Contracts
Class Notes
Did
the father in this case make an effective gift to his daughter?
The
father himself described what he did as a “nice Christmas present”.
Was
there an effective gift here? The father
gave the daughter a deed to the property.
The court says that “the delivery was complete”. The thing is, there was a contract “inside”
the deed that said the grantor (the father) would pay the mortgages on the
property.
This
lawsuit was the daughter against the father’s estate, not against her
father’s creditors.
Once
a gift is done, it’s done. There was a
gift, and the daughter owns the land.
But
there was both a gift and a promise. The
promise was written on the deed. The
promise was to pay off the two mortgages outstanding on the land. The problem is that you can’t give away
something that isn’t yours. The father
gave away his ownership in the land and made a promise to his daughter to give
her $8,000. He died without performing
the promise. The daughter sued to enforce
the promise.
Is
this an enforceable promise? The court
rejects the idea that the daughter’s act of giving the father a dollar
constituted real consideration. The court
says this was more a joke than anything.
That’s not to say that a dollar cannot be consideration ever, but
on these facts it isn’t.
The
court is looking for a bargain to enforce. It doesn’t care whether the consideration is adequate.
Consideration is bargained for.
There
are actually several reasons to reject the dollar in this case as consideration.
·
It’s not believable that $1 was traded for an $8,000
promise. It just ain’t so.
·
When you have only a pretense of consideration,
that’s not really consideration. 99% of
the time, the court won’t pay attention.
We are looking for a real exchange.[1]
·
It’s a joke!
It’s not an exchange, it’s a pleasantry.
·
The dollar is given after the present is all set
up. The dollar looks like a small
conditional gift.
Why
is love and affection not consideration?
That’s certainly the father’s motivation in making his promise. But that has nothing to do with consideration. Consideration doesn’t mean motivation. Consideration might be equal to motivation or
it might be entirely different from it.[2] “Love and affection” as consideration is…er,
um…illegal.
When
a father provides for a child, love and affection is a motivating factor in a
gift, but it’s not consideration.
Gift
transactions
In Hamer, there was a gift but also an element of
exchange. In Fischer, there is no element of
exchange. Note, however, in ordinary
commercial transactions there is no problem finding consideration.
Mr.
Simmons caught Diamond Jim in
Things
are bad in
The
writing was a lie! But the court ignored
the lie. Lies are bad; however, the court
treated this one as irrelevant. Why was
it in there? Batsakis supposed that it would make the debt
easier to collect at a later date.
The
court figures out what the deal was: it was 500,000 drachmae now against $2,000
plus interest if and when they are able to get back to the
This
was an illegal transaction under the law of the Nazi occupying power. If the lender or borrower had been caught,
they would have been dealt with harshly and maybe even killed. The lender was really sticking his neck out
to lend this money, and so the very high interest rate may well have been
justified.
Mere inadequacy of consideration
will not void a contract.
We
want to promote trade between individuals.
The parties make the bargain, and the court enforces whatever bargain
the parties make. We aren’t going to
scrutinize the fairness of the deal that closely.
There
are some reasons for which we will not enforce certain promises. We won’t enforce promises made under duress,
by children, or by people who are not mentally competent.
Planks
to board up windows cost more when a hurricane’s coming because they’re worth
more. You aren’t being coerced; you’re
not under duress from the seller.
One
basis for non-enforcement of promises is unconscionability. This is relatively new and is tied to the
adoption of the UCC.
The
unconscionability of a contract is a question of law (for the judge)
rather than a question of fact (for the jury). If the contract shocks the conscience of a
law-abiding person, the court may choose not to enforce the entire contract
or just strike down the bad bits.
Was
the contract in Batsakis
unconscionable? Was there a high degree
of risk involved? Did Batsakis have
unreasonable power over the money-lending market? Did Batsakis have a lot of money to spare, or
was he down to his last several hundred thousand drachmae?
Why
wasn’t the issue of unconscionability raised in Batsakis? The whole issue was new back then. Also, we only strike down promises that are really
bad.
Once
you can find a bargain, you enforce it.
Two
hypotheticals on claim settlements
Here’s
more on consideration in a different context.
Suppose
the plaintiff and defendant are involved in an automobile accident in which the
plaintiff is seriously injured. The plaintiff
claims that the defendant’s negligence caused the plaintiff’s injuries and the plaintiff
sues for $1 million. Both the plaintiff
and defendant are vigorously represented, and the defendant argues that he is
completely without fault. The case is
vigorously tried before a jury. Before
the jury comes back with a verdict, the plaintiff and his lawyers get nervous
about walking away with nothing. The defendant’s
lawyers are also nervous about losing the whole $1 million.
The
two sides come together and reach a compromise.
It is agreed that the plaintiff will surrender his claim in exchange for
$400,000 paid by the defendant. That’s
done at
The
jury comes back with the defendant’s verdict and says there’s no liability at
all, at which point the defendant says: “I don’t think I want to pay the
$400,000 at all.”
Does
the defendant have to pay? The defendant would argue that
the defendant gained no benefit and the plaintiff suffered no detriment.
Why
do we make the defendant pay? We want to
allow the plaintiff and defendant to make settlements like this as a matter of
public policy.
So,
we will allow dropping valid lawsuits to be consideration. But the problem is: what about invalid
claims?
Suppose
that we have
The
plaintiff knows that this is a bogus claim.
There is no “good faith” belief in this claim. Itch knows that
So
here are our policies: we want to encourage settlements out of court,
but we want to discourage extortion.
“The
claim upon which settlement is based must be made in good faith [honestly].”
The
Restatement Second says something quite similar.
There
is a difference between the Duncan test
and the Restatement test.
Duncan says that (1) the claim must be made in good faith and
(2) the claim must have some substance.
On
the other hand, the Restatement Second § 74 says you’ll have an enforceable
settlement promise if either (1) the claim is in doubt due to
uncertainty of law or fact, or (2) the plaintiff isn’t an extortionist,
that is, the plaintiff believed the claim might be valid. So with this test, you only need one or the
other as opposed to both.
This
is a very big, abstract doctrine of consideration. It protects two policy interests: (1) the
interest of enforcing socially useful settlement agreements and (2) the interest
of preventing extortion.
[1] If you
want to fake an exchange to make a promise enforceable, don’t use a dollar or a
penny. Instead, trade something without
a precise value or with sentimental value.
That probably won’t work either, but it has a better chance of working
than the dollar.
[2] See Restatement (Second) of Contracts § 81.
[3] First name: Beatrice