Contracts
Class Notes
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
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
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
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
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,
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.
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
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.
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.