1. PRINCIPLES OF CONTRACTUAL OBLIGATION

-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 (§1: Contract Defined).

-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 promise has been made (§2: Promise).

-Leonard v. Pepsi, Inc.- Commercial viewer sent check for$700,000 (7 million Pepsi points) in exchange for a fighter jet.

  • Holding: Summary judgment for manufacturer because (1) the commercial was an advertisement, not a unilateral offer, (2) a reasonable person would conclude that a fighter jet wasn’t really up for grabs, and (3) no writing between parties to satisfy Statute of Frauds.

-Carlill v. Carbolic Smoke Ball Co.-Carlill won her case that she should receive $100 from the company after getting the flu (the advertisement offered a reward because it sought to induce performance and she complied with the terms of the offer). Today if she brought the case, though, she would probably lose because of the idea of the reasonable person.

-Ray v. William G. Eurice & Bros., Inc.- Eurice Bros. breached contract to build Ray’s home because they thought that Ray’s specifications were too precise and unreasonable, despite the fact that they had signed the written offer with those updated specifications. There was no fraud or duress here; if there was a mistake, it was unilateral and it existed because the Eurice Bros. did not pay close enough attention to the written agreement.

  • Holding: D wrongfully breached his K with P and P was entitled to the difference between the cost agreed upon and the cost to complete the house ($5,993.40).

-Hurley v. Eddingfield- Decedent was sick, patient of the doctor, sent messenger for him; Dr. Eddingfield knew there was no one else available and that decedent relied on him, but the doctor refused to treat, without giving reason. Patient died. Estate sued doctor, alleging wrongful refusal to enter employment contract.

  • Holding: Ct said that D was not liable. A medical license doesn’t require a doctor to practice on any compulsory terms, or at all if he doesn’t want to.
  • No mutuality here. Even if decedent relied on D, D didn’t do anything to create the reliance or make himself responsible for decedent.

-Three concepts, as described by Fried:

1. Traditional concept/ Restatement (Second) concept/ Fried

-“Contract as Promise” was written at a time when there were a few things present: legal realists, critical legal studies, Atiyah’s book “Economic Analysis of Law,” and Gilmore’s little book called “The Death of Contract.” Friend was irritated by these things, so he wanted to write his own book.

-The traditional view is that Contract is a kind of neutral framework for voluntary transactions. It isn’t about any particular kind of transaction; it’s a way for people to frame any transaction they wish. This is what contrasts Contracts from Torts and Property.

-Contracts is about creating duties which otherwise do not exist.

-Torts, by contrast, deals with transactions and encounters which are almost always involuntary (like a car accident). And the duties aren’t duties that are voluntarily assumed; they are duties that are imposed by the law. *The transactions aren’t always involuntary though.

-And Property is the starting point for both kinds of duties.

-Restitution:

-Fried gives an example of accidentally sending $250 to a charity instead of to his plumber. If the sender contacts the charity before the charity allots or spends the money, does the sender get the money back? Answer: money paid by mistake can be recovered under restitution. The receiver wasn’t entitled to the money, the sender hasn’t done anything wrong, and the sender hasn’t damaged the receiver.

-Fried believes that contracts should be fixed and enforceable at the time that the risk is transferred. One shouldn’t be able to break his/her contract whenever because conditions inevitably change.

2. Legal realists say there’s no such thing as public law. All duties and all rights are imposed by governments for its reasons – law is politics. / Atiyah (“The Rise and Fall of Freedom of Contract”)

-This is the view that Atiyah espouses. Atiyah believes that the traditional view (the view supported by Fried about contracts as promises) is not wrong necessarily, but it’s passé or regressive. Atiyah believes that the traditional view is in favor of the haves (it supports the rich getting richer). He doesn’t like this and says that the traditional idea of contracts as a neutral framework doesn’t work anymore.

-Reasons to enforce promises: (1) promises create expectations and people will be disappointed if the promises aren’t performed, (2) contracts and promises are risk-allocation devices, and (3) it may be desirable to uphold the principle of promissory liability.

3. Law and economics/ Posner

-Posner believes that the function of law is to increase value and that value is defined by ability to pay. Fried says that Atiyah kind of agrees with Posner. He gives the example of the pituitary gland problem and the poor family wanting stuff to help their child not be a dwarf and the rich family wanting it to make their 5’10” child 6’1”.

  1. Grounds for Enforcing Promises
  2. Formality

-In order for a contract to be enforceable, the promisor must receive something of value in return for the promise.

-The promise must be bargained for

-Bilateral Contract – Contract involving the exchange of promises

-Unilateral Contract – Contract involving the exchange of a promise for performance

-Congregation Kadimah v. DeLeo (MA, 1989)- A Jewish synagogue brought this action to compel the administrator of an estate to fulfill the decedent’s oral promise to give $25,000. The Congregation planned to use the $25,000 to transform a storage room into a library.

  • Holding: Congregation doesn’t get the money; there’s no contract here because (1) neither legal benefit to the promisor nor detriment to the promisee (consideration), (2) a hope or expectation, even though well founded, is not equivalent to either legal detriment or reliance, and (3) it wasn’t written.
  • Bargain
  • §17: Requirement of a Bargain – Consideration must be bargained for: Sought by the promisor in exchange for her promise and given by the promisee in exchange for the promise
  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 consideration
  2. Acts of Consideration
  3. Act other than the promise
  4. Forbearance
  5. Creation, modification or destruction of a legal promise

-Hamer v. Sidway (NY, 1891)- Uncle promised at an anniversary party that he would give $5,000 to his nephew if he would refrain from drinking, smoking, swearing, and gambling until 21. Nephew did, but uncle died before paying the money.

  • Holding: The nephew’s promise to refrain from doing something that he had the legal right to do is an act of forbearance and therefore valid consideration for the $5,000.
  • Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first (p197).
  • Unilateral contract (nephew didn’t promise, he just acted; uncle couldn’t have sued nephew if nephew didn’t perform)

-Earle v. Angell (MA, 1982)- Aunt had nephew promise to attend her funeral in exchange for $500.

  • Holding: Nephew gets the money. “A contract to pay money after one’s own death is valid.”
  • Doesn’t matter that nephew would have gone to the funeral anyway
  • §81: Consideration as Motive or Inducing Cause – The fact that what is bargained for does not itself induce the making of a promise does not prevent it from being consideration for the promise
  • Bilateral contract (promise for a promise)

-Whitten v. Greeley-Shaw (ME, 1987)- P (man) and D (woman) had an affair for some years. D struck up an agreement in which P paid her $500/mo, visited and called at stated intervals, gave trips and jewelry, etc. P signed it. At some point, P loaned D $64,000 to purchase a home. D defaulted on the promissory note and P brought a foreclosure action, to which D filed a counterclaim based on their agreement.

  • Holding: Agreement unenforceable, because no consideration (no consideration when a clause is the promise is neither “bargained for” by P nor “given in exchange for” his promises).
  • Fried thinks this case was wrongly decided, that it was actually a bilateral contract, and that the court just didn’t want to uphold an immoral (sex) contract.

-§71: Requirement of Exchange; Types of Exchange- Consideration must be bargained-for: sought in exchange for promise and delivered in exchange for promise. Performance can be act, forbearance, or change in legal relation.

-Duncan v. Black (MO, 1959)-Black (D) made a contract with Duncan (P) that Duncan would receive a 65 acre cotton allotment with the 359 acres of farm land he had purchased. P wanted the same arrangement the following year, D refused, and P sued for breach of contract.

  • Holding- No breach of contract. Contract was invalid from the start because no agreement could be made for future allotment because the allotment is restricted to one-year considerations (public policy reason).
  • Fried thinks this case is doubly wrong: (1) Duncan should be compensated since he couldn’t get the cotton allotment and (2) the agreement was made in good faith so it should stick.
  • Benefit

-Mills v. Wyman (MA, 1825)-P cared for D’s adult son in illness. D sent a letter promising payment but later revoked the promise.

  • Holding: D owes nothing. No consideration because D was only attempting to fulfill a moral obligation and that doesn’t constitute consideration. “A promise based on moral or past consideration is simply a donative promise and is therefore unenforceable.”
  • Promisor (D) didn’t directly benefit from P’s act (D’s son did).

-Webb v. McGowin (AL, 1935)-P saved D’s life at work and incurred injury. D promised to pay P a monthly sum. When D died, his executor stopped paying.

  • Holding: D’s agreement to pay Webb was a valid and enforceable contract. “Where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received.”
  • Promisor directly derived a benefit (different from Mills v. Wyman).

-§86: Promise for Benefit Received- Promise based on previous benefit is binding to the extent necessary to prevent injustice. Excludes gifts, unjust enrichment, disproportionate benefit

-In re Crisan Estate (MI, 1961)- An elderly woman collapsed and later died. Dr. rendered medical services. She never gained consciousness and therefore, she never consented.

  • Holding: The court held that the doctor was entitled to damages because they assume that had she been able to consent she would have. The promise to pay is implied by law.
  • Implied-in-law Contract- party required to compensate another for benefit conferred in order to avoid unjust enrichment (e.g., doctor helps unconscious pededstrian)
  • Implied-in-fact Contract- promises of parties implied from acts/conduct (e.g., auction, plumber, etc.)

-In re Schoenkerman’s Estate (WI, 1940)- When Schoenkerman’s wife died and left him with two teens, he asked his mother-in-law and sister-in-law to come take care of the home. He promised (in written notes) to pay them. Sister-in-law wanted the full, promised amount.

  • Holding: Schoenkerman had to pay them because the notes plainly acknowledged a moral obligation and afforded more than ample consideration.
  • Reliance (Promissory Estoppel)

-§90: Promise Reasonably Inducing Action or Forbearance- Promise reasonably expected to induce action & forbearance and does induce such action & forbearance is binding if injustice cannot be avoided otherwise. Charitable subscriptions and marriage settlements binding even without showing of inducing action & forbearance.

-Kirksey v. Kirksey (AL, 1845)-P was invited by her brother-in-law, D, to leave her home in the country and move her family to him. She did, and after 2 years, D moved her to a crappy house.

  • Holding: No money for P, because D’s promise was just a gratuity/gift; no consideration. Ormond disagrees though and believe that there was consideration.
  • This may have come out different if evaluated from a reliance perspective.
  • Compared to Schoenkerman, this was supposed to be a gift instead of a job.

-Ricketts v. Scothorn (NE, 1898)- P (granddaughter Katie) vs. D (grandpa’s executor, Andrew). Katie’s grandpa told her that he fixed things so Katie wouldn’t have to work (since none of his other grandkids worked) and he gave her a note saying he would pay her $2,000/yr plus interest. Katie immediately quit, and after a year, grandpa died. Grandpa expressed regret that he’d been unable to pay Katie the balance.

  • Holding: Katie gets money because of reliance.
  • We discuss this from a negligence perspective. Fried says this case has a tort feel because grandpa’s promise caused injury because he wasn’t careful.

-Allegheny College v. National Chautaunqua County Bank (Cardozo, NY, 1927)-Allegheny College was raising money and Mary Yates Johnston, in a letter, promised to pay $5,000 (due 30 days after her death). The back of the letter said her gift should be known as the Mary Yates Johnston Memorial Fund. Mary paid $1,000 while she was alive, and then later cancelled her promise. The college brought the action 30 days after her death to collect.

  • Holding: Estate must pay because there was consideration: after receiving the $1000, the college named the scholarship after Johnston, creating a bilateral agreement. The contract came into being upon the acceptance of the $1000; before that, it was an offer.
  • Fried says Cardozo succeeds in turning promissory estoppel from an exception into the rule.

-Siegel v. Spear (NY, 1923)-McGrath (D) told Siegel that he’d set up insurance for Siegel’s furniture because it would be preferable to Siegel getting his own insurance agent to do it. Siegel was to pay for the insurance later, but the furniture was burned before the insurance was bought.

  • Holding: D’s promise to get insurance was binding. D undertook to store P’s property without compensation (gratuitously), but it was after D’s statements and promises about insurance that the P sent the furniture to the storehouse, so D became responsible because there was detrimental reliance on the part of P.
  • Bailment (when someone, without payment, entrusts the care of their property to another). The bailment is that the person is supposed to take care of your stuff.
  • Fried thinks the court is straining to turn detrimental reliance cases into cases in which there’s consideration even when there’s not.

-Feinberg v. Pfeiffer Co. (MO, 1959)- P, Feinberg, worked for Pfeiffer Company for a long time and during a meeting of the higher-ups, they discussed P’s retirement and decided to give her a salary increase and a retirement fund of $200/mo. for life. P continued working an extra 1.5 years after the salary increase and promise of retirement $. Eventually, a new Pres. (Mr. Harris) talked to a lawyer and an accounting firm, both of whom told him he didn’t need to pay. The new President says believed the payments were gifts. P was sent a check for $100 instead of the normal $200, so she declined that amount and brought this action.

  • Holding: P gets the retirement money. It’s true that she didn’t need to continue working to get the money, but there was promissory estoppel.
  • The court feels this is a classic §90 case
  • Fried says this isn’t a Webb v. McGowan situation, but Fried thinks that this court got it right.

-D’Ulisse-Cupo v. Board of Directors of Notre Dame High School (CT, 1845)- School board didn’t rehire teacher after giving representations that it would rehire her.

  • Holding: P doesn’t have a promissory estoppel claim (the representations made weren’t sufficiently promissory), but a negligent misrepresentation claim (requiring reasonable reliance), so she can recover money.
  • Fried thinks that this court maybe got it wrong, because he thinks that there was a promise to the teacher. Problem is that P was told she’d get something in the future, and that makes it more difficult to say that there was a promise in fact.
  • Defective Consideration
  • The Problem of “Inadequate” Consideration

-Batsakis v. Demotsis (TX, 1949)- Eugenia Demotsis borrowed money from Batsakis (she couldn’t get access to her money while she was in Greece during the war). Batsakis lent her approximately 500,000 drachmae ($25), but in her letter, Demotsis promised to pay him back with $2,000. Demotsis says Batsakis required a $2,000 repayment for the loan (p593).

  • Holding: P gets the $2000 plus interest. Arguments of insufficient consideration are inaccurate here, because D got exactly what she bargained for. It was wartime and she really needed the money, so accepting was reasonable.

-Waters v. Min. Ltd. (MA, 1992)- P was injured in an accident and when she settled the claim, she purchased an annuity contract from D, Commercial Union Ins. Co. She then became involved with a dead-beat bf who suggested she sell the annuity contract. Bf and others made a contract for Ds to pay $50K for the annuity contract (worth $189K). Ds paid $18K, deducted $7K towards Beauchemin’s debt, and never paid $25K. P brought suit to recover on the basis of unconscionability.