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Ch.1§3, pp.29-46. Basis for Enforcing Promises: Which Promises Should the Law Enforce? Why arent ALL promises enforceable?

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Presentation on theme: "Ch.1§3, pp.29-46. Basis for Enforcing Promises: Which Promises Should the Law Enforce? Why arent ALL promises enforceable?"— Presentation transcript:

1 Ch.1§3, pp.29-46

2 Basis for Enforcing Promises: Which Promises Should the Law Enforce? Why arent ALL promises enforceable?

3 Impracticality of Enforcing All Promises Bare promises (for which nothing is asked in return) are easily made and easily broken. Shouldnt one have the option of changing ones mind? Evidentiary Issues Flood the courts? Is there any economic benefit to enforcing promises for which nothing is given in return? Is there economic benefit to enforcing promises for which something is asked in return?

4 So, which promises will the law enforce? Is there consideration (quid pro quo) for the promise? No Gift Promise- generally NOT enforceable Kx Promise (promises for which there is consideration- generally enforceable Yes

5 Promises historically enforceable under English Common Law Common Law Actions Covenant (promises under seal) – Evidentiary – Cautionary – Later supplanted by signature Debt – Debtor had something belonging to promisee Assumpsit – misfeasance

6 Assumpsit Allowed recovery only for misfeasance until mid- fifteenth century Thereafter, permitted recovery for nonfeasance, but required detrimental reliance Replaces the action of Debt to recover for unpaid loans and delivery of goods not paid for. End of 16 th Century, enforces promise-for- promise (Bilateral Kx)

7 Consideration (Sources of the Doctrine) By the 17 th Century, Assumpsit becomes the action for enforcing all manner of promises The term consideration expressed the conditions necessary for a promise to be enforceable The action of Debt contributes the concepts quid pro quo and benefit conferred to the Consideration Doctrine. The action of Assumpsit supplies the notion of detriment.

8 Road Map for Kx Analysis 1.Scope 2.Kx Formation 3.Enforcement 4.Performance and Breach 5.Remedies

9 (Road Map) 1.Scope a.Geographic: which states law governs the transaction? In many transactions, more than one state may be implicated. For instance, in a Kx for the sale of goods, the seller may reside in Oklahoma, while the buyer resides in Texas. These are choice of law or Conflicts issues relating to jurisdiction and venue.

10 (Roadmap) (1. Scope) b. Subject Matter Having decided, if necessary, which states law controls, the next step is to decide which law within that state governs the transaction. Kx law is embodied in statutes and codes (from legislatures) and the common law, or case law (from the courts). This step in the road map entails determining if the transaction is governed by statute or code on the one hand or case law on the other.

11 (Subject Matter Scope) In addition, various organizations (e.g., the National Conference of Commissioners on Uniform State Laws) interested in clarity and uniformity in the law, as well as law transformation, have been influential in the development of Kx law. Most notable among such organizations is the ALI, which drafted the Restatements of the Law, including the law of property, torts and other areas, as well as the Restatement of Contracts.

12 (Subject Matter Scope) The Restatement of Contracts endeavors both to state the law as it is and to and, with respect to various issues, what the law should be. The Restatement is not a statute or codethe ALI is not a legislative body. As the product of a Kx brain trust, however, it has been extremely influential and is frequently cited by courts. Where a Restatement provision thus becomes part of a judicial opinion, it becomes part of the case law of that jurisdiction.

13 (Road Map) 2.Kx Formation The question here is whether a Kx has been formed. A cause of action for breach of Kx requires initially that a Kx has been formed between the parties. The first part of this course will be devoted to determining the requirements for Kx formation.

14 (Road Map) 3. Enforcement Once it has been determined that a Kx has been formed, the next step is to decide if there are any bars to enforcing it. Not all Kxs are enforceable for various policy reasons. What might some examples Kxs the law should decline to enforce?

15 (Road Map) 4. Performance and Breach In an action for breach of, if Kx is found, and there are no bars to enforcement, it remains to decide if there has been a breach. If so, the party against whom breach is alleged has an array of Responses to Breach available. These are considered under this part of the analysis.

16 (Road Map) 5. Remedies If we find Kx, no bars to enforcement, and breach to which there is no response, the complaining party is entitled to a Remedy for Breach of Kx. Generally, the remedy will be money damages, though under some circumstances, an Equitable Remedy (e.g., Injunction or Specific Performance) may be available in lieu of $ Damages.

17 Restatement 1 st Until the 1 st Restatement, individual transactions involving contracts were separately governed (e.g., Kx for shipping, purchases, etc.) The theme of the Restatement was to propose a single body of law governing all manner of contracts, whatever the subject matter of the contract Even after the Restatement, general categories of Kx are still identifiable

18 Categories of Kxs 1.Family Kx – Non-commercial, family contracts regularly implicate personal, family relationships. As such, they frequently do not lend themselves readily to resolution through judicial process – They are frequently oral – They are frequently gift promises Promises made among family members are routinely presumed gratuitous

19 Hamer v. Sidway At a wedding celebration, Story promises his nephew, Hamer, $5,000 if Hamer would refrain from drinking, smoking, etc. until age 21.

20 (Hamer v. Sidway) Nephew assented and refrained until age 21, fully performing as uncle requested. Uncle deposited the money in a bank account at interest.

21 (Hamer v. Sidway) Whos Sidway?

22 (Hamer v. Sidway) Who sued whom for what (what is the cause of action)? What is the remedy sought? What is the outcome below? Who appeals, and what is the outcome on appeal?

23 Issues in the case What is the defendants argument? How does the NY Ct. of Appeals define consideration? How might the issue(s) in this case be stated?

24 Hamer v. Sidway Issue:Whether Nephews refraining from smoking, drinking and gambling, all of which he had a legal right to do, was consideration for Uncles promise to pay $5,000, though Nephews refraining was of no measureable benefit to Uncle? *Why wasnt Nephews refraining a benefit to Uncle? Isnt what that what Uncle wanted?

25 (Hamer v. Sidway) Rule: A Promisees performance is consideration for the Promisors promise if it is either beneficial to the Promisor or detrimental to the Promisee. Forgoing the exercise of a legal right constitutes a detriment to the Promisee.

26 (Hamer v. Sidway) Holding/Application: Since Nephew had a legal right to smoke, drink and gamble, his forbearing constituted a detriment to him and was, therefore, consideration for Uncles promise to pay $5,000. Would the result be different in the case if, under NY law, Nephew could not drink or gamble until age 21?

27 So, what are the requirements for consideration so far? 2. Kx Formation Requirement: Promisees performance must be consideration for Promisors promise. From Hamer v. Sidway: To be consideration, a performance must either be a benefit the promisor (Uncle in the case) OR constitute a detriment to the promisee (Nephew). Forfeiting a legal right constitutes a detriment to the Promisee.

28 What constitutes a detriment to Promisee? A Promisee suffers a detriment in forgoing something the Promisee otherwise has a right to do. Nephew had a legal right to drink, smoke and so forth which he forfeited in response to Uncles promise.

29 Note 1: Benefit and Detriment, p.37 Recall that the notion that a benefit had been conferred on the promisor has its historical antecedent in the common law action of Debt The concept of detriment is traceable to the action of Assumpsit. Which is/are required according to the Hamer case? Do those concepts find their way into the Restatement ? What constitutes consideration under the Restatement §§71 and 79?. Would there be a contract formed between Story and Hamer under The Restatement?

30 Note 2: Bargain Theory of Exchange According to eminent jurist, Justice Holmes, the central requirement for consideration is the reciprocal conventional inducement. What does that mean? What does Bargained For mean? Is the Restatement definition of consideration consistent with Holmes view? If Bargained For is one of the requirements for consideration, would there be a Kx in Hamer? We will return to the Bargained for requirement with Feinberg v. Pfeiffer, p.46.

31 Note 3: Sufficiency of Consideration Is it required that the relative value of consideration given be enough? What was the position of the Restatement 2 nd ? (See §§76-81) What is the position of the Second Restatement on sufficiency? See Restatement 2 nd §79. Why did the Restaters adopt this position in the Second Restatement? What is meant by Peppercorn consideration? Restatement 1 st §84, Re.2 nd §71

32 Note 4: Peppercorn What is meant by Peppercorn consideration? Why is it a matter for concern under the Bargain Theory of Exchange? Is it a problem where a benefit to Promisor or Detriment to Promisee is required? How do the Restatements 1 st and 2 nd deal with Peppercorn consideration?

33 Note 5: Unilateral and Bilateral Kx Unilateral Kx refers to a promise given for a performance in return. Restatement §71(1). Bilateral Kx refers to a contract in which parties exchange promises. Which sort was involved in Hamer v. Sidway? What if on receiving Uncles promise, Hamer would have promised to refrain until age 21. Would there have been a Kx formed?

34 Gift (Gratuitous) Promises versus Completed Gifts (p.39) Are completed giftswhere something is actually transferred by one party to another enforceable, or should the party conferring the gift be able to deploy the courts to force the recipient to return the item? If completed gifts are enforceable, why shouldnt a promise to give a gift (a gratuitous promise without consideration) not be enforceable?

35 (Kx Formation) So far, the requirements for Kx look like this: Promise Price (performance or return promise) Consideration: Requires Promisees performance to be... (1) a Benefit to Promisor or Detriment to Promisee (2)*Bargained For-will be added as a requirement later

36 (Road Map: 2. Kx Formation) Promise plus a price for that promise – What might be a working definition for Promise? – The price for the Promisors promise will be either In unilateral Kx, a performance by the Promisee (e.g., Nephews refraining in Hamer v. Sidway). In bilateral Kx, which well study later, the price for the Promisors promise will be the Promisees return promise. Promisors Promise Promees Perf or return Promise E.g., to pay E.g., Refraining Price

37 Fiege v. Boehm, p.40 Facts: Boehm had an intimate relationship with Fiege, became pregnant and later gave birth to a daughter. Before the birth, Fiege promised to pay Boehms medical expenses associated with the pregnancy and birth, compensate her for lost wages, and pay $10 per week for support until the child reached age 21 provided Boehm would not institute Bastardy proceedings against Fiege. It was later determined that Fiege was not the father, whereupon he discontinued paying Boehm.

38 If not to get Fieges promise not to prosecute, why did Boehm agree to pay?

39 (Fiege v. Boehm) Cause of Action (C/A): Boehm sues Fiege for Br/Kxdid not pay support. Remedy: $ Dmgs measured by support due. Decision: Jury Verdict for P; D moved for JNOV or New Trial; Trial Ct. denied Ds motion and entered Jdgt for P; D appealed to the Ct. App of Maryland-Affirmed.

40 (Fiege v. Boehm) Issue: Whether Boehms refraining from bringing bastardy proceedings against Fiege, whom she believed to be the father of her child, was consideration for Fieges promise to pay expenses and support though the claim later proved to be invalid?

41 (Fiege v. Boehm) Rule: Forbearance to assert an invalid claim is consideration provided there is an honest and reasonable belief that the claim is valid. Application: Since Boehm honestly and reasonably believed she could prosecute Fiege for bastardy under Maryland law, her refraining from prosecution was consideration for Boehms promise to pay, although her claim later proved to be invalid as Fiege was not the father of her child.

42 Note 1: Objective Requisite (p.45) What is meant by the objective requisite? What, then, is the subjective requisite? What does the Restatement 1 st require? What does the Restatement 2 nd require? What did the Fiege court require?

43 Note 2: Nondisclosure What significant fact did Beohm omit? Could she have enforced promises made by two promisors? What about.... Three? More?

44 Note 3: Lawyers Ethical Responsibility and Invalid Claims-Rule 11 An attorney may face serious sanctions on bringing a frivolous claim!

45 Policy Behind Fiege v. Boehm A rule without a reasonsome worthwhile policy advanceis worse than useless, as it impedes behavior. Does Fiege v. Boehm advance some worthwhile policy? What policy?

46 Recall Justice Holmes reciprocal conventional inducement that drives his Bargained for Theory of consideration back in Note 2, p.37. Did Holmes theory influence the drafters of the Restatement 1 st ? See Feinberg v. Pfeiffer, p.46. Bargained for Exchange Requisite: Action in the Past

47 Feinberg v. Pfeiffer, p.46 The Board of Directors of Pfeiffer Co.(Co.) passed a resolution to pay Feinberg a pension for life on her retirement in consideration of her outstanding past service to the company. Co. did not ask Pfeiffer to retire in exchange Co. did not require her to continue working in exchange. Pfeiffer continued to work for Co., then retired. Thereafter, Co. discontinued paying Pfeiffer

48 (Feinberg v. Pfeiffer) C/A: Feinberg sued Co. for Br/Kx Remedy:Money Dmgs-lifetime pension payments withheld and payment of pension for life. Decision: Trial Ct. held for P, D appealed to Sp. Ct. of Mass. Revd (on Kx issue).

49 Issue: Kx Analysis (Road Map) 2. Kx Formation – Promise plus price. The Promisors (Co.s) promise was a promise to pay Feinberg a pension of $200 for life. What was the Price for Co.s promise? Recall, the price of the promisors promise will be either the Promisees performance or return promise. Feinberg made no promise: what was her performance, then?

50 (Kx Analysis: Feinberg v. Pfeiffer Co.) (2. Kx Formation) Promise plus Price Consideration – Benefit/Detriment (ala Hamer v. Sidway) Did Feinbergs performance constitute consideration as to the Benefit/Detriment requirement?

51 (Feinberg v. Pfeiffer) Issue: Whether Feinbergs years of service to Co. was consideration for Co.s promise to pay her a pension for life?

52 (Feinberg v. Pfeiffer Co.) 2. Kx Formation a) Was Feinbergs 37 years of service a benefit to D (Pfieffer Co.)? Was it a detriment (as we defined it in Hamer) to Feinberg? If so, what was missing? Is there an additional requirement for consideration? If so, what is it?

53 (Feinberg v. Pfeiffer) Rule: To be consideration for the Promisors promise, the Promisees performance must be bargained for; that is, the Promisor must have made the promise in order to get the Promisees performance. Action in the past is not bargained for.

54 (Feinberg v. Pfeiffer) Holding/App: Since Co. already had Feinbergs years, they could not have made their promise to pay her a pension for life in order to get her services. Thus, Feinbergs past services were not bargained for and not consideration for Co.s promise to pay.

55 What Feinberg Adds to the Analysis 2. Kx Formation Promise plus Price Consideration – Benefit/Detriment (ala Hamer v. Sidway) – Bargained For: Promisees performance or return promise must be bargained for: that is, the Promisor must have made the promise in order to get the Promisees performance or return promise. That is, the Promisor must have been induced to make the promise by the Promisees performance or return promise.

56 Interlude: Outlining-plugging in cases and Restatement Provisions 2. Kx Formation Promise plus Price Consideration – Benefit/Detriment: Hamer v. SidwayBenefit-Detriment a requirement for Consideration. Benefit-must be measureable; Detriment-forfeiting legal right Restatement §§71 and 79: a performance or return promise is consideration if Bargained For; benefit/detriment abandoned (majority view). Small group of states retains Ben/Det requirement Fiege v. BoehmForfeiting what proves to be an invalid claim is consideration for a promisors promise if Promisee held an honest and good faith belief in the validity of the claim at the time of Kx Formation. I.e., beneficial to Promisor/detrimental to Promisee at the time of Kx Formation. Restatement §44(1): failure to assert an invalid claim is consideration if Promisee honestly believed claim was valid.

57 – Bargained For: Feinberg v. PfeifferPromisees performance or return promise must be Bargained For, so past services cannot be consideration for a Promisors promise. Restatement §71: To be consideration for Promisors promise, the Promisees performance or return promise must be Bargained Forsought by the Promisor in exchange for its promise.

58 (Feinberg v. Pfeiffer Co.) Follow-up If Feinbergs past performance was not consideration for Co.s promise to pay, what about her continuing to work? What about her retiring? Note 2, p. 50. If Co. wished to make the promise a promise with consideration (a Kx promise) and therefore binding, how might the resolution been drafted?

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