Contracts
Class Notes
Exam
review times: Friday October 24 at
Allegheny College v.
National Chautauqua County Bank
Mary
Johnston made a promise to the college in writing to give them $5,000. The promise is to be performed upon her death
by her estate. While still alive, she
does two things: she gives $1,000, and then repudiates the promise for the
other $4,000. Then she dies and the
college sues her estate. The college is
successful and recovers the $4,000 from her estate with the help of the Court
of Appeals of
The
question is: why does Cardozo enforce this promise?[1] Is there consideration? In order for there to be consideration, there
must be something that
When
did this promise become enforceable? It
became enforceable when the college received the $1,000. There is nothing that makes the promise enforceable
before then. There is nothing in this
opinion that would result in enforcement if the $1,000 hadn’t been given and
accepted.
But
just what is it that
Where
and how did the college promise to memorialize
This
is really reaching for consideration.
This is working awfully hard to find an exchange. Sometimes the facts are so strong that it is
easy to imply a promise. Here, the facts
were not strong at all.
When
the promisee is some charitable organization, the court will work hard
to find consideration or, as an alternative, reliance on the promise, and
therefore come up with a reason to enforce the promise. That’s what you find in this case.
Cardozo
is working hard to get future courts to enforce charitable subscriptions. There’s no doubt that he could have had
stronger facts to work with.
Restatement
§ 90
In
Restatement Second § 90(2), charitable subscriptions and marriage settlements
are given special status. Unlike other
promises, there is no need to show that such promises induced action or forbearance.
Under
§ 90(1), you need a promise that it is reasonable to think that the promisee
would rely upon. There’s also this bit
about justice…that’s pretty vague. §
90(2) suggest that charitable subscriptions are automatically enforceable.
Lessons
of Allegheny
College
What
do we learn from Allegheny
College? You can bargain for a
charitable promise, and you can have consideration. Some charitable promises are enforceable on
these grounds. Other charitable promises
may be enforced on the basis of foreseeable detrimental justifiable reliance.
The
other thing to learn is that courts try to be helpful to charities just like
Cardozo was helpful to
That
gets us to § 90(2), which says that basically charitable subscriptions are automagically enforceable.
Notice
that in the note cases that some states “swallow” § 90(2) in full, such as in Salsbury
v. Northwestern Bell Tel. Co.
The
few courts that address Salsbury directly have rejected it. However, the common belief is that charitable
subscriptions are enforced.
If
you’re thinking about repudiating a promise to a charity, you better check the
law of the jurisdiction you’re in. In
most jurisdictions, you can bet that the promise will be enforced. On the other hand, if the promise was “ill-considered”
or extravagant in light of the promisor’s resources—factors that have nothing
to do with consideration or detrimental reliance but have a lot to do with the
question of whether or not to enforce promises—the promise may not be enforced.
Cardozo
at work
Cardozo
works real hard to find consideration in
Cardozo
says there are basically two possible grounds for enforcement. First, you could use bargained-for consideration. Alternatively, you could use detrimental reliance
(AKA promissory estoppel). If you find
valid consideration, it would be a mistake to mess around with promissory
estoppel.
It
doesn’t please a reader of exams when you have a business contract with clear consideration
and you decide to write a bunch of stuff about promissory estoppel and § 90.
Why
does Cardozo hang his hat on consideration and not § 90? What’s wrong with this case from a § 90
perspective? Was there any reliance here
at all? Did the College do anything in reliance
of
When there is no reliance, §
90 and promissory estoppel do not apply.
That’s
why Cardozo goes for consideration.
Also, when we don’t have a charity in the picture, we’ll look for serious,
substantial reliance. If that’s
lacking, we won’t enforce the promise.
Furthermore,
in this particular case, it is far from unconscionable to enforce this promise
because the promisor got something. This
was a donative promise, primarily made out of “affection”
for the College.
A “smidgen”
of reliance will not cause justice to demand enforcement unless you are dealing
with a charity as the promisee.
Overall,
this case leads us further down the road to enforcement based on unbargained-for detrimental reliance.
When
the established law gives you an answer that you don’t like, courts may look
around for ways to get around enforcing a promise that they don’t like.
We’ve
looked at family cases and charitable cases, but now we will look at business
cases.
East Providence Credit Union v. Geremia
The
Geremias secure a loan by giving the lender an
interest in their car. How valuable is a
car? It might have zero value if it gets
stolen or damaged. If you’re a lender
and you take a security interest in a car, you require the debtor to take out
insurance on the car.
Part
of the agreement is that the insurance company will notify both the creditor
and debtor if the insurance is about to lapse due to late payment of
premiums. The Geremias
fall on hard times and fail to make payments.
The creditor sends them a letter that if the Geremias
fail to pay, the credit union will pay the premiums and will add the cost to
the principal of the loan.
Was
there a promise here? Did the credit
union promise to pay the insurance premiums?
They did not do so in the telephone conversation. All that was discussed was whether the
debtors should get in touch with the treasurer.
The
letter is at least a threat. It
says if they don’t shape up, the payments will be made for them. But is there really a promise here? We will come back to this question when we
discuss agreement formation. It is
surprising that this issue was not discussed in the opinion; it’s a more
difficult matter than it seems.
For
our purposes, we assume that there was indeed a promise. The question at hand is whether the promise
should be enforced. The court considers
two alternative bases for enforcement:
1. Was there consideration
for the promise? The lender promised to
pay the premium in exchange for the debtors paying back the premiums with
interest. This is a typical
lender/borrower situation. A creditor
lends you money today in exchange for the promise to repay with interest. Was that the situation here? The amount of the interest on the premium
would have been tiny. Also, the creditor
is not motivated by wanting to make a profit on loaning the premium
payments. The creditor is making a
threat to try to keep the car insured. Consideration
is relatively thin here.
2. Did the Geremias rely on the promise to their detriment? They didn’t pay the premiums. Was that reliance? Maybe, maybe not. One reason to be suspicious is that they are
doing the same thing (inaction) as before the promise was made. Another reason to be suspicious is that they
had no money and couldn’t pay the premium. They would have done the same thing whether
or not the promise had been made. Also,
the Geremias continue to drive the car. If they thought the car was uninsured, they
might have chosen not to drive it around.
Was their driving relying on the promise to pay the premium? Maybe, maybe not. Maybe they were just so dependant on driving
the car that they decided to take their chances. Is there any real reliance here?
The
reality of this situation is that the Geremias are
the little guys and the credit union is the Big Guys. That’s part of the reason that it comes out
the way it does.