Contracts_SP2010_Wertheimer.docx
Introduction and Theories of Obligation
1. Introduction: K law is generally done in terms of private Ks and agreements—only in certain situations do CL principles or statutory/UCC/regulatory provisions supersede
a. Threshold Question: BEGIN AT THE ENDàlook to whether a remedy is available, because that is what courts will do in evaluating whether a K is valid
i. More missing in K, the more likely the court will say “no K”
b. Peppercorn Consideration PrincipleàIt is the disparity in value attached to objects exchanged that results in their being exchanged—people buy and sell only because they appraise the things they give up less than those received –also, risk allocation.
c. Roles of lawyers in the processàdetermining facts, parties’ goals, evaluating alternatives, anticipating problems and conflicts of interests, identifying legal issues, researching applicable law, negotiating, revising, etc… CANNOT REPRESENT BOTH SIDES of a dispute
i. EX / White v. Benkowskiàwater supply scrabble—no Pdamages for P because often no Pdamages in K’s—only compensatory damages for inconveniences
d. Relational Exchangeàcontinued interaction between parties—more relational an exchange (e.g. more projected into future) more likely parties will be unable to advance to define performance obligations with precision or to allocate risks optimally
e. Theories of Obligationàgenerally, judges and lawyers do not recognize legal duties merely in an ad hoc fashion from case to case, but rather under requirements of general theory of obligation (noted supra; agreement with consideration)
i. Contract-no-contract dichotomyàeither there is an enforceable contract and hence a remedy available for its breach, or there is no enforceable contract and hence no duties and not remedies of any kind
f. Remediesàthreshold questions—is there a K, and is the consideration adequate such that there is a remedy available to be enforced? Monetary remedies include:
i. Expectancy—where P would have been if K performed
ii. Reliance—where P was before K
iii. Restitution—damages equal to any benefit P conferred to D, restoring it to P
iv. Doctor-Patient Agreementsàagreements between patients and physicians by which physician agrees to undertake cure/result are often unenforceable on public policy grounds (some exceptions, however, must be clear proof)
1. Reasons against—uncertainties in medical science, possibility of defensive medicine, doctors can seldom on good faith promise a specific result
2. Reasons for—provide protection for ridiculous promises by physicians
3. EX / Sullivan v. O’Connoràsurgeries on P by D to correct her nose that D promised P—they didn’t go necessary as planned, and K between D and P in dispute as P alleges D breached contract and P alleges all sorts of injury—P wins only on reliance because that recovery is proportionate
2. EXAM TIP: Theories of Obligation:
a. Inquiryàis there a K? Is there an exchange? Is the exchange with consideration?
3. Obligation Arising from an Agreement with Consideration (e.g. “bargaining”)
a. Generallyà K will not be enforceable unless it is supported by consideration, which may be
i. Detrimentàpromisee gives up something of value or circumscribes liberty
ii. Exchangeàpromise is given as a part of a bargain
b. Hornbook ConsiderationàConsideration for a promise is (basically, anything exchanged)
i. An act other than a promise, or
ii. A forbearance, or
iii. The creation, modification or destruction of a legal relation, or
iv. A return promise.
1. Bargained for and given in exchange for the promise
v. NoteàConsideration may be given to the promisor or to some other person—it may be given by the promise or by some other person.
c. Consideration Rationaleà tells us that promise can be a K and that the arrangement may be enforceable, based upon the surrounding circumstances of a transaction/exchange
i. Formal aspectàmanner in which consideration is made—superficial
ii. Substantive aspectàthe significance of the promise made and not merely the circumstances surrounding the making of it—substantive
d. Preexisting Duty and ConsiderationàMost acts and forbearances, or promises of future performance, are a sufficient consideration for a promise if they are bargained for by the maker of that promise and are given in exchange for it
i. Preexisting Duty Doctrineàif performance is required by law, OR if no exchange takes place, then there is a preexisting duty and thus no consideration
e. Peppercorn Considerationàgenerally, a thing is worth whatever the buyer thinks—simple fact that a thing is of no utility, after the fact, is not sufficient to prevent suit for recovery by another party—so long as no fraud/mistake/unconscionability
i.
Gifts
EX / Hardesty v. SmithàD bought rights to invention on promissory notes, and didn’t want to pay P (who had issued the notes to D) back because invention was allegedly worthless and D argued that the prior exchange was without consideration and D never really took on the promissory note—P wins because D “valued” it
f. Gift Ruleàa gift or promise, without more—e.g. performance by giftee—Is not exchanged in consideration for anything and thus not an enforceable K/agreement
i. EX / Dougherty v. Saltàaunt gives kid a check for $3000 because she said he was good in school but never hands it over
ii. EX / Stonestreet v. Southern Oilàwhen A merely promises B something and A breaks that promise—then B is no worse off than before the promise is made, and since B gave nothing for it there is no recoverable damage
g. Gift Rule Rationaleàsocial world is richer when gifts remain outside the scope of legal intervention—moral motivation for gift giving is too important to be enforced by law and would be undermined if the enforcement of simple gift promises were to be mandated by law—however, since world of K does not have these values the law is necessary
h. When Gift Becomes KàA gift is a contract when executed by delivery of the gift, UNLESS D is bound by promise supported by consideration
i. “Tramp” Testàcondition of a gratuitous promise can be (1) a request for consideration or (2) a mere condition, depending on whether the promisor receives some benefit OR if there is detriment to the promise—if so, consideration
1. Illustrates the dichotomy between condition and consideration
ii. EX / Maughs v. PorteràP won car from D who published raffle in the paper—D refuses to give car to P and D claims that since it was a lottery it was unenforceable agreement—Court agrees, but P performed a benefit to D in consideration of D’s promise, and but for the technicality on the raffle P would have won
i.
Motive or Inducing Cause
Motive or Inducing Cause May = Consideration:
i. If the thing bargained for does not induce making promise, then the thing can still be consideration for that promise
ii. If the promise does not induce a performance, then the performance can still be consideration for that promise
1. TestàA must show intention to induce performance and to be induced by it, and B must show intention to induce the making of the promise and be induced by it
2. Unless both parties know that the consideration is mere pretense, it is not important that A’s desire for consideration is relatively small compared to A’s other objectives
j. When Executory K becomes Enforceable Kàsomething that is performed, done, forborne, or suffered by party to whom promise is made, is consideration for the promise made to him—e.g. waiver of legal right or suspension of legal right at request of another
i. Motivationàperforming on a promise here is done because motivated by potential for receiving benefit from promise
1. Exceptionàin Hamer, if they were both Mormons
ii. EX / Hamer v. SidwayàD promised P money for refraining from legal activities, and P complied—when P reached certain age he asked D for money—D never gave P the money—Court says P performed (e.g. “detriment”) in consideration of D’s promise and D got benefit of P’s performance so D owes P the money
iii. EX / Allegehny College v. Chautauqua Bankànarrow view of consideration—promise of consideration must be motive of both parties at least in part, and it is not enough that the promise induces detriment or that detriment induces promise for only one party
k.
Forbearance
Forbearance of Suit as ConsiderationàAn agreement of forbearance to sue may be sufficient consideration for a contract—HOWEVER, further failure to institute immediate suit may be circumstantial evidence against forbearance
i. EX / Baher v. Penn-O-Tex OilàP tried to recover X’s debts from D—P did not get his checks and then threatened to sue—D assured P his rent—When P returned from Minneapolis he immediately consulted an attorney and the suit was filed—Here, D promised to pay the rents and P claims he forbore bringing suit
l. Forbearance and Good Faithàfor forbearance, abandonment of a claim need only be well founded and made in good faith and not frivolous or unlawful
i. Implied Forbearanceàmere forbearance without any promise is not consideration
ii. EX / Neuhoff v. Marvin LumberàP alleged that D breached an oral K to provide replacement windows for free—P argues there was a K because consideration based in (1) P forbore legal claims, (2) time and labor in assisting D in connection with D’s promise to replace windows and (3) benefit D received to reputation by agreeing to replace windows—Court says all of P’s claims fail because no consideration for any claim was present
m. Forbearance and Bad Faithà forbearance to sue is not sufficient consideration if the forbearance is with knowledge that the claim is ill founded and void—public policy to prevent blackmail, etc…–forbearance must be reasonable and honest
i. Types of Forbearance àforbearance to assert either a legal or equitable claim can be sufficient consideration
ii. EX / Springstead v. Nessà a will intended property A to go to two children, D, which was a surprise—other children, P, thought he would get property A—D offers to give interest in property B that had previously been divided equally amongst P/D so that P would shut up about property A—property B was sold and P sued D based on the promise by D that P would recover their share of the proceeds of the sale of property B, a share that was done through an alleged K in forbearing rights in property A—Court says no consideration on the promise because it was void as insufficient forbearance
n.
Exchange and Mutuality of Agreement
Sufficiency of Exchangeà it sh
onvey land to B
1. Applies to charitable donations, at least after reliance by charity occurs
2. Bailees can also be governed by this rule (Siegel)
v. EX / whenever a party to a K agrees to give something up or forgo an advantage of a condition of an existing K that provides benefit, the promise is binding if the promisee relying on it changes his position
c. §90 Rationaleà does not assert a sweeping rule that applies in every case—and the final sentence means that §90 does not go beyond existing law in most jurisdictions
i. Basically, §90 can generate a duty in some circumstances in which the theory of agreement with consideration would not, and vice-versa—see Hoffman, infra
d. Limitation to relianceàif A promises something as a part of a bargain in exchange for a specific consideration by B, B cannot claim promissory estoppel based upon acting in reliance of A’s promise in a way different from that of consideration
i. EX / Wheeler v. WhiteàP sued D because D allegedly breached a K to finance construction on P’s land—In reliance on this K, P knocked down some buildings on his land, after which the financing never came through—P said if the K was uncertain, D should be barred from saying the K was uncertain because of his actions, which reasonably induced P to knock down the buildings—D said the K was indeed too uncertain and that the doctrine of estoppel could not create a ground for P to recover—Court says clear case of § 90 application
ii. EX / Hoffman v. Red Owl Stores—“the run around”—in the interest of fairness, we see how P is justified in the courts’ decisionàP owned and operated a bakery and sought to obtain a supermarket franchise with D—D assured P that his $18,000 was sufficient and advised him to acquire and operate a small store to gain experience—three months later D advised him to sell that store with the assurance that he would be given a larger store—P kept obliging on D’s “run-around” and eventually negotiations terminated and P sued D—Court applies § 90 and does not require level of detail=K showing by P to prove it—plus, P gets reliance damages based on causation of D’s actions (see Reliance Damages, infra)
e. Timing of K Changes and Relianceàif promisor, during the course of a K, wants to change a parameter of the K, change should be recommended BEFORE the exchange by the other party occurs—OTHERWISE, proimsee may use reliance to recover on original promise
i. EX / Ryerss v. Trustees of Presbyterian CongregationàP encouraged D to build a church in a specified place and promised a gift—throughout that time, P repeated the promise and within a reasonable time D built the church as instructed by P—P wanted to change the K but D had pretty much finished—D wins on reliance because P should have notified D earlier
f. Improvements on Landàusually if not in writing, falls under the SOF (see, infra)—here, making improvements on land promised by a donor constitutes reliance in equity for the promise if the donor knows about the improvements as they are being done and says nothing about it—e.g. acceptance—because donee is induced by the donor’s promise
i. EX / Seavy v. Drake àP’s father orally promised him part of his land, and P dropped a debt owed by his father to him, and then his father gave him more land—the P made improvements on the land with his father’s help—father’s estate (D) wouldn’t cough-up the land—P wins because promise induced P to make improvements
g. “Worse Condition”àcannot use if the relying party does something irrational
i. EX / Ricketts v. Scothornàgrandfather promises D money and gives her promissory note because he doesn’t want her to work so she quits her job—grandfather dies before paying and P sues D for the note but D wins because P was estopped to deny there was consideration for the note because she would be in a worse position after having quit her job and losing income
h. Changed Positionà Thorne v. Deas—distinguished in Siegel—about two owners of a boat where one promises in good faith to insure the boat and forgets and the boat is destroyed and the court says it is just a naked promise—court finds no reason that the P would have changed his position based upon the promise, so no promissory estoppel
i. Ideaàif P realizes that D will rely on P’s promise, he is liable for expected harm caused by that reliance by failing to perform if the promise was negligently or intentionally false
