I. What Promises Should the Law Enforce? – The Doctrine of Consideration
A. Donative Promises, Form and Reliance
1. Simple Donative Promises
a. Dougherty v. Salt: Young boy receives a promissory note from his aunt saying he will receive $3,000 payable on or before her death. After her death, he sues to enforce the note. Court held for ∆. No consideration. The note was the voluntary and unenforceable promise of an executory gift.
A note which is not supported by consideration is unenforceable.
Bradley: Consideration is either a detriment incurred by the promisee or a benefit received by the promisor.
b. Restatement, Second, Contracts §§ 1, 17, 71
i. § 1: Contract Defined
A contract is a promise or a 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
ii. § 17: Requirement of a Bargain
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
iii. § 71: Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
2. The Element of Form
a. Schnell v. Nell: Schnell signed an agreement with ∏’s stating that he would, in consideration of 1 cent and because of the love of his deceased wife, he would give each of the ∏’s $200. ∏ sues to enforce agreement. Court held for ∆.
A contract will be vitiated for lack of consideration where the consideration given by one party is only nominal and intended to be so. Nominal consideration has the form but not the substance of a contract. It is clear the promisor did not view what he got as the price of his promise. (Exception- nominal consideration makes a promise enforceable in two specific areas—options and guarantees, §§ 87 & 88). Disparity in value, with or without other circumstances, sometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense. Such a sham or “nominal” consideration does not satisfy the requirement of § 71 (Note on § 79).
Bradley: “Warm glow”. This is consideration in name but not in substance. Form doesn’t govern, substance governs (§71(2)).
3. The Element of Reliance
a. Kirksey v. Kirksey: ∏ is offered a home by ∆ after her husband dies. She moves her family and moves into new home. She then moved into a smaller home in the woods and eventually asked to leave. ∏ sues to enforce agreement. Court finds for the ∆. In 1845, reliance was not an accepted doctrine.
b. Note on Estoppel in Pais and Promissory Estoppel
i. Estoppel in pais- If B has relied on a statement of fact from A, A is estopped from denying the truth of the statement.
ii. Promissory estoppel- best described by Restatement (Second) Contracts § 90(1).
iii. The Reliance principle- both estoppel in pais and promissory estoppel are best understood as particular instances of this broader concept.
c. Restatement, Second, Contracts § 90: Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
d. Feinberg v. Pfeiffer Co.: ∏ was promised a pension upon retirement. After retirement, she received the pension for a while and then the payments ceased. She sues to enforce the agreement. ∆ claims that there is no consideration. ∏ claims to have relied on the promise because she gave the opportunity of gainful employment. Court found for the ∏.
Such action on the ∏’s part was her retirement from a lucrative position in reliance upon ∆’s promise to pay her an annuity or pension.
Bradley: Promissory estoppel (§ 90) is now a recognized substitute of consideration.
e. D & G Stout, Inc. v. Bacardi Imports, Inc.: ∏ made the decision to remain in operation, relying on Bacardi’s promise to continuing doing business with them. ∏ gave up the opportunity to make a sale of their business. Bacardi then backed out of the deal, and ∏ was forced to sell for a much lower price then originally offered. ∏ sues to recover damages and claim reliance. Court found for ∏.
A promise which the promisor should reasonable expect to induce action or forbearance on the part of the promisee and a third person and which does induce such ac
is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
ii. § 176: When a Threat is Improper
(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would hard the recipient and would not significantly benefit the party making the threat,
(b) the effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
(c) What is threatened is otherwise a use of power for legitimate ends.
g. Chouinard v. Chouinard: While there is ample evidence of economic necessity and financial peril, neither the threat of considerable financial loss nor impending bankruptcy establish economic duress. Such economic stress must be attributable to the party against whom duress is alleged, mere hard bargaining positions, if lawful, and the press of financial circumstances not caused by the ∆ will not be deemed duress.
h. Post v. Jones: ∏’s ship was run up on the shore and the captain of the ship held an auction for its oil with two rescuing ships. They bought the oil at .75 cents to a dollar a barrel. ∏ later sues saying that the auction was not valid because of economic duress. Court found for the ∏.
In helpless situations, where this is no market, no money, no competition, and where one party had absolute power, and the other no choice but submission, there is no characteristic of a valid contract.
a. Two elements of unconscionability:
i. Procedural unconscionability: “evils in the bargaining process”