Contracts Class Notes 10/24/03


We started taking about East Providence Credit Union v. Geremia last time.  That was a case that worked awfully hard to do something for the Geremias.


It didn’t seem clear whether the credit union made a promise.  Even if there was a promise, it wasn’t clear that something was exchanged for the promise.  Furthermore, it’s not clear that the Geremias relied on the promise that may or may not have been made.


Siegel v. Spear Co.


Here there was a promise to procure insurance, clearly without consideration.  This one was enforced.  One reason is that there was a big change in the promisee’s position based on the promise.  This makes it credible when the plaintiff says he relied on the promise.  On the other hand, it seemed that the Geremias didn’t do anything different after the promise of the credit union than before that promise.  There’s a much better factual basis for enforcement in Siegel than in the previous case.


The comments to the Restatement § 90 include:


e. Gratuitous promises to procure insurance. This Section is to be applied with caution to promises to procure insurance. The appropriate remedy for breach of such a promise makes the promisor an insurer, and thus may result in a liability which is very large in relation to the value of the promised service. Often the promise is properly to be construed merely as a promise to use reasonable efforts to procure the insurance, and reliance by the promisee may be unjustified or may be justified only for a short time. Or it may be doubtful whether he did in fact rely. Such difficulties may be removed if the proof of the promise and the reliance are clear, or if the promise is made with some formality, or if part performance or a commercial setting or a potential benefit to the promisor provide a substitute for formality.


There’s a big risk taken when you apply promissory estoppel to promises for insurance.  The Restaters say “Be careful about this!”  The application of § 90 is kind of questionable in East Providence.  The court works real hard to help the Geremias out.


Seavey v. Drake


The father went on the land and gives his son, the plaintiff in the case, a portion of the land.  Why isn’t that a completed gift?  Why does the son have to bring this litigation?  There’s no deed.  How do you make a completed gift?  You need to have a donative intent, and you need to deliver the gift.  The way you deliver a gift of land is by handing over a deed.


What’s the statute of frauds issue here?  Contracts for the sale of land must be in writing.  Sale of land also involves gifts of land.  Any agreement to transfer land will have a statute of frauds problem unless it is in writing and signed by the promisor.  In the present case, we had an oral promise to convey land.


There is also a lack of consideration.  This was a gift promise.  Even if the promise had been written, there would still have been a consideration problem.


The son gets over both of the hurdles and gets the promise enforced.  Why?


Part performance


This is a doctrine that is only used for land promises.  Part performance means something different than it does in other cases.  Partial payment will not satisfy the statute of frauds, and that’s not what we mean here.


What will constitute part performance?  If you enter the land and occupy it and make significant improvements on it, then the promise to give you the land will be enforced.


Why do we have this doctrine?  It involves reliance on a promise which, in this case, is both gratuitous and oral.  Reliance takes care of both difficulties:


·        Reliance is very clear and justice calls for enforcement.  Otherwise, you’ve spent a lot of time and money on this land without getting anything out of it.

·        The reason we have a statute of frauds is that we doubt that every alleged oral agreement really ever existed.  If you write down the promise, it is good evidence that the promise was really made.  If you move onto some land and built some stuff on it, it’s also pretty good evidence.


The promise to give the son the land is a pretty good explanation for the son’s visible, serious reliance on the promise.  The occupation and improvement of the land corroborates our suspicion that the promise was actually made.  There is also a strong need for a remedy.  (Think of the alternative!)


Part performance is usually an equitable doctrine; thus, specific performance is a good remedy (c.f. Fitzpatrick v. Michael).


So this doctrine is old, it goes back over one hundred years.  This case is one of the doctrines upon which § 90 and promissory estoppel are based.


(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor.


REST 2d CONTR § 139


Goodman v. Dicker


This is not the most articulate statement of the facts of the case.


This is relatively shortly after the Second World War.  There wasn’t much in the way of TV.  You couldn’t buy new radios during the war, and radio was a big form of entertainment.  After the war, there was a huge demand for new radios.  If you could be a radio dealer, you would make a huge amount of money.


This is a case in which a potential retailer who never got to be a retailer is suing a local wholesaler.  The manufacturer has broken no promises and is not a party to this case.


The defendants told the plaintiffs that the franchise application had been accepted.  This is a statement of fact.  This is not a promise.  A promise is an assurance that something will happen in the future.  Usually, when you make a promise, you say “I’m going to do something.”  But you can also make a promise that someone else will do something.


The defendants made one statement of fact and two promises.  The promises were that the franchise would be granted and that an initial delivery of thirty to forty radios would be made.


What can you do with a statement of fact that is wrong?  Usually, that will be a matter for the law of torts.  Fraud is a tort with a bunch of elements: you need a misrepresentation of a material fact.  That misrepresentation must be relied upon and there must be injury on the part of the person doing the relying.  Finally, there must be scienter, that is, more or less, the intent to deceive.


There may be a garden variety estoppel claim as in American Nat’l Bank v. A.G. Sommerville, Inc.  Basically, in an estoppel claim, we hold the liar to his lie.  This is the type of estoppel we discussed in the context of Acme Mills v. Johnson.


What we’re really concerned with for the purposes of this class are the two promises made by the defendants.  Was anything traded for these promises?  Maybe, but that’s not how the court deals with them.  Let’s assume there was no consideration.


Can we enforce the promises on reliance grounds?  Yep.  The plaintiffs spent a bunch of money getting ready to sell radios.  The plaintiffs should recover the money they wasted relying on the defendants’ promise.


What’s so great about this case?  There is considerable similarity between tort remedies and the remedy of promissory estoppel.  Also, the Court of Appeals finds that only the reliance interest is to be protected in this case, not the expectation interest.  One reason for this is that the franchise could have been cancelled at will by the promisor.  You can’t rely on any more than just what was actually promised.


This is another reliance on a promise case where the reliance interest is protected.  But maybe it’s not really reliance on a promise, but rather reliance on instructions: “If you wanna make lots o’ money, do this!”  You do it, but the money doesn’t come through.  A less sophisticated smaller party relies on instructions coming from a more sophisticated bigger part in a situation where this reliance seems reasonable, and denying recovery on the basis of that reliance seems unjust.  But if there was no promise, there’s a very flimsy case for protecting the expectation interest.


Note how the remedy is limited.


Johnny and his uncle


Johnny tells his uncle that he wants to buy a car.  The uncle says, “OK, I’ll give you $1,000.”  Johnny goes and buys a car for $500.  That is foreseeable reliance on the promise of the uncle.  Without the promise, Johnny wouldn’t have had the money he wanted to spend on a car.  What are we going to do in terms of enforcement?


Professor Williston says it’s all or nothing.  We must enforce the promise as made, or let it go and not enforce it.


Professor Coudert asks why we can’t just enforce part of the promise.


The Second Restatement says that we can limit enforce “as justice requires”.  Under the Second Restatement, Johnny can recover at most $500.  Justice would not require giving him $500.  In many courts, Johnny can’t even get the $500.  He would get the difference between the $500 and what he could get if he sold the car.  Many courts will say that all that is necessary to do justice here is to save Johnny from out-of-pocket cost.  Justice does not demand that we put Johnny in the driver’s seat.


Why might we choose to fully enforce a promise on the basis of reliance?  It might be easier to enforce the promise as made.  It might be hard to value the reliance, and one way to get out of it is to provide full enforcement.  However, there will be a good number of cases where the court can ascertain how much the reliance was worth, and less this amount, we’ll let the promisor change their mind.


Fried v. Fisher


This is a gratuitous promise, but it’s a different gratuitous promise than made in the case of Johnny and his uncle.  Fried is a landlord and Fisher and Brill are tenants.  Fisher decided to get out of the florist business and open a restaurant.  He asked Fried to let him out of the lease.  Fried promised not to hassle Fisher anymore on the rent.  Fried got no consideration for this promise, but this promise is enforced on the basis of reliance.  We know that there was reliance here because shortly after the promise was made, Fisher quit the florist business and opened a restaurant, at least partially in reliance of the promise made by Fried.  In fact, Fisher’s restaurant was quite successful.


Fried failed to get evidence of the restaurant’s success into the record, but that probably wouldn’t have made a different.  It would have been very hard to calculate how much the reliance was worth.  Also, even though the restaurant turned out well, Fisher took a big risk in reliance.  When you take a big risk in reliance, courts have held that this is enough to grant full enforcement.


We’ll start next Wednesday on Levine v. Blumenthal.  A promise to do what the promisor is already legally bound to do is not consideration and will not support a return promise.  This has a big application in the realm of debtors and creditors.


Say a debtor says, “I know I owe you $1,000.  But I can’t give it to you.  Let’s say I give you $700 and we’ll call it quits.”  The creditor says, “Okay.”  The debtor pays $700, and the creditor sues for the remaining $300.  Courts will not hold the creditor to his promise because there was no consideration.  The creditor got nothing more than he was already owed.  The “pre-existing duty” rule says there is no exchange.  Check out § 73 of the Restatement.


Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.


REST 2d CONTR § 73


How does Levine fit with Fried?


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