Contracts
I. Principles of Promissory Obligation
A. Grounds for Enforcing Promises
Purpose: “Contracts” orders promises, and it supplements the altruistic motivations for keeping promises.
– Reconcile the differences b/n different laws and legal regimes. Try to ascertain the “best” option. What standards? Fairness? Efficiency?
*Bailey v. West – “What is a Promise”… “Bacom’s Folly”
What happened: Horse boarder Bailey accepts horse from West’s employee knowing there is a dispute over ownership. Sends bills to both possible owners. Trial court rules there is a contract “implied in fact,” and awards Bailey five months comp. (amount of time he took care of horse before receiving affirmative notice to stop by West.
Holding: No contract in fact. No implied contract b/c the parties had no prior dealings. Most importantly, no quasi-contractual agreement to create grounds for restitution b/c Bailey could have contracted, but didn’t.
Comments: Restatement 2 (Restitution) – A party is not required to deal with another party. Freedom of contract and freedom from contract. A party conferring an unsolicited benefit upon another may is not entitled to restitution unless there is a valid reason for doing so (e.g. medical emergency).
– Sour taste of case… West initiated the benefit through his actions.
3 Main Contractual Obligations:
1) Express Contract
2) Contract implied in fact
3) Quasi-contract
Principles: No requirement to pay for something unwanted… libertarian tradition
Questions: Is the law steering us to act in a way we find desirable?
1) Consideration – Bargained for Exchange, Something for Something (R 17, 71, 72, 79)
*Kirksey v. Kirksey – “Evil brother in-law”… “Grat. Promise ≠ consideration”
What happened: Brother-in-law “induces” widow to move to his land by promising to take care of her and her children. Begins to treat her badly, and she wants court to provide remedy for broken promise
Holding: No enforcement of gratuitous promises. Gift promises lack consideration and are therefore unenforceable b/c the giver does not ask for anything in return.
Comments: Legal fiction because the brother-in-law did in fact want woman to move (possible courtship?). Also, sour taste because she relied on the promise. Generally court wants to stay out of family relationships.
* Hamer v. Sidway – “Abstinence” … “Inducement Test”
What happened: Uncle promises to pay nephew Story money on 20th birthday if he abstains from drinking and smoking. Nephew does, but uncle says that he will pay part, and remain trustee over the rest. Nephew sells note to creditor Hamer, and dies. Creditor tries to collect.
Holding: There is consideration b/c the nephew sacrificed legal rights b/c of the uncle’s promise.
Comments: Inducement Test à Consideration = Promissory Inducement à Does a promise induce another promise? Difference b/n inducement and speculation is the existence of promises on both sides.
Langer v. Superior Steel – “Pension”… “Conditional Gift or Consideration”
What happened: Langer promised pension upon retirement, conditional upon his not working for another employer. Paid for a few years. When management changes, payments stop. Superior Steel claims that it was just a conditional gift.
Holding: Promise to pay pension induced return promise of not working.
Bogigian v. Bogigian – “Divorcee”… “Objective v. Subjective Value”
What happened: Wife stood to receive $10,000 upon sale of house. Husband tries to sell house and includes release from this obligation. Wife signs it, not realizing that she is giving up her right.
Holding: Although wife received the objective benefit of relief from the mortgage, there is no consideration b/c the parties never bargained for the exchange. Wife did not know she was getting any value related to release from mortgage responsibilities.
Other Consideration Issues:
– An argument can be made that any gift assumes consideration (Karma Theory), but regulating gift promises would decrease the incentive people had to make gifts b/c it would diminish the emotional rewards of doing something good voluntarily.
1. If Gifts were legally enforceable à Impossible to differentiate b/n voluntary giving and econ. exchange.
a. Not economically fruitful for society
b. Warm fuzzy à Keep gov. out of personal sphere
– Inducement Test à The Holy Grail of Consideration
– Individuals can further there own goals by making promises if they are enforceable. Contract law = a system of private ordering.
2) Formality
Nominal Consideration: Something that has the appearance of value. Fictitious value. Symbolic. Ritual.
– Channeling value = transfers the promise from intended to binding.
– Cautionary value = chance to pause and think
Thomas v. Thomas (Common Law) – “Mixed Motives”… “A House for a Pound”
What happened: Dying husband promised wife house without transferring title and deed. Gift. Executor allowed the woman to remain on land in exchange for 1 pound for upkeep of grounds. Wife sues executor for possession of the house.
Holding: Court enforces promise, although neither part performance, nor the 1 pound constituted consideration. Legal fiction to achieve a favorable result.
In Re: Greene – “Unsavory Promises” … “Nominal Consideration”
What happened: Woman had affair with married man who promised to marry her. She freed him of all claims in return for $100,000 life insurance, four years rent, and $1000 a month. She paid $1 to seal the promise. Man goes bankrupt. She sues bankrupt’s estate for $375,000.
Holding: Although the promissor probably intended to be bound, history of conduct does not guarantee consideration, and $1 is just nominal consideration.
Comments: Court probably didn’t enforce b/c of moral reprehension and illegality of the bankrupt’s promise to marry.
Decline of the Seal:
1) Common law roots of contract à Action of debt evidenced by a sealed note.
a. Inefficient. Created prospect of fraud.
2) Nominal consideration took the place of the seal.
a. Civil law still dictates that a promise is enforceable if intended to be carried out.
3) 2nd Restatement: Form canno
es establishes a contract:
1) A party requests services,
2) The other expected payment for services rendered, and
3) The requesting party had reason to know of the expectation.
Recovery = Amount parties intended as contract price or reasonable market value of services.
Moral obligation as consideration: Does the mere fact of making a promise create a moral obligation to perform it?
Mills v. Wyman – “Moral Obligation Not Enough”… “Sick Son”
What happened: Mills boarded estranged son of Wyman when he was sick. When father learned of kindness, he promised to pay Mills’ expenses. Then, changed mind. Mills files claim of assumpsit.
Holding: Moral obligation alone, absent consideration, is not sufficient to validate a claim unless there is benefit to promissor.
Reasoning: The promise did not induce the benefit. Only a recognition. Exceptions: Promise made reviving past consideration may be enforceable by moral obligation alone (debts discharged by bankruptcy or statute of limitations). Enforcement of promises made without consideration belongs in the domain of the conscience. The benefit, and not the promise, gives rise to moral obligation.
Webb v. McGowin – “Good Samaritan Gets Paid”
What happened: Webb sacrifices his own well-being to save his bosses life. Boss promises to pay for medical care expenses. After boss dies, executor McGowin stops payments.
Holding: If a benefit is followed by a promise, there is sufficient moral obligation to presume the promise preceded the benefit.
Law of Obligation – Private Law
1) Promise = Contract (Measure by Promise… Implied in Fact)
2) Harm = Tort (Measure by Harm)
3) Benefit = Restitution (Measure by Benefit… Implied in Law… Quasi-contract v. Unjust Enrichment)
(Where there is a benefit followed by a promise, the law pretends the promise came first, and sneaks the dispute into contract law. Where there is no promise, restitution law may still allow recovery.)
4 Bases for Promissory Obligation: Bargain, Formality, Reliance and Benefit.
We want to encourage Good Samaritans and Professionals to undertake rescues. Without the ability to recover, what incentives would doctors have to seek training? Generally, pros who intend to charge can recover, while Good Samaritans must have a promise.
B. Limits on Promissory Obligation
1) Adequacy of Values Exchanged
– Poor balance on the scales does not compromise consideration, as long as value is not nominal.
