CONTRACTS A: OUTLINE
Professor Findlater—Fall 2005
BASES FOR ENFORCING PROMISES. 2
Consideration as a Basis for Enforcement2
Fundamentals of Consideration. 2
The Requirement of Exchange: Action in the Past3
The Requirement of Bargain. 4
Promises as Consideration. 5
Reliance as a [Alternative] Basis of Enforcement7
THE BARGAINING PROCESS. 9
The nature of Assent9
The Acceptance. 11
Termination of the Power of Acceptance. 13
Lapse of an Offer14
The “Mailbox Rule:” Contracts by Correspondence. 16
Mistaken Bids. 16
The Battle of the Forms and The Uniform Commercial Code. 18
Precontractual Liability. 21
THE REQUIREMENT OF A RECORD FOR ENFORCEABILITY: THE STATUTE OF FRAUDS. 24
Problems of Statutory Scope. 24
The Suretyship Clause. 24
The One-Year Clause. 25
Requisites of Recording and Signing. 26
Ameliorating the Operation of the Statute (Mitigating Doctrines)27
POLICING THE BARGAIN.. 29
Unfairness: Conventional Controls. 30
Overreaching: Conventional Controls. 31
Pressure in Bargaining. 31
Concealment and Misrepresentation. 36
BASES FOR ENFORCING PROMISES
Consideration as a Basis for Enforcement
Consideration is defined as a benefit received by the promisor or a detriment incurred by the promisee. The fact that a promise is bargained for is generally sufficient to make it enforceable.
Fundamentals of Consideration
Hamer v. Sidway (pg. 27)
Benefit / detriment not necessary for consideration. Defendant offers plaintiff/nephew $5,000 to forbear legal rights (gambling, smoking, drinking, etc) until his 21st birthday. Plaintiff performs and seeks payment, uncle extends payment date, but dies, and his estate fails to pay up, plaintiff brings suit. Benefit to the promisor and detriment to the promisee is no longer necessary. Forbearance of a legal right constitutes valid consideration, regardless if it is “for his own good.” The promise is enforceable.
§ 71. Requirements of Exchange; Types of Exchange (pg. 191)
(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 by the promisor in exchange for his promise and is 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.
Fiege v. Boehm (pg. 34)
Forbearance as sufficient consideration—good faith belief. Plaintiff threatened bastardy suit against defendant. Defendant, believing he was the father of the plaintiff’s child, promised to pay child support to the plaintiff who, also believing the defendant was the father, promised not to bring the bastardy proceedings against him. The issue is whether forbearance to sue, though based on an invalid claim, is sufficient consideration to make a promise to pay binding. The court held that it was—forbearance of a good faith legal claim constitutes valid consideration, even if the good faith belief turns out to be incorrect.
§ 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 promissee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
The Requirement of Exchange: Action in the Past
Issue in these cases is whether a promise to pay a moral obligation is enforceable when it arises out of a benefit previously conferred upon the promisor. A promise is said to be given for moral or past consideration when the promisor is motivated by some past event which inspires the promisor to make his promise. Usually the past event is a transaction of some sort between the promisor and the promisee which benefited the promisor and placed him under a moral obligation to the promisee.
Feinberg v. Pfeiffer Co. (pg. 39)
Gratuitous pension plan—past acts not consideration (unless promissory estoppel). Feinberg (P) work for Pfeiffer Co. (D) for 37 years, company decided to give her a raise and a guaranteed retirement income for life. P continued working for a year and a half, and would have continued even without these added benefits, however, the retirement plan was a major factor in her decision to retire. D paid the benefits for several years, but new president of D determined to stop payments. P sued to recover payments. The court held that generally, past acts are not performance for determining consideration, however court recognized promissory estoppel as consideration. Although the plan was originally adopted solely in recognition of P’s past work and was therefore unsupported by consideration, P’s retirement was a change in position made in reliance on the plan.
Promissory Estoppel: Where one party acts to her detriment in reliance upon a gratuitous promise, the detrimental reliance of the promisee, with limits, will be deemed sufficient for estopping the promisor from asserting the defense of lack of consideration. Feinberg v. Pfeiffer, promissory estoppel is now a recognized species of consideration. It is one theory which permits enforcement of contracts lacking consideration without abandoning the doctrine of consideration itself. (See § 90, below.)
Mills v. Wyman (pg. 44)
Traditional approach denying enforcement—past acts not consideration. (1825). P cared for D’s dying son on a sea voyage. After all of P’s expenses had been incurred, D promised to pay them. Defendant decided not to pay, P brings suit. The issue is whether a moral obligation (to pay said amount to person who saved your son) constitutes sufficient consideration to make a promise. The court held that a moral obligation is generally not sufficient consideration for an express promise. The execution of such a promise is left to the conscience of the promisor. The law will only give a promise validity if the promisor gains something, or the promisee loses something, as a result of the promise.
Webb v. McGowin (pg. 45)
Modern approach allowing enforcement: moral obligation from past act—material benefit + material detriment test. (1935). Webb (P) was about to drop a heavy weight on the floor below him, saw McGowin there, and, to avoid harm to McGowin, P fell with the weight and sustained permanent injuries to himself in the process. McGowin promised monthly sum for life, and made payments for eight years until he died. McGowin’s executor (D) stopped payments, P sued. The issue is whether moral consideration is sufficient to support a promis
00 if you paint my house. For a bilateral contract to be legally enforceable, each party’s bargained-for promise must be legally sufficient consideration for its counter-promise. The test is whether the performance promised would be sufficient consideration. In other words, the bargain must have mutuality of obligation; both parties must be bound or neither will be.
§ 75. Exchange of Promise for Promise (pg. 195)
Except as stated in § 76 and § 77, a promise which is bargained for is consideration if, but only if, the promised for performance would be consideration.
Illusory promises—promises reserving to the promisor the power to determine performance. If the promisor reserves expressly or by implication an alternative by which she can escape performance altogether, she has really not promised anything at all. Thus, the promisor’s promise is “illusory,” and such a promise is not sufficient consideration for the return promise. There is no mutuality, and thus, no valid contract.
§ 77. Illusory and Alternative Promises (pg. 195)
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves as a choice of alternative performances unless
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
Strong v. Sheffield (pg. 69)
Lack of consideration and specificity renders promise illusory. Illusory promises have no consideration. D promised to be a surety of her husband’s past due debt to P. P agreed to hold off collection, however, there was no agreement as to how long forbearance of collection should last. When P demanded the payment two years later and D failed to pay, P brought suit on the note. The issue is whether an agreement not to collect a debt for as long as the creditor elects to wait shall constitute consideration. The court held that there was no consideration given for the note through the agreement because the note was payable on P’s demand, and thus the agreement to forbear was illusory. A promise is illusory if it does not limit the actions of the promising party; the party can either perform or not perform.
Mattei v. Hopper (pg. 72)
Promise conditional on promisor’s satisfaction. Satisfaction clauses are not illusory promises. D made an offer to sell P, a real estate developer, land. P agreed to buy land if he could find a satisfactory number of leases for his shopping center development in 120 days. Agreement was