CONTRACTS
I. ENFORCING PROMISES: BASES OF LEGAL OBLIGATION
A. Intention to be Bound: The Objective Theory of Contract
Objective Test-Manifestations of intent are interpreted, not in light of what
the utterer actually meant or the other party actually understood, but from
the standpoint of a reasonable person in the position of the party to whom
the manifestation was made.
(+) certainty (-) people may intend to be bound, but legally they are not, contracts imposed,
favors party with stronger bargaining power
B. Consideration
1. Is there a contract?
a. Promise
i) Promise: § 2 A manifestation of intention to act or refrain from acting a
specified way, so made as to justify a promisee in understanding that a
commitment has been made. [e.g. stating that you plan or intent to do something is
not a promise b/c no indication of assurance]
ii) Illusory and Alternative Promises §77- A promise or apparent promise is not
consideration if promisor reserves a choice of alternatives
iii) Example: An actress promises to pay an agent a fee for his work for three years and that she can
terminate at any time without any notice. Not consideration since actress has not bound herself to
anything.
b. Consideration
i) Classic Definition [see Hamer]
A) Benefit to the Promisor or
B) Detriment to Promisee- Give up a legal right. One doesn’t suffer
a detriment by doing something that one is already obligated to
do or by forbearing something that is already forbidden
(e.g. giving up an illegal act is not consideration)
C) Some courts look for an exchange when applying the benefit/detriment test see
Plowman)
ii) Restatements Definition § 71 Bargain- Action is sought by
promisor in exchange for his promise and action is given by
promisee in exchange for that promise.
--Promisee must be aware of promise. If promisee is unaware,
then there couldn’t have been a bargain
--Action may be given to promisor or some other person and
performance may be given by the promisee or by some other
person
2. Aspects of Consideration
a. Gifts Dougherty
i) Executed Gifts- too late to challenge on lack of consideration
ii) Consideration v. Conditional Gift Ask whether occurrence of the condition is of benefit to promisor. If promisee must meet certain conditions, but if conditions are not bargained for, then no consideration. If value of act is 0 to promisor, then conditional gift.
b. Adequacy of Consideration Batsakis
c. Past Consideration Plowman
d. Conditional Gift-picking up checks because company didn’t seek act of picking
up checks
Ray v. William Eurice & Bros., Inc. D, signed a contract with P, Ray, to build a house. 1/9 Plans & Specs (7 pages). 2/14 D submits a proposed contract (3 pages). 2/22 Contract written by P signed (5 pages of plans and specs). D claimed that they never intended to enter contract w/ those specs shouldn’t be held to it. Court found that Δ manifested intent (objectively) to enter contract w/ 5 pages specs and should be liable for breach.
Park 100 v. Kartes Kartes, Δ, were mislead by Π into signing a personal guaranty of a lease. Court found that if a contract was induced by fraud, then it is not enforceable. Elements of Fraud (1) a material misrepresentation of past or existing fact by the party to be charged, which (2) was false, (3) was made with knowledge or in reckless ignorance of the falsity, (4) [reasonable] reliance, (5) proximately caused injury.
Batsakis v. Demotsis: During WWII, Batsamis/P, a Greek resident lends Demotsis/D, also a Greek resident 500,000 drachmae, at the time worth $25. In return for loan, P requires D to sign a promissory note for $2000 payable at end of war. After war, P sues D to collect $. D claims that there was no consideration. P, knowing D’s financial distress and desire to return to US, extracted of her the written instrument P sues upon, which was a promise to pay him $2000. Court looks at actual bargain, the fact that recited consideration is not the actual consideration is not relevant. Courts also don’t concern themselves with the relative values of things being exchanged.
Doughety v. Salt: P, Dougherty age 8, received from his aunt, Salt a promissory note for $3000 payable at her death or before. Note was on a printed form, which contained the words “value received.” D handed P note with these words “You have always done for me, and I have signed this note for you.” P sued D’s estate for payment. A formal document stating “consideration received” doesn’t, in absence of consideration, turn a gift into a contract.
Plowman v. Indian Refining Co.: Indian Refining Co, D, promised to pay 18 employees a monthly sum equal to ½ of their working wages for life + health insurance. P, Plowman et. al., were retained on pay roll, but their didn’t render any further services and their only obligation was calling for checks. Held, no consideration since D didn’t seek act of picking up checks from D, there was no bargain and act had 0 value for D.
Hamer v. Sidway Uncle promised his nephew $5000 in exchange for his giving up alcohol, smoking, and gambling. Nephew refrained from these activities as agreed. Later, P=assignee of Nephew sued D = Uncle’s estate for $. Court used older definition of consideration: it’s a benefit to the promisor or a detriment to promisee. Doesn’t matter if benefit to promisor is of value to anyone.
Baher v. Penn-O-Tex Oil Corp: P, Baehr, leased gas filling stations to Kemp. Kemp was buying Webb Oil and other things from D, Penn-O-Tex Oil. Kemp became indebted to D and gave D assignment of accounts receivable. D collected rents paid by operators of filling stations. P called D asking for rent and threatening to sue. D promised to pay rent, but didn’t so P sued. There was no bargain, D didn’t promise to pay in exchange for P’s promise to forebear from suing. No consideration and no contract.
C. Promissory Estoppel §90
1. Elements of Promissory Estoppel
a. Promise see § 2
b. Promissor should reasonably expect reliance
i) Is the reliance reasonable?
ii) Does promissor benefit from reliance? Did she want reliance?
c. Reliance
i) Show a change in position b/c of promise
d. Injustice
i) Try to find an injustice not based on reliance
ii) Find injustice to promisor to argue other side
2. Promises Within the Family Kirksey, Griener
§ 2 Promise Defined
§ 90(1) Promissory Estoppel
3. Charitable Subscriptions Allegheny, King
§ 2 Promise Defined
§90(1) Promissory Estoppel
§90(2) Charitable Subscriptions-not widely followed, weak argument
4. Promises in a Commercial Context Katz, Vastoler, Shoemaker
§ 2 Promise Defined
§ 90 Promissory Estoppel
Kirksey v. Kirksey D wrote P a letter that said “If you will come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend.” P moved, giving up her belongings that she could have secured if she had remained. D gave P a place for 2 years, then required her to leave. Held, no bargain and no consideration.
Greiner v. Greiner P/mother sued to kick D/son off 80 acres that he was living on. D responded that she had promised him the land. P told D that she would give him land if he moved to Mitchell country. D gave up his home in Logan country, moved to Mitchell country, made improvements on land, lived there for nearly a year, relying on P’s promise. P, at another son’s insistence, backed out of agreement. Court gave D the land based on Promissory Estoppel. Case used old definition of promissory estoppel, which required the reliance to be definite and substantial.
Wright v. Newman D, knowing that he was not the father of the child, put his name on the birth certificate and gave the child his last name. D raised son for three years. 7 years later, P/mother sued for child support. Court ruled in favor of P. D’s act of putting his name on the birth certificate induced P’s reliance-P didn’t seek out birth father for support. Court seemly misapplied the injustice requirement, applying it to the son, not P. DISSENT-questions reliance/detriment because ties had been severed and several years passed by without any support.
Allegheny v. Chautauqua Bank: Π = Allegheny College = promisee and Δ = National Chautauqua Country Bank = estate of promisor. Mary Johnston pledged $5,000 to college on condition that the fund be named after her and used to educate students preparing for the ministry. Promissory note stated that payment was due after her death, but she paid $1000 while alive. The college set $ aside for a scholarship fund, but did nothing else in reliance of promise. Johnston repudiated (took back) promise. After she died, college sued her estate. Held, Johnston sought to have fund named after her and gave $1000 + promised $4000 in exchange for school’s promise to name fund after her. DISSENT-gift stated that consideration was her interest in Christian education. Even if her gift had the condition that the fund be named after her, not acceptance b/c these acts were not performed.
King v. BU: P = King = Promisor. D = BU = promisee. In a letter to BU, Dr. King wrote “I name the BU Library the Repository of my correspondence, manuscripts, and other papers.” He also wrote “In the event of my death, all such material deposited with the University shall become from that date the absolute property of BU. Court ruled for BU using promissory estoppel. BU hired staff, cataloged papers, etc. in reliance of promise.
Katz v. Danny Dare, Inc. P/Katz = Promisee worked for D/Dare = Promisor for 25 yrs. P was injured on the job and could no longer work effectively, so D wanted P to retire. After 13 months, he talked him into retiring w/ a $13,000/yr pension & included it in a letter. After three years, pension was cut off and P sued. Court applied promissory estoppel since evidence suggested that P would not have been fired, so he did rely on promise by retiring. Professor suggested that a contract was made. Katz sought reliance.
Katz vs. Plowman. In Plowman, employees were fired before pension was offered.
Vastoler (note case): Vastoler accepted a promotion to a supervisory position b/c of promise of pension. Employer then revoked promise. Held, although Vastoler benefited from reliance (by getting a promotion) court should consider possible detrimental reliance (e.g. worse work conditions). Professor suggested that an argument for a contract could be made since employer was seeking Vastoler’s acceptance of job. Promissory estoppel harder argument since not much injustice. [Best injustice arguments don’t involve reliance].
Shoemaker v. Commonwealth Bank: P/Shoemaker = promisee obtained a $25,000 mortgage from Commonwealth Bank/ D. The mortgage agreement provided that P was required to “carry insurance” on the property. In 1/1994, the insurance was allowed to expire, and in 1995 the house was destroyed by fire. P claims that D told them that they “might be forced to purchase insurance and add the premium to the loan balance.” P asserts, that based on a letter and phone conversion, they assumed that D obtained insurance on the home. D claims that it obtained insurance for a year and then notified P that they allowed it to expire. P claims that they never saw the letter. Court ruled in favor of P.
D. Restitution
1. Restitution in absence of promise
a. § 116 Preservation of another’s life or health (Credit Bureau)
Necessary Elements of Claim: (see Restatements of Restitution)
i) Party acted unofficiously with the intent to charge
ii) Things or services were necessary to prevent the other from
suffering serious bodily harm or pain
iii) No reason to know that the other would not consent to
receiving them, if mentally competent;
iv) Impossible to obtain consent
b. § 117 Preservation of another’s things or credit
(see Restatements of Restitution)
c. Contracts implied in Law (Quasi Contracts)- Mainly Applies to
Subcontractor/Contractor cases? (Commerce Partnership)
Not an actual contract, a legal fiction.
Elements of Claim
i) Π conferred a benefit on Δ
ii) Δ has knowledge of benefit
iii) Δ accepted or retained benefit
iv) inequitable for Δ to retain benefit without paying fair value for it
d. Contract implied in fact: is based on a tacit promise, one that is inferred in whole or in
part from the parties’ conduct [actual contract w/ implied bargain]
e. Contract implied in law: one party was unjustly enriched, that party received a
benefit under circumstances that made it unjust to retain it without compensation.
[quasi-contract]
2. Promissory Restitution
a. Restatement §86 Promise for Benefit Received
A promise is made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice unless: (a) the promisee conferred the benefit as a gift or (b) the promisor has not been unjustly enriched (c) to the extent its value is disproportionate to the benefit.
b. Moral Obligation/Material Benefit Theory Mills, Webb
Courts will enforce promises based on prior consideration if:
i) At one point there was consideration
A) Debts discharged in bankruptcy (§ 83)
B) Debts barred by statues of limitations (§ 82)
C) Promise to pay debt incurred as a minor
ii) Material Benefit: if a person receives at material benefit from
another, other than gratuitously, a subsequent promise to
compensate the person for rendering such a benefit is enforceable.
(Webb)
Credit Bureau Enterprises, Inc. v. Pelo: Pelo/Δ telephoned his wife making threats of self-harm and purchased a shot gun and was taken to a mental hospital by the police who had been advised of his threats. While hospitalized, Δ was pressured to sign a release form, agreeing to pay for his hospitalization. Hospital sought payment from Δ, but he refused. Hospital turned account over to Credit Bureau Enterprises/Π, who sues. Court held Δ liable for medical bills based on Restitution §116.