Contracts Class Notes 10/15/03


What promises are we going to enforce?


We’ll enforce some but not all.  We need a ground for enforcement, and we’ve mentioned four potential grounds for enforcement:


1.     Formality

2.     Consideration

3.     Foreseeable, justifiable reliance (in the absence of consideration)

4.     Charitable subscriptions (but there are some doubts about this, and forget about it if the promisee is not a charity)


Formality and the Seal


In Anglo-American common law, the fact that a promise was under seal was a good reason for enforcing it, without more.  That worked pretty well when the seal was in its heyday.  Seals used to actually mean something.


Promises had to be:


1.     Written on a piece of paper

2.     Signed (or x’ed)

3.     Sealed with a glob of wax and an imprint (like a family crest or something)

4.     Delivered to the promisee


This seems silly, but this will have the cautionary function as mentioned by Prof. Fuller.  People will have to take time and really think about what they’re promising.


Also, promises under seal made for good evidence.


What the heck happened?  It was decided that the formalities were too formal, and over time (the 19th and 20th centuries), a reform process caused the seal to get “watered down”.  We went from wax to sticky stickers.  Then we went from sticky stickers to just a drawing of a seal[1] on a piece of paper.  Then we went from a drawing of a seal to the letters “LS”, which in Latin stand for “in place of a seal”.  Now, there is often just language that says “the parties have set their seals on this thingy”.


All of the various requirements have gotten watered down.  Pretty soon, almost every writing is, at least arguably, under seal.  Thus, the seal doesn’t really mean much anymore.


Also, it’s hard to tell if a document is under seal under the new, watered down requirements.


Today, many states have abolished the seal.  Some states, like Pennsylvania and Massachusetts, still allow promises under seal.  But the majority of the country (in terms of population and commercial activity) has decided that the seal shall be abolished.


All of the fifty states have abolished the seal as far as the sale of goods goes (i.e. according to UCC Article 2).


We don’t have a formality that will make a promise enforceable anymore in this state and many others.


Various things have been suggested as replacements for the seal.  For example, the Uniform Written Obligations Act required a written promise that was signed and contained language to the effect of “I intend to be legally bound”.  So we have a uniform statute promulgated for use in all fifty states, but it has been a big failure.  It has only been adopted in Pennsylvania.  Why don’t legislatures care for this proposal?


The problem is that this language will be included as boilerplate language in every document, and nobody is going to pay attention to it.  It’s not going to serve Fuller’s functions that well.  You could print up a zillion pieces of paper with the magic words on it, and it’s virtually guaranteed that no one will ever pay attention to it.


To make an enforceable promise in Ohio, you need consideration or some foreseeable, justifiable reliance.  You may not if you’re promising something to charity.  But formality won’t do it anymore.


Hamer v. Sidway


This is a “reasonably celebrated casebook case”.


The uncle promises his nephew some cash if the nephew won’t do bad stuff like smoking, drinking, and swearing.


The Court of Appeals of New York enforces this promise.  How come?  What makes this promise enforceable?  Why shall we enforce this promise?


What is consideration?  There are a few definitions here.  One is “benefit to the promisor and detriment to the promisee”.  This is kind of an old-school definition and is not found in the current Restatement.


In this case, the court says that the nephew gave up his right to smoke and drink and stuff in return for the money.  The court believes that it is thus clear that the nephew incurred a detriment.


It seems less clear how the uncle benefited.  The court supposes that he had some kind of touchy-feeliness that was of personal value to him.


The modern test for consideration – Restatement § 79


If you have consideration under § 71, then you don’t need a benefit to the promisor or a loss to the promisee.  This comes from Holmes.  What we care about is trade.  If there is exchange, if there is trade, if there is a bargain then we have consideration and potentially an enforceable agreement.


If the promisee gave something to the promisor that was bargained for, then we’re done.


Is this the law in Hamer?  They have old-fashioned stuff in there, but they also quote from Pollock, who is more in line with the Restatement.


Was there a trade here?  Plainly, the uncle would not have made this deal with just anybody he would meet walking down the street.  The uncle’s motivation was mainly gratuitous.  He wants to give the nephew some cash.  Generally, we will not enforce gratuitous promises because there is nothing bargained for, thus no consideration.


Restatement § 81 says that it doesn’t matter if the consideration itself was the thing that induced the promise.  It’s still good consideration.


People often have several different motivations.  The uncle wanted to give a gift.  He probably also wanted to make a splash at a party.


Consider the Restatement §§ 71 and 81 together, and we discover the following:


If you have a transaction that is 99% gift and 1% bargain, the “smidgeon” of exchange is consideration.


If the uncle even slightly is bargaining for the nephew’s abstinence in exchange for the $5,000 and the nephew is even slightly bargaining for the $5,000 in exchange for his abstinence, then you have consideration.


This is extremely abstract.  We might well wonder if this is a good basis for deciding what promises ought to be enforced.


Hypotheticals on Hamer


Let’s change the facts in Hamer and see if we can produce a different result.


Suppose the morning after the uncle makes the promise, he tells the nephew that he has changed his mind.  The nephew sues on the theory that a contract was made and the uncle repudiated.  Will the court award expectation damages to the nephew?


Can we shoehorn this into the statute of frauds?  Sure, because this contract cannot be performed within a year.  It’s unenforceable because it’s oral.  In the actual case, the uncle wrote a letter that constitutes a memorandum that would satisfy the requirements of the statute of frauds.  Also, the nephew performed.


Even if there were no statute of frauds problem, Clovis would bet against enforcement, because a court would likely say that this was a gratuitous promise, and that there was no bargain or exchange.


Consideration doesn’t have squiddley-squat to do with reliance.


Say someone promises you a car when you graduate from law school.  You could either argue that this is a car in exchange for graduating, or you could argue that it’s a gift promise with a stated date when it will be made.  This is the kind of manipulation a court can use if it either does or doesn’t want to enforce a promise like this.


Uncle Story’s letter


How does the uncle’s letter satisfy Fuller’s functions?  It satisfies the cautionary function.  He had six years to think about his promise and he reaffirmed it.  The letter also has the evidentiary function, because the nephew can drag the letter into court as evidence of the seriousness of the promise.


Notice that it wasn’t the nephew himself that brought the claim.  The nephew sold the interest in the $5,000 to some other folks.


Also, the letter of the uncle is almost, but not quite, a self-declaration of trust.  The uncle could be regarded as declaring himself a trustee for the nephew’s benefit.  The problem is that the uncle is probably lying when he says that the $5,000 is in the bank.  If there were such a trust, we would be out of the law of contracts and into the law of trusts.


The letter is also almost, but not quite, a will.  It fails because it doesn’t say what will happen upon his death.


The letter is almost a contract, almost a trust, and almost a will.  It does show that he was serious about his promise.  It does not appear that he changed his mind during his lifetime, rather, his greedy heirs changed his mind for him.


All in all, we find that this is a promise the court is willing to enforce.  But if you change some of the facts (we’re not sure how many), these facts will fall short of showing an enforceable promise.


Whitten v. Greeley-Shaw


This modern case more closely reflects the language of the Second Restatement.


A man and woman are having an affair.  The man promises a whole bunch of stuff, and the woman promises stuff (according to Clovis) that wasn’t written down.[2]  The only explicit promise is that the defendant will not call the plaintiff at home.


The defendant fails to pay him back for a $64,000 loan.  The plaintiff sues, but the defendant counterclaims for the $500 a month.


The promise not to call could have been consideration for the various things promised by the plaintiff.  However, the promise not to call was not sought after by the defendant.  He was after something else.[3]  There could have been a trade, but there wasn’t.  If you didn’t want to enforce the agreement in Hamer, you could probably say the same thing.


Earle v. Angell


A promise to attend the aunt’s funeral can be exchanged for $500, according to Holmes.  This tells us that adequacy of consideration is immaterial.  We can assume that attending the aunt’s funeral was worth a whole lot less than $500.  We’re not concerned with adequacy; we’re only concerned with whether there’s a bargain.  We don’t care that one party got a good deal and one party didn’t.  If there was a trade, we’ll enforce it.  The nephew’s attendance has basically zero economic value.


Gift promises do not include consideration, and thus we will not enforce them.


Does it make sense to bind the promisor?  Would it be right to let him change his mind?  We will decide that it is not right when the promise significantly alters the life of the promisee.  (That’s reliance.)


The nephew’s absence of itself did not induce the promise to give him $500.  However, it’s still consideration.  If there is a smidgeon of trade involved, the promise will be enforced.


The tough cases on the doctrine of consideration will frequently be related to promises made between family members or friends.  Consideration is rarely a difficulty in the commercial realm.


Tomorrow, we will look at Fischer v. Union Trust Co., Batsakis v. Demotsis, and Duncan v. Black.


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[1] Not an otter.

[2] Very racy!

[3] Whooooo!