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The Story of Contract Law: Formation

Table of contents
The Story of Contract Law: Formation
2nd Edition
Val Ricks
© 2018 CALI eLangdell Press, www.cali.org. Subject to an Attribution-NonCommercial-ShareAlike CC BY-NC-SA
Table Of Contents
Introduction
Introduction

Second Edition


by Val Ricks

 

CALI eLangdell® Press 2017

About the Author

Val Ricks has taught Contracts since 1996. His scholarship on contract law appears in the Georgetown LJ, Indiana LJ, BYU LR, George Mason LR, Baylor LR, and U. Kan. LR. He claims the original discovery that Isaac Kirksey actually made a bargain with Antillico. Professor Ricks also teaches, and writes about, business associations and other intersections of law and business. Before teaching, he clerked for Judge Charles Wiggins of the 9th Circuit and practiced transactional and appellate law in Salt Lake City. Professor Ricks received a B.A. summa cum laude in Philosophy and a J.D. summa cum laude, both from BYU. He and his bride are the parents of seven beautiful children.

Notices

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Preface

Contract law is famously baffling—put together haphazardly, with no central theory or goal. Welfare theorists, Kantians, and moralists have been battling for decades over whose theory ought to trump, and some commentators have given up.

Sixteen years ago, I wondered whether teaching the materials chronologically would allow a better understanding. After some study, I composed a book that taught the doctrines of contract law from original materials, roughly chronologically, but confirmed and expanded on the way with contemporary cases and statutes. Teaching from this book revealed a remarkable coherence in contract doctrines, mostly centered around bargain, a concept that, in itself, is neither theory nor goal. The coherence is primarily doctrinal—it is legal coherence. The policies and goals of the law differ from judge to judge, lawyer to lawyer, and among litigants. But the doctrine remains coherent despite its ability to absorb and instantiate the various theories and ends of contracting parties, arguing lawyers, and opining judges. In this, contract law is an incredible achievement.

The issues contract law addresses have not changed in the nearly 500 years during which the doctrines have developed. These issues include which promises to enforce, how much evidence to require of a plaintiff before the defendant must answer, and what evidence of hard bargaining and hard bargain will suffice to unwind what would otherwise be a binding promise. Given the length of time we have addressed these issues, it is perhaps not surprising that the law has worked out a coherent structure. Given the length of time, however, it is also not surprising that parts of that structure remain obscure.

Thanks to Jody Pratt, Sarah Humphrey, Jeff Kaiser, John Bohannan, and Derick Lancaster for helping with the search for cases and reading the manuscript. And thanks also to the hundreds of law students who have already learned from its pages. Learning with you has been one of the delights of my life.

VDR, 2015

Sources of Contract Law

Before the American Revolution, the American states were British colonies. English law, including English contract law, applied in each of the thirteen colonies. The Revolutionary War freed the colonies from the British crown, but each of the new states continued to apply primarily English contract law. The federal government came into existence in the 1780s as a government of limited powers. Various attempts have since been made to promulgate a federal contract law, but none have as yet succeeded.

That means that states control contract law. Contract law is fashioned by state courts and state legislatures. The English law of contracts was created one case at a time in England's courts, and our states have generally carried on that tradition. Court-created law is usually called "common law" because English medieval royal courts supposedly adopted as law the common customs of the people, and also because that law applied nationally. The name stuck several hundred years ago. Now, our court-made law is called "common law" even if it is contrary to the customs of the people and applies only in a single jurisdiction within the United States. State legislatures also get in the act by passing statutes that codify or change the common law. Law promulgated by legislatures is called "statutory" law as opposed to "common law.” Most of the law we study will be common or statutory law, adopted or promulgated by state courts or state legislatures. Here and there a federal statute or regulation will intrude.

In the last hundred years, two groups of lawyers have somewhat successfully influenced the process of contract-law-making in America. The first is the National Conference of Commissioners on Uniform State Laws (NCCUSL). The Conference includes 50 state-appointed commissioners who draft and recommend legislation to state legislatures. Please look over NCCUSL's website at http://www.uniformlaws.org/.

The second group is the American Law Institute (ALI). The ALI is an organization of lawyers, judges, and legal academics dedicated to clarifying, simplifying, and reforming law. Please look at the ALI website also, at http://www.ali.org/. (The "About ALI" link is especially helpful.) The ALI's primary vehicle for accomplishing its mission is to "restate" the common law; that is, to boil down all the common law from court opinions into black letter rules that lawyers can better understand. The first Restatement of Contracts was published in 1932. The Restatement (Second) of Contracts was published in 1981. Sometimes the ALI merely restates the common law. The first Restatement of Contracts tried to do that. But often the ALI "restates"(?) as law what isn't yet law, in the hope that courts will adopt the ALI position. The Restatement (Second) (affectionately referred to as “R2K”) proposed more of this reforming than did the first Restatement. But courts have drawn (and will draw) on the wisdom of both documents. The Restatement and Restatement (Second) are not law but only commentary, unless something in them has been adopted by courts. The common law comes from decided cases, as it always has. Sections and comments of the R2K are sometimes referred to in bold in this book. When you find a reference in bold (for examples, see pages listed with a R2K section in the Table of Contents), please find the materials referred to in the statutory supplement recommended by your teacher and study them as if they were written out in this book itself.

Between 1940 and 1952, NCCUSL and the ALI teamed up to draft the Uniform Commercial Code (UCC), which they then proposed to state legislatures. This statute has been wildly successful: eventually all fifty state legislatures passed it, with only some local variation (though Louisiana did not pass Article Two). The result is that for most commercial transactions, the law of all fifty states is uniform. The UCC governs such things as sales of goods (Article 2), negotiable instruments (Article 3), and secured transactions (Article 9). Excerpts from the UCC are included in your statutory supplement. When you see an excerpt from the UCC referred to in bold in this book (for examples, see pages listed with a UCC section in the Table of Contents), please find it in the statutory supplement and study it as if it were written out in this book.

The rest of contract law is unspoken. It exists in the practices, morals, prejudices, theories, and goals of the lawyers, judges, litigants, and facts involved in its making and application. In this course you will study not only the rules themselves, which make up the body of contract law proper, but also the culture in which contract law exists, is applied, and is a part.

How this Book Is Organized

To understand the materials that follow, you must first know something about the history of American contract law. Our law of contracts includes (1) several hundred rules, formulated in both case law and statutes (I estimate we will study roughly 350 in this book, depending on what one counts as a rule); (2) the application of those rules in many thousands of cases (of course we won’t read all of them, just those in the Table of Contents); and (3) a good deal of theory and culture.

The rules, applications, theory, and culture of contract law have developed over roughly four and a half centuries. The aim of this text is to provide the material necessary for you to (a) develop some understanding of contract law rules as they originally developed, and (b) confirm and expand that understanding with examples from the twentieth and twenty-first centuries. Most of our common law of contract is traceable to one of two sources: (1) English common law developed from the practices of the English royal courts between 1500 and 1800, and (2) the combination of Roman law and Aristotelian personality theory worked out by sixteenth century scholars in Spain and later adopted as an overarching legal theory by European scholars in the 1600s and 1700s. These two sets of authority were then combined in the 1800s as judges in the new American republic gathered what they thought was the best in legal wisdom from around the world.

You must read carefully what is here. Most of it is case law, but some is statutes. You will be unable to understand the materials adequately unless you ask and answer questions of the material. For instance, for both cases and statutes you will have to ask such questions as “What is the issue here?” “What rule is the court following?” “Which facts determine the result under this rule?” “How can I change the facts so that the rule does not (or does) apply?” These kinds of questions will guide your learning so that the knowledge you take from the materials will be useful to you on the class exam, on the bar exam, and in practice. I have listed questions below many items in the reading, also. These are questions that I ask in class, and they are the kinds of questions that a lawyer should be able to answer from the materials. Near the beginning of the semester, I would expect some of you to need help determining the answers to these questions from the materials. As the semester progresses, however, you should become able to answer these questions from the materials yourself. If you cannot, you have missed something and you should study harder (or smarter?) for the next assignment so that you can.

The organization of the casebook reflects the way that contract law developed. Chronological development is actually the only way to make complete sense of contract law. But the law of contract formation breaks down into different but easy (though slightly false) categories around which you can begin to build an outline of the law. (These categories did not develop chronologically, so your outline of the law should not follow the Table of Contents exactly.) First, three different theories of liability exist: I. Consensual Contract (often called simply “Contract”), II. Promissory Estoppel, and III. Unjust Enrichment. I suggest you begin your outline of the course as soon as possible, with these three general categories.

Second, I suggest you have two main categories under Consensual Contract: A. Elements, and B. Defenses to Formation. A consensual contract has at least five elements, all of which are necessary for a binding contract. Four of these regularly appear in lists in judicial opinions. For example: “The fundamentals of a legal contract are competent parties, legal subject-matter, valuable consideration, and mutual assent.” Virginian Export Coal Co. v. Rowland Land Co., 131 S.E. 253 (W.Va. 1926) (italics added). To these four, I would add definiteness (or specificity), a topic we will study near the end of the semester. You also need to fit defenses in your outline. Sometimes things happen to prevent a contract from coming into existence even when the elements of a contract exist, and rules that capture these facts are called defenses to formation. Nearly every rule we study will fit in your outline if it includes all of these categories. The Table of Contents may help you place the rule in the right category, though this will not always be true.

Contract Law Theories

I always wonder just how much theory to push on first-semester students. I propose to give you just a little theory here so that you can discuss it occasionally as we move along through the course. For the most part, contract law decisions can be theorized as applications of three sets of ideas:

1) Autonomy

Autonomy theorists propose that the exercise of human will is a good in itself and that enhancing the ability of individuals to determine their own future is a worthy goal of law. Contract law, under this view, is an attempt to aid individuals in their attempt at self-determination. Liability is based on individuals’ consent. The Kantian is an example of an autonomy theorist, who believes that all reasoning beings are inherently deserving of the respect that we ourselves desire.

2) Welfare

Welfare theorists are not content to spend public resources on contract enforcement solely for the benefit of individuals and their autonomy. They believe that only a public benefit can justify action by the state. Adam Smith, the founder of classical economics, posited a relationship between the individual pursuit of self-interest and the public welfare under certain conditions:

Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ... [B]y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was in no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need to be employed in dissuading them from it.

ADAM SMITH, An Inquiry into the Nature and Causes of the Wealth of Nations 423 (1776).

The primary conclusion of classical economics is that "there is a sort of pre-established harmony between the good of all and the pursuit by each of his own selfish economic gain."1   Neo-classical economists in the last century have retained this central conclusion of Smith's argument, then examined it in detail to show that it rests on five premises:

1) people act in their own self-interest;

2) in the pursuit of self-interest, people act rationally;

3) people have access to perfect information (meaning the information necessary to act rationally);

4) people and resources are freely moveable;

5) there are no artificial restrictions on entry to the marketplace.2 

If all of these assumptions hold in a transaction or set of transactions, neo-classical economists conclude that such transactions will put resources (including labor) to their most efficient use, generating greatest overall wealth in the economy. That does not mean that both or even either party will gain from any individual transaction. Nor does it mean that the smarter will get richer faster: it assumes all parties are rational and have access to perfect information. The current distribution of wealth and resources is taken as a given. The theory does not try to change that distribution. Thus, the theory does not mean that anyone gets a bigger slice of the pie. Instead, it means that the pie itself gets bigger. That is the public benefit.

As you might expect, others raise a number of objections to this paradigm:

• No one can agree on what counts as wealth (though the theory is useful in practice only if it rests on something quantifiable; most law and economics scholars agree that ability and willingness to pay in money is the most useful surrogate for expression of preferences; most decision makers are greedy enough or wealthy enough not to care if other ends are not served; also, other ends are frequently served by other areas of law than transactional law).

• If all of the assumptions of neo-classical economics were true, the courts would have no role to play at all. Parties would maximize wealth without government intervention, and that is all anyone would care about. In some ways the very existence of contract law is contrary to neo-classical economics. (The rebuttal to this objection is that sometimes one or more of the assumptions listed above do not hold, and that contract law's purpose is to correct such failures in order to ensure efficiency.)

• No one has access to perfect information. Therefore, neither courts nor parties to transactions can decide clearly whether a transaction (or a rule employed in a decision) promotes wealth or not. Other assumptions may also break down: people may not act rationally, or people and resources may not be freely moveable. Artificial restrictions on the market may exist, and some participants may begin with less wealth or information than others, creating inequalities in the marketplace that inhibit free bargaining.

• Occasionally, especially given that information is not perfect, people act opportunistically, meaning that they try to take advantage of others' lack of perfect information, failure to act rationally, inability to move, artificial restrictions on the marketplace, or poorer distribution of wealth.

Economic theories of contract law are called “consequentialist,” meaning that they seek a public benefit beyond a benefit to the contracting parties, and if one is not obtained by a law, the law is not justified under the theories.

3) Justice/Morality

A common and ancient meaning of the term justice is giving to each according to his due. This very unhelpful definition has been augmented to include a number of moral rules that reflect ways in which a person might fail to give another her due. For instance, the first, “keep your promises,” reflects that failure to keep a promise might do real harm to another. That harm should be remedied by requiring the person who caused harm and perhaps gained by breaking a promise to recompense the person harmed. This is a just result. Consider the following:

  • Keep your promises.
  • Do not deceive.
  • Do not coerce.
  • Protect reasonable reliance. Ensure that no one is enriched unjustly (which means roughly that A gets something for nothing from B and B did not intend to give it to A as a gift).
  • Have concern for the other party’s interest.
  • Do not cheat: Do not violate a rule of any social practice that you are engaged in, unless the rule has been clearly waived by the other party.
  • Communicate before taking action that may impair the other party’s interests.
  • Compromise disputes; acknowledge that the other party may have a differing but reasonable interpretation.
  • Follow contractual intent.

Can you think of any others?

Ready, Set . . .

BYRNES v. MANN’S ESTATE

Supreme Court of the State of Relative Clarity

65 R.C.Rptr. 67 (2017)

[1]      Attorney Timothy Mann was driving his longtime friend, orthopedic neurosurgeon Dr. Sandra Byrnes, in a very fast boat along one of our rockier coastlines. The boat hit an unexpectedly large wave and flipped over. The boat was wrecked. Both Mann and Byrnes were thrown from the boat.  Byrnes skidded across the water and landed where it was deep; though shaken, she was essentially unharmed. Mann was thrown high into the air and landed in a shallow section.  Passing quickly through the water, Mann’s body hit sharp rocks. The impact severed Mann’s spinal cord in two places, and he suffered multiple lacerations and contusions. The accident immediately paralyzed him from the chest down.

[2]      Amazingly, both Byrnes and Mann remained conscious.  Both were wearing flotation devices. Byrnes, emerging from the water, quickly found Mann floating face down about twelve feet away. The shallow rocks under the water were keeping Mann’s flotation device from flipping his face above water. Swimming toward Mann then climbing over the rocks, Byrnes gently turned Mann face up. He sputtered, saw Byrnes, and said, “Thanks.  Please help me.  Please he . . . .”  Mann then lost consciousness.

[3]      By this time, passersby had noticed the accident and called for help. Within 30 minutes, an emergency crew arrived, and Byrnes and EMTs carefully lifted Mann from the water. Within another 45 minutes, Mann had arrived at the operating room at St. Matthews, the nearest hospital offering neurosurgical services, and Dr. Byrnes and a team of doctors set about doing what they could to treat Mann’s injuries.  After four hours of procedures, the team moved Mann to post-op and later to intensive care.

[4]      Mann regained consciousness two days later. Dr. Byrnes was in the room at the time. The following conversation occurred:

Mann: “Sandra?”

Byrnes: “Tim? You’re awake!”

Mann: “I’m so sorry.” (Tears welled up in Mann’s eyes.)

Byrnes: “Tim, no! Please don’t! This is not your fault! I’d do anything to help you.”

Mann: “I’m so sorry.” (He began to sob.) “I will make this up to you. You must have saved me. I will make this up to you!  I’ll repay you!  I am so sorry!”

[5]      As Mann began to sob uncontrollably, Byrnes leaned over and gently put her arms around Mann. 

[6]      Five seconds later, Mann’s body went limp, his heart stopped, and he passed away. Byrnes and her team later determined that the cause of death was subarachnoid hemorrhage in the brain stem area that developed after the surgery but was worsened by Mann’s sobbing.

[7]      Some weeks later, Byrnes’s office billed Mann’s estate for his medical bills.  Mann’s insurance covered everything in excess of $45,000, but the $45,000 remains unpaid. Mann’s executor is Mann’s widow, Amanda Allan. Allan refused to pay the bill. When Byrnes sued, Allan moved to dismiss under Rule 12(b)(6) for failure to state a claim.  The trial court granted the motion. Byrnes has appealed. We reverse.

CALEB, Justice.

[1]      On waking, Mann recognized his friend; appeared to recall the accident; acted as if he were at fault (he was driving at the time, after all); seemed to recall Byrnes’s role in flipping him over; and appeared to feel the moral pull of gratitude for Byrnes’s help.  All of these facts suggest Mann understood his situation.  Despite Mann’s injuries, that he had just awakened from a coma, and his obvious vulnerability—all of which limited his capacity to act, he volunteered a promise to Byrnes that he would pay her. This promise, moreover, followed his two-day-old request for help. Mann had plenty of motive to promise. Enough evidence exists, therefore, to allow a jury to decide whether Mann, an adult citizen, exercised his autonomy to express an intent to be bound.  Mann (through his estate) has wealth; he can do with it as he pleases. Our respect for his dignity as a fellow citizen requires us to respect that right.

[2]      Mr. Mann owns his own property. He earned it. Mr. Mann through his own initiative bartered his natural talents and hard work for the wealth he accumulated.  It was not given to him, not discovered in or leveraged from some other property other than his own person—it was earned by him in free exchange with others who deemed his services worth their money.  Autonomous decisions with regard to this kind of wealth above all others deserve our respect. For all of these reasons, the decision of the trial court should be reversed.

DUNN, Justice.

[1]      Dr. Byrnes was Mann’s friend, but she was also a doctor, granted a license to practice medicine by the state. Though under the law she was not required to assist the injured Mann, our laws should encourage licensed medical persons to do so. The law shields from civil damages any person who in good faith administers emergency care during an emergency.  R.C. Civ. Prac. & Rem. Code § 74.151. But the law has an additional interest in encouraging the medically trained and licensed to assist. We are all better off if doctors trained and licensed to help with medical emergencies actually do so. Dr. Byrnes was a licensed physician and Mann was in obvious need of services she could render. Mann himself recognized Dr. Byrnes’s power to assist him when he asked for her help.

[2]      When a medically trained and licensed individual assists another who reasonably appears to require her professional skills, under the law she has a reasonable expectation of compensation for the service rendered and therefore the right to that compensation. See Cotnam v. Wisdom, 104 S.W. 164 5-6 (Ark. 1907). Dr. Byrnes was medically trained and licensed. Mann reasonably appeared to require her professional skills. This is true even though Mann did not ask for any particular care and was unconscious during all of it. The source of Dr. Byrnes’s right is not Mann’s promise or the exercise of his will but the law’s desire to encourage physicians to assist and the justified assumption that a reasonable person in need of medical assistance would ask for it. See id. 6.

[3]      After such medical services were provided, who should pay for them?  As between the doctor and the patient, the burden should fall on the patient if he has the assets. To place the burden on the doctor when the patient has the means to pay would discourage doctors from assisting and encourage the ill to manipulate the medically-trained.

[4]      These laws encourage us to treat each other fairly and to work together to flourish. For these reasons, the trial court’s judgment should be reversed and Byrnes’s case should go forward.

[5]      Justices Caleb, Fadel, and Gonzalez concur in this opinion.

ELLIOTT, Justice.

[1]      I am sympathetic to the policies Justice Dunn celebrates, but I believe in the principles Justice Caleb articulates, too. In a clash, Caleb’s principles destroy Dunn’s, for what if the ill person wakes and says not, “I will repay you” but “why did you not let me die?” Cotnam overrides basic autonomy. We are presuming a lot when we presume that everyone wants a doctor to save her life; that presumption cannot help but override the autonomy of the patient from time to time. I would overrule Cotnam.

[2]      Justice Dunn, on the other hand, would give people what he thinks they want. But it is very difficult to say with any certainty what Mr. Mann wanted, given his ambiguous statements and state of mind. That is flimsy evidence on which to order the payment of $45,000.  Moreover, as much as we like to think of ourselves as free people, we do not have unfettered autonomy. We especially do not have the right to law backing up our unfettered autonomy. The mere evidence that a person made a promise has never, by itself, warranted a recovery under the common law.  A mere promise does not give the state any reason to interfere with private persons’ lives.

[3]      Unlike Justice Fadel, I believe that neither judges nor litigants can say whether a transaction is, on net, beneficial. The litigants will say in litigation what is in their favor legally, and a judge’s imagining that he can tell what the litigant valued is just that—imagination. Relying solely on evidence of a party’s assent at the time of the transaction collapses analysis of utility into an examination of autonomy.  Besides, this transaction impacted not just the parties but also the public.  To examine the true cost of the transaction, the judge must know all of its impacts, including its true effects on Mann’s physical well-being, but that is something no judge could know. The judge should also take into account the cost of emergency services that rescued Mann and Byrnes, the cost of transporting him to the hospital, the cost imposed on other medical persons and facilities, and the opportunity costs of whatever else all of those other persons would be doing if they were not caring for Mr. Mann, and that is just a beginning. Facts introduced in litigation between two individuals do not begin accurately to catalog these costs. Absent this information, there is no way to discover whether the persons involved were made better off and no one else was made worse off.

[4]      I would affirm.  Byrnes would have helped Mann even had he never asked for help.  She was his friend. He did not offer to pay her when he asked for help. She offered the help without any promise of reward, and he received it without ever promising one.  Generally, contract law is about trust.  When a promise is made under circumstances that justify a costly response to it, the law should protect that reliance. In this case, however, Byrnes helped her friend regardless, and the promise was not made until after the services were given.  The law should encourage trust (and encourage doctors to assist), but the law also should encourage friendship, not cheapen it by encouraging friends to sue each other over payment for gifts freely given.

[5]      I am somewhat sympathetic to Justice Gonzalez’s argument, but I believe the ground of that line of cases is that the request and later promise induce the action just as much as a promise made at the time of the action taken in reliance.  In this case, however, Byrnes had already begun to help her friend when he asked for help, and she would have helped him, anyway.  No one, I think, would or should assume that Byrnes suddenly was induced to help her friend only by his pleading and her anticipation that he might later promise to repay.  His request played no role at all in inducing her actions; she would have done just the same.  Because nothing here was done in reliance on a request or a promise that needs the law’s support, there should be no recovery.

[6]      I am authorized to say that Justices Hagopian and Jurgens concur in this opinion.

FADEL, Justice.

[1]      I vote to reverse, but I lack the moral intuitions of my fellow judges.  Enforcement is best when a transaction is beneficial—specifically, when the transaction, here the provision of medical services, benefits one party and at least does not make anyone else worse off.

[2]      Obviously Mann meant for Byrnes to assist him in a medical emergency, and he intended to pay her. Byrnes, for her part, meant to assist and charge Mann.  As they said it, Byrnes was to do what was necessary to help Mann, as she saw fit, and Mann was to compensate Byrnes. Though Mann’s judgment on the value of the benefits he would receive is expressed only in his request for assistance and in his promise to pay after assistance was received, this is sufficient to raise the issue.  That Byrnes’s efforts benefitted Mann are suggested by his waking up to thank her and by the assistance of so many other medical professionals who concurred implicitly in her decisionmaking. The transaction as contemplated would benefit each. As between the parties and the government, the parties know best whether their own transactions benefit them, and the expressions of Mann and Byrnes are sufficient to show that judgment.

[3]      The evidence is not conclusive.  After all, Mann is dead from a cause Byrnes did not see, and Mann in the ocean and in the hospital was hardly in the state of mind or with the necessary information to judge conclusively whether the transaction provided a benefit to him, particularly before it had occurred. Having wrecked the boat he was driving in a spectacular crash that broke his own back in two places, only to be barely rescued from certain drowning, Mann was probably not able to make a difficult decision about his own medical care. His instability was only confirmed by the emotional upheaval displayed when he awoke two days later. 

[4]      Mann’s knowledge is also questionable. When he was rolled over in the water, he could obviously sense his helplessness, though what else is unclear.  Later, when he awoke in the hospital, it was obvious something had been done to him, though he remained helpless and could have had no awareness of the care given him other than his transport to the hospital. We might strongly suspect Mann lacked knowledge to judge the value of what was given him. It is possible Byrnes made Mann worse off, overall. We might know how we would value Byrnes’s services, but our preferences are less reliable than Mann’s in determining whether he was made better or worse off. 

[5]      The inconclusivity of the evidence regarding Mann’s expressed preferences creates an issue for the finder of fact. Mann’s estate can certainly try to prove the transaction made him worse off, or even that it was, on net, negative. But Byrnes has shown enough to get a hearing.

[6]      In short, we have sufficient reasons to believe that Mr. Mann was not made worse off by this transaction, though the issue is not free from doubt. If no one was made worse off by this voluntary transaction, then it should be enforced. But that is an issue ultimately for the factfinder.

For these reasons, and because I concur with Justices Dunn and Gonzalez, I vote to reverse.

GONZALEZ, Justice.

[1]      I would reverse. I also concur in Justice Dunn’s opinion but write to add another line of cases in support.

[2]      For nearly five hundred years, a prior request to do something, followed by the requestee’s fulfillment of the request, followed by the requestor’s promise to the requestee to pay for the action taken in fulfillment has by law been the equivalent of promise and consideration. See Hunt v. Bate, 3 Dyer 272a (C.P. 1568). This is clear precedent. In this case, Mr. Mann requested his friend, a doctor, to help.  He was in obvious medical need. She helped as best she knew how. When he later awoke, found his friend, and realized she had fulfilled his request, he promised to pay her for it. The law requires that we grant her a recovery. 

[3]      Some on this court act as if this case presents an open question. It does not.  Moreover, we are not legislators. Our constitution requires that legislative power rest with the Legislature. Nor are we Platonic philosopher-kings paid to impose our wisdom on the unlearned masses. We are judges in a republic, and we took an oath to uphold the laws of this state. There are certainly times when we must call on our learning, experience, and judgment to fill in the interstices of the common law and even of statutes and constitutional provisions, but this is not one of them.

[4]      The law requires reversal, so I vote to reverse.

The judgment is reversed.

 

Questions:

1. With which opinion do you most agree?

2. Please pick out what you believe is the main theme of each opinion—the motivating idea, the "big" idea that causes each judge who wrote to vote for the result that judge chooses. Please be prepared to report for each opinion.

3. Do you find in any of the opinions a statement that looks like a rule of law?  I can find at least two in particular.

4. If a judge does not decide according to law (in other words, if the judge in making a decision is not following a rule), then how is the judge deciding?  Do you think it more appropriate for the judge to follow the law or something else?

5. Why do the facts identify Mann as an attorney? Byrnes as an orthopedic neurosurgeon?

6. Why does Justice Dunn refer to Byrnes as "Dr. Byrnes"?

7. From what sources did the law cited by the judges come? Where did it come from before that? Where do legal arguments come from before they become law?

  • 1 Morris Cohen, The Basis of Contract, 46 Harv. L. Rev. 553, 558 (1933).
  • 2 Robin Paul Malloy, Law and Economics: A Comparative Approach to Theory and Practice 54-55 (1990).
Chapter One
Consideration: Contract & Bargain
1.1. A. Introduction

The doctrine of consideration is somewhat of a mystery for many law students. Many never get it. I introduce it first partly because your understanding of it will become clearer with several weeks to think about it. But I also introduce it first because it came first chronologically.

Originally, the common law of contract was very simple. The plaintiff had to show only three things:

Golding’s Case (1586)

2 Leon. 72, 74 ER 367

... [Egerton, Solicitor-General:] In every action on the case [upon an assumpsit], there are three things considerable: consideration, promise and breach of promise. ....

Besides promise and breach, about which you should have some understanding, only consideration had to be shown. Why? Briefly put, the doctrine of consideration was used to determine which promises should be enforced. Only a promise with consideration was enforceable.

Some historical background is necessary for you to understand why the word consideration came to be so important in contract law. Courts first required that consideration be alleged, in order to show an actionable promise, in England in 1539. English contract law retains the requirement to this day. When American states became independent, state legislatures and courts adopted the contract law of England, including the consideration requirement. That means that in order to recover damages for breach of a promise in an American court, the plaintiff must prove that the promise was given for a consideration. To understand why a consideration was first required, one must know something of English law regarding the enforcement of promises.

1.1.1. Medieval Law of Promise Enforcement

In medieval England, promise enforcement law was grounded in agreement, custom, and religion. Many courts could hear contract disputes: manor courts (e.g., a lord’s court), borough courts, county and hundred courts, ecclesiastical courts, some civil law courts with very limited geographical jurisdiction (such as at Oxford), the court of England’s chancellor, and the royal courts. Each of these medieval courts revolved around a power center: the local lord, the city government, the county government, the church, a university, or the king or queen. Also, each of these courts had its own jurisdiction, so that disputes did not arise between them, but each was empowered to enforce promises to some degree or another.

By the fourteenth century, three distinct royal courts had formed: the Common Pleas, the King’s (or Queen’s) Bench, and the Exchequer. (Each court had a distinct history and original purpose, but by 1539 those purposes had largely disappeared and other differences existed. When differences in the courts’ jurisdictions and practices are relevant, they are noted below.) The royal courts gained preeminence among these other courts, for a number of reasons: backing by the monarch (who eventually came to dominate all other institutions in England), national geographical jurisdiction, and jurisdiction over broad subject matters. By 1539, the royal courts were by far the most prominent in England. The contract law of both England and the United States developed first in these royal courts.

Beginning law students often think that legislatures make law and that courts enforce laws, as Ferguson v. Skrupa appears to require. But medieval England had no legislature as we understand that term. Occasionally, the king would meet with powerful lords and heads of other powerful institutions, and these people in power would agree to change existing custom, writing out their decisions. But in the medieval period this happened relatively rarely. Most law resulted from the less powerful people seeking help from the more powerful people, each of which sat in his (and it was nearly always a man) “court.” When too many people sought help for the powerful person to grant relief in person, the powerful person appointed ministers to hear pleas for help. The English king’s ministers to hear pleas were called “justiciars” or “justices.” The justices could receive pleas for help even when the king was not around, but the king was said to be “in court” where his justices sat to receive pleas. Eventually, all the justices sat at Westminster, near London, the largest city in England. The practices of these justices in response to pleas became law.

In this system, a plaintiff (one who complains) might complain to the royal justices about a breach of promise in a couple of different ways. The most obvious way was to allege that the defendant promised or agreed to do something and had not done it. If the plaintiff’s case rested solely on the breach of promise, the justices called this a case of covenant. (Covenant is a translation of the Latin word conventiones, which means literally agreement.) If the plaintiff’s case appeared to be one of covenant, then the justices applied the following rules (at least after about the year 1350): (i) Trial of factual issues was by jury in the county where people would know something related to the transaction. The jury could be counted on to know the customs of the country. (ii) The plaintiff’s case failed unless the promise or agreement was in a sealed writing. (Other courts might grant relief on an unwritten promise, but not the king’s courts.) (iii) The jury would set damages for the breach. (iv) The justices would not order the defendant to perform the promise.

There were other ways to allege breach of promise. Another way was to allege that the defendant was indebted to the plaintiff. The justices called this a case of debt. Debt was a property-related concept in medieval England: If a transaction occurred which indebted the defendant to the plaintiff, the plaintiff could go to court to get the defendant to pay the property owed. Various transactions would cause the defendant to be in debt, and most involved some sort of breach of promise: i.e., an informal sales contract in which the goods had been delivered, a loan, a service agreement performed, a lease. But if these transactions involved breach of promise, why were they not cases of covenant? Because they also involved one other element: a quid pro quo, a “something for which” the defendant’s promise was made and the plaintiff’s action was appropriate. In the case of a loan, the lender had already lent the money, and, coupled with the agreement to pay, this quid pro quo justified the lender’s suing for the property owed. The quid pro quo separated debt from covenant.

When a plaintiff alleged a debt, the justices applied the following rules: (i) The plaintiff could not proceed unless the amount of damages was certain. (ii) Trial of factual issues was by jury or by “wager of law,” as the defendant may elect. A defendant waged his law by (a) swearing an oath that he was not indebted to the plaintiff and (b) producing eleven other “compurgators” or oath-helpers to swear that the defendant’s oath was credible. If the defendant could swear and find eleven others to swear with him, he could go free and never pay. It was possible to lie one’s way out of a debt, though in practice this probably did not happen often. But only fear of God and possible loss of reputation kept defendants from lying. The common law courts did not punish perjury until 1563. Naturally, plaintiffs would have preferred another method of recovery to debt had one been available.

You would think that given the uncertainty of debt actions, potential plaintiffs would have been wise to put their transactions in writing and under seal. In fact, many transactions were put in writing and under seal. Cautious people even went one step further and, instead of having the person promising (the “promisor”) merely promise something in the writing, they would have the promisor promise to pay a penalty if the promisor did not do the desired act. For instance, if the cautious plaintiff had sold the defendant a house for 40£, the cautious plaintiff would have the defendant promise to pay 80£ if the defendant had not paid 40£ by a certain date. The defendant’s writing, called a penal bond, was enforceable in a special debt action called debt sur obligacion. No wager of law was available in a case of debt sur obligacion, and the defendant had very few defenses. Factual issues went to the jury, but the bond itself set the damages.

This state of the law kept contract law from developing further. In covenant actions, the sealed document answered all the hard questions about whether a promise was made and made fairly, and the jury answered all the difficult questions about damages. In debt actions on a penal bond, the bond itself set both the obligation and the damages, and occasionally a jury was allowed to step in to grant a defense. In other debt actions, all factual disputes either went to the jury or disappeared when the defendant waged his law. In fact, if a difficult legal issue arose when the lawyers were discussing the plaintiff’s debt claim for the first time, the defendant would opt to wage his law rather than risk a decision against him; lawyers opted not to force the court to decide legal questions. Thus, nearly all questions were settled by the parties, the jury, or by wager of law. If a defendant waged his law unfairly, God took revenge. Agreement, custom, and God were in the end the arbiters of nearly all disputed cases. No one either asked or answered many of the questions we will ask for the rest of this semester.

1.1.2. Changes in the Renaissance

The situation changed in the early 1500s, when the royal courts settled on another means for remedying a breached promise. The common law had long given a remedy for a trespass. You know what trespass means: it’s when you walk on someone else’s property. But trespass also means more generally to commit some other wrong against another personally (as in “For if ye forgive men their trespasses, your heavenly Father will also forgive you: But if ye forgive not men their trespasses, neither will your Father forgive your trespasses.”—Matt. 6:14-15, KJV). The English lawyers came to think of a breach of promise as a trespass in the sense used in the KJV of Matthew. When plaintiffs alleged a trespass in the royal courts, a jury resolved the factual disputes and set the damages. The trespass action was very broad, and the royal courts purposefully allowed one strand of it, called trespass on the case, to expand to cover pleas warranting relief not covered by any other action. It is this strand of trespass on the case that came to cover breaches of promise.

This occurred in some cases by 1500. The resulting sub-category of trespass on the case was called “trespass on the case in assumpsit,” or simply “assumpsit,” which means in Latin literally “he has undertaken.” The gist of the assumpsit action was that the defendant had undertaken to do something and had not done it, to the plaintiff’s damage. The defendant could undertake a task by promising to do it. Thus, to promise a performance and then later not perform it warranted relief in assumpsit—it could be a trespass. By 1500, the king’s courts had approved this kind of action in cases of breach by a building contractor, and other kinds of cases soon followed. Assumpsit cases involving breach of promise became commonplace by the late 1530s. Assumpsit proved a great boon to plaintiffs. In the assumpsit action, the defendant was not allowed to wage his law, no sealed writing was required, oral promises were routinely actionable, and the jury set the damages according to the plaintiff’s proof of injury.

There may have been social reasons for the rise of assumpsit: One is perhaps that the Reformation and Henry’s break with the Catholic Church and confiscation of church lands decreased the authority of ecclesiastical courts in England. The courts of the Catholic Church in England are known to have enforced many kinds of promises, including commercial arrangements, on penalty of excommunication. With ecclesiastical courts out of power, plaintiffs previously seeking relief there would have had to seek it elsewhere. Henry also began appointing common lawyers as chancellors. Chancellors had generally been ecclesiastics previously. Common lawyers as chancellors were more likely to enforce common law than ecclesiastical law in the chancellor’s court, and thus more likely to send suitors back to the royal common law courts if they could.

Still another reason may have been that the economy was growing. From 1540 until 1600 the size of the English economy doubled several times. The population also increased by almost fifty percent, from 2.5 million to around 4 million. On the other hand, the supply of coinage did not keep up with the general economic growth (although the supply of coins did increase substantially during this time). The result was that the increased wealth took the form of credit (which, of course, is only a promise to pay). Credit became increasingly important in local, national, and international economies during this period, so much so that the royal courts probably felt the need to adapt the law to contracting parties’ expectations.

They probably felt this need particularly when they saw loopholes in the law that left some deserving plaintiffs without remedy. For instance, actions on installment contracts breached after some but before all installments came due could not be brought in debt. The debt action assumed that the debt was just one thing, not a number of things put together. In waging his law the defendant would swear he owed nothing, but he was not allowed to swear he did not owe part of something. Thus, a plaintiff could not bring an action of debt until after the last installment had already become due. In the mid-sixteenth century the courts remedied this problem by granting relief in assumpsit on installment contracts breached midstream. The courts used assumpsit to patch other leaks in the debt-covenant dam. At any rate, breach of promise eventually became actionable in assumpsit.

Soon after it did, the requirement of a consideration arose. At first, the problem was rather formal. Plaintiffs’ lawyers wanted to make sure that the covenant and debt rules did not apply to their cases, because they preferred the assumpsit rules. How were courts to tell whether the action arose in covenant, debt, or trespass when each of those involved an allegation that a promise had been breached? The assumpsit action could not rest on mere agreement, for then the action was based on a covenant and the covenant rules should apply. Lawyers resolved this problem by omitting any reference to agreement in their pleadings in assumpsit. But this raised another difficulty. A bare promise did not overlap with any other action, but why should the court enforce a bare promise? The common law courts had for centuries been claiming that on a nudum pactum or bare promise no action would lie. To allege a wrong worth remedying, the plaintiff had to allege something besides the promise or undertaking that would make the promise worth enforcing. At first they alleged quid pro quo or consideration or just for (pro), but eventually (in the 1550s and 60s), they realized that quid pro quo should be off limits, because that was the requirement for a valid debt action when no sealed writing existed. For (or pro) may not have been specific enough, and it was part of quid pro quo. So courts instead required that a consideration be alleged. The word initially meant something like “any good reason for an act that had legal consequences,” but that is not its meaning today. The word as used by the courts in breach of promises cases in assumpsit quickly developed a more specialized, complicated meaning which we will study in our next few classes. Today, still, a promise, to be enforceable, must be given for a consideration:

Regions Bank v. Bric Constructors, LLC (2011)

Tenn. Ct. App.

380 S.W.3d 740, 761

Consideration is indeed a necessary element to the formation of a legal contract, and in general a contract that is unsupported by consideration is unenforceable.

_____________________________________________

Some students have a hard time with these original materials, but you won’t, right? They are just like any other cases. First, find the facts. Then ask, what is the issue. That shouldn’t be too difficult in this Chapter, as we are studying consideration, and I’ve already told you that the consideration doctrine was meant to distinguish promises worthy of enforcement from those unworthy. Finally, find the rule or principle that causes the legal result. Then you might ask yourself how the legal result can be justified as a matter of policy or theory.

1.2. B. Consideration Theory and Policy

Christopher St. German, DOCTOR AND STUDENT (1531)

Second Dialogue, ch. 24

(punctuation and spelling modernized)

[1]        [Question from the Doctor of the civil law:] What is a nude contract or a naked promise after the laws of England, and whether any action may lie thereupon.

[2]        Student [of the common law]: .... And a nude contract is where a man maketh a bargain or a sale of his goods or lands without any recompense appointed for it. As, if I say to another, “I sell thee all my land (or all my goods),” and nothing is assigned that the other shall give or pay for it, that is a nude contract, and (as I take it) it is void in the law and conscience. And a nude or a naked promise is where a man promiseth another to give him certain money such a day or to build him a house or to do him such certain service and nothing is assigned for the money, for the building, or for the service. These be called naked promises because there is nothing assigned why they should be made. And I think no action lies in those cases, though they be not performed.

 

Questions:

1. Does an action lie on—meaning “can suit be brought to remedy”—a “naked” promise or contract?

2. What is a naked or nude promise? Or, conversely, what clothes a promise? Why use the nudity metaphor?

3. What’s so bad about a naked promise? Could anything else clothe a promise?

4. Why would anyone make a naked promise?

5. In this passage the doctor is a Doctor of the Civil Law and the student is a Student of the Common Law. By “civil law,” St. German meant the law in force in continental Europe, as opposed to the common law of England. Does either the Doctor or the Student say anything about the promise being in writing?

6. Recently, US federal district court judge Philip Simon opined, “There is no socially useful reason for a legal system to enforce agreements that are not supported by consideration.” Yessenow v. Hudson, Opinion and Order, 2012 WL 2990643 *10 (N.D. Ind., July 18, 2012). In what sense is this true?

SHARINGTON v. STROTTON (1565)

Queen’s Bench

Plowden 301, 75 English Reports [ER] 454

[1]        [Arguments of Fletewood and Wray, counsel for one of the parties:] ... [N]othing new is here done on one side or the other, as is requisite in contracts and also in a covenant upon consideration. For instance, if I sell my horse to someone for money, or for some other recompense, here is a thing given on both sides (namely, one gives the horse and the other the money or other recompense), and therefore it is a good contract. Likewise in the case of the covenant upon consideration: for instance, if I covenant with you that if you marry my daughter you will have my land, ... here is an act on each side (namely, you shall marry my daughter, and in return for that I grant you the use). Thus there is an act done and a fresh cause arising from each side. .... The common law ... requires a new cause, whereof the country may have intelligence or knowledge for trial if need be; and thus it is necessary for the public good ...

Christopher Wray (1524-92) became a law student at Lincoln’s Inn at age 20 or 21. He served in Parliament from 1553-67. In 1571, he was appointed Speaker. Wray was appointed justice of the Queen’s Bench in 1572, at about age 48, and chief justice in 1574. He remained chief justice for 17½ years, until he died in 1592.

Edmund Plowden (1518-85) was a skilled and admired attorney. He produced the first modern law reports, Les comentaries, ou les reportes de Edmunde Plowden, written in law French. It is rumored that Plowden would have been appointed judge had he not remained a Catholic.

[2]        [Argument of Plowden, counsel for the opposing party:] ... [T]he law of the land has two ways of making contracts or agreements for land or chattels. One is by words, which is the lower, and the other is by [sealed] writing, which is the higher. And because words are often spoken or uttered by a man without great advisement or deliberation, the law has provided that a contract by words shall not bind without consideration. Thus, if I promise to give you £20 to rebuild your hall, here you shall not have an action against me for the £20 ..., for it is a naked pact, et nudo pacto non oritur actio. And the reason is because the agreement is by words, which pass from men lightly. But where the agreement is made by deed [that is, by sealed writing,] there is more stay. .... ... [T]here is great thought and deliberation in the making of deeds, and therefore we receive them as a final tie of the party and adjudge them to bind the party without thinking what cause or consideration there was for making it.

 

Questions:

1. Here you have no decision by a court, but only the arguments of counsel in a case you know nothing about. We can learn a few things from the arguments of counsel, however, if you will read closely. What do Fletewood & Wray argue should count as a consideration (see if you can find at least three descriptions of it)?

2. What reasons do Fletewood & Wray give for requiring a consideration?

3. What reason does Plowden give for requiring a consideration?

4. Are the reasons given by Fletewood, Wray, and Plowden for the consideration requirement different from the policy concern with naked promises shown in Doctor and Student?

5. Which policy trusts promisors more, Doctor and Student’s or Plowden’s?

1.3. C. Bargain

HUNT v. BATE (1568)

Common Pleas

Dyer, 272a, 73 ER 605, B&M 494

The servant [let’s call him Employee] of a man [let’s call him Employer] was arrested, and imprisoned in the Compter1  in London for a trespass; and he [Employee] was [let out of the Compter when two other citizens of London (one of whom was plaintiff; let’s call him Pledge) who knew Employer took Employee’s place in jail],2  in consideration that the business of [Employer] should not go undone. And afterwards, before judgment and condemnation [of the two citizens], [Employer] ... upon the said friendly consideration promised and undertook to [Pledge] ... to save him harmless against the party plaintiff from all damages and costs if any should be adjudged, as happened afterwards in reality; whereupon the surety [Pledge] was compelled to pay the condemnation, s. thirty-one pounds, &c. And thereupon he [Pledge] brought an action on the case ... [against Employer, and the jury found for Pledge]. And now in arrest of judgment it was moved that the action does not lie. And by the opinion of the Court it does not lie in this matter, because there is no consideration wherefore the defendant [Employer] should be charged for the debt of [Employee], unless [Employer] had first promised to discharge the plaintiff [Pledge] before the enlargement, and ... [Pledge became human bail], for [Employer] did never make request of the plaintiff [Pledge] for [Employee] to do so much, but he did it of his own head ....

Listen to a summary of the facts here: http://cca.li/QI

 

Questions:

1. Why wasn’t Employer’s promise enforceable? (You should be able to formulate your answer as a declarative sentence, a rule of law: There is no valid consideration when ___________.)

2. The court gives no policy reason for this rule, but why is it a good rule? (Use your moral sense, however finely or poorly developed, and speculate as to why a court would require what this court does. I will ask you to do this mental exercise often, because imagining up a policy to support a rule that doesn’t appear to have one is a routine task of good lawyers.)

3. Fill in the blank: This is a case of [one word] consideration.

4. Pledge took Employee’s place in jail in order that Employer’s work not go undone. Why did Pledge allege that Pledge did this “in consideration” that that business not go undone?

5. What caused Employer’s promise? What does Pledge allege caused Employer’s promise?

6. William Fulbecke, in THE SECOND PART OF THE PARALLELE, OR CONFERENCE OF THE CIVILL LAW, THE CANON LAW, AND THE COMMON LAW OF THIS REALME OF ENGLAND 18b (Thomas Wight 1602), reported that “our Law requireth in all contractes a mutuall consideration, and one part of the contract challengeth and begetteth the other.” His first illustration for this principle was Hunt v. Bate.

Joseph VIAN v. Mariah CAREY (1993)

Not Reported in F. Supp.

United States District Court, S.D. New York

No. 92 Civ. 0485 (MBM)

OPINION AND ORDER

[1]        Defendant Mariah Carey is a famous, successful and apparently wealthy entertainer. Plaintiff Joseph Vian was her stepfather before she achieved stardom, but at the start of this litigation was in the process of becoming divorced from defendant’s mother. He claims defendant agreed orally that he would have a license to market singing dolls in her likeness, and sues for breach of that agreement. Defendant moves for summary judgment pursuant to Fed.R.Civ.P. 56, claiming that no contract existed and that the damages plaintiff seeks are not recoverable as a matter of law. For the reasons discussed below, defendant’s motion is granted.

I.

[2]        Plaintiff claims that he and Carey had an oral contract for him to receive a license to market “Mariah dolls.” These dolls would be statuettes of the singer and would play her most popular songs. Plaintiff claims that the contract was in consideration of his financial and emotional support of defendant, including picking her up from late-night recording sessions, providing her with the use of a car, paying for dental care, allowing her to use his boat for business meetings and rehearsals, and giving her various items, including unused wedding gifts from his marriage to her mother, to help furnish her apartment. (Complaint  6)

[3]        The alleged basis of the oral contract is that on at least three occasions, twice in the family car and once on Vian’s boat, Vian told Carey “Don’t forget the Mariah dolls,” and “I get the Mariah dolls.” (Liebman Aff. Exhs 2, 4, 5, 6.) According to Vian, on one occasion Carey responded “okay” and on other occasions she merely smiled and nodded. (Id.) Although Carey admits Vian mentioned the dolls two or three times, she testified that she thought it was a joke. (Carey Depo., Liebman Aff. Exh. 7.) For 30 years plaintiff has been in the business of designing, producing, and marketing gift and novelty items. (Pre-Trial Order at 3.)

II.

[4]        Summary judgment will be granted if “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 250 (1986). “Summary judgment is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to ‘secure the just, speedy and inexpensive determination of every action.’” Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).

[5]        In determining whether there is a genuine issue of material fact, a court must resolve all ambiguities, and draw all inferences, against the moving party. See United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam). * * * *

[6]        [Here], the necessary consideration for the contract is wholly lacking. Consideration is a bargained for exchange. “In other words, the promise and the consideration must purport to be motive each for the other, in whole or at least in part; it is not enough that the promise induces the detriment or that the detriment induces the promise if the other half is wanting.” Banque Arabe et Internationale D’Investissement v. Bulk Oil (USA), Inc., 726 F. Supp. 1411, 1419 (S.D.N.Y. 1989) (citations omitted) (emphasis in original). Plaintiff admits that he did not express to defendant that his help to her was a quid pro quo for a license. (Liebman Aff. Exhs 13 & 14.) Plaintiff specifically acknowledged that the household gifts and permission to use the car plaintiff purchased for defendant’s mother were bestowed out of affection, not in consideration for a vague share in defendant’s financial success or a more specific license for “Mariah dolls.” (Liebman Aff. Exhs 16 & 20.) Nor did plaintiff ever tell defendant that her use of the boat was in consideration for a contract. (Liebman Aff. Exh. 22.) As to the dental care, plaintiff does not claim that he told defendant he expected anything in return for the money he gave her through her mother to go to a dentist. (Liebman Aff. Exh. 24.) Plaintiff further concedes that defendant may have repaid her mother. (Liebman Aff. Exh. 23.) Particularly when plaintiff was acting in a quasi-parental relationship to defendant, it is impossible to interpret plaintiff’s gifts and acts as consideration for a contract.

[7]        In sum, plaintiff has not raised a triable issue of fact as to the existence of a contract. * * * *  [Among other objections,] consideration is lacking * * * *

[8]        [D]efendant’s motion for summary judgment is granted.

SO ORDERED.

 

Questions:

1. Is there consideration for Carey’s promise? (Again, please formulate in your answer the rule of law that the court applies.)

2. Does the court discuss why it requires a consideration—the policies underlying the consideration requirement?

3. Do you think the court knows why it must require a consideration?

4. Does the court note that the consideration requirement is now 450 years old, and that times have changed?

5. Do you think this court reached the wrong result? Vian v. Carey is a very typical example of a modern consideration decision. In another part of the decision, the court held that Carey also failed to assent and that the contract as described here did not have the required definiteness.

PROBLEM 1. Mona v. Harry: Harry and Mona, both widowed and elderly, met, dated, and married. One year later, Harry contracted Alzheimer’s disease. He steadily went downhill until he died eleven years later. Mona cared for him during all his years of illness and gave him some financial assistance. Two years after he contracted the disease, Harry signed a promissory note in which he promised to pay Mona $2 million. Six months later, Harry was declared incompetent and Mona was appointed as his guardian. After Harry died, his children, who controlled his estate, refused to pay Mona the $2 million, so Mona sued Harry’s estate. When the estate’s lawyer deposed Mona, he asked her why Harry gave her the note. Mona replied, “I was his wife. He wanted to take care of me.” When asked whether she took care of Harry because of the note, Mona said, “No. I gave him my life, my love, my devotion, taking care of him because I loved him and he loved me.” Is there any consideration for Harry’s promise? See Wagner v. Golden, 1993 WL 350027 (Ct. App. Ohio 1993).

PROBLEM 2. Leah v. Samuel: Samuel, a married man, promised in writing to purchase an apartment for Leah, his female companion, in return for the “love and affection” that she provided him during the prior three years. Is there consideration for Samuel’s promise? See Rose v. Elias, 576 N.Y.S.2d 257 (N.Y. Supr. App. 1991). Whether Samuel’s promise formed a contract or not, why might the court have frowned on this agreement?

You thought the English translations of Law French from the 1500s were difficult? See if you can figure out what is really going on in this decision. You were all alive when it was written.

Hildegard Lee BORELLI v. Grace G. BRUSSEAU, as Executor (1993)

California Court of Appeal, First District, Division 4

16 Cal. Rptr.2d 16

OPINION

PERLEY, J.

[1]        Plaintiff and appellant Hildegard L. Borelli (appellant) appeals from a judgment of dismissal after a demurrer was sustained without leave to amend to her complaint against defendant and respondent Grace G. Brusseau, as executor of the estate of Michael J. Borelli (respondent). The complaint sought specific performance of a promise by appellant’s deceased husband, Michael J. Borelli (decedent), to transfer certain property to her in return for her promise to care for him at home after he had suffered a stroke.

[2]        Appellant contends that the trial court erred by sustaining the demurrer on the grounds that the “alleged agreement [appellant] seeks to enforce is without consideration and the alleged contract is void as against public policy.” We conclude that the contention lacks merit.

FACTS

[3]        The only “facts” we can consider on this appeal from the sustaining of a demurrer are those “material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” * * * *  Since both parties’ briefs wander far from the allegations of the complaint we will set out those allegations in some detail.

[4]        On April 24, 1980, appellant and decedent entered into an antenuptial contract. On April 25, 1980, they were married. Appellant remained married to decedent until the death of the latter on January 25, 1989.

[5]        In March 1983, February 1984, and January 1987, decedent was admitted to a hospital due to heart problems. As a result, “decedent became concerned and frightened about his health and longevity.” He discussed these fears and concerns with appellant and told her that he intended to “leave” the following property to her.

1. “An interest” in a lot in Sacramento, California.

2. A life estate for the use of a condominium in Hawaii.

3. A 25 percent interest in Borelli Meat Co.

4. All cash remaining in all existing bank accounts at the time of his death.

5. The costs of educating decedent’s stepdaughter, Monique Lee.

6. Decedent’s entire interest in a residence in Kensington, California.

7. All furniture located in the residence.

8. Decedent’s interest in a partnership.

9. Health insurance for appellant and Monique Lee.

[6]        In August 1988, decedent suffered a stroke while in the hospital. “Throughout the decedent’s August, 1988 hospital stay and subsequent treatment at a rehabilitation center, he repeatedly told [appellant] that he was uncomfortable in the hospital and that he disliked being away from home. The decedent repeatedly told [appellant] that he did not want to be admitted to a nursing home, even though it meant he would need round-the-clock care, and rehabilitative modifications to the house, in order for him to live at home.”

[7]        “In or about October, 1988, [appellant] and the decedent entered an oral agreement whereby the decedent promised to leave to [appellant] the property listed [above], including a one hundred percent interest in the Sacramento property. ... In exchange for the decedent’s promise to leave her the property ... [appellant] agreed to care for the decedent in his home, for the duration of his illness, thereby avoiding the need for him to move to a rest home or convalescent hospital as his doctors recommended. The agreement was based on the confidential relationship that existed between [appellant] and the decedent.”

[8]        Appellant performed her promise but the decedent did not perform his. Instead his will bequeathed her the sum of $100,000 and his interest in the residence they owned as joint tenants. The bulk of decedent’s estate passed to respondent, who is decedent’s daughter.

DISCUSSION

[9]        “It is fundamental that a marriage contract differs from other contractual relations in that there exists a definite and vital public interest in reference to the marriage relation. The ‘paramount interests of the community at large,’ quoting from the Phillips case [Phillips v. Phillips (1953) 41 Cal. 2d 869] is a matter of primary concern.” * * * *

[10]      “The laws relating to marriage and divorce (Civ. Code, [former] §§ 55-181) have been enacted because of the profound concern of our organized society for the dignity and stability of the marriage relationship. This concern relates primarily to the status of the parties as husband and wife. The concern of society as to the property rights of the parties is secondary and incidental to its concern as to their status.” * * * *

[11]      “Marriage is a matter of public concern. The public, through the state, has interest in both its formation and dissolution. ... The regulation of marriage and divorce is solely within the province of the Legislature except as the same might be restricted by the Constitution.” * * * *

[12]      In accordance with these concerns the following pertinent legislation has been enacted: Civil Code section 242-”Every individual shall support his or her spouse ....” Civil Code section 4802-”[A] husband and wife cannot, by any contract with each other, alter their legal relations, except as to property. ...” Civil Code section 5100-”Husband and wife contract toward each other obligations of mutual respect, fidelity, and support.” Civil Code section 5103-”[E]ither husband or wife may enter into any transaction with the other ... respecting property, which either might if unmarried.” Civil Code section 5132-”[A] married person shall support the person’s spouse while they are living together. ...”

[13]      The courts have stringently enforced and explained the statutory language. “Although most of the cases, both in California and elsewhere, deal with a wife’s right to support from the husband, in this state a wife also has certain obligations to support the husband.” * * * *

[14]      “Indeed, husband and wife assume mutual obligations of support upon marriage. These obligations are not conditioned on the existence of community property or income.” * * * *  “In entering the marital state, by which a contract is created, it must be assumed that the parties voluntarily entered therein with knowledge that they have the moral and legal obligation to support the other.”

[15]      Moreover, interspousal mutual obligations have been broadly defined. “[Husband’s] duties and obligations to [wife] included more than mere cohabitation with her. It was his duty to offer [wife] his sympathy, confidence [citation], and fidelity.” * * * *  When necessary, spouses must “provide uncompensated protective supervision services for” each other. * * * *

[16]      Estate of Sonnicksen (1937) * * * * and Brooks v. Brooks (1941) * * * * each hold that under the above statutes and in accordance with the above policy a wife is obligated by the marriage contract to provide nursing-type care to an ill husband. Therefore, contracts whereby the wife is to receive compensation for providing such services are void as against public policy; and there is no consideration for the husband’s promise.

[17]      Appellant argues that Sonnicksen and Brooks are no longer valid precedents because they are based on outdated views of the role of women and marriage. She further argues that the rule of those cases denies her equal protection because husbands only have a financial obligation toward their wives, while wives have to provide actual nursing services for free. We disagree. The rule and policy of Sonnicksen and Brooks have been applied to both spouses in several recent cases arising in different areas of the law.

[18]      Webster’s New Collegiate Dictionary (1981) page 240 defines consortium as “The legal right of one spouse to the company, affection, and service of the other.” Only married persons are allowed to recover damages for loss of consortium. * * * *

[19]      Rodriguez v. Bethlehem Steel Corp. (1974) * * * * held that a wife could recover consortium damages. The Supreme Court’s reasoning was as follows. “But there is far more to the marriage relationship than financial support. ‘The concept of consortium includes not only loss of support or services, it also embraces such elements as love, companionship, affection, society, sexual relations, solace and more.’  [Citation.]  As to each, ‘the interest sought to be protected is personal to the wife’ [citation] ....” * * * * “The deprivation of a husband’s physical assistance in operating and maintaining the family home is a compensable item of loss of consortium.” * * * *

[20]      In Krouse v. Graham (1977) * * *, an action for the wrongful death of the wife, the husband was allowed to recover consortium damages “for the loss of his wife’s ‘love, companionship, comfort, affection, society, solace or moral support, any loss of enjoyment of sexual relations, or any loss of her physical assistance in the operation or maintenance of the home.’” The wife “had recently retired as a legal secretary in order to care for her husband, Benjamin, whose condition of emphysema, in turn, caused him to retire and necessitated considerable nursing services.”

[21]      The principal holding of Watkins v. Watkins (1983) * * * * was that a marriage did not extinguish a woman’s right to recover the value of her homemaker services rendered prior to the marriage. Much of the opinion is devoted to a discussion of Sonnicksen and Brooks. Those cases are approved by the court but not expanded to cover the period before marriage. * * * *

[22]      Vincent v. State of California (1971) * * * * held that for purposes of benefit payments spouses caring for each other must be treated identically under similar assistance programs. In reaching such conclusion the court held: “Appellants suggest that one reason justifying denial of payment for services rendered by ATD attendants who reside with their recipient spouses is that, by virtue of the marriage contract, one spouse is obligated to care for the other without remuneration. (Civ. Code, § 5100; Estate of Sonnicksen * * *) Such preexisting duty provides a constitutionally sound basis for a classification which denies compensation for care rendered by a husband or wife to his spouse who is receiving welfare assistance. [Citations.] ... [] ... But insofar as one spouse has a duty created by the marriage contract to care for the other without compensation when they are living together, recipients of aid to the aged, aid to the blind and aid to the disabled are similarly situated.” * * * *

[23]      These cases indicate that the marital duty of support under Civil Code sections 242, 5100, and 5132 includes caring for a spouse who is ill. They also establish that support in a marriage means more than the physical care someone could be hired to provide. Such support also encompasses sympathy * * * * [,] comfort * * * * [,] love, companionship and affection * * * *. Thus, the duty of support can no more be “delegated” to a third party than the statutory duties of fidelity and mutual respect (Civ. Code, § 5100). Marital duties are owed by the spouses personally. This is implicit in the definition of marriage as “a personal relation arising out of a civil contract between a man and a woman.” (Civ. Code, § 4100.)

[24]      We therefore adhere to the long-standing rule that a spouse is not entitled to compensation for support, apart from rights to community property and the like that arise from the marital relation itself. Personal performance of a personal duty created by the contract of marriage does not constitute a new consideration supporting the indebtedness, alleged in this case.

[25]      We agree with the dissent that no rule of law becomes sacrosanct by virtue of its duration, but we are not persuaded that the well-established rule that governs this case deserves to be discarded. If the rule denying compensation for support originated from considerations peculiar to women, this has no bearing on the rule’s gender-neutral application today. There is as much potential for fraud today as ever, and allegations like appellant’s could be made every time any personal care is rendered. This concern may not entirely justify the rule, but it cannot be said that all rationales for the rule are outdated.

[26]      Speculating that appellant might have left her husband but for the agreement she alleges, the dissent suggests that marriages will break up if such agreements are not enforced. While we do not believe that marriages would be fostered by a rule that encouraged sickbed bargaining, the question is not whether such negotiations may be more useful than unseemly. The issue is whether such negotiations are antithetical to the institution of marriage as the Legislature has defined it. We believe that they are.

[27]      The dissent maintains that mores have changed to the point that spouses can be treated just like any other parties haggling at arm’s length. Whether or not the modern marriage has become like a business, and regardless of whatever else it may have become, it continues to be defined by statute as a personal relationship of mutual support. Thus, even if few things are left that cannot command a price, marital support remains one of them.

Disposition

The judgment is affirmed. Costs to respondents.

POCHE, J., Dissenting.

[1]        A very ill person wishes to be cared for at home personally by his spouse rather than by nurses at a health care facility. The ill person offers to pay his spouse for such personal care by transferring property to her. The offer is accepted, the services are rendered and the ill spouse dies. Affirming a judgment of dismissal rendered after a general demurrer was sustained, this court holds that the contract was not enforceable because-as a matter of law-the spouse who rendered services gave no consideration. Apparently, in the majority’s view she had a preexisting or precontract nondelegable duty to clean the bedpans herself. Because I do not believe she did, I respectfully dissent.

[2]        The majority correctly read Estate of Sonnicksen (1937) * * * * and Brooks v. Brooks (1941) * * * * as holding that a wife cannot enter into a binding contract with her husband to provide “nursing-type care” for compensation. * * * *  It reasons that the wife, by reason of the marital relationship, already has a duty to provide such care, thus she offers no new consideration to support an independent contract to the same effect. (See Civ. Code, §§ 1550, 1605.) The logic of these decisions is ripe for reexamination.

[3]        Sonnicksen and Brooks are the California Court of Appeal versions of a national theme. (See, e.g., [several precedents from around the country].) Excerpts from several of these decisions reveal the ethos and mores of the era which produced them.

[4]        “‘It would operate disastrously upon domestic life and breed discord and mischief if the wife could contract with her husband for the payment of services to be rendered for him in his home; if she could exact compensation for services, disagreeable or otherwise, rendered to members of his family; if she could sue him upon such contracts and establish them upon the disputed and conflicting testimony of the members of the household. To allow such contracts would degrade the wife by making her a menial and a servant in the home where she should discharge marital duties in loving and devoted ministrations, and frauds upon creditors would be greatly facilitated, as the wife could frequently absorb all her husband’s property in the payment of her services, rendered under such secret, unknown contracts.’” (Brooks v. Brooks  * * *.)

[5]        “A man cannot be entitled to the services of his wife for nothing, by virtue of a uniform and unchangeable marriage contract, and at the same time be under obligation to pay her for those services .... She cannot be his wife and his hired servant at the same time. ... That would be inconsistent with the marriage relation, and disturb the reciprocal duties of the parties.” (In re Callister’s Estate (1897) * * *.)

[6]        “[I]t is not within the power of husband and wife to contract with each other for the payment for such services .... It is the duty of husband and wife to attend, nurse, and care for each other when either is unable to care for himself. It would be contrary to public policy to permit either to make an enforceable contract with the other to perform such services as are ordinarily imposed upon them by the marital relations, and which should be the natural prompting of that love and affection which should always exist between husband and wife.” (Foxworthy v. Adams * * *.)

[7]        Statements in two of these cases to the effect that a husband has an entitlement to his wife’s “services” * * * * smack of the common law doctrine of coverture which treated a wife as scarcely more than an appendage to her husband. According to the United States Supreme Court, “At the common law the husband and wife were regarded as one. The legal existence of the wife during coverture was merged in that of the husband, and, generally speaking, the wife was incapable of making contracts, of acquiring property or disposing of the same without her husband’s consent. They could not enter into contracts with each other, nor were they liable for torts committed by one against the other.” * * * * The same court subsequently denounced coverture as “peculiar and obsolete” * * * *, “a completely discredited ... archaic remnant of a primitive caste system” * * * founded upon “medieval views” which are at present “offensive to the ethos of our society.” * * * *  One of the characteristics of coverture was that it deemed the wife economically helpless and governed by an implicit exchange:  “‘The husband, as head of the family, is charged with its support and maintenance in return for which he is entitled to the wife’s services in all those domestic affairs which pertain to the comfort, care, and well-being of the family. Her labors are her contribution to the family support and care.’” * * * * But coverture has been discarded in California * * * *, where both husband and wife owe each other the duty of support. (Civ. Code, §§ 242, 5100, 5132.)

[8]        Not only has this doctrinal base for the authority underpinning the majority opinion been discarded long ago, but modern attitudes toward marriage have changed almost as rapidly as the economic realities of modern society. The assumption that only the rare wife can make a financial contribution to her family has become badly outdated in this age in which many married women have paying employment outside the home. A two-income family can no longer be dismissed as a statistically insignificant aberration. Moreover today husbands are increasingly involved in the domestic chores that make a house a home. Insofar as marital duties and property rights are not governed by positive law, they may be the result of informal accommodation or formal agreement. (See Civ. Code, § 5200 et seq.) If spouses cannot work things out, there is always the no longer infrequently used option of divorce. For better or worse, we have to a great extent left behind the comfortable and familiar gender-based roles evoked by Norman Rockwell paintings. No longer can the marital relationship be regarded as “uniform and unchangeable.” * * * *

[9]        It is true that public policy seeks to foster and protect that institution * * * * in recognition that the structure of society itself depends in large part upon the institution of marriage * * *. Yet the recognition that marriage is “intimate to the degree of being sacred” * * * * does not mean that the law is oblivious to what occurs within that relationship. Solicitude for domestic harmony is no longer synonymous with blindness to crimes spouses commit against each other * * * *, even when those crimes involve the previously sacrosanct realm of sexual relations. (See Pen. Code, § 262.) Similarly, civil actions are allowed for intentional or negligent torts committed by one spouse against the other. * * * *  The same is true for breached contracts. * * * *   Thus, when the simple justice of redressing obvious wrongs is involved, the arguments for domestic harmony have been rejected and are now in full retreat, not only in California * * * * , but throughout the entire nation. * * * *

[10]      Restraints on interspousal litigation are almost extinct. With the walls supposedly protecting the domestic haven from litigation already reduced to rubble, it hardly seems revolutionary to topple one more brick. Furthermore, in situations such as this, where one spouse has died, preserving “‘domestic life [from] discord and mischief’” (Brooks v. Brooks * * *) seems an academic concern that no modern academic seems concerned with.

[11]      Fear that a contract struck between spouses “degrades” the spouse providing service, making him or her no better than a “hired servant” justifies the result in several cases. * * * * Such fears did not prevent California from enacting a statute specifying that “either husband or wife may enter into any transaction with the other, or with any other person, respecting property, which either might if unmarried.” (Civ. Code, §§ 5103, subd. (a), 4802.) This is but one instance of “the utmost freedom of contract [that] exists in California between husband and wife ....” * * * *

[12]      Reduced to its essence, the alleged contract at issue here was an agreement to transmute Mr. Borelli’s separate property into the separate property of his wife.3   Had there been no marriage and had they been total strangers, there is no doubt Mr. Borelli could have validly contracted to receive her services in exchange for certain of his property. The mere existence of a marriage certificate should not deprive competent adults of the “utmost freedom of contract” they would otherwise possess.

[13]      Then there is the concern about “frauds upon creditors.” (E.g., Brooks v. Brooks * * *.) Our Supreme Court has repeatedly rejected the notion that the mere possibility of interspousal fraud or collusion at the expense of third parties bars an entire category of interspousal litigation. Instead, the truth finding role of the judiciary has been deemed adequate to deal with the problem in individual cases. In other words, whether or not a contract was induced by fraud is decided by not demurrer, but by human beings called jurors after they hear evidence. * * * * This modern approach completely undercuts one more of the doctrinal underpinnings of Sonnicksen and Brooks and is obviously applicable here. Since this shift in the law occurred after those cases were decided, it is one more reason to reconsider them and to reject their contemporary force. As Justice Holmes put it: “It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.” (Justice Oliver Wendell Holmes, Collected Legal Papers (1920) p. 187.)

[14]      No one doubts that spouses owe each other a duty of support or that this encompasses “the obligation to provide medical care.” * * * *  There is nothing found in Sonnicksen and Brooks, or cited by the majority, which requires that this obligation be personally discharged by a spouse except the decisions themselves. However, at the time Sonnicksen and Brooks were decided—before World War II—it made sense for those courts to say that a wife could perform her duty of care only by doing so personally. That was an accurate reflection of the real world for women years before the exigency of war produced substantial employment opportunities for them. For most women at that time there was no other way to take care of a sick husband except personally. So to the extent those decisions hold that a contract to pay a wife for caring personally for her husband is without consideration they are correct only because at the time they were decided there were no other ways she could meet her obligation of care. Since that was the universal reality, she was giving up nothing of value by agreeing to perform a duty that had one and only one way of being performed.

[15]      However the real world has changed in the 56 years since Sonnicksen was decided. Just a few years later with the advent of World War II Rosie the Riveter became not only a war jingle but a salute to hundreds of thousands of women working on the war effort outside the home. We know what happened thereafter. Presumably, in the present day husbands and wives who work outside the home have alternative methods of meeting this duty of care to an ill spouse. Among the choices would be: (1) paying for professional help; (2) paying for nonprofessional assistance; (3) seeking help from relatives or friends; and (4) quitting one’s job and doing the work personally.

[16]      A fair reading of the complaint indicates that Mrs. Borelli initially chose the first of these options, and that this was not acceptable to Mr. Borelli, who then offered compensation if Mrs. Borelli would agree to personally care for him at home. To contend in 1993 that such a contract is without consideration means that if Mrs. Clinton becomes ill, President Clinton must drop everything and personally care for her.

[17]     According to the majority, Mrs. Borelli had nothing to bargain with so long as she remained in the marriage. This assumes that an intrinsic component of the marital relationship is the personal services of the spouse, an obligation that cannot be delegated or performed by others. The preceding discussion has attempted to demonstrate many ways in which what the majority terms “nursing-type care” can be provided without either husband or wife being required to empty a single bedpan. It follows that, because Mrs. Borelli agreed to supply this personal involvement, she was providing something over and above what would fully satisfy her duty of support. That personal something—precisely because it was something she was not required to do—qualifies as valid consideration sufficient to make enforceable Mr. Borelli’s reciprocal promise to convey certain of his separate property.

[18]      Not only does the majority’s position substantially impinge upon couples’ freedom to come to a working arrangement of marital responsibilities, it may also foster the very opposite result of that intended. For example, nothing compelled Mr. Borelli and plaintiff to continue living together after his physical afflictions became known. Moral considerations notwithstanding, no legal force could have stopped plaintiff from leaving her husband in his hour of need. Had she done so, and had Mr. Borelli promised to give her some of his separate property should she come back, a valid contract would have arisen upon her return. Deeming them contracts promoting reconciliation and the resumption of marital relations, California courts have long enforced such agreements as supported by consideration. * * * *  Here so far as we can tell from the face of the complaint, Mr. Borelli and plaintiff reached largely the same result without having to endure a separation.4  fn. 3 There is no sound reason why their contract, which clearly facilitated continuation of their marriage, should be any less valid. It makes no sense to say that spouses have greater bargaining rights when separated than they do during an unruptured marriage.

[19]      What, then, justifies the ban on interspousal agreements of the type refused enforcement by Sonnicksen, Brooks, and the majority? At root it appears to be the undeniable allure of the thought that, for married persons, “to attend, nurse, and care for each other ... should be the natural prompting of that love and affection which should always exist between husband and wife.” * * * * All married persons would like to believe that their spouses would cleave unto them through thick and thin, in sickness and in health. Without question, there is something profoundly unsettling about an illness becoming the subject of interspousal negotiations conducted over a hospital sickbed. Yet sentiment cannot substitute for common sense and modern day reality. Interspousal litigation may be unseemly, but it is no longer a novelty. The majority preserves intact an anomalous rule which gives married persons less than the utmost freedom of contract they are supposed to possess. The majority’s rule leaves married people with contracting powers which are more limited than those enjoyed by unmarried persons or than is justified by legitimate public policy. In this context public policy should not be equated with coerced altruism. Mr. Borelli was a grown man who, having amassed a sizeable amount of property, should be treated—at least on demurrer—as competent to make the agreement alleged by plaintiff. The public policy of California will not be outraged by affording plaintiff the opportunity to try to enforce that agreement.

 

Questions:

1. What is the rule of law the court applies?

2. Which opinion do you think has the better argument?

3. How would this case come out if the rationales for the doctrine of consideration, and not the doctrine itself, were the law?

4. Are you interested in the political leanings of the judges in this case? Which judge do you think leans which way?

5. If Mrs. Borelli came to you and asked you to write an enforceable contract requiring Mr. Borelli to pay according to his agreement, what sort of agreement would you write? [The answer to this question is not in the reading, but it is the kind of question you should be thinking about. Please ask me this question in class. I will answer it.]

PROBLEM 3. Abe v. Juanita: Abe is a police officer. Juanita owns a jewelry store in Abe’s jurisdiction, where Abe patrols. Juanita’s store was burglarized, and Juanita offered a $5,000 reward to anyone with information leading to the arrest and conviction of the burglars. Abe, while working part-time as a security guard at a nearby store, found evidence that led to the arrest and conviction of the burglars. Can Abe claim Juanita’s reward, based on the rule from Borelli v. Brusseau? Is there some other public policy that counsels against Abe’s recovering the reward?

Restatement (Second) of Contracts § 71(1)-(2) & cmt. b (1981)

 

Questions:

1. What does “bargained for” mean?

2. Is Hunt’s promise in Hunt v. Bate bargained for?

3. Comment b mentions mutual assent. As noted in the Introduction, assent is considered to be one element of contract formation. We will study assent later, in Chapters 5, 6, and 7.

4. The comment also mentions promises enforceable without consideration. We will study these, too, some in this Chapter, in Chapters 2 and 3, and others sprinkled throughout the book.

1.4. D. Proper Form

Notwithstanding a clear requirement of a bargain, courts in the 1600s expressed the consideration rule primarily in terms of its forms. Consideration was (and still is) required to be in a certain form: benefit to the promisor, detriment to the promisee, or mutual promise.

STONE v. WITHEPOOLE (1588)

Queen’s Bench

1 Leon. 113, 74 ER 106, Cro. Eliz. 126, 78 ER 383, Owen 94, 74 ER 924,

Latch, 82 ER 254

... [Edward Coke (pronounced Cook):] .... The consideration is the ground of every action on the case, and it ought to be either a charge to the plaintiff or a benefit to the defendant ....

PLAINS BUILDERS, INC. v. STEEL SOURCE, INC. (2013)

Texas Court of Appeals

408 S.W.3d 596, 602

Consideration is a present exchange bargained for in return for a promise. It consists of either a benefit to the promisor or a detriment to the promisee. The detriment must induce the making of the promise, and the promise must induce the incurring of the detriment.

Note: Coke’s pronouncement of the rule in Stone was fairly typical for the time. The rule you see recited in Plains Builders is a typical statement of the consideration rule as it is used today. They are the same rule. In 16th century procedure, the promisor was always the defendant, and the promisee was always the plaintiff—in all assumpsit, debt, and covenant actions: all actions on contracts. So it makes sense for us to pronounce the same rule as we do now, as benefit to the promisor or detriment to the promisee. We also include the element of bargain, because we have recognized that bargain was implicit in the law at least since the time of Hunt v. Bate.

1.4.1. Benefit

GAME v. HARVIE (1605)

King’s Bench

Yelverton 50, 80 ER 36

[Plaintiffs loaned defendant money, to be paid back on request. Defendant refused to pay when requested, so plaintiffs sued in assumpsit, winning a judgment.]  ... [I]n arrest of judgment, Yelverton shewed that the consideration was not sufficient; for it is to pay ... upon request; so that it appears that the defendant was not to have any benefit by it, for it might be lent with one hand, and immediately demanded .... But tota Curia clearly contra; for when the intent of the parties may stand with the law, it shall be expounded accordingly; ... and ... here ... (as Popham [J.] said) the promise is grounded upon an accommodation, viz. a loan, which implies an use of the [money] by the defendant. .... But if a man delivers to J.S.5   a bag sealed with money, and the defendant promises to redeliver it upon request, no assumpsit lies upon this; for the defendant has not any benefit by it, for the money being in a bag has only a charge imposed by the keeping, vide P. 44 Eliz. before, the case of Riches and Brigges, which Yelverton cited to be reversed, and Gaudy and the Court [the King’s Bench] said it was erroneously reversed. ....

Christopher Yelverton (1536-1612) was a younger son of a lawyer and entered law school in his late teens. His break into public service came when he married Margaret Catesby. Margaret’s father used his influence to get Yelverton elected to Parliament, where he served several times, eventually as Speaker. He and Margaret had twelve children. Queen Elizabeth appointed him to the Queen’s Bench, where he served until he died.

http://www.oxforddnb.com/view/printable/30213

 

Questions:

1. As a young associate, I used to examine loan documents to determine their enforceability. Many loans I examined were based on demand notes, promissory notes that required the borrower to pay the money back whenever it was demanded by the creditor. “What a silly provision,” I thought, “The borrower could have the money tied up in a building project and have no means to pay it back! If we took this demand provision literally, the borrower would be unable to use the money, and the loan would be of no use to her.” That is exactly Yelverton’s objection. What is Popham’s response?

2. How does the court describe the category of things that will count as a consideration?

3. The defendant possessed the money. That is a sort of detriment or “charge,” the word the court uses for detriment. Is the promisor’s possession of the money the kind of detriment that will make a promise enforceable?

4. What does “intent of the parties may stand with the law” mean? (Clue: Comment b to Restatement (Second) of Contracts § 71 says the same thing.)

RICHES v. BRIDGES (1602)

Queen’s Bench & Exchequer Chamber

Cro. Eliz. 883, 78 ER 1108

[1]        Assumpsit. For that [the plaintiff] was indebted to J.S. in twenty combs of barley, to be delivered unto [J.S.] at such a day, in consideration that [the plaintiff] would deliver it to the defendant before the day; the defendant assumed, and promised to deliver it at the day to J.S.: and alledgeth in fact, that [the plaintiff] delivered it to the defendant, and the defendant had not delivered it to J.S. It was moved in arrest of judgment, that this was not any consideration to deliver the same corn which he had received, for he cannot have any use of it, nor any benefit by it.

[2]        But the whole Court [the Queen’s Bench] held it to be a good consideration; for in regard he received it, and made such a promise, it shall be intended that he had some benefit thereby, viz. that he had the better credit to retain it in his hands; or otherwise he would not make such a promise: and if by any intendment it can be, the law will well intend it. Wherefore it was adjudged for the plaintiff.

Note, afterwards upon a writ of error in the Exchequer Chamber, it was reversed for this cause; for that there was not any sufficient consideration whereof the law takes any regard.

Yelverton 4, 80 ER 4:

... [by the whole Queen’s Bench:] the very possession of the wheat might be a credit and good countenance to the defendant to be esteemed a rich farmer in the country, as in case of the delivery of the 1000l. in money to deliver again upon request; for by having so much money in his possession he may happen to be preferr’d in marriage. Quaere, for it seems a hard judgment; for the defendant has not any manner of profit to receive but only a bare possession. .... But nota, the judgment was reversed in the Exchequer, ... as Hitcham told Yelverton.

Listen to a summary of the facts here: http://cca.li/QJ

 

Questions:

1. The Queen’s Bench found consideration in this case. Was the consideration set forth in the plaintiff’s allegations (which are all set forth in the first sentence)?

2. Do we know for what reason the defendant made this promise? Why would the defendant make such a promise (you may speculate on this one)?

3. Do we know that the defendant deliberated before making the promise?

4. Does the consideration relied on by the court show that a promise probably was made?

5. What does “shall be intended” mean? How does a court “intend” something?

6. Is there any reason to think that this transaction was efficient?

7. What happened to this case in the Exchequer Chamber, which was the court of appeals that in 1602 reviewed cases from the Queen’s Bench?

8. Why does Croke, the first reporter, report that both barley or corn are at issue but Yelverton reports that it was wheat? [This is a trick question, and a non-legal one.]

REYNOLDS v. PINHOWE (1594)

Queen’s Bench

Cro. Eliz. 429, 78 ER 669

Assumpsit. Whereas the defendant had [obtained a judgment of ] five pounds against the plaintiff;6  in consideration of four pounds given him by the plaintiff, ... the defendant assumed to acknowledge satisfaction of that judgment7  before such a day; and ... he had not done it. And it was thereupon demurred: for it was moved, that there was not any consideration. —But all the Court held it to be well enough; for it was a benefit unto him to have it without suit or charge: and it may be there was error in the record, so as the party might have avoided it. Wherefore it was adjudged for the plaintiff.

Moore 412, 72 ER 663:

... But it was adjudged good, because speedy payment excuses & prevents travail & expense of suit.

Listen to a summary of the facts here: http://cca.li/QK

 

Questions:

1. What form must the consideration take, says the Queen’s Bench?

2. Is there any mention of “bargain” in ReynoldsRiches, and Game?

3. Does a “bargain” exist in these three cases?

4. How is this case different from Borelli?

5. Reynolds has the right rule, but the application of it is controversial. Some American jurisdictions would follow Reynolds, but most would have held that no consideration existed here. They would follow Borelli on these facts. We will study those jurisdictions later. Please remember that Reynolds is a minority position.

PROBLEM 4. A tractor dealer sells a tractor to a farmer. The farmer takes immediate possession, and in return promises to pay for the tractor over the next five years. Is there consideration?

ASSOCIATED BUILDERS, INC. v. William M. COGGINS et al. (1999)

Supreme Judicial Court of Maine

722 A.2d 1278

DANA, J.

[1]        Associated Builders, Inc. appeals from a grant of a summary judgment entered in the Superior Court * * * * in favor of the defendants William M. Coggins and Benjamin W. Coggins, d/b/a Ben & Bill’s Chocolate Emporium. Associated contends that the court erred when it held that despite a late payment by the Cogginses, an accord and satisfaction relieved the Cogginses of a contractual liability. The Cogginses argue that the three-day delay in payment was not a material breach of the accord and, even if the breach was material, Associated waived its right to enforce the forfeiture. We agree with the Cogginses and affirm the judgment.

[2]        Associated provided labor and materials to the Cogginses to complete a structure on Main Street in Bar Harbor. After a dispute arose regarding compensation, Associated and the Cogginses executed an agreement stating that there existed an outstanding balance of $70,005.54 and setting forth the following terms of repayment:

It is agreed that, two payments will be made by [the Cogginses] to [Associated] as follows:  Twenty Five Thousand Dollars ($25,000.00) on or before June 1, 1996 and Twenty Five Thousand Dollars ($25,000.00) on or before June 1, 1997. No interest will be charged or paid providing payments are made as agreed. If the payments are not made as agreed then interest shall accrue at 10% [ ] per annum figured from the date of default. There will be no prepayment penalties applied. It is further agreed that Associated Builders will forfeit the balance of Twenty Thousand and Five Dollars and Fifty Four Cents ($20,005.54) providing the above payments are made as agreed.

The Cogginses made their first payment in accordance with the agreement. The second payment, however, was delivered three days late on June 4, 1997. Claiming a breach of the contract, Associated filed a complaint demanding the balance of $20,005.54, plus interest and cost. The Cogginses answered the complaint raising the affirmative defense of an accord and satisfaction and waiver. Both parties moved for a summary judgment. The court granted the Cogginses’ motion and Associated appealed.

[3]        The trial court must enter a summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, referred to in the statements required by [M.R. Civ. P.] 7(d) show that there is no genuine issue as to any material fact set forth in those statements and that any party is entitled to a judgment as a matter of law.” M.R. Civ. P. 56(c). “On appeal from a grant of summary judgment, we view the evidence in the light most favorable to the nonprevailing party, and review the trial court decision for errors of law.” * * * *

[4]        “An accord ‘is a contract under which an obligee promises to accept a substituted performance in future satisfaction of the obligor’s duty.’” * * * *  Settlement of a disputed claim is sufficient consideration for an accord and satisfaction. * * * *  Here, the court correctly found the June 15, 1995 agreement to be an accord.

[5]        Satisfaction is the execution or performance of the accord. See Restatement (Second) of Contracts § 281(1) (1981). If the obligor breaches the accord, the obligee may enforce either the original duty or any duty pursuant to the accord. See id. § 281(2) (1981); see also Arthur L. Corbin, 6 Corbin on Contracts § 1271, at 93-94 (1961). * * * *

[8]        Even if the [Cogginses breached and Associated had a right to disregard the accord and enforce the original obligation (—Ricks)], Associated waived that right when it accepted the late payment. A waiver is a voluntary or intentional relinquishment of a known right. * * * *  If a party in knowing possession of a right does something inconsistent with the right or that party’s intention to rely on it, the party is deemed to have waived that right. * * * *  A party waives a contractual right arising from a breach because of a late payment when that party accepts tender of the late payment. * * * *  Here, because Associated accepted the final $25,000 payment, it waived its right to enforce the forfeiture.

[9]        The trial court, therefore, did not err when it held that a satisfaction of the accord occurred when Associated accepted the final payment.

The entry is:

Judgment affirmed.

Questions:

1. What is an accord?

2. What is consideration for the accord in this case?

3. Was consideration here a performance or a promise?

4. If the obligor breaches the accord, what remedies does the obligee have?

5. What act constituted waiver?

6. What should Associated have done after it received the check if it wanted to sue for other $20,005.54?

—A long aside: Moral Obligation

Please review Hunt v. Bate, supra.

EDMONDS CASE (1587)

3 Leon. 164

In an action upon the case against Edmonds, the case was, that the defendant being [a minor], requested the plaintiff to be bounden for him to another, for the payment of 30l., which he was to borrow for his own use;8  to which the plaintiff agreed, and was bounden, [as requested]; afterwards, the plaintiff was sued for the said debt [of Edmonds], and paid it; and afterwards, when the defendant came of full age the plaintiff put him in mind of the matter aforesaid, and prayed him that he might not be damnified so to pay 30l., it being the defendant’s debt: whereupon the defendant promised to pay the debt again to the plaintiff; upon which promise, the action was brought. And it was holden by the Court, that although here was no present consideration upon which the assumpsit could arise; yet the Court was clear, that upon the whole matter the action did lie, and judgment was given for the plaintiff.

 

Questions:

1. What was consideration for the second promise?

2. The word consideration is by 1587 a technical legal word. Commonly, or non-legally, it may mean “a thing to consider.” Does this report use it technically or by its common meaning?

This next case is an aside (technically an aside to an aside). It deals with a problem of capacity. Can a minor contract? Or, why did the infant in Edmonds Case need to promise again? Ex Parte Odem discusses the capacity of infants.

Ex parte: Iris ODEM

(Re: The CHILDREN’S HOSPITAL OF BIRMINGHAM v.

Vincent KELLEY and Iris Odem) (1988)

Supreme Court of Alabama

537 So.2d 919

[1]        We granted this petition for writ of certiorari in order to review the limited issue of whether a minor who executes a contract for a “necessary” is obligated to comply with the express terms of the entire contract, including those provisions regarding attorney fees and waiver of personal exemptions.

[2]        The facts of this case are set forth in the opinion by the Court of Civil Appeals, 537 So.2d 917, and we agree that medical services provided to an infant child of a minor are “necessaries” for which the minor parent may be obligated to pay, but we hold that the attorney fees for enforcing the contract are not “necessaries” for which the minor is legally obligated to pay.

[3]        The general rule of law is that contracts of minors are voidable. That is, the contract may be avoided or ratified at the election of the minor. Flexner v. Dickerson, 72 Ala. 318 (1882). In the instant case, Iris Odem disaffirmed, or avoided, the contract she had executed with Children’s Hospital. Consequently, Iris Odem’s obligation to pay for necessaries, i.e., the medical services rendered to her infant son, is not the result of the express contract between the parties, but arises from a quasi-contractual relationship created by operation of law which enforces the implied contract to pay. 43 C.J.S. Infants § 180 (1978). Therefore, a minor is not liable on any portion of the contract, or for what was agreed to be paid, except that the minor is liable for the just value of the necessaries.

[4]        In Wiggins Estate Co. v. Jeffery, 246 Ala. 183, 19 So.2d 769 (1944), this Court, with approval, quoted the following from 18 Am.St.Rep. p. 650 et seq.:

“It is for the court to determine, as a matter of law, in the first place, whether the things supplied may fall within the general classes of necessaries, and if so, whether there is sufficient evidence to warrant the jury in finding that they are necessary. If either of these preliminary inquiries be decided in the negative, it is the duty of the court to nonsuit the plaintiff who seeks to recover from the [minor]. If they be decided in the affirmative, it is then for the jury to determine whether, under all the circumstances, the things furnished were actually necessary to the position and condition of the [minor], as well as their reasonable value, and whether the [minor] was already sufficiently supplied....”

Therefore, the class and character of articles that are necessaries are issues of law. Wiggins Estate Co., supra.

[5]        Do the attorney fees in this case fall within the general classes of necessaries? Stated differently, are the attorney fees necessary to the position and condition of the minor?

[6]        Under Alabama law, attorney fees are recoverable from an opposing party only when provided for by contract or by statute. * * * * Thus, any contractual provision regarding the recovery of attorney fees in this case is for the benefit of Children’s Hospital, because the attorney fees would not otherwise be recoverable. Accordingly, attorney fees are not necessary to the position and condition of the minor and are not recoverable from Iris Odem.

“It is the policy of the law to protect infants against their own mistakes or improvidence, and from designs of others, and to discourage adults from contracting with an infant.” 43 C.J.S. Infants § 180 (1978).

 Accordingly, when an infant executes a contract, the infant is liable only on his implied promise to pay for necessaries, and all other provisions of the contract are voidable at the election of the infant. Further, attorney fees are not necessaries, because they are not necessary for the position and condition of the infant. We reverse the judgment of the Court of Civil Appeals to the extent that it holds that Iris Odem is obligated under all of the terms of the contract, and we affirm that portion of the judgment that holds that she is obligated for the reasonable value of the medical services rendered to her infant son.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

TORBERT, C.J., and MADDOX, JONES, BEATTY, ADAMS, HOUSTON and STEAGALL, JJ., concur.

 

Questions:

1. Is a contract by a minor void?

2. Is medical care for a minor a necessary?

3. Are attorneys fees specified in the contract for medical care necessaries?

4. Are clothes necessaries?

5. Is an apartment a necessary?

Aside to the aside over—now we are going back to moral obligation.

The next source, from the U.S. Bankruptcy Code, addresses the status of promises to pay debts that have previously been discharged in bankruptcy.

PROBLEM 5. J.S. takes possession of a truck and promises in return to pay for it in installments. Then J.S. is laid off from work, abandons his $400,000 home (on which he owes $390,000), and drinks heavily. He fails to make his truck payments. He also does not pay his credit card bills. The bank takes the house back. The truck dealer takes the truck back, but J.S. owes more for the truck than the truck is worth. J.S.’s creditors, including the truck note claim holder, file suits against him. To escape liability to them, J.S. files for bankruptcy. Soon after J.S. files a bankruptcy case, the bankruptcy court grants him a discharge (http://cca.li/QL). This means that J.S. is no longer liable to pay for the truck or the credit cards. But, J.S. is plagued by guilt and wants to live an honorable life. He also wants to drive a truck again, and he hopes that paying off the truck debt, even though it is discharged, will influence someone to lend to him again. J.S. writes to the truck note claim holder and promises to pay the debt for the truck. Is this promise enforceable? See the following statute.

11 U.S.C. §524. Effect of discharge

 

Questions:

1. What is the consideration for the agreement mentioned in subsection (c)?

2. May J.S. rescind the agreement? Why?

3. Must the debtor have an agreement in order to repay a debt that has been discharged in bankruptcy?

4. The following except from In re Ray, 26 B.R. 534, 537 (Bcy. 1983), details why § 524 was passed. Bankruptcy was thought to bar only collection of the debt, but the moral obligation to pay it remained. Note that the court names a third exception to the moral-obligation-is-no-consideration rule, besides the two we have studied. What is it?

[1]       At common law, it was generally believed “that a promise made in recognition of a moral obligation, arising out of a benefit previously received, was not enforceable.” Comment, Reaffirmation Agreements: A Fight for Enforceability Under the New Bankruptcy Code, 12 Cumberland L. Rev. 431, 433-34 (1982) (hereinafter cited: Comment, Reaffirmation Agreements). Exceptions, however, were developed. In Ball v. Hesketh, 90 Eng.Rep. 541 (K.B.1697), a promise to pay a debt contracted during infancy was enforced. In Hyleing v. Hastings, 91 Eng.Rep. 1157 (K.B.1699), a promise to pay a debt barred by the statute of limitations was enforced. English attorneys then began arguing that a bankrupt had a moral obligation to repay discharged debts. See generally, Boshkoff, The Bankrupt’s Moral Obligation to Pay His Discharged Debts: A Conflict Between Contract Theory and Bankruptcy Policy, 47 Ind. L.J. 36, 39-44 (1971) (hereinafter cited: Boshkoff, Moral Obligation). In Truemon v. Fenton, 98 Eng.Rep. 1232 (K.B.1777), Lord Mansfield declared that a bankrupt was morally obligated to pay discharged debts, and a new promise to pay a discharged debt was sufficient consideration to revive the enforceability of the debt.

[2]        After Truemon, “creditors began to use reaffirmations to escape [the effect of] the bankruptcy discharge. . . .” Comment, Reaffirmation Agreements, supra at 435. In an effort to control the problem, Parliament first required that the reaffirmation agreement must be in writing, 5 Geo. 4, c. 98, § 128 (1824), and later declared unenforceable all such reaffirmation agreements. 12 & 13 Vict. c. 106, § 204 (1849). Comment, Reaffirmation Agreements, supra at 435, n.21-23.

[3]        Just before reaffirmations were banned in England, their use began to grow in the United States, helped by Scoutland v. Eislord, 4 N.Y.Com.L.Rep. 241, 7 Johns. 36 (1810), in which Lord Mansfield’s doctrine of moral obligation was followed. Even after Congress passed the Bankruptcy Act of 1898, most states, “by statute or case law, recognized the theory that a discharge did not prohibit collection of the debt or erase the debt.” Comment, Reaffirmation Agreements, supra at 436.

[4]        Often, creditors harassed debtors by using the doctrine of moral obligation and the theory that discharged debts were not erased. Sometimes, creditors would sue debtors on the discharged debt in state court “in the hope that the debtor would rely upon the discharge and fail to appear in the subsequent action.” Comment, Reaffirmation Agreements, supra at 437. Other times, secured creditors would obtain a reaffirmation agreement from the debtor under threat of repossession of collateral. H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 164 (1977), U.S. Code Cong. & Admin. News 1978, p. 5787. Thus,

  • (t)he resulting practices under the 1898 Act were similar to those experienced by the English courts in the eighteenth century. Reaffirmations tended to frustrate severely the debtor’s purpose for seeking a discharge from the bankruptcy court.

Comment, Reaffirmation Agreements, supra at 437. Where the secured creditor used the threat of repossession as leverage to coerce the discharged debtor into reviving and reaffirming his entire personal liability to the creditor, the collateral was generally worth only a portion of the amount owed. The secured creditor did not want to enforce its in rem rights against the collateral. Rather, the secured creditor desired to use the threat of enforcing its in rem rights as a means of coercing the debtor into reviving his in personam obligation which had been discharged. See Boshkoff, Moral Obligation, supra at 37, n.5.

[5]        Consider, for example, In Re Thompson, 416 F. Supp. 991 (S.D.Tex.1976). A secured creditor was scheduled by the bankrupt in his bankruptcy petition, and filed a proof of claim. The bankrupt was discharged, and was purportedly relieved of any personal liability to the secured creditor. After discharge, the secured creditor began sending letters to the debtor, threatening civil and criminal action if the discharged debt was not paid. Id. at 993. The simple fact is that such coercion by creditors has always been built into the system of debtor-creditor relations, and non-judicial coercion has always been viewed by creditors as an effective and certainly inexpensive method of enforcing and reviving a debtor’s in personam obligations. See Leff, Coercive Collection, supra at 5-9.

[6]        In 1970, Congress attempted to curtail creditor abuse. Under the Act of Oct. 19, 1970, Pub.L. No. 91-467, sec. 2, 14, 15, 17, 38, 58, 84 Stat. 990 (amending 11 U.S.C. sec. 11, 32, 33, 35, 66, 94 (1964)), bankruptcy courts were given exclusive jurisdiction to determine the right to and effect of a discharge, removing jurisdiction from state courts. No longer could creditors sue debtors in state court on discharged obligations hoping for default judgments. But reaffirmations by non-judicial leverage or coercion were not controlled. See, e.g., In Re Thompson, supra.

[7]        It is with this history of creditor coercion and abuse in mind that Congress sat down to draft § 524 of the Code. See H.R. Rep. 95-595, supra at 164.

5. Many lawyers have rationalized these moral obligation cases on a ground other than moral obligation. They claim that moral obligation is not the true ground of these decisions. What is their argument? Well, these lawyers take note that infancy, discharge in bankruptcy, and the statute of limitations are legal defenses to a creditor’s breach of contract case against the promisor. These lawyers then argue that something happened to the defense when the second promise was made by the promisor to pay the prior debt. They claim that the second promise did something to the defense. What happened to the defense? Can you finish this argument? You have the necessary bits of information to finish it.

Now here is one more possible moral obligation exception, from the rest of the Hunt v. Bate report:

HUNT v. BATE (1568)

Common Pleas

3 Dyer 272a

* * * * But in another like action on the case brought upon a promise of twenty pounds made to the plaintiff by the defendant in consideration that the plaintiff, at the special instance of the said defendant, had taken to wife the cousin of the defendant, that was good cause, although the marriage was executed and past before the undertaking and promise, because the marriage ensued at the request of the defendant. * * * * And therefore the opinion of the Court in this case this Term was, that the plaintiff should recover upon the verdict, &c. And so note the diversity between aforesaid cases.

 

Questions:

1. What was consideration for the promise?

2. Was there a bargain?

The meaning can be hard to wrench

From cases that were in Law French

In language so dense

They rarely made sense

To anyone not on the bench

—Jim Woodward, STCL Class of 2003

WEBB v. McGOWIN (1935)

Court of Appeals of Alabama

168 So. 196

BRICKEN, Presiding Judge.

[1]        This action is in assumpsit. The complaint as originally filed was amended. The demurrers to the complaint as amended were sustained, and because of this adverse ruling by the court the plaintiff took a nonsuit, and the assignment of errors on this appeal are predicated upon said action or ruling of the court.

[2]        A fair statement of the case presenting the questions for decision is set out in appellant’s brief, which we adopt.

[a] “On the 3d day of August, 1925, appellant while in the employ of the W.T. Smith Lumber Company, a corporation, and acting within the scope of his employment, was engaged in clearing the upper floor of Mill No.2 of the company. While so engaged he was in the act of dropping a pine block from the upper floor of the mill to the ground below; this being the usual and ordinary way of clearing the floor, and it being the duty of the plaintiff in the course of his employment to so drop it. The block weighed about 75 pounds.

[b] “As appellant was in the act of dropping the block to the ground below, he was on the edge of the upper floor of the mill. As he started to turn the block loose so that it would drop to the ground, he saw J. Greeley McGowin, testator of the defendants, on the ground below and directly under where the block would have fallen had appellant turned it loose. Had he turned it loose it would have struck McGowin with such force as to have caused him serious bodily harm or death. Appellant could have remained safely on the upper floor of the mill by turning the block loose and allowing it to drop, but had he done this the block would have fallen on McGowin and caused him serious Injuries or death. The only safe and reasonable way to prevent this was for appellant to hold to the block and divert its direction in falling from the place where McGowin was standing and the only safe way to divert it so as to prevent its coming into contact with McGowin was for appellant to fall with it to the ground below. Appellant did this, and by holding to the block and falling with it to the ground below, he diverted the course of its fall in such way that McGowin was not injured. In thus preventing the injuries to McGowin appellant himself received serious bodily injuries, resulting in his right leg being broken, the heel of his right foot torn off and his right arm broken. He was badly crippled for life and rendered unable to do physical or mental labor.

[c] “On September 1, 1925, in consideration of appellant having prevented him from sustaining death or serious bodily harm and in consideration of the injuries appellant had received, McGowin agreed with him to care for and maintain him for the remainder of appellant’s life at the rate of $15 every two weeks from the time he sustained his injuries to and during the remainder of appellant’s life; it being agreed that McGowin would pay this sum to appellant for his maintenance. Under the agreement McGowin paid or caused to be paid to appellant the sum so agreed on up until McGowin’s death on January 1, 1934. After his death the payments were continued to and including January 27, 1934, at which time they were discontinued. Thereupon plaintiff brought suit to recover the unpaid installments accruing up to the time of the bringing of the suit.

[d] “The material averments of the different counts of the original complaint and the amended complaint are predicated upon the foregoing statement of facts.”

[3]        In other words, the complaint as amended averred in substance: (1) That on August 3, 1925, appellant saved J. Greeley McGowin, appellee’s testator, from death or grievous bodily harm; (2) that in doing so appellant sustained bodily injury crippling him for ‘life; (3) that in consideration of the services rendered and the injuries received by appellant, McGowin agreed to care for him the remainder of appellant’s life, the amount to be paid being $15 every two weeks; (4) that McGowin complied with this agreement until he died on January 1, 1934, and the payments were kept up to January 27, 1934, after which they were discontinued.

[4]        The action was for the unpaid installments accruing after January 27, 1934, to the time of the suit.

[5]        The principal grounds of demurrer to the original and amended complaint are: (1) It states no cause of action; (2) its averments show the contract was without consideration; (3) it fails to allege that McGowin had, at or before the services were rendered, agreed to pay appellant for them; (4) the contract declared on is void under the statute of frauds.

[6]        1. The averments of the complaint show that appellant saved McGowin from death or grievous bodily harm. This was a material benefit to him of infinitely more value than any financial aid he could have received. Receiving this benefit, McGowin became morally bound to compensate appellant for the services rendered. Recognizing his moral obligation, he expressly agreed to pay appellant as alleged in the complaint and complied with this agreement up to the time of his death; a period of more than 8 years.

[7]        Had McGowin been accidentally poisoned and a physician, without his knowledge or request, had administered an antidote, thus saving his life, a subsequent promise by McGowin to pay the physician would have been valid. Likewise, McGowin’s agreement as disclosed by the complaint to compensate appellant for saving him from death or grievous bodily injury is valid and enforceable.

[8]        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. Pittsburg Vitrified Paving & Building Brick Co. v. Cerebus Oil Co., 79 Kan. 603, 100 P. 631; Edson v. Poppe, 24 S.D. 466, 124 N.W. 441, 26 I.R.A.(N.S.) .534; Drake v. Bell, 26 Misc. 237, 55 N.Y.S. 945.

[9]        In Boothe v. Fitzpatrick, 36 Vt. 681, the court held that a promise by defendant to pay for the past keeping of a bull which had escaped from defendant’s premises and been cared for by plaintiff was valid, although there was no previous request, because the subsequent promise obviated that objection; it being equivalent to a previous request. On the same principle, had the promisee saved the promisor’s life or his body from grievous harm, his subsequent promise to pay for the services rendered would have been valid. Such service would have been far more material than caring for his bull. Any holding that saving a man from death or grievous bodily harm is not a material benefit sufficient to uphold a subsequent promise to pay for the service, necessarily rests on the assumption that saving life and preservation of the body from harm have only a sentimental value. The converse of this is true. Life and preservation of the body have material, pecuniary values, measurable in dollars and cents. Because of this, physicians practice their profession charging for services rendered in saving life and curing the body of its ills, and surgeons perform operations. The same is true as to the law of negligence, authorizing the assessment of damages in personal injury cases based upon the extent of the injuries, earnings, and life expectancies of those injured.

[10]      In the business of life insurance, the value of a man’s life is measured in dollars and cents according to his expectancy, the soundness of his body, and his ability to pay premiums. The same is true as to health and accident insurance.

[11]      It follows that if, as alleged in the complaint, appellant saved J. Greeley McGowin from death or grievous bodily harm, and McGowin subsequently agreed to pay him for the service rendered, it became a valid and enforceable contract.

[12]      2. It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. Lycoming County v. Union County, 15 Pa. 166, 53 Am.Dec. 575, 579, 580 j Ferguson v. Harris, 39 S.C. 323, 17 S.E. 782, 39 Am.St.Rep. 731, 734; Muir v. Kane, 55 Wash. 131, 104 P. 153, 26 L.R.A. (N.S,) 519, 19 Ann.Cas. 1180; State ex rel. Bayer v. Funk, 105 Or. 134, 199 P. 592, 209 P. 113, 25 A.L.R. 625, 634; Hawkes v. Saunders, 1 Cowp. 290; In re Sutch’s Estate, 201 Pa. 305, 50 A 943 Edson v. Poppe, 24 S.D. 466, 124 N.W. 441, 26 L.R.A(N. S.) .534; Park Falls State Bank v. Fordyce, 206 Wis. 628, 238 N.W. 516, 79 AL. R. 1339; Baker v. Gregory, 28 Ala. 544, 65 Am.Dec. 366. In the case of State ex rel. Bayer v. Funk, supra, the court held that a moral obligation is a sufficient consideration to support all executory promise where the promisor received an actual pecuniary or material benefit for which he subsequently expressly promised to pay.

[13]      The case at bar is clearly distinguishable from that class of cases where the consideration is a mere moral obligation or conscientious duty unconnected with receipt by promisor of benefits of a material or pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the promisor received a material benefit constituting a valid consideration for his promise.

[14]      3. Some authorities hold that, for a moral obligation to support a subsequent promise to pay, there must have existed a prior legal or equitable obligation, which for some reason had become unenforceable, but for which the promisor was still morally bound. This rule, however, is subject to qualification in those cases where the promisor having received a material benefit from the promisee, is morally bound to compensate him for the services rendered and in consideration of this obligation promises to pay. In such cases the subsequent promise to pay is an affirmance or ratification of the services rendered carrying with it the presumption that a previous request for the service was made McMorris v. Herndon, 2 Bai1ey (S.c.) 56, 21 Am.Dec. 515; Chadwick v. Knox, 31 N.H. 226, 64 Am.Dec. 329; Kenan v. Holloway, 16 Ala. 53, 50 Am.Dec. 162; Ross v. Pearson, 21 Ala. 473.

[15]      Under the decisions above cited, McGowin’s express promise to pay appellant for the services rendered was an affirmance or ratification of what appellant had done raising the presumption that the services had been rendered at McGowin’s request.

[16]      4. The averments of the complaint show that in saving McGowin from death or grievous bodily harm, appellant was crippled for life. This was part of the consideration of the contract declared on. McGowin was benefited. Appellant was injured. Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promisor’s agreement to pay. Fisher v. Bartlett, 8 Greenl. (Me.) 122, 22 Am.Dec. 225; State ex rel. Bayer v. Funk, supra.

[17]      5. Under the averments of the complaint the services rendered by appellant were not gratuitous. The agreement of McGowin to pay and the acceptance of payment by appellant conclusively shows the contrary. * * * *

[18]      From what has been said, we are of the opinion that the court below erred in the ruling complained of; that is to say in sustaining the demurrer, and for this error the case is reversed and remanded.

Reversed and remanded.

SAMFORD, Judge (concurring).

The questions involved in this case are not free from doubt, and perhaps the strict letter of the rule, as stated by judges, though not always in accord, would bar a recovery by plaintiff, but following the principle announced by Chief Justice Marshall in Hoffman v. Porter, Fed. Cas. No. 6,577, 2 Brock. 156, 159, where he says, “I do not think that law ought to be separated from justice, where it is at most doubtful,” I concur in the conclusions reached by the court.

WEBB v. McGOWIN (1936)

Supreme Court of Alabama

168 So. 199

FOSTER, Justice.

[1]        We do not in all cases in which we deny a petition for certiorari to the Court of Appeals approve the reasoning and principles declared in the opinion, even though no opinion is rendered by us. It does not always seem to be important that they be discussed, and we exercise a discretion in that respect. But when the opinion of the Court of Appeals asserts important principles or their application to new situations, and it may be uncertain whether this court agrees with it in all respects, we think it advisable to be specific in that respect when the certiorari is denied. We think such a situation here exists.

[2]        Neither this court nor the Court of Appeals has had before it questions similar to those here presented * * * *. * * * *

[3]        The opinion of the Court of Appeals here under consideration recognizes and applies the distinction between a supposed moral obligation of the promisor, based upon some refined sense of ethical duty, without material benefit to him, and one in which such a benefit did in fact occur. We agree with that court that if the benefit be material and substantial and was to the person of the promisor rather than to his estate, it is within the class of material benefits which he has the privilege of recognizing and compensating either by an executed payment or an executory promise to pay. The cases are cited in that opinion. The reason is emphasized when the compensation is not only for the benefits which the promisor received, but also for the injuries either to the property or person of the promisee by reason of the service rendered.

Writ denied.

ANDERSON, C.J., and GARDNER and BOULDIN, JJ., concur.

 

Questions:

1. What is the law in Alabama after these two decisions?

2. Why is the Supreme Court’s decision important if it simply approves the reasoning and principles set forth in the Court of Appeals’ decision?

3. How is this case different than Hunt v. Bate 1?

HARRINGTON v. TAYLOR (1945)

Supreme Court of North Carolina

36 S.E.2d 227

PER CURIAM.

[1]        The plaintiff in this case sought to recover of the defendant upon a promise made by him under the following peculiar circumstances:

[2]        The defendant had assaulted his wife, who took refuge in plaintiff’s house. The next day the defendant gained access to the house and began another assault upon his wife. The defendant’s wife knocked him down with an axe, and was on the point of cutting his head open or decapitating him while he was laying on the floor, and the plaintiff intervened, caught the axe as it was descending, and the blow intended for defendant fell upon her hand, mutilating it badly, but saving defendant’s life.

[3]        Subsequently, defendant orally promised to pay the plaintiff her damages; but, after paying a small sum, failed to pay anything more. So, substantially, states the complaint.

[4]        The defendant demurred to the complaint as not stating a cause of action, and the demurrer was sustained. Plaintiff appealed.

[5]        The question presented is whether there was a consideration recognized by our law as sufficient to support the promise. The Court is of the opinion that, however much the defendant should be impelled by common gratitude to alleviate the plaintiff’s misfortune, a humanitarian act of this kind, voluntarily performed, is not such consideration as would entitle her to recover at law.

[6]        The judgment sustaining the demurrer is

Affirmed.

Question: Can you find a factual distinction between Harrington and Webb v. McGowin?

1.4.2. Detriment

WEBBS CASE (1576)

4 Leonard 110, 74 ER 763

In action upon the case, the plaintiff declared, that whereas Cobham was indebted to J.S. and J.S. to the defendant, the said defendant in consideration that the plaintiff would procure the said J.S. to make a letter [or power] of attorney to the defendant to sue the said Cobham, promised to pay and give to the plaintiff 10£. It was objected, here was not any consideration for to induce the assumpsit; for the defendant by this letter of attorney gets nothing but his labour and travel. But the exception was not allowed of. For in this case not so much the profit which redounds to the defendant, as the labour of the plaintiff in procuring of the letter of attorney, is to be respected.

 

Questions:

1. This opinion is not really that difficult, but all of the words matter. Diagraming the relationships between the parties in this case helps understanding greatly. Who is J.S.’s creditor?

2. A power of attorney is a document in which one person, called a principal, appoints another to be her agent, usually for a certain purpose(s) named in the document. In Webbs Case, the power of attorney was to be signed by J.S., the principal, who would appoint the defendant to be J.S.’s agent to sue Cobham. The defendant claims that the power of attorney is worth nothing. That’s plausible, isn’t it, given that the defendant may never obtain anything from Cobham? The counterargument is that if it were actually worth nothing, the defendant never would have promised 10£ for it. If the plaintiff has given defendant nothing, then shouldn’t the court agree that no consideration exists? Is there a bargain here?

Christopher St. German, DOCTOR AND STUDENT (1531)

Selden Soc. vol. 91, pp. 230-31, B&M 483

Student: ... [A]fter divers that be learned in the laws of the realm, all promises shall be taken in this manner, that is to say: if he to whom the promise is made have a charge by reason of the promise, which he hath also performed, then in that case he shall have an action for that thing that was promised, though he that made the promise have no worldly profit by it. As, if a man say to another, ‘Heal such a poor man of his disease’, or ‘Make such a highway, and I shall give thee thus much’, and if he do it I think an action lieth at the common law.

 

Questions:

1. This is not a case, but St. German mentions two actual cases. What are they?

2. In this passage, what counts to make a promise actionable (enforceable)?

3. Do the two cases involve enforceable promises?   

STORER’S CASE (1615)

Dyer 272a, 272b n.32, 73 ER 605, 607

In an action upon the case, on assumpsit against one Storer, an agreement was between A. and B. that A. should have a lease of B. with [various] covenants; at the day of sealing A. refused, on account of the insertion of a new covenant concerning repairs, whereupon [Storer], standing by, took upon himself, if A. would seal it, to make the repairs; and it was adjudged for the plaintiff a good consideration, although the sealing of the deed was of no consequence to [Storer].

 

Questions:

1. This is a very brief report, just one sentence long. I’m pretty sure that B is the plaintiff, but it could be A. What about the application of consideration doctrine would make A or B a proper plaintiff?

2. Can you be sure there was a bargain here? Did Storer’s promise induce A to sign the lease? Did the prospect of A’s signing the lease induce Storer to promise? Why would Storer care?

KEYME v. GOULSTON (1664)

1 Levinz 140, 83 ER 338

Assumpsit, [in which the plaintiff alleged that] in consideration [that] the plaintiff would put out the plaintiff’s daughter’s daughter to a school-mistress, he the defendant would pay for her board for a year. And that he put out his daughter for three quarters of a year, which came to 101. and that the defendant had not paid: after verdict for the plaintiff, it was moved in arrest of judgment, that the consideration is not performed, for when he promised to pay for a year, it ought to be intended, that he should put her out to school for a year, otherwise the plaintiff might put her out for a week only, and yet oblige the plaintiff [defendant?] to pay for a year. But by Twysden and Wyndham, it may be intended, Put her there to school, and I will pay for a year, stay she more or less; and by Hyde, Chief Justice, it may be intended, Set her to school, and I will pay for a year or less, according to the rate she stays. And thereupon by all the three, judgment was given for the plaintiff.

 

Questions:

1. Is there a bargain here? What induced the room and board for nine months? What induced the promise?

2. Did the possibility of the lack of a bargain trouble the judges at all?

Note: Just as non-bargained-for benefit sometimes counts as a reason to enforce a promise, so does non-bargained-for detriment. But non-bargained-for detriment is not thought of as consideration as much as part of the doctrine of promissory estoppel, an alternate theory of liability that we study in the next chapter.

Settlement Cases

This case and the next are somewhat difficult, but only because their analyses depend on non-contract law that we have not studied. The non-contract law in both cases is extremely clear and not in dispute. The first case, Kim v. Son, relies on rules from corporate law. A corporation is, in the law, a person or entity separate from and not dependent for its existence on any real person, including its shareholders, directors, officers, or employees. So a shareholder of that corporation is no more liable for the debts of the corporation than you are for your neighbor’s debts, absent special circumstances not relevant here.

In the second case, Dyer, a worker was injured in a job-related accident. Iowa law provides that a worker in such an accident has no right to sue his employer for such personal injuries. The theory of the worker’s claim (negligence, strict liability, etc.) makes no difference. The worker’s exclusive remedy is workers’ compensation, see Dyer n.1, a state-mandated insurance benefit (generally far less in amount than the worker’s actual damages). Because workers’ compensation was Dyer’s exclusive remedy, Dyer had no claim against his employer with respect to his personal injury.

In both these cases, the party with no right thought it had a right and proceeded to bargain away what it thought it had. Whether this activity has any legal effect is the issue.

Jinsoo KIM v. Stephen SON

2009 WL 597232

Court of Appeal, Fourth District, Division 3, California

No. G039818

(Super. Ct. No. 06CC02419).

March 9, 2009

OPINION

O’LEARY, J.

[1]        Jinsoo Kim begins his opening brief by stating, “Blood may be thicker than water, but here it’s far weightier than a peppercorn.”9    Kim appeals from the trial court’s refusal to enforce a gratuitous promise, handwritten in his friend’s own blood, to repay money Kim loaned and lost in two failed business ventures. He faults the trial court for not discussing or deciding in its statement of decision the issue of whether Kim’s forbearance (waiting over a year to file a meritless lawsuit against his friend, Stephen Son), supplied adequate consideration for Son’s blood-written document. We conclude the trial court’s statement of decision sufficiently set forth the facts and law supporting its ultimate conclusion Son’s promise to repay the money was entirely gratuitous and unenforceable, even when reduced to blood. Forbearance to sue cannot supply consideration to what the trial court determined was an invalid claim. In the context of this contract dispute, Son’s blood was not weightier than a peppercorn.

I

[2]        Son was the majority shareholder (70 percent owner) and operated a South Korean company, MJ, Inc. (MJ). He was also the sole owner of a California corporation, Netouch International Inc. (Netouch). After several months of investigation, Kim loaned money and invested in these companies. It was undisputed he wired the money directly to the corporate bank accounts. Son did not personally receive any of the funds. Kim invested 100 million won,10  and later loaned 30 million won to MJ. He loaned $40,000 to Netouch. There was no evidence these investments or loans were personally guaranteed by Son.

[3]        Unfortunately, these businesses failed and Kim lost his money. In October 2004, Son and Kim met in a sushi bar where they consumed a great deal of alcohol. When they were at the bar, Son asked the waiter for a safety pin, used it to prick his finger, and then wrote a “promissory note” with his blood. The document, translated from Korean to English, reads, “Sir, please forgive me. Because of my deeds you have suffered financially. I will repay you to the best of my ability.” At some point that same day, Son also wrote in ink “I hereby swear [promise] that I will pay back, to the best of my ability, the estimated amount of 170,000,000 [w]ons to [Kim].”

See copies of the promises http://cca.li/QC.

[4]        Well over a year later, in June 2006, this blood-written note became the basis for Kim’s lawsuit against Son alleging: (1) default of promissory note; (2) money had and received; and (3) fraud. He claimed Son agreed in the “promissory note” to pay Kim 170 million won, which is approximately equivalent to $170,000.

[5]        After holding a bench trial, the court ruled in Son’s favor. In its statement of decision, the court determined the “blood agreement” was not an enforceable contract. The court made the following findings: There was no evidence Son agreed to personally guarantee the loan or investment money. Son wrote the note in his own blood “while extremely intoxicated and feeling sorry for [Kim’s] losses.” The blood agreement lacked sufficient consideration because it “was not a result of a bargained-for-exchange, but rather a gratuitous promise by [Son] who took personally that [Kim], his good friend, had a failure in his investments that [Son] had initially brought him into.” The court reasoned the agreement lacked consideration because Son “was not required to and did not guarantee these investments and loans. The [c]ourt refuses to enforce a gratuitous promise even when it is reduced to blood.” The court also rejected the fraud claim, relying on “credible evidence” Son intended for the businesses to succeed, and he never made any promises to Kim without the intent of performing them.

[6]        Kim filed objections to the statement of decision, claiming inter alia, the court failed to address whether Kim’s forbearance from suing Son in 2003 and 2004 was consideration for the blood written promissory note. The court did not modify its statement of decision and entered the final judgment in July 2007. Kim appealed.

II

[7]        Kim raises two issues on appeal: (1) Did the trial court erroneously fail to consider or apply Kim’s forbearance as consideration of Son’s blood agreement? and (2) Did the statement of decision adequately address the forbearance issue?

(1) Forbearance

[8]        “Consideration may be forbearance to sue on a claim, extension of time, or any other giving up of a legal right, in consideration of some promise. [Citations.]” (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 211, p. 246.) “The slightest forbearance will suffice: ‘Even though the forbearance is for one day only, there is sufficient consideration as the law does not weigh the quantum.’ [Citations.]” (Id. at pp. 246-247.) Moreover, “The compromise of a claim, either valid, doubtful, or disputed (but not void) is good consideration, the claimant giving up his or her asserted right to recover the whole amount as consideration for a promise to pay a lesser amount. [Citations.]” (Ibid.)

[9]        “However, if the forbearance has no value, it will not suffice. [Citation.]” (1 Witkin, Summary of Cal. Law, supra, Contracts, § 211, p. 247.) And relevant to this case, “If a claim is wholly invalid, neither forbearance to sue nor a compromise thereof can be good consideration. (Union Collection Co. v. Buckman (1907) 150 C[al]. 159, 164 . . . .) City Street Imp. Co. v. Pearson (1919) 181 C[al]. 640, [649] . . . applied this doctrine with great strictness. A promissory note was given in consideration of forbearance to foreclose a lien upon a street assessment, which both parties believed was valid. However, the assessment was void for technical reasons that were ascertainable from the public record. Held, the note was unsupported by consideration. . . . (See Orange County Foundation v. Irvine Co. (1983) 139 [Cal. App.]3d 195 . . . [promise to compromise wholly unfounded claim is not valuable consideration . . .] . . . .)” (1 Witkin, Summary of Cal. Law, supra, § 220, pp. 253-254.)

[10]      Here, the purported forbearance to sue cannot be good consideration because Kim’s claims against Son were wholly invalid. As determined by the trial court, any claim Son personally owed Kim money was invalid. The statement of decision noted it was undisputed the corporations (MJ and Netouch) were valid separate corporate entities and those businesses received Kim’s loans and investment money. The court concluded Son did not guarantee the money on behalf of the two corporations. He did not personally receive any of Kim’s money. And, Kim does not dispute a shareholder/owner generally is not personally liable for the debts of a corporation. (See Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 301 [society legally recognizes the benefits of individual limitation of business liability through incorporation, so “the corporate form will be disregarded only in narrowly defined circumstances,” and only when justice so requires]; Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc. (1993) 19 Cal.App.4th 615, 628.) Consequently, any debt collection or breach of contract claim Kim may have had against the corporations, could not be legally imputed to Son, individually. In other words, Kim’s forbearance in filing a meritless lawsuit cannot supply adequate consideration for Son’s gratuitous promise.

[11]      Moreover, Kim does not dispute the trial court’s conclusion credible evidence established Son was not liable for fraud. Accordingly, his alleged forbearance to sue on the clearly unfounded tort claim would not constitute valuable consideration. We conclude the trial court properly decided Kim’s lawsuit was based entirely on a gratuitous unenforceable promise, and as such, the court did not need to address the immaterial issue of forbearance.

(2) Statement of Decision

[The court determined that the trial court’s opinion adequately addressed the forbearance issue.]

III

The judgment is affirmed. Respondent shall recover his costs on appeal.

WE CONCUR: SILLS, P.J., and RYLAARSDAM, J.

 

Questions:

1. Did the court ask whether Kim believed in good faith that Son was liable for the debts at and after the time the money was invested and lent? Did the court ask whether Kim believed in good faith, before Son signed the document in the bar, that Kim had valid grounds to sue Son with regard to the investments and the loan?

2. The court addressed whether forbearance to sue was consideration, but Kim provided Son’s companies with $170,000 in financing. Why wasn’t Kim’s making the investment and loan consideration?

3. Did it matter that the contract was in writing?

4. Son was drunk when he wrote this document, but is there any doubt that, at the time he wrote the document, he intended to create a binding legal document? Did that matter?

Dale Warren DYER v. NATIONAL BY-PRODUCTS, INC. (1986)

Supreme Court of Iowa

380 N.W.2d 732

SCHULTZ, Justice.

[1]        The determinative issue in this appeal is whether good faith forbearance to litigate a claim, which proves to be invalid and unfounded, is sufficient consideration to uphold a contract of settlement. The district court determined, as a matter of law, that consideration for the alleged settlement was lacking because the forborne claim was not a viable cause of action. We reverse and remand.

[2]        On October 29, 1981, Dale Dyer, an employee of National By-Products, lost his right foot in a job-related accident. Thereafter, the employer placed Dyer on a leave of absence at full pay from the date of his injury until August 16, 1982. At that time he returned to work as a foreman, the job he held prior to his injury. On March 11, 1983, the employer indefinitely laid off Dyer.

[3]        Dyer then filed the present lawsuit against his employer claiming that his discharge was a breach of an oral contract. He alleged that he in good faith believed that he had a valid claim against his employer for his personal injury. Further, Dyer claimed that his forbearance from litigating his claim was made in exchange for a promise from his employer that he would have lifetime employment. The employer specifically denied that it had offered a lifetime job to Dyer after his injury.

[4]        Following extensive discovery procedures, the employer filed a motion for summary judgment claiming there was no genuine factual issue and that it was entitled to judgment as a matter of law. The motion was resisted by Dyer. The district court sustained the employer’s motion on the basis that: (1) no reciprocal promise to work for the employer for life was present, and (2) there was no forbearance of any viable cause of action, apparently on the ground that workers’ compensation provided Dyer’s sole remedy.

[5]        On appeal, Dyer claims that consideration for the alleged contract of lifetime employment was his forbearance from pursuing an action against his employer. Accordingly, he restricts his claim of error to the second reason advanced by the district court for granting summary judgment. Summary judgment is only proper when there is no genuine issue of any material fact. Iowa R. Civ. P. 237(c). Dyer generally contends that an unresolved issue of material fact remains as to whether he reasonably and in good faith forbore from asserting a claim against his employer and his coemployees in exchange for the employer’s alleged promise to employ him for life. Specifically, he asserts that the trial court erred because: (1) the court did not consider the reasonableness and good faith of his belief in the validity of the claim he forbore from asserting, and (2) the court considered the legal merits of the claim itself which Dyer forbore from asserting.

[6]        The employer, on the other hand, maintains that workers’ compensation11  benefits are Dyer’s sole remedy for his injury and that his claim for damages is unfounded. It then urges that forbearance from asserting an unfounded claim cannot serve as consideration for a contract. For the purpose of this discussion, we shall assume that Dyer’s tort action is clearly invalid and he had no basis for a tort suit against either his employer or his fellow employees. We recognize that the fact issue, as to whether Dyer in good faith believed that he had a cause of action based in tort against the employer, remains unresolved. The determinative issue before the district court and now on appeal is whether the lack of consideration for the alleged promise of lifetime employment has been established as a matter of law.

[7]        Preliminarily, we observe that the law favors the adjustment and settlement of controversies without resorting to court action. Olson v. Wilson & Co., 244 Iowa 895, 899, 58 N.W.2d 381, 384 (1953). Compromise is favored by law. White v. Flood, 258 Iowa 402, 409, 138 N.W.2d 863, 867 (1965). Compromise of a doubtful right asserted in good faith is sufficient consideration for a promise. Id.

[8]        The more difficult problem is whether the settlement of an unfounded claim asserted in good faith is consideration for a contract of settlement. Professor Corbin presents a view favorable to Dyer’s argument when he states:

[F]orbearance to press a claim, or a promise of such forbearance, may be a sufficient consideration even though the claim is wholly ill-founded. It may be ill-founded because the facts are not what he supposes them to be, or because the existing facts do not have the legal operation that he supposes them to have. In either case, his forbearance may be a sufficient consideration, although under certain circumstances it is not. The fact that the claim is ill-founded is not in itself enough to prevent forbearance from being a sufficient consideration for a promise.

1 Corbin on Contracts § 140, at 595 (1963). Further, in the same section, it is noted that:

The most generally prevailing, and probably the most satisfactory view is that forbearance is sufficient if there is any reasonable ground for the claimant’s belief that it is just to try to enforce his claim. He must be asserting his claim “in good faith”; but this does not mean he must believe that his suit can be won. It means that he must not be making his claim or threatening suit for purposes of vexation, or in order to realize on its “nuisance value.”

Id. § 140, at 602 (emphasis added). Indeed, we find support for the Corbin view in language contained in our cases. See White v. Flood, 258 Iowa at 409, 138 N.W.2d at 867 (“[C]ompromise of a doubtful right asserted in good faith is sufficient consideration for a promise.”); In re Estate of Dayton, 246 Iowa 1209, 1216, 71 N.W.2d 429, 433 (1955) (“The good faith assertion of an unfounded claim furnishes ample consideration for a settlement.”); Messer v. Washington National Insurance Co., 233 Iowa 1372, 1380, 11 N.W.2d 727, 731 (1943) (“[I]f the parties act in good faith, even when they know all the facts and there is promise without legal liability on which to base it, the courts hesitate to disturb the agreements of the parties....”); Lockie v. Baker, 206 Iowa 21, 24, 218 N.W. 483, 484 (1928) (Claim settled, though perhaps not valid, must have been presented and demanded in good faith.); First National Bank v. Browne, 199 Iowa 981, 984, 203 N.W. 277, 278 (1925) (Settlement of a disputed or doubtful claim in good faith is sufficient consideration for a compromise, even though judicial investigation might show claim to be unfounded.).

[9]        The Restatement (Second) of Contracts section 74 (1979), supports the Corbin view and states:

Settlement of Claims

(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless

(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.

....

Comment:

....

b. Requirement of good faith. The policy favoring compromise of disputed claims is clearest, perhaps, where a claim is surrendered at a time when it is uncertain whether it is valid or not. Even though the invalidity later becomes clear, the bargain is to be judged as it appeared to the parties at the time; if the claim was then doubtful, no inquiry is necessary as to their good faith. Even though the invalidity should have been clear at the time, the settlement of an honest dispute is upheld. But a mere assertion or denial of liability does not make a claim doubtful, and the fact that invalidity is obvious may indicate that it was known. In such cases Subsection (1)(b) requires a showing of good faith.

(Emphasis added.) See also 15 Am.Jur.2d Compromise and Settlement § 16, at 787 (1976); 15A C.J.S. Compromise and Settlement § 11(b), at 206 (1967), quoted in Messer v. Washington National Insurance Co., 233 Iowa at 1380, 11 N.W.2d at 731.

[10]      However, not all jurisdictions adhere to this view. Some courts require that the claim forborne must have some merit in fact or at law before it can provide consideration and these jurisdictions reject those claims that are obviously invalid. See ***.

[11]      In fact, we find language in our own case law that supports the view which is favorable to the employer in this case. See Vande Stouwe v. Bankers’ Life Co., 218 Iowa 1182, 1190, 254 N.W. 790, 794 (1934) (“A claim that is entirely baseless and without foundation in law or equity will not support a compromise.”); Peterson v. Breitag, 88 Iowa 418, 422-23, 55 N.W. 86, 88 (1893) (“It is well settled that there must at least be some appearance of a valid claim to support a settlement to avoid litigation.”); Tucker v. Ronk, 43 Iowa 80, 82 (1876) (The settlement of an illegal and unfounded claim, upon which no proceedings have been instituted, is without consideration.); Sullivan v. Collins, 18 Iowa 228, 229 (1869) (A compromise of a claim is not a sufficient consideration to sustain a note, when such claim is not sustainable in law or in equity, or, at least doubtful in some respect.). Additionally, Professor Williston notes that:

While there is a great divergence of opinion respecting the kind of forbearance which will constitute consideration, the weight of authority holds that although forbearance from suit on a clearly invalid claim is insufficient consideration for a promise, forbearance from suit on a claim of doubtful validity is sufficient consideration for a promise if there is a sincere belief in the validity of the claim.

1 Williston on Contracts § 135, at 581 (3rd ed. 1957) (emphasis added).

[12]      We believe, however, that the better reasoned approach is that expressed in the Restatement (Second) of Contracts section 74. Even the above statement from Williston, although it may have been the state of the law in 1957, is a questionable assessment of the current law. In fact, most of the cases cited in the cumulative supplement to Williston follow the “good faith and reasonable” language. 1 Williston on Contracts § 135B (3rd ed. 1957 & Supp. 1985). Additionally, Restatement (Second) of Contracts section 74 is cited in that supplement. Id. As noted before, as a matter of policy the law favors compromise and such policy would be defeated if a party could second guess his settlement and litigate the validity of the compromise. The requirement that the forbearing party assert the claim in good faith sufficiently protects the policy of law that favors the settlement of controversies. Our holdings which are to the contrary to this view are overruled.

[13]      In the present case, the invalidity of Dyer’s claim against the employer does not foreclose him, as a matter of law, from asserting that his forbearance was consideration for the alleged contract of settlement. However, the issue of Dyer’s good faith must still be examined. In so doing, the issue of the validity of Dyer’s claim should not be entirely overlooked:

Although the courts will not inquire into the validity of a claim which was compromised in good faith, there must generally be reasonable grounds for a belief in order for the court to be convinced that the belief was honestly entertained by the person who asserted it. Sufficient consideration requires more than the bald assertion by a claimant who has a claim, and to the extent that the validity or invalidity of a claim has a bearing upon whether there were reasonable grounds for believing in its possible validity, evidence of the validity or invalidity of a claim may be relevant to the issue of good faith.

15A Am.Jur.2d Compromise and Settlement § 17, at 790. We conclude that the evidence of the invalidity of the claim is relevant to show a lack of honest belief in the validity of the claim asserted or forborne.

[14]      Under the present state of the record, there remains a material fact as to whether Dyer’s forbearance to assert his claim was in good faith. Summary judgment should not have been rendered against him. Accordingly, the case is reversed and remanded for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

 

Questions:

1. Is this court’s rule phrased differently than the rule employed in Kim v. Son? Does the difference in analysis or result depend on the phrasing of the rule?

2. Under Dyer, is forbearance to litigate a claim believed in good faith to be valid sufficient even if that claim turns out to be baseless and frivolous? How do you square that with Restatement (Second) of Contracts § 75, which says that, generally speaking, “a promise which is bargained for is consideration if, but only if, the promised performance would be consideration?”

3. Can you think of a reason why Dyer is good social policy? Bad social policy?

Uniform Commercial Code § 1-308. Performance of Acceptance Under Reservation of Rights, and cmt. 3

Uniform Commercial Code § 3-104. Negotiable Instrument.

 

Question: Pull out a common bank check and test it to see whether it qualifies as a negotiable instrument under § 3-104(a). Does it?

Uniform Commercial Code § 3-311. Accord and Satisfaction by Use of Instrument.

Steven D. HAVARD and Judy A. Havard v. KEMPER NATIONAL INSURANCE COMPANIES et al. (1995)

S.D. Miss., 945 F. Supp. 953, aff’d, 71 F.3d 876 (5th Cir. 1995)

MEMORANDUM OPINION AND ORDER

WINGATE, District Judge.

[1]        Before the court is the defendants’ motion for summary judgment pursuant to Rule 56(b), Federal Rules of Civil Procedure. Plaintiffs Steven D. Havard and Judy A. Havard filed a complaint in the instant lawsuit seeking actual and compensatory damages and punitive damages against the defendants, Kemper National Insurance Companies d/b/a American Manufacturers Mutual Insurance Company (“Kemper”), Brown & Haynes Insurance, Inc., (“Haynes”), Hatch, Jones & Associates, Inc., (“Hatch”), and Midsouth Home Service, Inc., (“Midsouth”), for bad faith, fraud, gross negligence, negligent misrepresentation, deceit and other wrongful conduct. The genesis of this dispute began when plaintiffs’ home, insured by Kemper, was damaged by an accidental fire. Plaintiffs are unhappy with Kemper’s response to their claim under their fire policy and unhappy with the alleged activities of Hatch and Midsouth whose employees acted as appraisers in this matter. All defendants move for summary judgment on the ground that by cashing Kemper’s check tendered to plaintiffs in full satisfaction of their policy claim for fire damage to their home, plaintiffs now have fully discharged their claims under the doctrine of accord and satisfaction codified by Miss. Code Ann. § 75-3-311 (Supp.1994). Defendant Hatch moves for summary judgment on the additional ground that at all times it was an agent acting for a known and disclosed principal, and that, as such, it is shielded from any liability in plaintiffs’ bad faith suit. Both Hatch and Midsouth move for summary judgment on the ground that plaintiffs have no evidence to support any of the plaintiffs’ claims made against them. Plaintiffs oppose the motion. Nevertheless, this court is persuaded to grant the motions in all respects. * * * *

FINDINGS OF FACT

[2]        A fire damaged the home of the Havards, plaintiffs in this suit. The Havards had a homeowners’ policy of insurance with Kemper, so following the fire, they submitted an insurance claim with Kemper. Kemper processed the Havards’ claim and tendered a check for $5,374.45 for the claim on the damage to the dwelling. An accompanying letter dated June 25, 1993, informed the Havards:

Please find enclosed a check in the amount of $5,374.45 for the repairs to your house. We stand by our letter dated April 30, 1993, which stated the loss settlement and appraisal provisions of your policy. We have reviewed the repair estimates you sent and feel the damage repairs can be properly repaired in accordance with Mr. Meadows’ appraisal of $5,874.45.

Later, an attorney for Kemper, Larry Gunn, wrote a letter to plaintiffs’ attorney, stating the following:

A check was previously tendered to Mr. and Mrs. Havard in the sum of $5,374.45. The check has not been cashed.

The Havards are not happy with this check. Thus Kemper has elected to rely upon the appraisal provision of the policy. I enclose a copy of the page from the policy showing the terms and provisions of the appraisal provision of the policy. I also enclose a copy of Hartford Fire Insurance Company v. Conner, 79 So.2d 236 (Miss. S. Ct.1955) holding the appraisal provision of homeowner’s insurance policies to be valid and enforceable.

Please let me know if your clients would like to cash the check for $5,374.45 or if they would like to enter into an appraisal proceeding.

[3]        After receiving the check, the June 25, 1993, letter from Kemper, and the following letter from Larry Gunn, the Havards cashed the Kemper check. The Havards apparently attempted to reserve their rights to sue by marking on the back of the check “in partial payment and accepted with reservation.”

[4]        Later, after the check had been cashed, plaintiffs sued all parties connected with the insurance claim for bad faith, fraud, gross negligence, negligent misrepresentation, deceit and other wrongful conduct. In short, the plaintiffs claim that Kemper did not properly evaluate their claim and that the other defendants acted with Kemper to undervalue plaintiffs’ loss.

PROCEDURE FOR SUMMARY JUDGMENT

[5]        In response to a motion for summary judgment, the non-moving party is required to respond with proof of a prima facie case, sufficient for a jury to enter a verdict in their favor. * * * *

[6]        Rule 56(c) of the Federal Rules of Civil Procedure mandates summary judgment in any case where a party fails to establish the existence of an element essential to the case and on which that party has the burden of proof. * * * *   Rule 56(c) further requires that the court enter summary judgment if the evidence favoring the non-moving party is not sufficient for the jury to enter a verdict in the non-moving party’s favor. * * * *  When the moving party has carried the Rule 56(c) burden, the opposing party must present more than a metaphysical doubt about the material facts in order to preclude the grant of summary judgment. * * * *

CONCLUSIONS OF LAW

[7]        The doctrine of accord and satisfaction recently has been codified in Mississippi, Miss. Code Ann. § 75-3-311 (Supp.1994). The new statute effective after January 1, 1993, provides:

(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.

(b) ... the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.

[8]        The evidence received by this court convincingly establishes that plaintiffs’ claim has been discharged under an accord and satisfaction. Here, there was a bona fide dispute, a good faith tender of a check in full satisfaction of the plaintiffs’ claim, and the plaintiffs accepted payment of the check. A letter, accompanying the check, contained a conspicuous12  statement to the effect that the check was tendered in full satisfaction of the claim.

[9]        Not only did the letter accompanying the check inform the Havards that Kemper was paying no more money on the claim, a subsequent letter written by Kemper’s attorney, Larry Gunn, informed the Havards’ attorney that the Havards should either cash the check or enter into an appraisal proceeding in accordance with the provisions of the insurance policy.13   Moreover, the check itself stated on its face that it was “Payment for Fire Damage—Building.”

[10]      Throughout this entire period, when plaintiffs received the Kemper check and accompanying correspondence, plaintiffs were actively represented by counsel. Hence, before cashing the Kemper check they had ready access to a legal opinion on the possible consequences.

[11]      But, presence of counsel, while important, is not the key point here. The pivotal fact here is that the correspondence accompanying the check and that sent subsequently certainly told the plaintiffs that Kemper had determined their loss to be no more than $5,394.45; that this was Kemper’s final offer; and that if plaintiffs refused to accept this amount, Kemper was prepared to submit the matter to an appraisal proceeding. When plaintiffs cashed the check under these circumstances, plaintiffs showed accord and satisfaction as a matter of law.

[12]     Plaintiffs seemingly knew that by cashing the check they could be compromising their case. When the Havards cashed the check, they attempted to reserve their rights through notations on the back of the check. However, Miss. Code Ann. § 75-1-207(2)7 (Supp.1994)14  specifically states that accord and satisfaction is an exception to the general rule that a party may reserve its rights on an instrument. So, while the plaintiffs failed to preserve the vitality of their dispute through this means, by these actions in attempting to do so, they showed an appreciation for the operation of the principle of accord and satisfaction. On this issue of accord and satisfaction, then, this court finds that there are no genuine issues of material fact, and all defendants are entitled to summary judgment on the ground of accord and satisfaction. * * * *

IT IS, THEREFORE, ORDERED AND ADJUDGED that all defendants are entitled to summary judgment, and all claims against all of the defendants are dismissed WITH PREJUDICE. A separate judgment shall be entered in accordance with the local rules.

 

Questions:

1. Did the Havards assent?

2. What is consideration for the accord and satisfaction?

3. Does one have to find consideration in a full payment check case to which
§ 3-311 applies?

4. What should the Havards have done with the check?

1.4.3. Mutual Promises

WEST v. STOWELL (1577)

Common Pleas

2 Leonard 154, 74 ER 437, B&M 494

In an action upon the case, by Thomas West against Sir John Stowell, the plaintiff declared, that the defendant, in consideration that the plaintiff promised to the defendant, that if the defendant shall win a certain match at shooting, made between the Lord of Effingham and the defendant, then the plaintiff should pay to the defendant 10l. and promised to the plaintiff, that if the said L. Effingham shall win the same match of the defendant, that then the defendant would pay to the plaintiff 10l. and farther declared that the Lord Effingham won the match, for which the action is brought. 

Roger Manwood (1525-92) was appointed judge of the Common Pleas in 1572. He was knighted and appointed lord chief baron of the Exchequer in 1578. Manwood was famously corrupt. He offered to buy the position of Chief Justice of the Queen’s Bench in 1592, just before he died, and rumor has it he offered to buy the position of chief justice of the Common Pleas ten years earlier. See http://cca.li/QD. Manwood was also a philanthropist. He founded a grammar school in Kent, Sir Roger Manwood’s School, still in operation. The school’s web page can be found http://cca.li/QE.

It was moved, that here is not any sufficient consideration; for the promise of the plaintiff to the defendant, [is not equally actionable], for there is not any consideration upon which it is conceived, but it [is] only nudum pactum, upon which the defendant could not have an action against the plaintiff. And then here is not any sufficient consideration for the promise of the defendant. Mounsen, Justice, conceived that here the consideration is sufficient, for here this counter promise is a reciprocal promise, and so a good consideration, for all the communication ought to be taken together. Manwood [, J.:] Such a reciprocal promise betwixt the parties themselves at the match is sufficient; for there is consideration good enough to each, as the preparing of the bows and arrows, the riding or coming to the place appointed to shoot, the labour in shooting, the travel in going up and down between the marks: but for the bettors by, there is not any consideration, if the bettor doth not give aim. ....

 

Questions:

1. Ok, West is a little confusing. Perhaps the most confusing part of it is that the reporter, Leonard, doesn’t tell you who won. In fact, no one knows. I give you the case so that you can see that the rule that a promise can be consideration for another promise is quite different than the consideration rules we have just studied. The key to understanding the case is that Stowell’s counsel is objecting that there is no consideration because there is no detriment to West. That’s Manwood’s objection, too. But Manwood doesn’t think all wagers would be unenforceable. Manwood thinks West could have sued if he had participated in the match. Why would that have made a difference?

2. In this case, if West wins, does he win because otherwise Stowell would get away with a benefit he hadn’t paid for? Does he win because otherwise West will have performed a labor Stowell hadn’t paid for? What principle(s) of justice supports recovery here?

3. Who do you think should win this case?

STRANGBOROUGH v. WARNER (1589)

Queen’s Bench

4 Leonard 3, 74 ER 686 (1589)

Note, that a promise against a promise will maintain an action [in assumpsit], as in consideration that you do [promise to] give me £10 on such a day, I promise to give you £10 the day after.

 

Question: How are the facts named in the example different from those of Game v. Harvie?

NICHOLAS v. RAYNBRED (1615)

King’s Bench and Exchequer Chamber

Jenk. 296, 145 ER 215, Hob. 88, 80 ER 238

[1]        A sells a cow to B for 5l. and assumes to deliver her to him at a certain day; at the same time B assumes to A to pay him 5l. for the said cow, at the said day. A brings an assumpsit for the 5l. not paid, and does not aver delivery of the cow: it need not be averred; but the writ ought to aver the mutual assumpsit; for they are reciprocal assumpsits: and such mutual assumpsits are a good consideration, and each of them has a remedy against the other; one for the cow, and other for the 5l.

[2]        Judged in both courts [the King’s Bench and the Exchequer].

[3]        ... [B]ut such mutual assumpsits ought to be made at the same time; for they make the consideration, and the consideration and the promise always ought to be together: otherwise it is nudum pactum.

 

Questions:

1. Okay, this opinion always throws students, perhaps because it is so counter-intuitive. We don’t really think like this about binding promises, anymore. Does A have to deliver the cow before he sues for the money? The answer the court gives to this question is “no,” but this is no longer good law. It was modified in the early 1700s in a case you will probably read when you get to the second semester of Contracts. I want you to read Nicholas, though, so you can understand that, in its simplest form, contract law is really only about the enforcement of one promise, not about the enforcement of an agreement.

2. If A does not have to deliver the cow before suing B for the money, how will B get the cow?

3. Is there a bargain here?

4. Why must the promises be made at the same time, do you think? That rule is also no longer good law, but we will pinpoint later in the semester the exact date on which this rule was changed. The reason for the rule is still with us, though, but that reason is enforced through another rule, one we have already studied.

5. Can a promise to accept a gift be consideration for a promise to give a gift? It may help you to know the additional rule of law, here stated somewhat roughly, that the thing promised as consideration must itself be adequate consideration if exchanged for the promise at the time the promise was made. E.g., Restatement (Second) of Contracts § 75 (1981).

PROBLEM 6. Farmer promises to buy a tractor and seller promises to sell one. Is there consideration here?

ESSENTIAL ACCOUNTING SYSTEMS, INC. V. DEWBERRY (2013)

Ark. Ct. App.

428 S.W.3d 613, 617

**** Mutual promises constitute consideration, each for the other. ****

Note: This rule is the modern statement of the mutual promise rule, which holds that a promise can be consideration for another promise. The rule has been more or less the same since West v. Stowell.

The following cases and problems (derived from actual opinions) are an interesting subset of the mutual promise cases. Often the issue in these cases is described as “illusory promise” or “lack of mutuality.” These are only other names for lack of consideration in a case in which what might have been the consideration was a mutual promise. If there is no real mutual promise, but only an illusory one, then there is no consideration (assuming, of course, that no performance was consideration). That is what these cases discuss, for the most part.

There is another aspect of these cases reflected in the phrase “lack of mutuality.” Remember Nicholas v. Raynbred? How many times did that case say “mutual assumpsit”? Recall that, early on, if mutual promises were alleged as consideration, one did not have to perform first before suing on the promise. That was fair only because the defendant could turn around and sue the plaintiff for breach of the plaintiff’s mutual promise. (The requirement of two actions to reach a just result is probably why one can generally no longer collect for breach of promise without alleging performance of one’s own obligation.) But if the defendant could never recover on the plaintiff’s promise, then it didn’t seem right that the plaintiff could sue the defendant, so if the plaintiff’s promise did not bind the plaintiff, courts sometimes held that the plaintiff’s promise lacked mutuality and threw out the plaintiff’s suit. That seemed fair, too, conversely.

JOHNSON ENTERPRISES OF JACKSONVILLE, INC., a Florida corporation v.

FPL GROUP, INC., a Florida corporation, FPL Group Capital, Inc.,

a Florida corporation, and Telesat Cablevision, Inc., a Florida corporation (1998)

U.S. Court of Appeals, 11th Circuit

162 F.3d 1290, 1311

[1]        * * * *  It is a fundamental principle of contract law that a promise is not enforceable unless it is supported by consideration. See Restatement (Second) of Contracts § 17 (1981) (“[T]he formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.”). In a bilateral contract, the exchange of promises by both parties constitutes consideration. * * * *. * * * *

[2]        If, however, “one of the promises appears on its face to be so insubstantial as to impose no obligation at all on the promisor—who says, in effect, ‘I will if I want to’”—then that promise may be characterized as an “illusory” promise, i.e., “a promise in form but not in substance.” Farnsworth, Contracts § 2.13, at 75-76 (1990). An illusory promise does not constitute consideration for the other promise, and thus the contract is unenforceable against either party. See id.; Williston on Contracts § 7:7, at 88-89 (“Where an illusory promise is made, that is, a promise merely in form, but in actuality not promising anything, it cannot serve as consideration …. In such cases, where the promisor may perform or not, solely on the condition of his whim, his promise will not serve as consideration.” (footnote omitted)).

In re ADIRONDACK RAILWAY CORPORATION, Debtor (1988)

N.D. N.Y.

95 B.R. 867, 874

* * * *  It is hornbook law that illusory promises or mere statements of intention, which by their terms make performance entirely optional with the ‘promisor’ whatever may happen, or whatever course of conduct in other respects he may pursue, do not constitute a promise. Although such words are often referred to as forming an illusory promise, they do not fall within the present definition of promise. They may not even manifest any intention on the part of the promisor. Even if a present intention is manifested, the reservation of an option to change that intention means that there can be no promisee who is justified in an expectation of performance.

Id. at [Restatement (Second) of Contracts] § 2 comment e. Hence, the State’s return promise imposes no obligation on itself since it amounts to an “I will if I want to”, rendering the settlement, as a matter of law, anything but binding. * * * *   It is a promise in form but not in substance.

Note: These cases contain probably the best definitions of illusory promises I have seen in case law, perhaps because they are direct quotes from Williston and the Restatement (Second) of Contracts. Here is an illustration of their application:

RIDGE RUNNER FORESTRY v. VENEMAN (2002)

Fed. Cir.

287 F.3d 1058

[1]        Ridge Runner Forestry appeals from the decision of the Department of Agriculture Board of Contract Appeals dismissing its cause of action for lack of jurisdiction * * * *. * * * * Because no contract had been formed, we affirm the board’s decision.

[2]        Ridge Runner Forestry is a fire protection company located in the Pacific Northwest. In response to a request for quotations (“RFQ”) issued by the Forestry Service, Ridge Runner submitted a proposal and ultimately signed a document entitled Pacific Northwest Interagency Engine Tender Agreement (“Tender Agreement”). The Tender Agreement incorporated the RFQ in its entirety, including the following two provisions in bold faced lettering: (1) “Award of an Interagency Equipment Rental Agreement based on response to this Request for Quotations (RFQ) does not preclude the Government from using any agency or cooperator or local EERA resources”; and (2) “Award of an Interagency Equipment Rental Agreement does not guarantee there will be a need for the equipment offered nor does it guarantee orders will be placed against the awarded agreements.” Request for Quotation, No. R6-99-117 (March 29, 1999). Additionally, because the government could not foresee its actual equipment needs, the RFQ contained language that allowed the contractor to decline the government’s request for equipment for any reason: “Because the equipment needs of the government and availability of contractor’s equipment during an emergency cannot be determined in advance, it is mutually agreed that, upon request of the government, the contractor shall furnish the equipment offered herein to the extent the contractor is willing and able at the time of order.” Id. (emphasis added). The RFQ also included a clause informing bidders that they would not be reimbursed for any costs incurred in submitting a quotation. Ridge Runner signed Tender Agreements in 1996, 1997, 1998, and 1999. In 1999, it presented a claim for $180,000 to the contracting officer alleging that the Forestry Service had violated an “implied duty of good faith and fair dealing” because Ridge Runner had been “systematically excluded for the past several years from providing services to the Government.” In response, the contracting officer told Ridge Runner that she lacked the proper authority to decide the claim. Ridge Runner timely appealed the decision to the Department of Agriculture Board of Contract Appeals. The board granted the government’s motion to dismiss concluding that because no contract had been entered into, it lacked jurisdiction under the Contract Disputes Act (“CDA”), 41 U.S.C. §§ 601-613.

[3]        We have jurisdiction over an appeal from a decision of an agency board of contract appeals by virtue of 28 U.S.C. § 1295(a)(10). The board’s jurisdiction under the CDA requires, at a minimum, a contract between an agency and another party. * * * *  Therefore, the threshold matter is whether the Tender Agreements constituted contracts between the parties, which is a question of law that we review de novo. * * * *

[4]        Ridge Runner argues that the Tender Agreement was a binding contract that placed specific obligations upon the government; namely, the government was obligated to call upon Ridge Runner, and the other winning vendors, for its fire fighting needs, and in return, the vendors were to remain ready with acceptable equipment and trained staff to answer the government’s call. This, Ridge Runner argues, places the alleged contract squarely within our holding in Ace-Federal, 226 F.3d 1329.

[5]        Ace-Federal involved a requirements contract whereby the government was obligated to use, with limited exceptions, enumerated suppliers. Following a request for proposals, Ace Federal, as well as other vendors, contracted with the government to provide court reporting and transcription services for various federal agencies. Included in each of the contracts was the standard requirements clause found in Federal Acquisition Regulation § 52.216-21(c) which provides “[e]xcept as this contract otherwise provides, the Government shall order from the Contractor all the supplies or services specified in the Schedule that are required to be purchased by the Government activity or activities specified in the Schedule.” 48 C.F.R. § 52.216-21(c) (1988). Each contract also included a termination for convenience clause that limited government liability should the General Services Administration (“GSA”) choose to cancel any contract. During the relevant term, some of the covered agencies contracted for transcription services from non-contract sources without obtaining the necessary waiver. We held that “each time an agency that did not obtain a GSA waiver arranged for services covered under the contract from a non-contract source, the government did not act within the limited exception and breached the contract.” Ace-Federal, 226 F.3d at 1332-33.

[6]        The contract in Ace-Federal is quite distinct from the Tender Agreements at issue in this case. That contract obligated the government to fulfill all of its requirements for transcription services from enumerated vendors or obtain a waiver. The Tender Agreements here are nothing but illusory promises. By the phrase illusory promise is meant words in promissory form that promise nothing; they do not purport to put any limitation on the freedom of the alleged promisor, but leave his future action subject to his own future will, just as it would have been had he said no words at all. Torncello v. United States, 231 Ct.Cl. 20, 681 F.2d 756, 769 (1982) (quoting 1 Corbin on Contracts § 145 (1963)). The government had the option of attempting to obtain firefighting services from Ridge Runner or any other source, regardless of whether that source had signed a tender agreement. The Agreements contained no clause limiting the government’s options for firefighting services; the government merely “promised” to consider using Ridge Runner for firefighting services. Also, the Tender Agreement placed no obligation upon Ridge Runner. If the government came calling, Ridge Runner “promised” to provide the requested equipment only if it was “willing and able.” It is axiomatic that a valid contract cannot be based upon the illusory promise of one party, much less illusory promises of both parties. See Restatement (Second) of Contracts § 71(1).

[7]        Accordingly, the decision of the Department of Agriculture Board of Contract Appeals is affirmed.

 

Question: Is this case about the government not promising anything, or about Ridge Runner Forestry not providing any consideration?

The result in Ridge Runner Forestry seems acceptable, but consider the following problems. See if you can predict the right result. The answers, taken from real cases, can be found in an Appendix at the end of this volume. A note of caution: Some of these cases are controversial. The rule they cite might be acceptable, but the application may be erroneous, or at least problematic. Some courts myopically look for only a promise when some performance might in fact be the sought-for exchange.

PROBLEM 7. Miami Coca-Cola Bottling Co. (“Bottler”) agreed with Orange Crush Co. (“Crush”) as follows:  Crush would give Bottler a perpetual and exclusive license within a designated territory to make, bottle, and distribute Orange Crush under Crush’s trademark. Crush would supply concentrate at stated prices and do certain advertising. Bottler agreed to buy a specified quantity of concentrate, maintain the bottling plant, solicit orders for Orange Crush, promote its sale, and “develop an increase in the volume of sales.” The license “contained a proviso to the effect that [Bottler] might at any time cancel the contract.”

Bottler bought a quantity of concentrate and performed for about a year. Then, Crush gave written notice to Bottler that Crush would no longer be bound. In response to Bottler’s suit, Crush claimed that Bottler’s promise was illusory and that its own promise was therefore without consideration. What result?

PROBLEM 8. Central Nebraska Public Power and Irrigation District (“Central”) and Johnson Lakes Development, Incorporated (“Lakes”) entered into a written lease for land owned by Central. The lease term was 31 years. There was no provision for rent, but the lease stated that Central “shall have complete power and authority to cancel or terminate this Agreement at any time it so desires by giving [Lakes] written notice of such intentions at least six (6) months in advance addressed to [Lakes] at its last known corporate address.” Sixteen years later, Central decided to begin extracting rent. Central’s board directed its officers to modify the lease by agreement with Lakes. If Lakes failed to agree to a modification, Central was to begin the process of terminating the lease. Negotiations for rent failed, and Lakes sued Central. One of Lakes’s arguments was that Central’s right to cancel rendered the lease illusory. Did it?

PROBLEM 9. Scott offered to the Moragues Lumber Co. as follows: “I am thinking of buying an American shipping vessel of about 1,050 tons, due in Chile. If I buy it, I will charter it to you for the transportation of a cargo of lumber from any port in the Gulf of Mexico to Montevideo or Buenos Aires, for the freight of $65 per thousand feet of lumber, freight to be prepaid, free of discount and of insurance, and the vessel to be furnished within a reasonable time after its purchase.” Moragues Lumber accepted this offer, meaning it promised to charter the boat as offered. Scott purchased the vessel. Moragues Lumber was ready, willing, and able to charter it, but Scott chartered it to someone else. In response to Moragues Lumber’s suit against Scott, Scott argued that his own promise was illusory. Was it?

Along the same line as these facts, consider the common fact scenario of a real estate purchase contract with a financing condition—the “purchaser is not bound unless the purchaser obtains financing.” But the purchaser will never obtain financing unless the purchaser applies for financing and cooperates with the lender.15   Does the financing condition render the promise to buy illusory?

PROBLEM 10. This problem comes from a case written by Justice (then Judge) Cardozo. Best let him tell it in his own words. The case is Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917):

The defendant styles herself “a creator of fashions.” Her favor helps a sale. Manufacturers of dresses, millinery and like articles are glad to pay for a certificate of her approval. The things which she designs, fabrics, parasols and what not, have a new value in the public mind when issued in her name. She employed the plaintiff to help her to turn this vogue into money. He was to have the exclusive right, subject always to her approval, to place her indorsements on the designs of others. He was also to have the exclusive right to place her own designs on sale, or to license others to market them. In return, she was to have one-half of “all profits and revenues” derived from any contracts he might make. The exclusive right was to last at least one year from April 1, 1915, and thereafter from year to year unless terminated by notice of ninety days. The plaintiff says that he kept the contract on his part, and that the defendant broke it. She placed her indorsement on fabrics, dresses and millinery without his knowledge, and withheld the profits. He sues her for the damages, and the case comes here on demurrer.

Lady Lucy, in demurrer, claimed that Wood never promised to do anything and that the contract was therefore lacking in consideration. True?

PROBLEM 11. White Light Optical promised to sell and Lumenera promised to buy at certain prices all the small lenses that Lumenera needed for the webcams that Lumenera manufactured and sold. Three months later, White Light’s glass supplier went out of business, and it was unable to find another supplier at a cost that made the Lumenera contract profitable. White Light wanted out of it. Is Lumenera’s promise illusory?

Consider the following sections from the Uniform Commercial Code:

Uniform Commercial Code § 2-306. Output, Requirements and Exclusive Dealings, and cmt. 2.

Uniform Commercial Code § 1-304. Obligation of Good Faith.

Uniform Commercial Code § 1-201(20). General Definitions.

The UCC does not apply to everything. Here is the provision describing the scope of Article 2:

Uniform Commercial Code § 2-102. Scope * * *.

 

Questions:

Section 2-306 owes an intellectual debt to Wood v. Lucy, Lady Duff-Gordon. Wood was not selling goods, but one can apply the rationale of § 2-306(2) to the facts of that case.

1. Under subsection (2), was Wood more like a seller or buyer?

2. Would subsection (2) apply to Lucy?

3. Suppose I buy from Lucy all the dresses that she makes. Does subsection (1) impose any duties on Lucy or me?

PROBLEM 12. Mattei, a real estate developer, was planning to build a shopping center on a tract next to Hopper’s land. Mattei wanted to include Hopper’s land in the development. For several months, a real estate agent tried to negotiate a sale of Hopper’s land to Mattei. After Hopper rejected several proposals, the agent suggested Hopper herself submit a proposal. She did, on a form supplied by the agent. Mattei accepted the offer on the day it was offered. Under the agreement, Mattei was required to deposit $1,000 and pay another $56,500 at closing. The agreement said that the parties would close in 120 days. The agreement also contained the following condition: “Subject to Coldwell Banker & Company obtaining leases satisfactory to the purchaser.” Leases for what? For the shopping center. Apparently, Mattei was not going to build it unless leases for space within it were already in place. If he was not going to build, then he did not want to buy Hopper’s land.

Mattei paid the $1,000 deposit. While Mattei was securing leases, and before the 120 days had ended, Hopper’s attorney gave notice that she would not sell. Later, Mattei gave Hopper notice that satisfactory leases had been obtained. Mattei offered to pay the balance. Hopper refused to tender a deed. Her argument? That Mattei’s promise was illusory. Was it?

__________________________

Here is one last illusory promise case.

FORRESTER’S CASE (1661)

1 Siderfin 41

A minor by his guardian brought an action on the case in assumpsit and [the jury] found for the minor. And it was moved in arrest of the judgment * * * * that the consideration for this promise being it was by a minor to pay a sum of money is void, * * * * so that the promise on which the action is brought lacks consideration. But by the whole Court it was held that if the money was paid according to the promise of the minor it is clear that this action well lies because the consideration is executed. And it was held and ruled by the whole Court that although the money was not paid (whereas it was not in this case) nevertheless the action well lies because it is solely in the election of the minor to make his promise void, and not in the election of the [other] party * * * *. And it was said by Twisden, J., that where a minor made a lease for annual rent that it is not at all in the election of the lessee [to avoid] this lease for the infancy of the lessor, and upon the selfsame reason is our principal case, upon that judgment * * * *.

 

Questions:

1. Is this case different than West v. Stowell? If you recall, in West the two parties, a participant and a bystander, bet on an archery match. Only one of the two could win the bet. That meant that only one party’s promise could become enforceable. The promise made to the loser of the bet would not be enforceable by definition. What was the result in West?

2. According to Forrester’s Case and Justice Mounsen’s position in West, does a promise need to be enforceable in order to function as a valuable consideration?

3. A similar problem arises in cases in which the statute of frauds has effect. The statute of frauds, which we will study in Chapter 5, declares certain types of promises unenforceable if not in writing signed by the promisor. Could such an unenforceable promise serve as consideration? For the most part, courts have said “yes,” though a few states (such as the great state of Idaho, and also Michigan) dissent. Is it fair that an unenforceable promise serve as consideration? In Coca-Cola Bottling Corp. v. Kosydar, 331 N.E.2d 440, 444 (Ohio 1975), the court said, “The uttering of promises does not supply the actual consideration for the bargain. It is the content of the promise or the actual anticipated performance which supplies consideration for the bargain.” Accord Restatement (Second) of Contracts §§ 75, 78 (1981).

Note on Assent

Justinian’s DIGEST, 2.14.1.3

[S]o true it is that the word “agreement” [conventiones16 ] has a general significance that Pedius neatly says that there is no contract, no obligation which does not consist of agreement, whether it is achieved by the handing over of something or by the use of certain words.

For the last century and a half, courts have routinely held that one party to a contract must assent to another’s promise before that promise is enforceable: “The essential elements of a valid contract must be present: competent parties, legal subject matter, valuable consideration, and mutual assent.” Blatt v. Blatt, Opinion, 1988 WL 619305, *2 (Va. Cir. Ct. August 4, 1988). We will study mutual assent in the second half of the semester. But you should wonder, especially given Pedius’s opinion about “handing over” things and “certain words,” why both consideration and mutual assent are required. Is it possible for consideration to be present without mutual assent existing? Consider the next reading, from the argument of Laurence Tanfielde in Slade’s Case, which was argued several times before all the justices of England between 1597 and 1602. The judges never resolved the case formally, but Tanfielde’s argument must have seemed plausible to him at the time:

[A]s I have learned, an assumption is nothing but a mutual agreement between the parties for a thing to be performed by the defendant in consideration of [some benefit to the promisor or detriment to the promisee].

J.H. Baker, The Legal Profession and the Common Law 397 (1986, trans. by Baker). Consider also the argument of Saunders for the defendant in Peters v. Opie, 2 Keble 837, 84 Eng. Rep. 529, 530 (1671): “A mutual promise is but the construction of law on a mutual agreement.” Saunders argued during the age of Hobbes, Locke, and the social contract, and while Pufendorf was conceiving his own theory of contract. It is possible to have assent without consideration. Your next reading is from Pufendorf, who grounds all of contract on consent. Pufendorf was writing from continental Europe, not from England, and he didn’t recognize a requirement of consideration. Pothier’s theory to some extent follows Pufendorf’s.

Samuel von Pufendorf, DE OFFICIO HOMINIS ET CIVIS JUXTA LEGEM

NATURALEM LIBRI DUO 55-56, 59-60 (Frank G. Moore trans., 1682)

[T]hat promises and compacts may bind us to give or do something not formerly required of us, or to omit what we previously had a right to do, our voluntary consent is most essential. For, since the fulfillment of any promise and agreement is associated with some burden, there is no better reason to prevent our justly complaining about it, than the fact that we voluntarily consented to do what it was evidently in our own power to avoid. * * * *

Furthermore, consent should be mutual, not only in contracts, but also in promises, so that both promisor, and promisee, must consent. For when the consent of the latter is lacking, or when he has refused to accept the offered promise, the thing promised remains in the hands of the promisor. For he who offers something of his own to another, neither wishes to obtrude it upon him against his will, nor to consider it ownerless. Hence, if the other does not accept it, the right of the promisor over the thing offered is undiminished.

Robert J. Pothier, Treatise on the Contract of Sale § 31

(1752, transl. L.S. Cushing 1839)

The consent of the parties, which is of the essence of the contract of sale, consists in a concurrence of the will of the seller, to sell a particular thing to the buyer, for a particular price, and of the buyer, to buy of him the same thing for the same price.

Pothier, Pufendorf and a few others like them wrote treatises that theorized contract law persuasively around consent. These two and another commentator, Grotius, whose treatise was published in 1626, wielded great influence over English and American courts in the early part of the 19th century. America in particular was eager for new ideas from abroad, and some American lawyers tried somewhat successfully to extend French intellectual influence in American politics and law. During this time the common law of contracts adopted a requirement of mutual assent. We will study how that came about later in the semester. Now the following statement from courts is fairly common:

TURNER-BASS ASSOCS. OF TYLER v. WILLIAMSON

932 S.W.2d 219, 222 (Tx. Ct. App. 1996)

Mutual assent or agreement is the essence of a contract.

BRADDOCK v. MADISON CTY.

34 F. Supp.2d 1098, 1104 (S.D. Ind. 1998)

At its core and in general, however, the essence of contract law is the enforcement of promises where the parties have manifested their assent to a mutual exchange of consideration.

Actually both of these two recent statements from American courts are fairly common. Courts don’t even seem to see the conflict between them. Perhaps that is because so few agreements lack consideration, given most folks’ evident self-interestedness, particularly if courts “intend” consideration as did the court in Riches v. Bridges (and they do that, as we will see later). Is consideration essential to contract, or is agreement really what it is all about? Believe it or not, this issue is not settled in the law, and we won’t settle it in class, though we will revisit it again more carefully in Chapter 5. If you look closely at many of the cases we will study for the remainder of the semester, you will see just below the surface of the doctrines and analyses the tension about whether contract is about assent alone, or something more.

Note on Remedies in Contract Actions

The following are rough definitions of contract law remedies intended only to guide your inquiry this semester, not to substitute for rigorous case analysis here or in any other contracts or other course, especially one in which you might study remedies specifically, as we will not in this book. Damages remedies originated in the English royal law courts and are thus often called legal remedies. Injunctive and declaratory remedies originated, for our purposes, in chancery, meaning the office of the chancellor of England, who was entrusted with that nation’s public conscience. Often injunctive and declaratory remedies are called equitable remedies. Restitutionary remedies have a more difficult genealogy. They were granted by both the law courts and the chancery. Because the law courts’ paid homage to “justice and conscience” in restitution cases, however, restitution was (and is) often called an equitable remedy. Only tradition stops the courts from rewarding damages outside of these categories, and occasionally courts become very creative in the relief they order. Most courts stick with the following remedies, however, choosing from among them the one(s) they feel would best do justice.

Expectation Damages: a sum of money intended to place the non-breaching party in the position that party would have been in had the promise at issue been performed.

Reliance Damages: a sum of money intended to place the non-breaching party in the position that party would have been in had the promise at issue not been made. Generally two kinds of costs to the non-breaching party form a basis for reliance damages: out-of-pocket costs—direct net costs incurred by a promisee in reliance on a promise prior to breach; and opportunity costs—indirect net value that the promisee would have enjoyed if the promisee had taken an opportunity that the promise led the promisee to forego.

Restitution: an order that the promisor account for a benefit that has been conferred by the injured party on the promisor. Usually the promisor accounts by returning the benefit received or paying a sum of money equal in value to the benefit. The purpose of the restitution remedy generally is to prevent the unjust enrichment of the party in breach, in other words, to put the party in breach back in the position it would have been in had the contract not been made.

Injunction: a court’s order that a party do or not do something other than pay money damages. For example, in certain, special cases, a court may order specific performance, that the promisor perform as promised. In other cases, a court may order that a party to a contract refrain from interfering with another party’s performance. Courts often say that injunctive relief is inappropriate when legal remedies adequately compensate the plaintiff. The prototypical case in which damages are inadequate and specific performance is appropriate occurs when a promisor breaches a promise to sell land, because each piece of land is unique and determining the appropriate amount of damages involves too much speculation.

Declaratory Relief: a court’s statement of a party’s legal rights. For example, a court may state that a contract is void or voidable (rescindable) at the option of one or either party.

PROBLEM 13. A hires B to build a house for $100,000. B buys $20,000 worth of materials and does $15,000 worth of work that uses up all $20,000 in materials. Then A fires B for no good reason. The house would have cost B $90,000 to build. What are B’s damages? The court will probably let B choose its legal remedy, if one of them is adequate to compensate B, so which should B choose?

In Texas, an additional element of damages is available: “A person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; * * * * (8) an oral or written contract. Texas Civ. Prac. & Rem. § 38.001 (1997). Is this a good idea?

  • 1 The Compter was a jail in London, probably on Wood Street.
  • 2 Apparently, the jail was having a 2-for-1 special. By taking the servant’s place in jail, Pledge and his fellow citizen became guarantors or sureties for the servant’s debt to the plaintiff in the tres-pass case.
  • 3

    Plaintiff makes reference in her complaint to a “1980 written antenuptial contract” that she alleges she “signed ... one day before her wedding.” Although the record does not include a copy of this contract, it seems obvious from the context of this litigation that its general import was to segregate and preserve substantial assets as to Mr. Borelli’s separate property.

    The possibility that the agreement is ineffective to transmute the character of Mr. Borelli’s property because of noncompliance with various statute of frauds provisions (see Civ. Code, §§ 1624, 5110.730; Code Civ. Proc., §§ 1971-1972) need not be addressed here in light of plaintiff’s allegation that defendants are estopped to claim the benefit of these provisions. * * * *

  • 4 Plaintiff’s allegation in her complaint that she forewent the opportunity “to live an independent life in consideration of her agreement” with Mr. Borelli carries the clear implication that she would have separated from him but for the agreement.
  • 5 “J.S.” is short for John of Style, a fictitious name lawyers used in their reports to describe anyone whose name wasn’t really relevant. Our John Doe is the equivalent.
  • 6 Most disputed lawsuits end with a “judgment,” a document signed by a judge dismissing the suit or directing the defendant to do something such as pay money. After the court issues a judgment that a defendant pay money to a winning plaintiff, if the defendant refuses to pay then the plain-tiff must initiate collection procedures, which are separate from and collateral to the lawsuit that resulted in the judgment. The defendant in Reynolds was a winning plaintiff in a prior lawsuit. He had obtained in that prior suit a judgment against the Reynolds plaintiff.
  • 7 Acknowledging satisfaction of the judgment debt probably meant that the defendant give the plaintiff a signed and sealed writing that would have provided the Reynolds plaintiff with a de-fense to any further collection procedures by the Reynolds defendant.
  • 8

    [In other words, Edmonds, a minor, asked the plaintiff to guarantee a 30l. loan. (—Ricks)]

  • 9 The obscure peppercorn reference can be found in Hobbs v. Duff (1863) 23 Cal. 596, 602-603 [“‘What is a valuable consideration? A peppercorn; and for aught that appears by the pleadings in this case, there was no greater consideration than that for the supposed assignment,’ etc.”].
  • 10 The won (원) (sign: ₩; code: KRW) is the currency of South Korea.
  • 11

    It is undisputed that the employee was covered under workers’ compensation. The Iowa workers’ compensation act states in pertinent part that:

    The rights and remedies provided in this chapter ... for an employee on account of injury ... for which benefits under this chapter. . . are recoverable, shall be the exclusive and only rights and remedies of such employee. . . at common law or otherwise, on account of such injury ... against:

    (1) his or her employer....

    Iowa Code § 85.20 (1983) (emphasis added).

  • 12

    Mississippi Code Annotated § 75-1-201(10) provides:

    (10) “Conspicuous”: A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is “conspicuous” if it is in larger or other contrasting type or color. But in a telegram any stated term is “conspicuous.” Whether a term or clause is “conspicuous” or not is for decision by the court.

  • 13

    Section I, Condition (6), of the insurance agreement between the parties provides:

    [i]f you and we fail to agree on the amount of loss, either party may demand an appraisal of the loss ... The two appraisers will choose an umpire. If they cannot agree on an umpire within 15 days, you or we may request that the choice by [sic] made by a judge of a court of record in the state where the resident premises is located ...

  • 14

    Mississippi Code Annotated § 75-1-207(2) provides:

    (2) Subsection (1) does not apply to an accord and satisfaction.

  • 15 Nearly all real estate sales transactions occur as follows: The buyer and seller bind themselves to a contract to sell, subject to certain conditions. They then go about seeing if the conditions are met: that the seller owns the property, that the buyer obtains financing, and so on. After a period of time during which the parties can assure that the conditions are met, the parties “close” the trans-action by actually trading the real property and the payment given in exchange for it. Often, they will close through an agent who holds the document transferring title to the property (called a “deed,” usually) and the money to be paid for the property. We call the holding of these things for a pending transaction an “escrow” and the person holding them an “escrow agent.”
  • 16

    Conventiones is the same Latin word the English royal courts used when speaking of a covenant which they would then enforce if it was set forth in writing and sealed by the promisor. Justinian (or one of his scholars) was writing in Latin around 550 C.E.

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