Contracts
Class Notes
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.
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.
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
This
is not the most articulate statement of the facts of the case.
This
is relatively shortly after the
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?