tie own hands
4) Are gift promises enforceable through K law?
a) Dougherty v. Salt (CB 4): D promised to give the boy $300, and wrote him a note. No return promise from the boy.
b) Just because there is writing doesn’t mean that there was consideration, and K is therefore enforceable.
· Cardozo: If there is no consideration, then cannot have a veil of consideration. Cts will look beyond the veil and see if there really was a bargain.
· § 71 (Restatement): Need a bargain, and pretense of a bargain is not sufficient (e.g. “false recital” of consideration or nominal consideration)
c) Was there consideration in this case? Ct says no, but could find:
(1) Past consideration (boy was nice to aunt)
(2) Aunt probably wanted boy to take care of her when she was old. Boy’s behavior will change because of promise is executory.
· He will visit more
· Be nicer
· Solidarity: strengthen the relationship
(3) Cardozo’s view of consideration is narrow: confined in market terms (quid-pro-quo). However, if look at from a cultural perspective (Moss), the consideration will be given later by the boy.
5) Why should we not enforce gift promises?
a) We don’t want to hold people to gift promises because gifts are supposed to be voluntary. To legally enforce takes away from this essential nature of a gift.
b) When you have legal action to enforce a gift, then there is relationship breakdown. Gifts indicate an intimate relationship.
c) Ex ante: If enforced the promise, would there be more promises?
(1) More (Enforcement effect): Legal enforcement makes gifts mean more. People will be more cautious about gift promising, so there will be more actual gifts given.
· But, fewer gifts promised, so fewer overall gifts.
· Suspicion of legal enforcement of gifts.
(2) Consideration requirement keeps some gift promises out of the law.
3. Formality
· When there is consideration, then don’t need formality.
· But, if there isn’t consideration, will formality render the K valid?
a. Function of form in the absence of consideration
1) Hastiness Concern: When we see that a promise was bargained for, we feel better that the PR actually thought about the giving of the promise. True free will.
2) Evidence concern: Evidence that PE understood what PR was promising. Gives PE peace of mind because he has something with which to hold PR.
3) Law:
hen next time around, the PE will not be able to purchase the goods.
b) Non-consequentialist: There are some things in society that we don’t want people to do. Paternalism
· Non-enforcement will not change the situations that people are in and why they enter into bad Ks.
5. Reliance
a. Kirksey v. Kirksey (CB 21): P moves to D’s place on D’s promise. After a couple of years, D kicks her out.
1) Bargain? Was there consideration? What was the return promise?
a) PR (brother) gets some pleasure from her company. She probably cultivated the land etc.
b) But we can’t look at the psychological joy from giving (like Dougherty, donative promise)
2) Widow incurred actual harm because of the promise. Had she known that the promise was not enforcable, then she wouldn’t have moved. (ex ante: bad for brother-in-law)
· Widow’s reliance on PR’s promise is sufficient consideration for enforcement.
· However, ct holds that PR’s promise was a gift promise, and cannot be enforced. (this would go the other way today)
b. Hammer v. Sidway (CB 46): Uncle promised to pay nephew if he refrained from drinking. Nephew refrained, and uncle didn’t pay.
1) Appears to be an unenforable promise because the Uncle did not receive a benefit from the K. No consideration.
2) However, nephew gave up his legal right to drink, and therefore suffered a detriment. Thus, it doesn’t matter if the uncle actually received a benefit, or that nephew didn’t really “suffer” from giving up drinking.
· The detriment suffices to make a K enforceable, even without consideration
c. Feinberg v. Pfeiffer (CB 23): Company promised EE a pension for her service. EE continued to work, and retired 2 years later. Co stopped paying her money.
1) No consideration
a) Past consideration (her good service) doesn’t count, since the consideration must induce the PR to make the promise.
b) That she stayed for 2 more years is not consideration because it wasn’t part of the deal (she could’ve left at any time). PR didn’t get anything in return.
c) But Reliance: EE would not have quit when she did without the promise of the pension.
2) Reliance: when do relied-upon promises become enforcable?
a) Induced Reliance: PR must foresee that the PE will rely
b) However, sometimes reliance is not foreseen. Law demands objective forseeability.
