Basis for Enforcing Promises

Basis for Enforcing Promises

Consideration as a Basis for Enforcement
Fundamentals of consideration
Consideration: 1. something of value (such as an act, forbearance, or a return promise) received by a promisor from a promise; 2. consideration, or a substitute such as promissory estoppels, is necessary for an agreement to be enforceable
Three Interests to be protected
Expectation interest - put promisee in same position had the promise been performed
Reliance interest - put promisee in same position they would have been in had the promise not been made
Restitution interest - putting the promisor back in the position they would be in had the promise not been made
Breach of Contract claim– must have consideration
Consideration is a bargained for exchange
Restatement (Second) 71(1): Bargain Theory
To constitute consideration, a performance or a return promise must be bargained for
Restatement (Second) 71(2): Bargain Theory
A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise.
Can seek performance or return promise
Ex.Hamer v. Sidway(p. 27)–(uncle promised to give nephew money for not drinking or smoking) - when the promisee forbears or gives up rights in reliance on promisor’s promise there is sufficient consideration to enforce promise
Maybe no consideration if not a lawful right to act (Hamer)
Compare benefit/detriment approach – Relevant as ancient history
Restatement (Second) 79- If the requirement of consideration is met, there is not additional requirement of
A gain, advantage, or benefit to the promisor or a loss, disadvantage or detriment to the promisee.
Implications of the Bargain Theory
Gratuitous promises – promises to make a gift, unenforceable
Peppercorns – sham promises are not consideration
Ex. Giving a penny in return for a promise
Promises to settle lawsuits can be consideration but in addition to bargained for exchange need reasonable and good faith belief in claim
Ex.Fiege v. Boehm(p. 34) – sufficient consideration for a promise to forbear from bringing lawsuit in exchange for the payment of child support even if it is later discovered that the basis for promise is false as long as at the time the promise was entered into the promisor had a good faith belief that the claim was valid
Must have a good faith belief in the validity of your claim to be able to have a legal right to assert that claim
Past action is not consideration
Ex.Feinberg(p. 39)– promise of board to give a secretary a pension and raise had no consideration because she was not required to give anything in exchange for promise and court found that her past employment did not constitute consideration
Ex.Mills v. Wyman(p.44) – promise of father to pay for medical services of son after services had already been performed not enforceable because no consideration for past actions
Alternative theory: moral obligation
Ex.Webb v. McGowin(p.45)–promise for benefit previously received by promisor is binding to the extent necessary to prevent injustice
Alternative theory: restitution (see below)
Unsolicited action is not consideration
Ex.Kirksey v. Kirksey(50)– brother in law promises sister in law that if she comes to live with him he will provide her with a house – no consideration for promise as it was a gratuitous promise – court found he was not trying to induce her to move therefore no consideration
Thin line between a gratuitous gift and a conditional statement trying to induce action
Ex.Williston v. Tramp– If you go around the corner I will give you a coat
Going around corner not consideration it is a condition of a promise
But if he promises to give tramp a coat to move from outside Williston’s store and move to corner in exchange for a coat probably consideration
Ex. Tiffany’s problem
If you will meet me at Tiffany’s next Monday at noon I will buy you the emerald right advertised in this weeks New Yorker.
Consideration because daughter had not seen father for many years and he was trying to induce her to see him
Illusory promises are not consideration
Traditional approach: literal reading of promise
Take promise literally
If promise has no substance (i.e. is peppercorn), cannot be consideration
Ex.Strong v. Sheffield(66)–No consideration for niece’s promise to uncle to pay her husbands debt as there was no specified time to forbear from collecting debt
Modern approach: imply term to give promise substance
Parties believe they have a deal – on face no substance
To give substance to deal, courts imply missing term
E.g., good faith/reasonable satisfaction
Ex.Mattei v. Hopper(69)– contract to buy land containing a satisfaction clause was found not to be an illusory promise as court implied a good faith standard on the satisfaction clause
Ex.Wood v. Lucy, Lady Duff(83) – same concept of court implying terms to give contract consideration
Alternative theory: Promissory estoppel/reliance
Restatement 2d § 90:
Promise
Promisor reasonably should expect to induce reliance
Did induce reliance
Is Binding
Only if necessary to avoid injustice
remedy limited as justice requires (i.e. reliance damages)
Restatement (1st) § 90:Promise Reasonably Inducing Definite and Substantial Action - A promise which the promisor should reasonably expect to induce action of forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
1stv. 2ndRestatement § 90: Need definite and substantial reliance; get expectation damages
Restatement (1st) 90– promise all or nothing
Promisor reasonable should expect to induce reliance
Of definite and substantial character
Binding if necessary to avoid injustice
Restatement (2nd) 90 – Promise may be compensated for your reliance (slightly less than promise w/ consideration)
Promisor reasonably should expect to induce reliance
Did induce reliance
Binding necessary to avoid injustice
Remedy may be limited
Ex.Feinberg(91)– Even though court found no consideration for promise – found promise based on P’s reliance on the promise when she quit her job
Ex.Ricketts v. Scothorn(86)– grandfather induced granddaughter to quit her job by offering to give her money and promise is enforceable based on her reliance on the promise in quitting her job
Alternative theory: Restitution
Can recover benefit conferred (restitution interest) if unjust enrichment
Enrichment: conferred benefit
Unjust not to compensate
Need expectation of payment; not gift/volunteer
Ex.Cotnam v. Wisdom(103)– doctors took care of unconscious man on street who dies anyways – doctors sue estate for money for services - court held that there was an implied contract
Not officious intermeddler (e.g. RS Restitution – unemployed homebuilder – should not be required to pay for benefits that were ‘forced’ upon him)
Do not need promise
Cannot use to avoid contract
Ex.Callano v. Oakwood Park Homes(108) – Oakwood building home for third party, Callano put in shrubbery under agreement with third party – third party died, Oakwood released estate and sold home Callano sued for unjust enrichment – court held that Callano should look to the purchaser for payment under the contract instead Oakwood

The Bargaining Process

Contract Formation:
Is a contract formed?
I.e., is there already an enforceable promise
Two requirements:
Consideration (bargained for exchange)
Assent(usually offer and acceptance)
What kind of assent is necessary?
Objective theory: view of reasonable person
Subjective theory: actual intent of parties
Nature of Assent –Question of applying an objective theory or a subjective theory?
Courts apply anobjective standardwhen looking at assent not a subjective standard (What the parties outward intentions portrayed not their inward intentions)
Ex. Lucy v. Zehmer(119) – offer by D to P to sell farm – P accepted then D tried to get out of deal saying that he was drunk and joking about the deal –Court upheld the bargain holding that there was nothing in Zehmer’s actions to show that he was joking about the offer and Lucy was unaware of the joke
Ex. Harrier jet commercial – What matters is what an objectively reasonable person would have thought
The Offer
Defined: Restatement (Second) § 24:“An offer is amanifestation of willingness to enter into a bargain, so made asto justify another person in understanding that his assent to that bargain is invited and will conclude it.”
What is important when looking to see if you have an offer?
Quantity is essential for there to be an offer
To have an offer you must have language of commitment
The more terms included in an offer the more likely it is going to be an offer
If in doubt and it is not clear if there is an offer the courts tend to hold no offer
Requires Language of Commitment– must have language of commitment to sell to have an offer
Ex. Owen v. Tunison(130) – Owen sends letter to Tunison offering to pay for property, Tunison returns saying could not sell for at least a certain price, Owen accepts, Tunison refuses to sell –Court after looking at the language of the letters holds no contract as letters show just an offer to open negotiations not an offer to sell
Specific Quanity, Price, and Time for acceptance
Ex.Fairmount Glass Worksv. Crunden Martin(134) – letter from Crunden to Fairmount to get quote for specified order – Fairmount sends quote “for immediate acceptance” – Crunden writes to place order and Fairmount says unable to fill –Court upheld the contract as Fairmount’s letter had listed prices and required immediate acceptance which Crunden fulfilled which then closed the deal.
Ex. Salt trade case(note case p. 137) – Company “offering” to sell goods but no specification of quantity is not an offer
Newspaper Ads as Offers
Normally newspaper ads are not considered offers but some exceptions
Ex.Lefkowitz v. Great Minneapolis Surplus Store(138) – Lefkowitz responded to ad and when he was in the store they refused to sell the item to him claiming only women could accept which was not in the ad –Court held that the ad constituted an offer and the plaintiff’s conduct constituted acceptance and while the advertiser has the right at anytime previous to acceptance to modify his offer he does not have the right to do so after the offer has already been accepted.

The Acceptance
Defined: Restatement (Second) § 50(1):“Acceptance of an offer is:
a manifestation of assent
to the terms thereof
made by the offeree in a manner invited or required by the offer
time/manner
Promise or a performance
International Filter Co. v. Conroe Gin, Ice and Light Co.(151) – D bought water softener from P from a traveling salesman – they accepted but before contract became binding had to be oked by the president of P’s company – D received letter confirming their order and then cancelled deal arguing that contract was not binding b/c they had not received notice of president’s acceptance –Court held notice was not required and D had accepted when ordered from salesman – and if notice was required they had received it in last letter confirming order.
Acceptance through Promise or Performance
White v. Corlies and Tift(156) – White gave estimate to D for work to be done – D changed specs – White assented – then received letter stating upon agreement he could commence work – he did not notify them and commenced work then they countermanded offer –Court held no binding contract as company was seeking acceptance through an offer not through performance therefore no binding contract.Acceptance must be in the manner specified in offer.
Ever-Tite Roofing Corporation v. Green(158) – case with agreement specifying acceptance through notification or commencing work – D hired P to fix roof and when P showed up to do work D had hired someone else –Court held that D’s knew it would take some time to commence work and must allow a reasonable time, also work commenced when P began ordering materials not upon arrival at home.
Silence is generally not considered acceptance unless there have been prior dealings. (Ex. “Unless I hear from you within 48 hours, you will be deemed to have accepted my offer” - Offeree doesn’t respond, but no contract formed)
Notice of Acceptance
Offer seeking promise –notice of acceptance isrequired, unlesswaived (see Internat’l Filter)
Offer seeking performance –notice of acceptancenot requiredunless performance is such that offeror will typically not be aware of commencement of performance
Termination of the Power of Acceptance
Four ways to terminate
Lapse
Must be specific and if not then will imply a reasonable time
Revocation (by Offeror)
If no showing of acceptance by offeree then no contract
Equivocal (unclear) revocation is sufficient revocation
If court is in doubt aboutoffercourt is going to tend to find No offer
Also if court in doubt aboutrevocationwill find that there was a revocation b/c they do not want people to be stuck in contracts that they did not intend to form
Death or incapacity of offeror
“An offeree’s power of acceptance is terminated when the offeror dies or is deprived of legal capacity to enter into the proposed contract.”Restatement (Second) § 48(Aunt Mary problem pg. 185)
Rejection (by offeree)
Offeree makes an offer, Offeror makes a counteroffer, offeree rejects then offeror accepts original offer –No contract as offer dissolves after offeree rejects
Battle of the Forms
Use of different forms often by buyers and sellers that have different stipulations – no contract as terms not the mirror image
Mirror image rule
Acceptance must be of the terms of the offer
If acceptance is not the “mirror image” of the offer, not an acceptance – no contract formed
Instead is counteroffer
Last shot doctrine
When parties perform, acts as acceptance of last counteroffer (last shot)
Terms of agreement are controlled by the last form sent

◦2-207 does away with common law.

▪(1) You can have acceptance even with add. terms as long as you have definite/seasonal acceptance, etc.

▪(2) Between merchants, add. terms are proposals and become terms of K unless

a. offer expressly limits acceptance to the terms of the offer.
b. material alteration.
c. notification of object beforehand or after in reasonable time.

◦How do we analyse whether something material alters something.

▪Maybe there is a def'n. Is there?

Cross references of section does not inlcude def'n.
We look at the comments; here, 4 & 5 help us by giving examples. 4, things that are; 5, things that are not.
We find the test “surprise and hardship” that courts often turn to.

◦Hypos

▪Hypo 1: Same facts, but C&A purchase order includes clause: this acceptance is expressly conditional on the buyers assent to any add. terms contained herein.

(1) We have def/seasonable acceptance. So far the analysis is exactly the same.
(1) BUT is acceptance expressly conditional? It is and so it is not acceptance, it is essentially a counter offer.
Go to (2). Does it help? No, does not talk about K formation.
Go to (3). K formed? YES. Conduct sufficient to form K.
So what are the terms?

◦(3) – Terms are:

▪Those that the writings agree upon.

Writings don't match on arbitration.

▪Supplementary terms incorporated under any other provisions of this Act.

No arbitration.

Conclusion: No arbitration clause.
Rundown

◦2-207(1) – Is K formed?

▪If yes → 2-207(2) to find terms.

▪If no → 2-207(3). Is K formed?

If yes → 2-207(3), second sentence.
If no → no K.

▪Hypo 2: Original facts. Add “all disputes shall be resolved in court” to their first communication.

Here we have different terms instead of additional terms.
2-207(1) treats additional and different terms the same way, so we do the same thing as the principal case. i.e. (1) creates K; go to (2) now.
(2) But this subsection only tells us what to do w/ add. terms, what do we do with different terms.

◦Different courts approach this in different ways.

▪We can treat it as an add. term (minority approach). (Supported by comment 3)

▪Knock-out approach (majority approach): Different terms? Get rid of both of those terms and we fill the gaps with the UCC.

2-207 is a direct response to mirror image rule and last shot doctrine and generally applies when we have a battle of the forms situation.
2-207

◦(1) Goes to whether or not K is formed.

▪Definite & seasonable acceptance is acceptance.

▪Unless expressly conditional.

◦(2) Describes what to do with add. terms. (Nothing on diff. terms, i.e. contradictory between the forms)

▪On diff. terms: See Northrop below.

◦(3) Ask whether K is formed despite failing (1), and the terms of K created under this subsection.

Hypo 4: Dorton facts, but instead of form from Dorton it was an oral K discussed over the phone.

◦Does 2-207 apply? Yes. Read Comment 1, written confirmation of oral agreement.

◦Is K formed? 2-207(1) says yes.

◦We go to 2-207(2) and we end up in the same place.

◦What if they agreed over the phone that any disagreements would be settled in court?

▪We have the “diff. terms” problem again. However, this is different than the battle of the forms. And courts have decided that we do not use the knock-out rule, because it is unfair that a term that was expressly agreed upon be overruled by what is supposed to be a confirmation. So instead we read diff. terms into 2-207(2) and we end up with the the orally-agreed upon (original) terms.

Northrop

◦Diff. terms approaches

▪Knock-out rule: Contradictory terms are thrown out and default “gap filler” rules of the UCC are used in place.

▪Read diff. terms into 2-207(2).

Authority would be in the comments section.
What might happen here? Look at 2-207(c), the first set of the diff. terms are essentially objected to in the original and so the original terms would be used.

▪Second minority rule: Throw out the contradictory term and go with the original offer. We can effectively say that these minority rules are the same as they get to the same place, i.e. adopting the original offer's terms.

Aside: Gap filler refers to the default UCC terms that apply when K is silent on an issue.
Hill v. Gateway

◦Rundown

▪Hills order computer by phone

▪Gateway ships computer to Hills

▪With computer, Gateway includes terms: Arbitration clause; Provides that these terms govern unless computer returned w/in 30 days.

This is the offer, and we know that the offer can stipulate the manner of acceptance.

▪Hills use computer for more than 30 days.

Fulfilled “manner of acceptance” = acceptance.

▪Computer allegedly is defective, Hill wants to sue.

◦Above is the legal analysis. Seems strong enough with what we have learned so far.

◦What about policy?

▪Criticism: Allows businesses to create unfair terms that consumers may not be aware.