CONTRACTS A: FINDLATER, FALL 2010
I BASES FOR ENFORCING PROMISES
A. CONTRACT RESTATEMENT §1:
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.”
B. PROMISE; PROMISOR; PROMISEE; BENEFICIARY RESTATEMENT §2
1. A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made
a. The person manifesting the intention is the promisor
b. The person to whom the manifestation is addressed is the promisee
c. Where performance will benefit a person other than the promisee, that person is a beneficiary
C. AGREEMENT DEFINED; BARGAIN DEFINED RESTATEMENT §3
1. An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
D. UNILATERAL AND BILATERAL
1. If we have promise for performance, unilateral
a. With performance you don’t even know if you have a contract until the performance is completed.
b. Why ever have a unilateral contract seeking a performance? Promisee might not be willing to commit to do it, but you are willing to try.
2. Promise for Promise- bilateral.
a. Promise may be promise for performance
b. Contract is immediately binding
c. Most commercial contracts are bilateral
II CONSIDERATION AS A BASIS OF ENFORCEMENT
A. BARGAIN THEORY OF CONSIDERATION RESTATMENT §71
(1) To constitute considerations, 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 is given by the promissee in exchange for that promise.
(3)The performance may consist of (a) An act other than a propmise, or (b) A forbearance, or (c) The creation, modificiation, 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.
EX: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.
a. We are not asking if someone is worse off or better off. We just want to know that they made a deal!
b. Modern cases to not talk so much about detriment or benefit, but if they do it is to say that a benefit was bargained for and given in exchange for.
HAMER v. SIDWAY (P.34)(development of consideration-FORBEARANCE)
Uncle Promised $5k if he abstained from smoking, drinking, swearing, cards, billiards until he 21.
HOLDING: “A waiver of any legal right at the request of another party is sufficient consideration for a promise.” Forbearance was a detriment to the promisee. Benefit to promisor or detriment to promisee (held that giving up a right is detriment)
RESTATEMENT §79 ADEQUACY OF CONSIDERATION; MUTUALITY OF OBLIGATION
If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b)equivalence in the values exchanged; or (c) mutuality of obligation
FIEGE v. BOEHM (P.40)(Forbearance legal right)
P: Agreed not to bring bastardy proceedings against D. D: Found out not father of the child, no consideration for refusing to file suit, she would have lost
HOLDING:“Forbearance to sue for a lawful claim or demand IS sufficient consideration for a promise to pay for the forbearance IF honest intention to prosecute litigation.
RESTATEMENT §74 SETTLEMENT OF CLAIMS
(1) Forbearance to assert or surrender of a claim or defense which proves to be invalid is not consideration unless
(a) The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or (b) The forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid
(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believe that no valid claim or defense exists
B. SUFFICENCY OF CONSIDERATION
1. Abandoned by the restatement. Question is do we have consideration, not do we have enough.
C. GRATUITOUS PROMISES
1. Not enforceable-no consideration, for a gift you are not seeking anything. Bargain is missing!
2. Peppercorn is often used to deride consideration that is of trifling value
3. Form of a bargain is not good enough. We need an actual bargain.
EX: Father $1,000 to son in exchange for $1 book not binding when acknowledged no bargain.
D. THE REQUIREMENT OF EXCHANGE: PAST ACTS
FEINBERRG v. PFEIFFER CO. (P.46)(past act, no obligation)
P: Breach of contract, employer promised to pay $200 whenever decided to retire for the rest of her life D: Resolution to pay her was a mere promise to make a gift, no contract resulted because there was no consideration given or paid by P
HOLDING:Based on RESTATEMENT §71, lacking mutuality of obligation, there was no contract and no enforceable promise (COURT LATER FOUND FOR HER TO PREVENT INJUSTICE!)
MILLS v. WYMAN (P.50)(lead to §86)
P: Took care of D’s son and D subsequently promised to pay him for the expenses he incurred before his son died. D refused to pay, P says breach. D: Past act, promise made after not enforceable
HOLDING: Court wanted to find D liable for his moral obligation but the law said no consideration for promise with past act. (This is the start of moving outside of consideration.)
E. MORAL OBLIGATIONS, WHY NOT ENFORCE?
1. Moral obligation carries baggage, who defines, etc.
2. Three places where past acts are now considered enforceable:
a. Promises made with regard to a debt but limited by statute of limitations §82
a. Promises with regard to obligations discharged in bankruptcy §83
b. Contracts made by adults when they were minors and could have fixed but never did.
i. Promise renewed, starts over again
b. This is not bargaining for anything- this looking back and recognizing a moral obligation
WEBB v. MCGOWIN (P.52)(lead to §86)
P: Saved D’s life by falling with a pine block so that it would not hit D, as a result injuries, could no longer work, permanently disabled. D promised to pay him $15 a week the rest of his life. Paid then died. Executor stopped pay. D: No consideration, past act
HOLDING:Moral obligation is sufficient consideration to support subsequent promise to pay where promisor received a material benefit, although there was no original duty or liability on promisor
F. RESTATMENT §86 (alternative basis for consideration)
(1) Promise made in recognition of benefit previously received by promisor from promisee is binding to extent necessary to prevent injustice (2) Promise not binding under Subsection 1: (a) If promisee conferred benefit as gift or other reasons the promisor has not been unjustly enriched OR (b) To the extent that its value is disproportionate to the benefit
Cmt B Facts such as the definite and substantial character of the benefit received, formality in the making of the promise, part performance of the promise, reliance on the promise or the probability of such reliance may be relevant to show that no imposition results from enforcement.
G. THE REQUIREMENT OF BARGAIN
KIRKSEY v. KIRKSEY (P.56)(gratuitous-old case)
P: D promised place to live and raise kids if she would come down and see him. After 2 years he kicked her off the land. D: No consideration, no bargain, a mere gratuitous promise
HOLDING: “If you will come down and see me” were not words of bargain. Rather they were words of mere gratuity. The court concludes this is a promise to give a gift subject to the condition that she come and see him. He was not seeking a performance.
§81 CONSIDERATION AS MOTIVE OR INDUCING CAUSE
(1)The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise (2)The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
H. EMPLOYMENT AGREEMENTS
LAKE LAND EMPLOYMENT GROUP OF AKRON, LLC v. COLUMBER (P.58)
P: D, Ex-Employee signed a non-competition agreement and breached the contract when he left employment. Consideration was the continuation of at-will employment. D says no.
HOLDING:Consideration exists to support a noncompetition agreement when, in exchange for the agreement of the at-will employee, the employer continues the at will relationship that could otherwise be terminated without cause.
DISSENT: Without defined time employer will continue to keep employee, there is problem.
1. Employee Handbooks
a. Some courts hold handbooks as contracts
b. Some say policy
c. Supreme Court of Minnesota: “An employer’s offer of a unilateral contract may very well appear in a personnel handbook as the employer’s response to the practical problem of transaction costs. Given these costs, an employer may prefer not to write a separate contract with each individual employee.
d. Can an employer unilaterally change or modify its term so as to reduce the employee’s rights? Several courts have answered No.
i 9th Circuit , “We do not agree that party to a contract containing term that proves to be inconvenient, uneconomic, or unpleasant should have right, like an administrative agency, to change rules prospectively through proper procedures.”
ii Court have held job security clauses are not binding, no “mutuality of obligation”, employee can still quit at any time
BANKEY v. STORER BROADCASTING:(Pg. 66)
MICHIGAN said the handbook is binding because it is statements of policy and not a promise. He wins under the handbook because this stuff was enforced when he was fired. Employers can unilaterally change policy.
RESTATEMENT §51Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of
iii “Out of one pocket and into another”
IV RELIANCE AS A BASIS FOR ENFORCEMENT
RICKETTS v. SCOTHORN (P. 89)(Equittable Estoppel)
P: D, her grandfather promised to pay her 6% interest on $2000 to enable her to quit work. She quit job immediately. Later, D unable to pay so she had to find new work. D dies and executor says no contract. D: Money was mere gratuity. No consideration to enforce promise. No mutual obligation.
HOLDING:While there was no consideration, EQUITTABLE ESTOPPEL. Having intentionally influenced P to quit her job for the worse on the faith of the note to pay, it would be grossly inequitable to permit the make to resist payment. Her reliance on the promise made her worse off.
A The development of Promissory Estoppel
1. Four categories
a Family Promises
b Promises to Convey Land
c Promises couple with gratuitous bailments
d Charitable Subscriptions
i Courts have enforced this promise by finding that the charity has done or has promised to do something in exchange for the subscriber’s promise
ii Several courts refuse to apply §90(2) and continue to require a showing of reliance.
RESTATEMENT §90 PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE (Abandons term promissory estoppel because of baggage)
(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 marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance
REMEMBER: DAMAGES ARE FOR RELIANCE
B RELIANCE ON A PROMISE AS A BASIS FOR ENFORCEMENT: DISTINCT FROM CONSIDERATION
1. To recognize this form of reliance may ameliorate injustices that would otherwise result from a want of consideration.
a At the same time, recognizing reliance also risks unfair or unsatisfactory outcomes.
FEINBERRG v. PFEIFFER CO. (P. 94)(reliance part)
SECOND PART OF OPINION: NO CONSIDERATION, BUT THERE IS RELIANCE
HOLDING: Originally said no consideration because past act. 18 months of subsequent service was not bargained for. What did Feinberg do? She retired earlier than she would have because of reliance on the promise. Court says need to enforce to prevent injustice: Feinberg is now old, and has cancer, and cannot regain employment she once had.
1. Traditionalist would say contract is all about bargain, reliance is death of the contract
COHEN v. COWLES MEDIA COMPANY (P.98)(avoiding injustice)
P: Gave information to D (newspapers) about dirt on a gubernatorial candidate and was promised anonymity. D subsequently published his name (under direction of the editors) and P lost his job. Sues for breach. D: First amendment would be violated by not allowing publish source name.
HOLDING: Defendant’s concurrence of importance of honoring promises of confidentiality, and absent showing of any compelling need to break that promise, resultant harm to P requires a remedy to avoid injustice.
V CREATING CONTRACTUAL OBLIGATIONS
A THE NATURE OF ASSENT
1. What kind of assent to bargain is necessary to bind a party? Different answers. Two theories:
a Objective (Manifested Intent, Actions)
b Subjective (Mind, “Secret” intent)
2. OBJECTIVITY in contracts larger won out in the Restatement and Judicial pronouncements. WHAT A REASONABLE PERSON WOULD BELIEVE.
LUCY v. ZEHMER (P. 117)
P: Out drinking with D, offered to buy D’s property for $50,000. D had his wife sign and note selling the land to P for $50,000. P took note and began moving on it. D says it was a joke. Seeking specific performance of the contract.
D: It was a joke, drunk, never really intended to sell.
HOLDING: The actions of the defendant indicate that he was in fact serious about selling the property. INTENT MANIFESTED, APPARENT INTENT, AS REASONABLE SEEN BY THE OTHER PARTY. P could reasonably conclude it was serious, there is a contract.