Class Outline
Introduction
A contract is a promise or a set of promises for the breach of which law gives a remedy, or the performance of which the law in some way recognizes as a duty –Restatement (Second) of Contracts § 1
Two major questions
a. Under what circumstances is a promise enforceable?
1. Not all promises are enforceable
i. Examples: coercion, violates the law, misrepresentation
b. How do courts enforce promises?
1. Specific performance—ordering the person to uphold their promise; very rare in American courts—very difficult to do
i. If you don’t do it then you are held in contempt of court and sent to jail
2. Money damages—common remedy, measured by the amount the damages would have cost the person
Requirement of a “Basis for Enforcement”—distinguish promises to which the law will enforce. Need to be sufficiently important
c. Historical bases (e.g. wax seals)
1. Written out, signed, and sealed with wax; Used for something important—parties thought about it; It provided trustworthy evidence of the existence and terms of the contract in the event of a controversy
i. Evidentiary—made, delivered, and sent
ii. Cautionary—people had to think about what they are getting into
2. Almost everything that people had to sign put a seal on it because it became to common, it lost it’s cautionary function
i. As time went on the enforceability of the seal became abolished in the United States (through the enactment of the Uniform Commercial Code and statute)
ii. Debt—used to enforce some types of unsealed promises to pay a definite sum of money. The promisor (debtor) had something belonging to the promisee (creditor)
iii. Assumpsit—came from cases when the promisee sought to recover damages for physical injury to person or property on the basis of a consensual undertaking.
i. As time went on and the courts extended this common law they imposed a requirement that the promisee must have incurred a detriment in reliance on the promise
ii. The courts went further and said that a party that had given only a promise in exchange for the other’s promise had incurred a detriment by having its freedom of action fettered, since it was bound in turn by its own promise—enforce exchanges of promises
d. Principal modern bases
1. Consideration for a promise is something that is bargained for in exchange for another promise or performance in which enforcement is there
i. A promise to something in the future does not follow this rule of consideration. Does this type of issue need further criteria to be enforceable?
ii. Refer to next section
2. Reliance
Basis of Enforcement
e. Requirement of a Basis for Enforcement
1. General Principles
i. When a plaintiff sues a defendant for breach of contract, the plaintiff claims that the defendant made a promise and did not keep it, and the plaintiff asks the court to enforce the promise. E.g. Mills v. Wyman; Feinberg v. Pfeiffer
ii. A court will not enforce the D's promise unless the P can show a basis for enforcement
iii. Three modern basis for enforcement are consideration, reliance, and in a few special cases, "moral obligation"
iv. In seeking to prevent enforcement, the D may argue that the P cannot show one of these three basis for enforcement
Consideration
Consideration as a Basis for Enforcement
General Rule: Consideration for the D's promise may be (1) either a promise or a performance that was (2) bargained for in exchange for the d's purpose
D's arguments: The D will argue that there is no consideration because these two elements have not been met.
Arguments for why there is no valid promise or performance:
f. The promise given in exchange is a promise to settle an invalid claim, and the P did not have a good faith and reasonable belief in the possible validity of the claim. Cf. Fiege v. Boehm
Consideration for a promise
g. Promise or performance (i.e. action or forbearance)
h. Bargained for (i.e. sought and given) in exchange
- “Bargain Theory/Definition” of Consideration: Rest. § 72 (1) + (2); 79 (a), (b)
- Rest § 72 (1) + (2)
- Any performance which is bargained for is consideration
· Rest § 79 (a), (b)
- If the requirement of consideration is met, there is no additional requirement of
- A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee, or
- Equivalence in the values exchanged
Questions of enforcement stemmed from early English law that was closely tied to common law actions:
Hamer v. Sidway Court of Appeals of New York, 1891—this is the highest court in the state of New York. The Supreme Court of New York is the trial court.
· Facts: William E. Story Sr. uncle to William E. Story 2nd promised his nephew if he stopped gambling, drinking, swearing, and using tobacco until he became 21 he would give the boy $5,000. When the younger Story turned 21 he sent a letter to the uncle and the uncle replied that since he was earning the money an easy way that he would hold onto it until the boy was old enough to appreciate it. The money was his with interest. The uncle died two years later.
· Holding: The promisee “restricted his lawful freedom of action with certain prescribed limited upon the faith of his uncle’s agreement.”
· It is enough that the nephew restricted his action (Sidway was wrong). It does not have to be a detriment to the nephew or a benefit to the uncle.
o Reasoning: Does NOT cite any legislation or statute. Contracts is based on common law. Contract laws are based on previous rulings!
Possible policy arguments for recognizing consideration as a basis for enforcement
o Economic importance of bargains?
· Nothing in life is for free and to get more things you enter into a bargain. Bargains are important because they maximize our interest. Promises made with bargains make it important. Bargains provide an explanation to a promise.
o Minimal dangers as to proof?
Can something of trifling value be consideration? (pg. 38 in Contracts book)
o Promise to pay $1000
o book (worth less than or equal to $1)
o Rest. § 79 (b)—says no that this scenario is a fair bargain, while the original says yes. Why the difference? The restatement believes that this is NO BARGAIN, it’s a sham!
Fiege v Boehm Court of Appeals of Maryland, 1956
o This is an example of the Bargain Theory of Consideration
o Fiege promised to pay Hilda Boehm. Boehm promised not to bring claim if money is paid
· Boehm threatened suit through the basterdy claim. Initially had an exchange she wouldn’t bring the claim against him if he promised to compensate her for being pregnant. He paid her some of the money and then he stopped because he had a paternity test and it ended up that he wasn’t the father.
o Divides this into two: honest and reasonable
· Honest, good faith, bona fide=”subjective” test
· Maggs getting a pay raise—it’s honest but not necessarily reasonable
· Evaluate the testimony, ask them, are their actions consistent to their beliefs
· Reasonable-“objective”
· To figure out reasonable: what others believe would be reasonable
o Reason for the exception for the bargain theory was that you don’t want tons of bogus claims to go to court
· This is a civil nature so it’s deception and not blackmail. Criminal cases you cannot settle.
Feinberg v Pfeiffer Co Saint Louis Court of Appeals, Missouri, 1959
o Opposite of the Fiege v Boehm. Things that happened in the past can NOT be bargained for so there is NO consideration
o History: Ms. Feinberg worked for Pfeiffer for a long time. They initially pay her the pension, the owner of the company dies and the wife assumed the position and then the son-in-law took over. The wife was not amused by Feinberg’s service. When she retires the son-in-law takes over and asks the accounts whether he has to pay the pension. They said no and gave her less money.
o Pfeiffer Co promised to pay pension. Feinberg ??? to Pfeiffer
· Past service? Does not count because there was no bargain
· Subsequent service? There was still no bargain for her to keep working to get the pension. She did not have to render service for the pension.
· Act of retiring? Was that consideration? It still was not bargained for
Promise to make a gift is NOT enforceable
“If you do ______, I will do ______”
o When is a promise like this part of a proposed bargain and when is it a mere conditional promise to make a gift?
· Based on a case-per-case basis
o Williston’s advice: As an aid, consider benefits/detriments—more of a guide to follow, not set in stone
· Refer to appendix 1 part 1 in syllabus
· Tension with Hamer v. Sidway (or not)?
· When things are unclear have to look at the benefit or the detriment, but when it’s clear you don’t have to
Promise not to compete after leaving
Columber (∆)------> Lake Land Employment
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majority=forbearance is consideration
dissent=no consideration
Mills v. Wyman Supreme Court of Massachusetts 1825
o Sailor Wyman was ill on a sea voyage and Mills like a good Samaritan took care of him until he died. Daniel Mills writes to Wyman’s father and the father wrote back thank you for taking care of my son and I’ll pay you for your expenses.
· The father had no legal duty to pay for his son. He made the promise because he appreciated that Mills took care of his son. He was motivated of transient gratitude. However, the father breaks his promise.
o Court says that the promise was not enforceable, but the court said the father was immoral. Even though the court will enforce it, it’s still immoral
o Note 1: Issues with morality; reasons why:
· It is essential that the classes of promises which are enforceable by law shall be clearly defined. The test of moral consideration must vary with the opinion of every individual
· Another issue would make it all promises enforceable and it would open a can of worms
o This case shows criticism of consideration, but also a rationalization of consideration opposite of morality
Kirksey v. Kirksey Supreme Court of Alabama 1845
o Man named Isaac Kirksey found out his husband’s widow was suffering and made a promise to her if she goes down and sees him he will give her a place to raise her family. After two years he has her move to the woods and then asks her to leave
o Justice Ormand is outvoted, but he wrote that the loss and inconvenience which the plaintiff sustained, he thought her moving was part of the bargain. But the other justices believed there was no consideration because it was a conditional promise to make a gift
Lake Land Employment Group of Akron, LLC v. Columber Supreme Court of Ohio 2004
Promise not to compete after leaving
Columber (∆)------> Lake Land Employment
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forbearance from terminating?
majority=forbearance is consideration
dissent=no consideration
o this involves employment at will—no specific timeframe. If you decide to quit you can quit and if the employer wants to fire you he can
o Columber worked for Lake Land and then the presented him with a promise of a noncompetition agreement (if he leaves the company). Eventually he quits and he started his own company and Lake Land sued
o The Dissenting opinion
· Resnick—even though the employer didn’t fire him after the fact. They really didn’t give anything in exchange
Illusory promise—sounds like a promise but makes no real commitment Cf. § 2 (1)
o Examples: Promise for promise—an hour of instruction on the violin, for $20
· Illusory: promise for Option—it’s not consideration. An hour of instruction for $20 if the promisee feels like it. There was no commitment
Can an illusory promise be consideration?
o Not if truly illusory; example: Strong
o But implied terms may make it non-illusory; example: Mattei, Wood
· Terms implied in fact—terms are sort of evident and found in the context of the deal being made
· terms implied in law (e.g. § 205)—every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement
What Constitutes a Promise?
o A promise that is bargained for is consideration if the promised performance would be consideration.” Restatement § 75
Strong v. Sheffield Court of Appeals of New York 1895
Promise to pay husband’s debt
Louisa Sheffield (∆) ------> Benjamin Strong (∏)
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“promise to forbear? Actual forbearance?
o Facts: Strong had sold a business to Sheffield’s husband on credit. Later, the buyer’s debt was embodied in a promissory note, payable on demand. Mrs. Sheffield endorsed the note, an act which the law treats as a promise to pay if her husband the maker of the note did not