Chapter 1,§3, pp.29‐46 Basis for Enforcing Promises: Which Promises Should the Law Enforce?
©Knippenberg
Should All Promised Be Enforced?
• The law might be such that all promises made would be enforced. Were that the case, a promisor (the party making the promise) would be subject to liability (obliged to pay damages) to the promisee (the party to whom the promise was made) for failure to fulfill it.
• Indeed, that is not the law: not all promises are enforceable. Why might that be? Shouldn’t we be required to fulfill the promises we make? What negative consequences might follow from enforcing all promises?
Impracticality of Enforcing All Promises
• Bare promises (for which nothing is asked in return) are easily made and easily broken.
• Shouldn’t one have the option of changing one’s mind?
• Evidentiary Issues
• Flood the courts?
So, which promises should the law enforce? Consider the following:
• Assume A promises to sell 100 bushels of apples
to B for 10 Inter‐galactic Units per bushel, for a
total of 100 Units, and that it costs A 5 Units per
bushel to produce the apples.
• Assume further that B has entered into a contract
to sell the 100 bushels of apples to C at 15 Units
per bushel. B enters into a Kx with D, a common
carrier, to deliver the 100 bushels of apples to C
at a cost of 2 Units per bushel.
(Promises Seeking Consideration)
Promise to sell Apples
At 15 Units /bushel
Promise to sell Apples at 10 Units /bushel
A
Promise to buy Apples at 10 Units /bushel
B
C
Promise to buy Apples at 15 Units /bushel If A’s promise is enforceable under Kx law, there is
a net gain to all: A gains 5 Units per bushel, while
B, who values the apples at 15 Units per bushel,
realizes a net gain of 3 Units, and so on.
(Promises without consideration: gift promises)
• By contrast consider the following:
– A promises to pay B 10,000 Inter‐galactic Units,
asking nothing in return, i.e., A makes a gift
promise, which looks like this?
Promise to pay 10,000
A
B
(Gift Promises)
• Assume that A refuses to perform the promise
(defaults), but that we live in a world in which all
promises are enforceable, including gift promises.
Thus, B sues A and recovers damages for A’s breach
of promise.
• Is there any economic gain here?
So, which promises will the law enforce?
In general, the law of Contract will
enforce those promises for which
something (called ‘consideration’) is
asked in return, but not promises for
which no consideration is sought, so
called ‘Gift Promises’.
Promises Seeking Consideration: look like this . . .,
Promise to sell Apples
At 15 Units /bushel
Promise to sell Apples at 10 Units /bushel
A
Promise to buy Apples at 10 Units /bushel
B
C
Promise to buy Apples at 15 Units /bushel Each of A, B and C are seeking something in return for their own
promises. A, for its promise to sell, is seeking B’s promise to pay. B,
for its promise to buy the apples and pay for them, is seeking A’s
promise to sell at the agreed upon price. In short, A is not making a
promise to give the apples to B, nor is B promising to make a gift of
1000 IU’s to B. B’s promise to pay is the consideration sought by A
for its promise to deliver apples, and A’s promise to deliver apples is
the consideration for B’s promise to pay.
(Promises Seeking Consideration)
Promise to sell Apples
At 15 Units /bushel
Promise to sell Apples at 10 Units /bushel
A
B
Promise to buy Apples at 10 Units /bushel
C
Promise to buy Apples at 15 Units /bushel Consideration for B’s Consideration for A’s promise to buy
promise to sell
Thus—General Rule: Promises with consideration,
called Contract Promises, are enforceable, gift
promises are not
Is there consideration (quid pro quo, something sought) for the promise?
No
Gift Promise‐
generally NOT enforceable
Yes
Kx Promise (promises for which there is consideration‐
generally enforceable
Promises historically enforceable under English Common Law: Sources of the Consideration Doctrine Common Law Actions
• Covenant (promises under seal)
– Evidentiary
– Cautionary
– Later supplanted by signature
• Debt
– Debtor had something belonging to promisee
• Assumpsit
– misfeasance
Assumpsit
• Allowed recovery only for misfeasance until mid‐
fifteenth century
• Thereafter, permitted recovery for nonfeasance, but required detrimental reliance
• Replaces the action of Debt to recover for unpaid loans and delivery of goods not paid for.
• End of 16th Century, enforces promise‐for‐
promise (Bilateral Kx)
Consideration
(Sources of the Doctrine)
• By the 17th Century, Assumpsit becomes the action for enforcing all manner of promises
• The term “consideration” expressed the conditions necessary for a promise to be enforceable
• The action of Debt contributes the concepts quid pro quo and benefit conferred to the Consideration Doctrine. The action of Assumpsit supplies the notion of detriment.
Yeah, so what? • Bottom line is, around the end of the 17th, the basis for enforcing Kx’s was consideration—
the historical stuff shows where the concept of consideration came from. • Also, the concepts of benefit and detriment which form the basis of the Consideration Doctrine will continue into the modern law of Kx, as we’ll see later in the course, so keep them in mind!
General Rule: Promises with consideration, called
Contract Promises, are enforceable, gift promises are not
No
Gift Promise‐
generally NOT enforceable
Yes
Kx Promise (promises for which there is consideration‐
generally enforceable
Kx Promises (Promises with Consideration): Analysis
• While we will discuss gift promises (promises without consideration, or Non‐Kx Promises, and the occasions on which they are enforceable
(remember the rule that gift promises are unenforceable is a general rule, suggesting there are exceptions), our initial focus will be on Kx Promises. • The following slide shows what will be our Kx Model or rubric—our ‘Road Map’. It will be the basis for analyzing issues arising in Kx law.
All Kx issues arise under the categories delineated in the road map below
Road Map for Kx Analysis
1.
2.
3.
4.
5.
Scope
Kx Formation
Enforcement
Performance and Breach
Remedies
All Kx issues arise under the categories delineated in the road map below
Road Map for Kx Analysis
1.
2.
3.
4.
5.
Scope
Kx Formation
Two questions are raised under this part of the Kx Analysis: first, “which state’s law governs Enforcement
this transacton?”. And, second: “What law Performance and Breach
within that state governs?”
Remedies
The first may be referred to as an issue of Geographic Scope; the second may be referred to as an issue of Subject Matter Scope.
(Road Map)
1. Scope
a. Geographic: which state’s law governs the transaction?
In many transactions, more than one state may be implicated. For instance, in a Kx for the sale of goods, the seller may reside in Oklahoma, while the buyer resides in Texas. These are “choice of law” or “Conflicts” issues relating to jurisdiction and venue.
(Road Map) (1. Scope)
b. Subject Matter Having decided, if necessary, which state’s law controls, the next step is to decide which law within that state governs the transaction. Kx law is embodied in statutes and codes (from legislatures) and the common law, or case law (from the courts). This step in the road map entails determining if the transaction is governed by statute or code on the one hand or case law on the other.
(Subject Matter Scope)
In addition, various organizations (e.g., the National Conference of Commissioners on Uniform State Laws) interested in clarity and uniformity in the law, as well as law transformation, have been influential in the development of Kx law. Most notable among such organizations is the ALI, which drafted the Restatements of the Law, including the law of property, torts and other areas, as well as the Restatement of Contracts.
(Subject Matter Scope)
The Restatement of Contracts endeavors both to state the law as it is and to and, with respect to various issues, what the law should be.
The Restatement is not a statute or code—the ALI is not a legislative body. It is not, absent some action, the law. As the product of a Kx brain trust, however, it has been extremely influential and is frequently cited by courts. Where a Restatement provision thus becomes part of a judicial opinion, it becomes part of the case law of that jurisdiction.
(Road Map)
2. Kx Formation
The question here is whether a Kx has been formed. Is the promise under scrutiny a Contract Promise (i.e., a promise for which there is consideration) or a Gift Promise? A cause of action for breach of Kx requires initially that a Kx has been formed between the parties. The first part of this course will be devoted to determining the requirements for Kx formation.
(Road Map)
3. Enforcement
Once it has been determined that a Kx has been formed, the next step is to decide if there are any bars to enforcing it. The rule that Gift Promises are NOT enforceable is a general, and there are exceptions. Similarly, the rule that Kx promises are enforceable , likewise, a general rule, also with exceptions. Not all Kx’s are enforceable for various policy reasons. What might some examples Kx’s the law should decline to enforce?
(Road Map)
4. Performance and Breach
In an action for breach of, if Kx is found, and there are no bars to enforcement, it remains to decide if there has been a breach. If so, the party against whom breach is alleged has an array of Responses to Breach available. These are considered under this part of the analysis.
(Road Map)
5. Remedies
If we find Kx, no bars to enforcement, and breach to which there is no response, the complaining party is entitled to a Remedy for Breach of Kx. Generally, the remedy will be money damages, though under some circumstances, an “Equitable Remedy” (e.g., Injunction or Specific Performance) may be available in lieu of $ Damages.
More on the Restatement
• Until the 1st Restatement, individual transactions involving contracts were separately governed (e.g., Kx for shipping, purchases, storage, employment, etc.)
• The theme of the Restatement was to propose a single body of law governing all manner of contracts, whatever the subject matter of the contract
• Even after the Restatement, general categories of Kx are still identifiable
Categories of Kx’s
1. Family Kx
– Non‐commercial, family contracts regularly implicate personal, family relationships. As such, they frequently do not lend themselves readily to resolution through judicial process
– They are frequently oral – They are frequently gift promises
• Promises made among family members are routinely presumed gratuitous
The following case is an example of a family Kx
Hamer v. Sidway
• At a wedding celebration, Story promises his nephew, Hamer, $5,000 if Hamer would refrain from drinking, smoking, etc. until age Good Ole Uncle 21.
Story
(Hamer v. Sidway)
• Nephew assented and refrained until age 21, fully performing as uncle requested.
• Uncle deposited the money in a bank account at interest.
Nephew
(Hamer v. Sidway)
• Who’s Sidway?
Briefing Hamer v. Sidway
• Who sued whom for what (what is the cause of action)? • What is the remedy sought?
• What is the outcome below?
• Who appeals, and what is the outcome on appeal?
Issues in the case
• What is the defendant’s argument?
• How does the NY Ct. of Appeals define consideration? • How might the issue(s) in this case be stated?
Hamer v. Sidway
• Issue:
– Whether Nephew’s refraining from smoking, drinking and gambling, all of which he had a legal right to do, was consideration for Uncle’s promise to pay $5,000, though Nephew’s refraining was of no measureable benefit to Uncle?
*Why wasn’t Nephew’s refraining a benefit to Uncle? Isn’t what that what Uncle wanted?
(Hamer v. Sidway)
• Rule: – A Promisee’s performance is consideration for the Promisor’s promise if it is either beneficial to the Promisor or detrimental to the Promisee. Forgoing the exercise of a legal right constitutes a detriment to the Promisee.
(Hamer v. Sidway)
• Holding/Application: Since Nephew had a legal right to smoke, drink and gamble, his forbearing constituted a detriment to him and was, therefore, consideration for Uncle’s promise to pay $5,000. • Would the result be different in the case if, under NY law, Nephew could not drink or gamble until age 21?
Where does Hamer fit within the Kx Analysis/Road Map?
1. Scope: no question about what state’s law governs, or what law (it’s the law of Kx) which controls.
2. Kx Formation
Rather, Hamer
v. Sidway raises the question, is there a 3. Enforcement
Kx, or was Uncle’s promise to pay a Kx promise for which 4. Performance and Breach
there was consideration, or a mere gift promise. 5. Remedies
Requirements for Kx Formation
2. Kx Formation
Hamer v. Sidway, then, tells us something about what is required for a Kx to be formed, namely, there must be consideration. The case helps define when there is consideration for a promisor’s promise. That is to say, the case explores the doctrine of consideration.
Requirements for Kx Formation
2. Kx Formation
Requirement: Promisee’s performance must be consideration for Promisor’s promise.
From Hamer v. Sidway:
To be consideration, a performance must either be a benefit the promisor (Uncle in the case) OR constitute a detriment to the promisee (Nephew). Forfeiting a legal right constitutes a detriment to the Promisee.
What constitutes a detriment to Promisee?
A Promisee suffers a detriment in forgoing something the Promisee otherwise has a right to do.
Nephew had a legal right to drink, smoke and so forth which he forfeited in response to Uncle’s promise.
Note 1: Benefit and Detriment, p.37
• Recall that the notion that a benefit had been conferred on the promisor has its historical antecedent in the common law action of Debt
• The concept of detriment is traceable to the action of Assumpsit.
• Which is/are required according to the Hamer case?
• Do those concepts find their way into the Restatement ? What constitutes consideration under the Restatement §§71 and 79?. Would there be a contract formed between Story and Hamer under The Restatement?
Note 2: Bargain Theory of Exchange
• According to eminent jurist, Justice Holmes, the central requirement for consideration is the “reciprocal conventional inducement”. What does that mean? What does “Bargained For” mean?
• Is the Restatement definition of consideration consistent with Holmes’ view?
• If Bargained For is one of the requirements for consideration, would there be a Kx in Hamer?
• We will return to the Bargained for requirement with Feinberg v. Pfeiffer, p.46.
Note 3: Sufficiency of Consideration
• Is it required that the relative value of consideration given be “enough”? What was the position of the Restatement 1st ? (See §§76‐81)
• What is the position of the Second Restatement on sufficiency? See Restatement 2nd §79. Why did the Restaters adopt this position in the Second Restatement?
• What is meant by Peppercorn consideration? Restatement 1st §84, Re.2nd §71
Note 4: Peppercorn
• What is meant by “Peppercorn” consideration?
• Why is it a matter for concern under the Bargain Theory of Exchange?
• Is it a problem where a benefit to Promisor or Detriment to Promisee is required?
• How do the Restatements 1st and 2nd deal with Peppercorn consideration?
Note 5: Unilateral and Bilateral Kx
• Unilateral Kx refers to a promise given for a performance in return. Restatement §71(1). Bilateral Kx refers to a contract in which parties exchange promises. • Which sort was involved in Hamer v. Sidway?
• What if, on receiving Uncle’s promise, Hamer
promised to refrain until age 21. Would there have been a Kx formed?
Gift (Gratuitous) Promises versus Completed Gifts (p.39)
• Are completed gifts—where something is actually transferred by one party to another, “enforceable”, or should the party conferring the gift be able to deploy the courts to force the recipient to return the item?
– They are enforced
• If completed gifts are “enforceable”, why shouldn’t a promise to give a gift (a gratuitous promise without consideration) not be enforceable?
(Kx Formation)
So far, the requirements for Kx look like this:
• Promise
• Price for the promise (performance or return promise)
• Consideration: Requires Promisee’s performance to be . . .
(1) a Benefit to Promisor or Detriment to Promisee
(2)*Bargained For‐will be added as a requirement later
(Road Map: 2. Kx Formation)
• Promise plus a price for that promise
– What might be a working definition for Promise?
– The price for the Promisor’s promise will be either
• In unilateral Kx, a performance by the Promisee (e.g., Nephew’s refraining in Hamer v. Sidway).
• In bilateral Kx, which we’ll study later, the price for the Promisor’s promise will be the Promisee’s return promise.
Promisor’s Promise
E.g., “to pay”
Price
E.g., Refraining
Prom’ee’s Perf or return Promise
Fiege v. Boehm, p.40
• Facts: Boehm had an intimate relationship with Fiege, became pregnant and later gave birth to a daughter.
• Before the birth, Fiege promised to pay Boehm’s medical expenses associated with the pregnancy and birth, compensate her for lost wages, and pay $10 per week for support until the child reached age 21 provided Boehm would not institute Bastardy proceedings against Fiege.
• It was later determined that Fiege was not the father, whereupon he discontinued paying Boehm.
If not to get Fiege’s promise not to prosecute, why did Boehm agree to pay?
(Fiege v. Boehm)
• Cause of Action (C/A): Boehm sues Fiege for Br/Kx—did not pay support. • Remedy: $ Dmg’s measured by support due.
• Decision: Jury Verdict for P; D moved for JNOV or New Trial; Trial Ct. denied D’s motion and entered Jdgt for P; D appealed to the Ct. App of Maryland‐Affirmed.
(Fiege v. Boehm)
• Issue: Whether Boehm’s refraining from bringing bastardy proceedings against Fiege, whom she believed to be the father of her child, was consideration for Fiege’s promise to pay expenses and support though the claim later proved to be invalid?
(Fiege v. Boehm)
• Rule: – Forbearance to assert an invalid claim is consideration provided there is an honest and reasonable belief that the claim is valid.
• Application: – Since Boehm honestly and reasonably believed she could prosecute Fiege for bastardy under Maryland law, her refraining from prosecution was consideration for Boehm’s promise to pay, although her claim later proved to be invalid as Fiege was not the father of her child.
Note 1: Objective Requisite (p.45)
•
•
•
•
•
What is meant by the ‘objective requisite’? What, then, is the ‘subjective requisite’?
What does the Restatement 1st require?
What does the Restatement 2nd require?
What did the Fiege court require?