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40 Cards in this Set
- Front
- Back
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Consideration
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the sum of the conditions necessary for a cause of action to lie (Restatement 71)
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Bargain
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a performance or a return promise must be bargained for. (if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for promise) see 71
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Benefit/Detriment Theory
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Modern courts have rejected the benefit detriment theory (see R79) and today the bargain theory is stressed (process based).
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Forbearance As Consideration
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Hamer v. Sidway (p. 27) – uncle promising $5,000 for nephew’s forbearance = consideration.
Shows flaws of benefit/detriment theory (here nephew’s detriment was giving up legal right, uncle’s benefit was enhanced family name.) rejecting benefit detriment analysis. |
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Forbearance As Consideration
(When is a claim invalid?) |
Majority rule - (objective and subjective prongs) Forbearance is consideration if the claim is made in good faith with an honest and reasonable belief in its validity. honest intention to prosecute litigation.
R74 - Restatement says objective test (reasonable) or subjective test (good faith). But the two are linking (as a practical matter both tests will be met). The claim forborne can’t be baseless, there has to be a legal foundation. Has to be compatible with honesty etc. Fiege v. Boehm (34) – woman expecting child promised to forebear instituting bastardy proceedings if the alleged father would pay, and claim was later found invalid. i. Mistake of fact (if it is father) but not mistake of law (if you can sue) there is no difference. Still the 2 prong test. |
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Promise v. Performance
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a. Performance has a higher value than promise. People break promises all the time, you might not trust the other party, promisee might want to prove performance.
b. Unilateral – promise for performance c. Bilateral –promise for promise (mostly today and this is the reason why no benefit detriment today) d. Right/duty – promisor has a right to performance, promisee has a duty to perform. |
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Bargain Theory (Holmes)
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a. Oliver Wendell Holmes emphasized bargain theory to distinguish between a bargain and a gift.
i. Reciprocal conventional inducement – each promise induces the other promise. ii. Promise and consideration are motive for eac hother. b. R71 – there can be hidden motive, doesn’t matter. c. Holmes: courts don’t weigh adequacy of consideration. (parties are in the best position to determine their subjective value of something.) d. consideration is exchange of opportunity costs. (cost of giving up all other opportunities) e. peppercorm theory (traditionally, nominal consideration was accepted to disguise gift as bargain)consideration even as small as a peppercorn is fine.) Not so under second restatement. i. Second restatement one should not favor form over substance ($5 for a house is a fiction.) f. Duress precludes consideration - has to be freely given promise. g. Sufficiency of consideration i. First restatement used this concept, second restatement does not. |
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Gratuitous Promises v. Gratuitous Transfers
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a. Gratuitous transfer: the act already occurred and fulfilled the evidential and cautionary functions of a seal. (so enforceable after the fact)
b. Gratuitous promises: unenforceable because the purpose of enforcing contracts is to protect the reasonable expectation interest. i. Adam Smith argues to enforce gratuitous promises rather than gratuitous transfers: motivate other people’s self-interest in your favor, manipulative and utilitarian. |
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1 - Requirement for Exchange - actions in the past
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1. actions in the past are not grounds for consideration; no reciprocal inducement.
a. Feinberg v. Pfeiffer co. (p. 39) – Feinberg worked for co. for some 37 years and was given a surprise pension with no further obligation on her part. Her previous work was not consideration because you can’t bargain for something that is already done. Pension was more like a gift. |
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2 - Requirement for Exchange
Moral obligation and Past Performance (Mills Rule) |
Mills v. Wyman (p.44) – Mills cared for sick boy on sea voyage, boy’s father later promised to pay expenses and later decided not to pay. Mills acted as a good Samaritan, should not expect payment, father’s promise was out of moral obligation, there was no consideration. Encourage good acts for being charitable.
b. Harrington Taylor (p.49) [Battered wife swung axe at husband, friend deflected axe mutilating hand.] Should be morally obligated, but no consideration, not enforceable by law. |
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3 - Requirement for Exchange
Exception to Mills Rule |
3. Exceptions to Mills Rule (only in effect in few jurisdictions) –
a. past action can be consideration where there was a material benefit and a presumption of previous request for service. i. Webb v. McGowin (p.45) Court creates fiction: if there had been time to bargain, they would have. [While at work, Webb saved boss’s life by falling with cement block instead of dropping it on boss. Webb was crippled, boss promised to pay for life.] Consideration because of monetary benefit of human life and subsequent promise. (not same same implied promise because not professional duty to save) b. Criticism: when does gift become obligation-where do you draw the line? passing man on street c. debt payment after statue of limitations – if you pay part of money or say you won’t use statute of limitations, you are liable to pay debt. d. Minor turned adult – acknowledging debt – this new promise is enforceable. e. Bankruptcy proceedings start and then you promise to repay debt, then debt still enforceable. |
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Requirement of Bargain
(Kirksey v. Kirksey) |
– no bargain so no consideration. [brother-in-law wrote to widowed sister-in-law offering ploy of land for family if she would move.] He did not bargain for her move, he made a gratuitous promise. “I want to give you this gift, but I can’t go to your place to give it to you, so please come here and I’ll give you the gift.” (today this would be promissory estoppel)
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Requirement of Bargain
(Central Adjustment Bureau v. Ingram) |
– 3 [employees signed non-compete covenants after employment began. Two issues: future and continued employment consideration for non compete covenant in at-will employment? ] Court engages in fiction of Goosetree as within ‘a short time after employment begins’ so they can discuss future employment rule as padding (fits well into contract doctrine) for announcement of continued employment rule. “we promise not to engage in competition, if you will forbear from firing us”. Promise won’t suffice – it is illusory in at-will situation. Thus, the court converts the seemingly bilateral promise into a unilateral one for CAB’s performance (forbearance). Mentions promotions as further evidence.
a. We don’t like reasoning but like the outcome. Concurring opinion could have been: by continuing employment, employees consented to covenants. |
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Requirement of Bargain
(Employee Handbooks) |
a. Unilateral contract theory is applied to employee handbooks (Worley p. 63 and pine river case)
b. Michigan (Re: Certified Questions p. 63) – administrative model..employer can unilaterally change handbook if there is reasonable notice of the change. c. Pine River Case – handbook guidelines are a promise and an employee’s continued work even though they could quit is the acceptance (performance), thus there is consideration and the guidelines are enforceable. |
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Requirement of Bargain
(Rewards) |
a. Show how offer and acceptance relate to consideration. (requirement that offer induce acceptance)
b. You have to know about it. c. Fishing competition – he knew about it, but it wasn’t on his mind in that particular moment. OBJECTIVE THEORY – as long as he knew about it, there was consideration. Because of objective standard-how could we possibly know what’s on your mind. d. Restatement 51 – if person learns of reward midway through performance, completion of performance does make consideration. e. There can be hidden motive, simultaneously. |
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Gratuitous Promises
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1. reluctance to enforce gift promises, because predominate view is that cooperation is best achieved by free enterprise.
2. Adam Smith: man will benefit more if he can convince people to help out of personal benefit rather than goodwill. Bargain = give me what I want, in return for what you want. 3. Posner – Economics or Gratuitous promises: ‘economic man’ enters into gratuitous promises (when they actually commit promisor to promised action) because increases value of uncertain future payments. Series of future gifts is more valuable than one time payment. Economic man will try to bind himself to series of future gratuitous promises rather than a one time gift. |
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Promises as Consideration
(1 - Rule) |
1. R75 RULE: promises can be consideration if the performance of the promise would be consideration.
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Promises as Consideration
(2 - Reliance) |
2. reliance is not required because it would be difficult to draw the line, such a requirement would discourage contracting because proving reliance could be costly. (justification of the expectation view)
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Promises as Consideration
(3 - Expectation) |
3. you have to protect the expectation, but reliance is an element of price settlement (exchange of reliance costs) there is some reliance built into expectation.
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Promises as Consideration
(4 - Conditional) |
one can add a condition to ensure future performance.
a. Strong-no contract between because conditioned upon unfettered will. b. Insurance – we buy insurance and in the condition that I get into an accident you pay me |
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Promises as Consideration
(5 - Illusory Promises) |
“I will if I want to” promises. NO CONSIDERATION
a. Strong v. Sheffield (p. 69) –[ If an uncle promises to forebear the collection of a debt, where no amount of time is specified, in exchange for his niece’s endorsement of a promissory note as security for her husband’s past due debt, there is no consideration.] Promisor has complete unfettered discretion: can collect whenever he wants. Judged on agreement not, subsequent 2 year forbearance. |
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Promises as Consideration
(6 - Satisfactory Clauses) |
a. Mattei v. Hopper (p. 72) – [contract to purchase real estate to build mall includes a clause specifying that leases ‘satisfactory’ to the purchaser must be secured before he would be bound to perform - the purchaser has to make a judgment as to his satisfaction in good faith to furnish consideration.]
b. satisfaction determination has to be for performance, not the original contract itself! c. (we trust court to chose between two tests:) 1. Objective standard – for contracts with a condition of satisfaction of value, quantity, utility. “Would a reasonable person be satisfied?” 2. Subjective standard – for contracts involving fancy taste or judgment: Promisor has duty to make determination of satisfaction in good faith. (not unlimited) |
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Promises as Consideration
(Requirements/Output Contracts) |
a. Seemingly illusory (I will buy from you if I want to.) but saved through UCC (2-306) good faith.
b. UCC - good faith requirement and according with commercial dealings (requirements contracts were enforceable based on objective evidence prior to UCC) reasonable elasticity. c. Use records and estimates to gauge good faith output or purchasing needs…so it is not unfettered will. i. Eastern Air Lines v. Gulf Oil Corp. (p. 76) – intending to peg crude oil ad jet fuel prices, the parties included an escalating clause such that the price of sale would be the price of West Texas Sour. But bc of series of economic events and price controls, the price remained fixed and Gulf had to accept lower price than market. 1. held: as long as Eastern made good faith order (in line with previous estimates, it was binding.) 2. if merchant it has to be good faith and according to commercial standards of fair dealing in the trade (puts a second criteria to measuring whether or not it was illusory.) if not merchant just good faith. |
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Promises as Consideration
(Implied Promise) |
a. Seemingly illusory (I will market your designs if I want to and if I want to I’ll give you the profits) appears to be up to promisor’s discretion
b. If there is an exclusive dealing, promisor has to use best efforts…reasonable diligence to perform. c. Wood v. Lucy (p.83) – Lucy gave Wood exclusive privilege to market her designs in return for 50% of profits. He knew it was exclusive so he assumed the duty to sell because that is the only way she could make money. He created business for function of doing business, reasonable efforts implied…not illusory! Business set up to provide the missing element in the contract. d. UCC 2306.2 - exclusive dealing – best efforts are necessary, reasonable diligence. e. P.85 contract termination clauses – at will termination f. UCC 2-309.3 requires reasonable notice to cancel contract. |
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Reliance as basis for Enforcement
(Promissory Estoppel) |
Completely separate from world of bargain. May ameliorate some injustice when there is no bargain present.
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Reliance as basis for Enforcement
(Foreseeable Detrimental Reliance) |
(promise is enforceable if it was reasonably foreseeable that promisee would rely on it)
1. Ricketts v. Scothorn (p. 86) – grandpa promised to pay granddaughter $2000 on demand so she would no longer have to work. She immediately quit working, later got diff job with grandpa’s help. He died without paying and she sued executor of his will. Held: no bargain because grandpa didn’t say I’ll give you money if you quit. But there was foreseeable detrimental reliance. She quit because of promise. 2. Feinberg v. Pfeiffer co. (p. 91) – Feinberg was promised a pension and she later quit relying on the pension. She was too old to get another job. It was reasonably foreseeable that she would quit in reliance. (promissory estoppel under first restatement) |
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Reliance as basis for Enforcement
(Common Law Categories) |
that recognize promissory estoppel (before restatement 90)
1. family promises (rickets) 2. promises to convey land (Kirksey would be today) 3. promise couple with gratuitous bailments (Siegel) 4. Charitable subscriptions – courts favor charities (Allegheny College) – desirable means of distributing wealth. |
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Reliance as basis for Enforcement
(R90 unprecedented) |
R90 unprecedented (when enacted, the bargain theory ruled) many, including Holmes, feared the end of the bargain principle.
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Reliance as basis for Enforcement
(Effect of R90 - Promissory Estoppel) |
if you make a promise and it is reasonably foreseeable that the promisee will rely upon the promise, then you are estopped from arguing there is no consideration because there was no bargain.
1. Test: Was the reliance reasonably foreseeable and can injustice be avoided only by enforcing the promise. 2. How was Second Restatement 90 different from First? a. No longer included requirement that reliance be “of a definite and substantial character” (that was moved to comment b) as a factor in determining the justice of the award. b. Added sentence that ‘remedy is limited as justice requires’ (you can only recover to avoid injustice – court given discrepancy on whether it be reliance or expectancy but expectancy is often required) c. See p. 205 the difference between illustrations 8 and 9, could be lack of faith d. Liberalized idea of charitable giving – making easy to enforce |
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Reliance as basis for Enforcement
(Promissory Estoppel in Businesses) |
(as bargain advocates feared)
1. Cohen v. Cowles Media Co. – P worked on gubernatorial campaign, leaked info about opponent to reporter who promised not to divulge source. Editors decided to publish his name anyway, he was fired from job. (No breach but since Cohen worked in journalism he was familiar with custom of confidentiality and relied on reporter’s promise. Promissory estoppel because journalistic custom of confidentiality –newspaper itself relied on the custom! 2. GM v. Township Case – facts unclear, can’t find promise (GM put itself up for sale and township with lowest bid gets factory and jobs in exchange for tax abatement.) a. Arg for GM – there was no promise. injunction would make GM lose money, might go bankrupt – means greater economic repercussions. GM has right to be autonomous. NO contract here. b. Arg for Township – there was promise, grant injunction to keep GM here to same thousands of jobs, township relied on promise, GM has social responsibility (corporate autonomy not absolute) |
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Reliance as basis for Enforcement
(Damage Recovery) |
when expectancy damages and when should damages be limited to reliance?
1. expectancy damages a. if lack of good faith (malice) b.Look at the context of the situation, if expectancy damages can be determined, award them. 2. reliance damages a. when expectancy can’t be determined /proven b. in an at-will relationship (because it could be terminated any day, so no expectation interest, but reliance interest) i. D&G Stout v. Bacardi 1991 (p. 97) – P relied on Barcardi’s promise to continue supplying when P rejected 3rd party’s offer to buy biz. Then Barcardi reniged and P was forced to accept much lower price from 3rd party (lost negotiating power). (Reliance included price differential.) |
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Restitution as a basis of Enforcement
(General) |
a. Not based on a promise, does not fall under contract context.
b. Quasi-contractual enforcement: Based on the principle of preventing unjust enrichment. (gains produced through another’s loss are unjust and should be restored.) |
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Restitution as a basis of Enforcement
(Who Should Bear the Loss?) |
i. No one should be forced to pay for benefits that are forced upon him. (officious intermeddler)
ii. Deserving claimant should be compensated iii. It is good to promote good samaritanism (do the right thing because it is right, and don’t expect money) |
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Restitution as a basis of Enforcement
(Rebuttable Presumption) |
help/services given to a person in need are gratuitous, no recovery available.
i. Exception if person rendering the services does so in a professional capacity (doctors) a. Cotnam v. Wisdom 1997 (p. 103) – victim thrown from car, unconscious, doctor called to scene, performed difficult operation to save victim’s live, but v died. Implied contract enforceable when Dr. performs emergency services. |
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Restitution as a basis of Enforcement
(Implied Contract) |
legal fiction used to require one who is unjustly enriched at the expense of another to make restitution to the other. Duty arises from law or natural equity.
i. Halfway between contracts and tort. ii. No mutual assent, court ignores parties intentions (because they are not there) |
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Restitution as a basis of Enforcement
(Applies only when NO other remedies) |
i. Callano v. Oakwood Park Homes Corp 1966 (p. 108) – D constructed home and contracted to sell to Pendergast. Pendergast then contracted P to plant shrubs. Pendergast died before paying for shrubs and D sold lot (including shrubs) to another person. No unjust enrichment because there was no direct relationship between the parties and there was yet another remedy – P could sue the estate.
ii. Paschall case – P built bathroom at request of daughter who later went bankrupt, parents held liable because P exhausted all other remedies and former contract is unenforceable. |
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Restitution as a basis of Enforcement
(Fraud) |
i. Ventura v. Titan Sports, Inc – D’s stated policy was to give royalties to featured performers but they actually gave them to all performers. P agreed to waive right to royalties (bc wasn’t feature), then found out non-feature performers got royalties and sued for unjust enrichment. Won bc of fraud.
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Restitution as a basis of Enforcement
(Spouses) |
i. Presumption: spousal services presumed to be gratuitous
ii. Exception: if agreement between spouses and one spouse makes an extraordinary and unilateral effort that benefits the other a. Pyeatte v. Pyeatte – married couple agreed to put e/o through grad school. Wife put husband through law school, and they divorced a year later. No contract, but restitution (damage calculation?) |
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Restitution as a basis of Enforcement
(Un-married Partners) |
Allowed it one is trying to retain an unreasonable amount of property acquired through joint efforts (after breakup)
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Restitution as a basis of Enforcement
(Recovery) |
Restatement Second (2 options)
a. Reasonable value to D (this is usually more generous and favored by courts. b. Extent to which D’s property increased in value. |
