25

Contracts – Professor Neth- Week 1: 8/25- 8/29

CASE BRIEF: Bailey v. West

Chapter 1: The Importance of a Promise Page: 13-18 Section 2: What is a Promise?

NAME: Bailey v. West, (Supreme Court of Rhode Island, 1969)

Parties: Plaintiff= Bailey alleges West is indebted to him for the reasonable value of his services regarding the feeding/care/maintenance of a race horse named “Bascom’s Folly” from May 3, 1962 through July 3, 1966Defendant= West

FACTS: In late April, 1962, West and his horse trainer went to Belmont Park in New York

to buy race horses On April 27, 1962, West purchased “Bascom’s Folly” from a Dr. Strauss West arranged to have the horse shipped to Suffolk Downs in East Boston, MA Upon the horse’s arrival, West’s trainer discovered that the horse was lame,

notified West, who ordered him to ship the horse by van to the seller (Dr. Strauss) at Belmont Park

The seller (Dr. Strauss) refused to accept delivery at Belmont on May 3, 1962 The van driver, Kelly, called defendant’s trainer and asked for further instructions Kelly brought “Bascom’s Folly” to the plaintiff’s farm (Bailey) where the horse

remained until July 3, 1966, when it was sold by Bailey to a third party While “Bascom’s Folly” was at Bailey’s horse farm, Bailey sent bills for its fed

and board to West at regular intervalsTestimonial Facts:

According testimony from the defendant at trial, the first bill was received by him two or three months after “Bascom’s Folly” was under plaintiff’s care and that he immediately returned the bill to plaintiff with notation that he was not the owner of the horse, nor was it sent to plaintiff’s farm at his request

Bailey testified that he sent bills monthly and that the first notice he received from West disclaiming ownership was “***maybe after a month or two of so***” after the horse was left on plaintiff’s farm

Trial judge found that defendant’s trainer had informed Kelly during their phone conversation on May 3, 1962 that “***he would have to do whatever he wanted to do with the horse, that he wouldn’t be on any farm at the defendant’s expense***” Yet plaintiff was not aware of the phone conversation when Kelly showed up with “Bascom’s Folly” on his farm

PROCEDURE: Case was tried before a justice of the superior court sitting without a jury (bench

trial) Resulted in a decision for the plaintiff for the cost of boarding the horse for the

first five months, plus expenses from trimming the horse’s hoofs


Trial justice ruled there was a contract “implied in fact” between plaintiff and defendant to board “Bascom’s Folly” which continued until P received notification otherwise from D

Case brought to the Supreme Court of Rhode Island on the plaintiff’s appeal and defendant’s cross-appeal

Cross-appeal: An appeal by the appellee, usu. heard at the same time as the appellant’s appealISSUE:

1. Whether the trial judge erred in finding a contract “implied in fact” between the parties”

HOLDING: Yes

REASONING:Implied-in-fact contract: A contract that the parties presumably intended as their tacit

understanding, as inferred from their conduct and other circumstances The source of the obligation in a contract “implied in fact” (as in express

contracts) is in the intention of the parties Court holds that there was no mutual agreement and “intent to promise” between

the plaintiff and defendant that established a contract “implied in fact” for defendant to pay plaintiff for the boarding of the horse

i. From the time Kelly, a carrier who is NOT an agent of West, (it would be different if Kelly was an agent, acting on behalf of West) delivered horse to him, plaintiff knew there was a dispute as to its ownership- *His actions indicated he did not know with who, if anyone, he had a contract- he asked Kelly about ownership and was told that “Dr. Strauss made a deal and that’s all I know,” and sent bills to both defendant and Dr Strauss (the original seller)

ii. Testimony in record that prior to the assertion of the claim in this law suit, neither defendant nor trainer had had any business transactions with plaintiff, had never used his farm to board horses. Since there was no prior dealing, it would not be reasonable for West’s silence to be construed as consent.

iii. Evidence that the horse, when found to be lame, was shipped by defendant’s trainer to the seller (Dr. Strauss) at Belmont Park, NOT plaintiff’s farm. Record shows that plaintiff acknowledged receipt of the horse by signing a uniform livestock bill of lading, which indicated that the horse in question had been sent by defendant’s trainer to Dr. Strauss, not plaintiff’s farm (pg. 16)

*Defendant argues that even assuming the trial justice was affirming defendant’s liability on a quasi-contractual theory, the justice’s decision is still unsupported by competent evidenceQuasi-contract=implied-in-law recovery: Not actually a contract, it’s a remedy that

allows the plaintiff to recover a benefit conferred on the defendant, an obligation imposed by law in order to bring about justice and equity*Has no reference to intentions or expressions of the parties


* Neither promise nor privity is necessary*The act or acts must be voluntary= the P will be allowed to recover in quasi-contract only if her breach is not “willful.” If the plaintiff’s breach is willful, in certain jurisdictions she cannot recover anything at all. A willful breach is one which is intentional, rather than accidental or negligent.

Essential elements of a quasi-contract: benefit conferred upon defendant by plaintiff, appreciation by defendant of such benefit, and acceptance and retention by defendant of such benefit… (pg. 16)

Was the plaintiff acting as a “volunteer” at the time he accepted the horse? “if a performance is rendered by one person without any request by another, it is very unlikely that this person will be under a legal duty to pay compensation” 1 A Corbin, Contracts Sec. 234.

Restatement of Restitution, Sec. 2 (1937) Principle: “A person who officiously confers a benefit upon another is not entitled to restitution therefor”

DISPOSITION: Plaintiff’s appeal denied and dismissed, Defendant’s cross-appeal is sustained, and the cause is remanded to the superior

court for entry of judgment for the defendantDEFINITIONS/ PERSONAL NOTES: Contract: An agreement that the law will enforce in some way (must contain at least one promise, i.e., a commitment to do something in the future)as defined in 2nd Restatement of Contracts: “A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty” (pg. 1)Promise, “a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee that a commitment has been made” (pg. 1)-Contract law is essentially common law (judge-made, not statutory). Except, in every state but Louisiana, the sales of goods are governed by a statute- Article 2 of the Uniform Commercial Code (UCC). If the UCC is silent on a particular question, the common law of the state will control

Promissory estoppel: The principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detrimentConsideration: Something (such as an act, a forbearance, or a return promise) bargained for and received by a promisor from a promisee; that which motivates someone to do something, esp. in a legal act. Consideration is necessary for an agreement to be enforceable


CLASS NOTES, 8/26:(While briefing, use names rather than P and D)

Bailey v. West: West’s trainer is an agent of West- Someone who acts on behalf of him. While

Kelly is not an agent of West Situation in which the horse is used as collateral: At a hospital, they don’t have a lean over your body- Mechanics have a lean over

a car- While an Bailey does not necessarily have a lean over horse If West has no underlying obligation to pay Bailey, he can get the horse whenever

he chooses (There’s no promise to enforce) If Bailey sells the horse, who gets the profits? West gets the profits (if there was

no abandonment of the horse) “If Bailey sells the horse for $2,000 and charges $400 for care, who gets the money? West gets $2,000 and doesn’t owe Bailey fees for maintaining Bascom’s Folly)

Thief cannot pass good title (if a thief steals your painting on the wall, sells it to a museum, you can get the painting back from the museum)

Implied promise- usually implied through behavior and circumstance. Each party has an assumption of what the relationship is

Hypo: If your lawn is untended and a 16 year old voluntarily mows it and sends you a bill, you’re not responsible for paying the bill. No implied obligation, no detriment or destruction of value at stake, while in the boat situation, there’s a loss of value at stake…

Hypo: Boat in the harbor, storm is coming, your boat is worth $15,000, and someone voluntarily ropes the boat in and saves it from being destroyed. Can the boat owner be charged? Can we say that there’s an implied contract/obligation in this circumstance? Society wants to encourage volunteers in this situation. Governed by ancient maritime law, there would be an implied contract to save the boat to encourage people in a certain way. Maritime law says the savior is afforded a “reasonable amount” for his/her act

When a judge decides a case, what’s the just result in this case? If we decide in this case for the P, what is that going to do for the world?

Depends if there’s a legal obligation to keep horse alive/ save the boat/ have your lawn kept up

Hypo: Boat’s out in the bay and owner is in Texas. The guy on the boat is about to save the boat and says “your boat is about to sink, I can save it. Would you like me to save it” you say yes, he says it’ll be “$9,500” to save it.

Hypo: Skiing, you see someone who has broken their leg and they’re going to die if they don’t get to the hospital in time. They ask for help, and you ask how much they’re willing to pay to be rescued…

-This type of bargaining: most people won’t make a deal unless it’s to their advantage

Normal determination of unjust enrichment is to recover the lower price between coast of benefit and cost of horse/car/boat, etc.


-Costs: of Bailey? Stall/Feed? If there’s cause of action, Bailey could have recovered the amount of money lost

from losing out on a customer (the horse stall was taken up by Bascom’s Folly instead of a paying client’s horse)

“Usual and customary fee” determined by what Bailey charges of the industry as a whole?

CLASS NOTES, 8/27:

Grosso v. Miramax Films (2004) – Implied v. Explicit contract

Theories of recovery: K (contract) with C (consideration)Promissary estoppel Implied ContractExplicit Contract

Quasi-contract=Implied-in-law contract= Constructive contract: Not actually a contract, treating the situation as if there was a contractIn Bailey v. West, if there’s no benefit (arguably no benefit to West, since he stated he didn’t even want the horse) there’s no appreciationIf West does not prevent the benefit from occurring, he has appreciated the benefitRestitution (over-arching term, includes quasi-contract)Unjust enrichment-

Recent Case in California: U.S. v Amber resources- lease agreement of drilling within 5 years (with option for extension). Wanted to rescind the contract and get all their money back on the theory of restitution. Did the oil company get it back? Yes, on the basis of unjust enrichment. The party getting the money didn’t do what they were supposed to do. While money was spent of exploration, they did not receive the money back because there was no benefit conferred to the U.S.


CLASS NOTES, 8/28: Bolin farms, Simeone case

Review Bailey v. West case:

Two theories of recovery:1.) Contract, either expressed of implied (In Bailey, we found neither). If we would have found an expressed of implied contract, the remedy would have been whatever the contract called for (K of reason/ Usual and Customary fee)

Theory will tell you what the remedy is…K: Remedy:-Expressed K of Reason/ Usual and Customary fee-Implied

P.E., Promissary Estoppel

Restitution/ Unjust enrichment/ Implied-in-law contract/ Quasi-contract, Remedy=Marginal costs, lesser of the benefit incurred or the detriment incurred (might include opportunity costs

Can make claims of Justice or claims of policy (have to do with the impact of the claim on behavior, and on the world)

Precedent/ Statute (applicable by reasoning or analogy)

Consideration and promise: 2003 Ohio case, Hollis (towing co.) v. Green – No consideration for the promise, therefore there is no promise.


CASE BRIEF: Bolin Farms v. American Cotton Shippers Association

Chapter 1: The Importance of Promise Pp.: 18-21Sec. 2: What is a Promise?

NAME: Bolin Farms v. American Cotton Shippers Association (U.S District Court, 1974)

FACTS: 11 cotton farmers (plaintiffs) entered “forward” sales contracts (contracts were

negotiated prior to planting) with American Cotton Shippers Association (defendant purchasers), by which they agreed to sell and deliver the cotton at a fixed price regardless of what the price might be at harvest time. Meanwhile, price of cotton unexpectedly at least doubled the price agreed upon. Complaints seek a declaration that the contracts are null and void (so that plaintiffs can sell for a higher price than they bargained for). Sued before the breach, before delivery.

PROCEDURE: Summary judgment motions were filed by the farmers.

ISSUE: Whether the “forward” cotton sales contracts should be judged lawful and valid, despite changed circumstances/unforeseeable events?

HOLDING: Yes.

REASONING:The contracts are valid b/c they were entered into between a willing buyer and a willing seller, both adult (experienced cotton farmers and experienced cotton buyers who are capable of protecting their own interests) in an open and competitive market. Each plaintiff cotton farmer was experienced, had been producers for several years, and were familiar with forward sale contract procedure (know forward selling can be risky business)

DISPOSITION: Judgment entered in favor of the purchasers, the plaintiffs were ordered to deliver the cotton as provided for in the contracts

*Vel non: A term used by the courts in reference to the existence or nonexistence of an issue for determination; for example: "We come to the merits vel non of this appeal," means "we come to the merits, or not, of this appeal," and refers to the possibility that the appeal lacks merit.Unconscionability: principal judicial weapon against unfair contracts, the idea that a contract may be unenforceable because it is shockingly unfair (no UCC definition)

Case Notes: Contract law is state lawCover (a type of remedy)


CASE BRIEF: Simeone v. Simeone

NAME: Simeone v. Simeone (Supreme Court of PA, 1990)

FACTS:Catherine (P) was an unemployed nurse and she was engaged to Frederick (D), a neurosurgeon. During the months leading up to the wedding, the parties had several discussions about D’s desire to have a pre-nuptial agreement. During this period, P does not consult counsel. On the eve of their wedding, D and his attorney presented P with a prenuptial agreement that limited D’s maximum separation or divorce payment to $25K. P signed the agreement without apparent distress. The parties separate in 1982, and D makes a total of $25,000 of alimony payments, then stops. P sues for more alimony, arguing that the pre-nuptial payments should not be enforced b/c the limit on payments to her in the agreement was unreasonable and she was not adequately informed of her statutory rights to alimony before signing/ she had not understood the nature of alimony pendente lite (alimony pending the resolution of the dispute) when she relinquished it in the agreement. D claims that he has already paid payments to P sufficient under their prenuptial agreement.

PROCEDURE: In 1985, Catherine filed a claim for alimony during litigation. Court of Common Pleas of Philadelphia County upheld the validity of the prenuptial agreement. Superior Court affirmed (1988). Court granted appeal because uncertainty was expressed by the Superior Cort regarding the meaning of decision in Estate of Geyer (1987)

ISSUE: Whether the contract (prenuptial agreement) between P and D valid and enforceable?

Whether the approach of Geyer should be discarded?

HOLDING: Yes, yes

REASONING: According to the court, the law has advanced to recognize the equal status of men

and women in our society: no more paternalistic approach, which allowed the court to consider the reasonableness of the bargain. If courts are permitted to inquire into the reasonableness of the bargain, the functioning and reliability of prenuptial agreements is severely undermined. Parties would not have entered such agreements, and indeed might not have entered their marriages, if they did not expect their agreements to be strictly enforced…”

The agreement will only be enforced if D made “full and fair” disclosure of his financial position prior to the agreement (if he did, the fact that the final draft was not presented to P until just before the wedding I irrelevant, given that P had months to get independent legal advice which the transaction was being discussed.

A prenuptial is just like any of contract: Accordingly, contracting parties are normally bound by their agreements, without regard to whether the terms were read and fully


understood and irrespective of whether the agreements embodied reasonable or good bargains:Rule: Failure to read a contract does not warrant avoidance or nullification of its

provisions (Standard Venetian Blind Co. v. American Empire Insurance Co., 1983)

Rule: “Once a person enters into a written agreement he builds around himself a stone wall, from which he cannot escape by merely asserting he had not understood what he was signing” (Bollinger v. Central PA Quarry Stripping & Construction Co., 1967)

Rule: “One is legally bound to know the terms of the contract entered” (Montgomery v. Levy, 1962)

DISPOSITION: Affirmed

Concurring: Dissent:

CLASS NOTES, 9/02:

Simeone v. Simeone: Catherine (P), claims that the pre-nuptial was unreasonable, she was under duress when she signed it, lack of independent legal counsel, change of situation (inflation, law, non-monetary relationship, societal norms regarding women in the legal system, children, D’s earnings) Prof. Neth states that none of these are justification for voiding the contract, yet a K to marry/ Pre-nup is very different than the sales K in Bolin Farms for cotton.

Bolin Farms: P claims that the K was unfair, and that there was asymmetry of knowledge (at least one side knows something that the other side does not know)

K to Marry

Pre-nup/Anti-nup

Post-marriage K

Divorce/Separation K

Rights of Survival


CASE BRIEF: Kirksey v. Kirksey

Chapter 2: The Bases of Contract Liability Pp.: 31-33Sec. 1: The Consideration Requirement

(B) When is an Act or Promise Bargained for and Given in Exchange?

NAME: Kirksey v. Kirksey (Supreme Court of Alabama, 1845)

FACTS:The plaintiff (Sister Antillico), the wife of the defendant’s brother, had been a widow “for some time” and had several children. Defendant wrote Sister Antillico a letter that advised her to sell her land and her other possessions and offered her (and her children) a place to live on his property. Within a month or two after receiving the letter, Sister Antillico abandoned her residence and moved with her family to the defendant’s residence. There, D “put her in comfortable houses, gave her land to cultivate for two years, after which he put her in a “not comfortable” house in the woods, and then required her to leave.

PROCEDURE: Trial court awarded her $200. D appeals.

ISSUE: Whether the promise between brother-in-law and Sister Antillico was a mere gratuity, and therefore unenforceable on the grounds that there was no consideration?

HOLDING: Yes

REASONING:Ruled in favor of the brother-in-law because there was no consideration for his promise to provide her with a land on which to live. Although moving onto his land was a necessary condition of his promise, he was no bargaining with her for her to move. His promise was nothing more than a promise to make a gift of a place to live with the national condition associated with it that she would have to move to his house in order to have the place.

DISPOSITION: Judgment for the plaintiff awarding $200 of relief was reversed.

Dissent: States that “the loss and inconvenience, which the P experienced in breaking up, and moving sixty miles to the defendant’s, a sufficient consideration to support the promise, to furnish her with a house, and land to cultivate, until she would raise her family”

In class case notes on Kirksey: Consideration cannot be illegal (bargain for sex), while marriage can be consideration.Can companionship be sufficient consideration?


Mechanism of “promise with a seal” enforced contracts that lacked consideration- no longer common practice.

If the contract was enforceable, what would the remedy be? How would you measure the harm done to her? His promise allotted her the reasonable time to “raise [her] family”- but at what point is her family “raised”? This could be answered by social norms. Must prove damages with a reasonable degree of certainty, also the option of specific performance. If she would have stayed where she was, she would have eventually owned the property she was on. For breach of a standard contract, reliance damages are available. Easier to calculate. In some traditions, it is an obligation for the brother to care for the deceased brother’s widow.

If you promise a gift, it’s a contract. If you give someone a gift, they own it.

CLASS NOTES, 9/03:Under common law of contracts, seller is not obliged to disclose anything to the buyer.

Exception: Pre-nuptial agreements require full and fair disclosure of financial positions of the parties, at the time the contract is entered into. Entering into marriage by contract is treated differently- it’s a different creature.

Claim that a contract is unfairUnconscionable

a.) unfair at the time of K(substantive)b.) defect in formation (procedural)

In Simeone, the contract was not unfair at the time of entering K, and there was no defect in formation.

Determination of child support is made independently of the prenuptial agreement.

K to Marry – Used to be enforceable (by means of monetary consequences) but have not been enforced for some time.

Pre-nuptial K – Used to be unenforceable (Court thought it encouraged divorce), and are not enforceable. Prenuptial agreement deals with two topics: 1.) Divorce and 2.) death

Post-marriage K- by and large not enforceable

Separation or divorce K – Enforceable, Review of the substance and approved if it met certain standards that offered sufficient support to separated parties.

State controls marriage- Parties enter a marriage with help of an outside authority, exit a marriage with approval of outside authority.


Marriage: Status, religious significance, and a contract.

CLASS NOTES, 9/04:

Issue of high divorce rates: public policy then tries to make it harder for parties to get divorced. Example- In Louisiana, a regular marriage option and a covenant marriage, which says that you can only divorce on three grounds- as long as spouses have lived apart for at least 6 months, committed adultery, sentenced to life in prison.

Outside of marriage- contracts between two people can give you many rights similar to marriage contract, but only goes so far.

Page 21- excuse of breach contract by reason of changed circumstances -If by virtue of an act of God/nature a party if left unable to fulfill the contract’s

obligations, a party is excused in the breach of contract (as after Katrina, after the storm many people could not fulfill their contracts). Other than that, changed circumstances do not generally excuse breach of contract or allow parties to be relieved of contract.


CASE BRIEF: Hamer v. Sidway



NAME: Hamer v. Sidway (Court of Appeals of New York, 1891)

FACTS: D is the executor of uncle, William Story Sr.. William Story Sr., uncle of William

story the 2nd The Uncle promised to pay his nephew, William Story 2nd $5,000 if he refrained

from “drinking, using tobacco, swearing, and playing cards or billiards for money” until P turned 21 years old. *Executor= a person that carries out the directions of a will, represents the deceased person’s estate- typically responsible for distributing property to beneficiaries, arranges for payments of debts of the estate, etc.

The nephew performed his end of the bargain, and on his 21st birthday wrote to his Uncle to inform him he was entitled to his $5,000

Instead of giving his nephew the money, Uncle promised the money to him, on interest

D’s estate refused to pay, claiming that P was the only party to the bargain that benefited.

PROCEDURE: P wins at trial court for breach of contract. Intermediate appellate court reversed and found for D. P appealed.

ISSUE: Whether P’s actions constituted sufficient consideration even where it only benefited P?

HOLDING: Yes. P’s actions constituted sufficient consideration even where it only benefited P.

REASONING:Rule: Any suspension or forbearance of a legal right at the request of another is sufficient consideration to sustain a promise.

Rule: Consideration does not mean that one party to a contract has to profit so much as it might mean that one party may abandon or limit a legal right in the present in return for what is promised. In those situations, the bargain agreed upon will be an enforceable contract- as opposed to an unenforceable promise.


Since P gave up his legal right to do certain things on the belief that D would pay him $5,000, D’s promise will be enforced as a binding contract

DISPOSITION: Intermediate appellate decision reversed. Trial court’s original decision in favor of P affirmed.

CLASS NOTES on Hamer v. Sidway, 9/08:The uncle made first promise: 1) he would pay his nephew $5,000 if his nephew upheld his end of the deal. 2) The uncle promised “this money on interest” in a letter, written once the nephew upheld his end of the deal.

Consideration must be 1) must be bargained for 2) bargained for if it is made in exchange for a promise. Restatement 71Uncle made a unilateral promise to his nephew, upheld if the nephew acted on behalf of his end of the bargain… If not, the uncle would not have to pay the $5,000. *Unilateral (a promise followed by a behavior to fulfill the terms of the promise) v. bilateral promisesgratuitous promise v. gift (if you give a gift, there’s no promise to enforce)

Consider a similar situation with the terms of abstaining from cocaine (illegal substance) whereas the nephew is not giving up a legal right…Why wouldn’t “we” want this promise to be enforceable?

-Maybe people would be encouraged to do illegal things and be rewarded from abstaining? Questionable…

If you want something, and you got it- then there’s consideration (according to Prof. Neth)- you get something that you wouldn’t have otherwise gotten. Clear that the benefit does not have to be an economic benefit.

GiftPromise –Contracts or promissory estoppel Will –Neither a gift nor promise- it’s a direction. Does not require any consideration

Consider non-economic benefits: A bargain may be present even though the promisor does not receive any economic benefit from the transaction.

-In this case, where an uncle promises his nephew $5,000 if the latter will refrain from smoking, drinking, gambling, etc. until the nephew turned 21 years old. The court held that the uncle’s promise was “bargained for,” and therefore supported by consideration. While the uncle did not derive an economic benefit from his nephew’s abstinence, he was clearly attempting to obtain something he regarded as desirable- being his nephew’s health, morality, etc., and was therefore bargaining.

The “detriment” element: The nephew’s detriment is sufficient to constitute consideration even though it involves no economic disadvantage to the person involved, and even if, it aids him morally, physically, or spiritually. As long as the party has circumscribed his freedom of action, he has incurred sufficient detriment. Nephew’s forbearance was the kind of “detriment” sufficient to constitute consideration for Uncle’


promise. The uncle “benefited” by nephew’s forbearance (desired his nephew’s health, morality, etc.) and the benefit was sufficient to satisfy the “detriment” requirement.Sufficient consideration: *Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.*Any damage, or suspension, or forbearance of a right is sufficient to sustain a promise


CASE BRIEF: Langer v. Superior Steel Corp.



NAME: Langer v. Superior Steel Corp. (Superior Court of Pennsylvania, 1932)

FACTS: Defendant company promised to pay Mr. Langer, an employee $100 per month for the rest of his life after his retirement if he agreed not to work in any competitive occupation. After 4 years, D company stopped paying Mr. Langer the monthly payment. Mr. Langer sued for breach of contract.

PROCEDURE: Trial court held in favor of D in breach of contract case. P appeals the trial court’s judgment

ISSUE: Whether there was consideration to form a contract between the parties in that Mr. Langer refrained from seeking other employment with competitive company? By doing so, has Mr. Langer sustained any detriment? Was Mr. Langer’s forbearance sufficient to support a good consideration?

HOLDING: Yes, yes, yes.




DISPOSITION: Judgment is reversed, and the D is given permission to file and affidavit of defense to the merits of Mr. Langer’s claims.

Notes: Unilateral contract- there is no remedy against Mr. Langer, he is not obligated to abstain from working at a competitor’s business.


If you receive no benefit, it doesn’t always matter if there’s a bargain- if you change someone’s behavior in some way.

Equitable estoppel, rests upon a statement of a present fact v. Promissory estoppel, relies on a promise to do something in the future

Kirksey: Family members, might suggest the promise is a gratuity. Consideration requirements allow ppl to make casual promises/offers out of friendliness without legal obligations…”mere gratuity”

CASE BRIEF: Jara v. Suprema Meats, Inc.



NAME: Jara v. Suprema Meats, Inc. (California Court of Appeals, 2004)

FACTS:Jara, Jr. (D) had a phone conversation with his father, Jara, Sr. (P) discussing what compensation he and Rodriguez (as majority shareholders of the corporation) should be paid. Parties agreed that the compensation should be $800 per week and if more money was to be “pulled out” they would all agree “how much money that’s going to be.” This agreement was recorded in the annual financial statement of the corporation: “before payment [of compensation] may be made, it must be approved by all current shareholder-directors”

PROCEDURE: Trial court held in favor of D in breach of contract case. P appeals the trial court’s judgment

ISSUE: Whether there was sufficient consideration to form a contract between the parties in that Mr. Langer refrained from seeking other employment with competitive company? By doing so, has Mr. Langer sustained any detriment? Was Mr. Langer’s forbearance sufficient to support a good consideration?

HOLDING: Yes, yes, yes.





DISPOSITION:

CASE BRIEF: Thomas v. ThomasCh. 2: The Bases of Contract Liability Pp: 46

Sec. 1: The Consideration Requirement(C) Mixed Motives and Nominal Consideration

NAME: Thomas v. Thomas (Queen’s Bench, 1842)

FACTS: o Oral promise was made (in the presence of two witnesses) by John Thomas the day

before he died that it was his will that his wife should have either the house in which he lived and all that it contained, OR an additional sum of 100 pounds (These provisions were not expressed in his written will).

o The 2 “exec- Cutors,” his brothers, satisfied those wishes by giving John’s widow possession of the home on 2 conditions- express agreement stated, “provided nevertheless, and it is hereby further agreed and declared, that the said Eleanor Thomas, or her assigns, shall and will, at all times during which she shall have possession of the said dwelling house, etc., pay the sum of 1 pound yearly toward the ground rent and shall keep the aid dwelling house and premises in good and tenable repair.”

o After one executor died, the remaining one refused to execute a conveyance tendered to him – he turned the plaintiff out of possession.

PROCEDURE:

ISSUE:

HOLDING:

REASONING: Bargained-for language “she can stay, provided that…” and a benefit to the promisor (in exchange for her money and keeping the house in good upkeep” The motive was NOT a benefit

DISPOSITION:


The court reviewed an oral promise made by a man on his death bed which ran contrary to the terms of his will. The executors gave effect to those wishes by putting the spouse of the deceased plaintiff in possession of the home.

It was held that there was not valid consideration to make the promise enforceable. They stated that "A pious respect for the wishes of the testator does not in any way move from the plaintiff. Motive is not the same thing as consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff.

Notes on mixed motives: One motive behind the executor’s promise was a desire to honor the deathbed wishes of their brother.

CLASS NOTES, 9/10:

Problem: the case of the lessee’s wellLease (which is a contract) between Stone and Oil co. Oil gets a well, if it’s not good enough for Oil, then Oil must renew the well.

Another K, between Stone and Oil to split the cost of renewing the well.

Oil promises to give back share.

Nominal consideration- not typically bargained for.

Mixed motives and agreed exchange problem:His first promise was merely gratuitous- he made a statement at the dinner table that he would give her the book worth $5,000 for Christmas. Consideration required a detriment to the promisee (none here) and something bargained for by the promisee (nothing bargained –for) He expressed interest in her pennies (one valued at $500, one valued at $1,000). In writing, “In consideration of one penny, receipt of which is hereby acknowledged, I promise to give my niece Pauline my first edition of….” In this promise, promisee gave something up of value (being the penny valued at either $500 or $1000) and the promisee receives the value- this is in exchange for the Langdell book, valued at $5,000. There was consideration, promise is enforceable. He sold it for $7,500 to Harvard.

Since he sold the book, she is not bound to the agreement. Bilateral contract…*Someone can have a contract with more than one person to sell the same object/thing.In this case, Pauline has the option to Consideration is furnished by promise

Adequacy of values exchanged


In Hamer v. Sidway, what definition of consideration did the court use, the “bargained for” concept or the “either or” concept? The court ruled that it was “bargained for”If “bargained for” was used, was there equivalency of exchange? Depends how you look at it- not necessarily. The exchanged considerations came in different forms (withholding legal right in exhange for obtaining something desirable, the nephew’s health/morality. Did the promisor gain a pecuniary advantage? No.Did he derive any “benefit” from the transaction at all, or is enforcement predicated solely upon “detriment” to the promisee? Enforcement is based on the “detriment” suffered by the promisee. If the promisee acts by withholding his legal right to smoke/drink etc., the promisor obtains something he regarded as desirable- being his nephew’s health, morality, etc., and was therefore bargaining.

CASE BRIEF: Browning v. JohnsonCh. 2: The Bases of Contract Liability Pp: 54

Sec. 1: The Consideration Requirement(D) Limits of the Consideration Doctrine

(1) Adequacy of Values Exchanged

NAME: Browning v. Johnson (Supreme Court of Washington, 1967)

FACTS:o Browning and Johnson entered into a contract of sale, where Browning was to sell

his practice and equipment to Johnson. o Before the contract’s effective date, Browning changed his mind about selling and

sought to be released from the contractual obligations. o Johnson was reluctant at first, but upon Browning’s promise to pay Johnson

$40,000 if Johnson would give up the contract of sale, the parties entered a contract canceling the contract of sale.

o Browning later regretted this bargain too and some months later filed an action for declaratory judgment and restitution

Appellant seller challenged the order from the trial court which entered judgment in favor of respondent buyer and enforced a contract canceling the parties' sale contract, finding that it was supported by "adequate" consideration. The seller contended that his promise to pay the buyer in exchange for the buyer's promise to cancel the sale contract was unsupported by consideration

PROCEDURE: Trial court concluded that the canceled sale contract lacked mutuality and had been too indefinite in its terms for enforcement. Regardless, concluded that the contract canceling the sale of contract was supported by “adequate consideration.” Browning appealed from that decision. The trial court held that the contract canceling the sale contract was supported by "adequate" consideration. On appeal, the court affirmed.


ISSUE: Whether Dr. Browning is to be bound by his promise?

HOLDING: Yes

REASONING: The court found that the issue was whether there was "sufficient" consideration to support the promise as opposed to whether there was "adequate" consideration. The court held that the seller's promise was supported by sufficient consideration and the case did not require the court to consider the relative values of the things exchanged. The requirement of sufficient consideration for the unilateral contract was met by the detriment incurred by the seller in exchange for the buyer's act of giving up the contract of sale.

Courts are reluctant to inquire into the "adequacy" of consideration, that is, into the comparative value of the promises and acts exchanged. The court must apply the rule followed in the State of Washington that parties who are competent to contract will not be relieved from a bad bargain they make unless the consideration is so inadequate as to be constructively fraudulent

Adequacy" of consideration, into which courts seldom inquire, is to be distinguished from the legal "sufficiency" of any particular consideration. The latter phrase is concerned not with comparative value but with that which will support a promise. Anything that fulfills the requirements of consideration will support a promise whatever may be the comparative value of the consideration, and of the thing promised. The relative values of a promise and the consideration for it, do not affect the sufficiency of consideration

A unilateral contract is one in which a promise is given in exchange for an act or forbearance

Sale of goods: covers transactions involving the purchase and sale of goods, including breach, damages, and rules of law originating prior to the adoption of, or otherwise not covered by, the Uniform Commercial Code

According to Prof. Neth: Really no issue here- Make initial promise, make 2nd promise to change the deal by eliminating the deal. Yes there’s consideration…What if they add to the contract: yes that’s fine… As long as the new modification is supported by consideration. The modification (promise) there’s no reason why you can’t bargain


Fraud: intentional misrepresentation that the other party relies on when making the bargain.

Bargained-for language “she can stay, provided that…” and a benefit to the promisor (in exchange for her money and keeping the house in good upkeep” The motive was NOT a benefit

CASE BRIEF: Apfel v. Prudential-Bache Securities, Inc.

Ch. 2: The Bases of Contract Liability Pp: 57Sec. 1: The Consideration Requirement

(D) Limits of the Consideration Doctrine(1) Adequacy of Values Exchanged

NAME: Apfel v. Prudential-Bache Securities, Inc. (Court of Appeals of New York, 1993)

FACTS:o D Prudential seeks to avoid an agreement to purchase plaintiff (banker and a

lawyer)idea for issuing and selling municipal bonds.

Appellant seller challenged the order from the trial court which entered judgment in favor of respondent buyer and enforced a contract canceling the parties' sale contract, finding that it was supported by "adequate" consideration. The seller contended that his promise to pay the buyer in exchange for the buyer's promise to cancel the sale contract was unsupported by consideration

PROCEDURE: Trial court concluded that the canceled sale contract lacked mutuality and had been too indefinite in its terms for enforcement. Regardless, concluded that the contract canceling the sale of contract was supported by “adequate consideration.” Browning appealed from that decision. The trial court held that the contract canceling the sale contract was supported by "adequate" consideration. On appeal, the court affirmed.

ISSUE: Whether Dr. Browning is to be bound by his promise?

HOLDING: Yes

REASONING:

As long as there was value for Prudential, there was consideration- the comparative value is irrelevant.


CASE BRIEF: Jones v. Star Credit Corp.Ch. 2: The Bases of Contract Liability Pp: 61

Sec. 1: The Consideration Requirement(D) Limits of the Consideration Doctrine

(1) Adequacy of Values Exchanged

NAME: Jones v. Star Credit Corp. (Supreme Court of New York, 1969)

FACTS:o Ps, who are on welfare, agreed to purchase a home freezer unit for $900 from D, a

door-to-door salesperson representing Your Shop At Home Service, Inc. o Various credit-related charges (credit life insurance, credit property insurance,

sales tax, etc.) add another several hundred dollars to the purchase price ($1,234.80)

o The Ps paid over $600 toward the purchase price, while the evidence indicates that the freezer had a max. retail value of roughly $300

o

PROCEDURE:

ISSUE: Whether the sale of a freezer unit having a retail value of $300 or $900 ($1,439.69 including credit charges and $18 sales tax) is considered unconscionable as a mater of law (within the meaning of Sec. 2-302 of the Uniform Commercial Code)?

HOLDING: Yes, the contract is unconscionable.

REASONING: Sec. 2-302 of UCC: authorizes court to find, as a matter of law, that a contract or clause of contract was “unconscionable at the time it was made.”The principle “I one of the prevention of oppression and unfair surprise.”

Principally due to the disparity between the $300 reasonable retail value and the $900 (before credit charges) price. Another factor is the “very limited financial resources of the purchaser, known to the D at the time of sale…”“The meaningfulness of choice essential to entering a contract can be negated by a gross inequality of bargaining power”


Public policy goals at head: While it’s important to recognize the importance of preserving integrity of agreements, there is concern for the uneducated and often illiterate individual who’s the victim of gross inequality of bargaining power, usually poorest members of the community. Concern for the protection of consumers’ protection from being taken advantage of when entering contracts.

DISPOSITION: Since the Ps already paid more than $600, they may keep the freezer without further charge.

*Fraud is not present- not necessary under the statute.

Unconscionability: Where the value of the things exchanged by the parties is grossly unequal, the court will not inquire into the “adequacy of the consideration,” they’ll hold that the agreement is void because it is unconscionable. Unconscionability provides that “if the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract…” Important to note- the voiding of a contract for unconscionability has nothing to do with the consideration doctrine. Contract will be found unconscionable when it is so shockingly unfair that the court decides that it should not be enforced- idea dates back hundreds of years.

Used mostly by consumers (courts presume that where K is between businesspeople, each is capable of protecting his own interests)

Decision as to whether a contract is unconscionable is made by “the court,” meaning the judge, not the jury

Procedural unconscionability: refers to fact that one party was induced to enter the contract without having any meaningful choice. Through oppressive clauses tucked away in the boilerplate, high-pressure salespeople misleading illiterate consumers, so that no bargaining is possible…indication of a lack of real assent.How meaningful is the assent/agreement? To what extent is it meaningful that Jones has agreed to a certain price? If Jones can’t read, then there’s no assent…Substantive unconscionability: if it is unduly unfair and one-sided- usually involves an excessive price, or an unfair modification of either the seller’s of buyer’s remedies

What constitutes excessive price? The courts have no agreed on any well-defined test for determining whether a particular price is excessive enough to warrant unconscionability. Most cases that have held a price to be unconscionably excessive involved prices that were two to three times the approximate “market price” at which similar goods were sold in the same areas.

$300 max. retail value $900 Cash price$1,234.80 Total payments


$619.88 paid$819.81 One

One of the very few cases that, using the unconscionability clause in a case involving personal property (non-real estate)

Your at home signs the consumer up, and then assigns the purchase to Star Credit, inc. Walker Thomas case

Same issue played out again and again in subprime lending crisis- Houses are real estate, not personal property- so the UCC does not apply. The Restatement DOES apply to the contracts

Morales v. Sun Contractors M couldn’t read English when he was given the contract. There was an translator to explain the conditions, but he didn’t do a thorough jobRestatements 2nd, 208

Judge decided the contract was enforceable- He has a translator and agreed to the conditions. Dissent: Feuntes


CASE BRIEF: In re Greene



NAME: In re Greene (District Court, S.D. New York, 1930)

FACTS:o The claimant, an unmarried woman filed proof of claim in the sum of $375,700

based on an alleged contracto The claimant, an unmarried woman, and the debtor, a married man, had intimate

relations for several years- committed illegal act of living in adultery with each other.

o During this time, o The mistress claimed that the debtor had promised to marry her as soon as his wife

divorced him – illegal o After their intimate relations ended- they came up with a sealed written agreemento The debtor promised to 1.) pay her $ 1,000 a month during their joint lives, 2.) to

assign her a $100,000 life insurance policy on his life (the debtor was to pay $100,000 to claimant in case the policy should lapse for nonpayment on premiums) and 3.) to pay her rent for 4 years on an apartment she leased.

o Consideration for these payments on claimant’s behalf was $1 and “other good and valuable considerations”

o Debtor made payments for roughly 2 years and stopped.

PROCEDURE: o The referee in bankruptcy held that the mistress' claim was valid based on the

agreement and the trustee's objections were dismissed. o The trustee petitioned for review of the referee’s order, which was granted.o On review, the court held that the entire claim was void and that the damages

allowed for failure to pay the mistress $ 1,000 a month were excessive.


ISSUE: Did the agreement between mistress and debtor have consideration?

HOLDING: The court reversed the referee's order and issued an order declaring the agreement between the mistress and the debtor invalid for lack of consideration

REASONING: The court found that the agreement was invalid for lack of consideration because Past illicit intercourse was not sufficient consideration. There was no consideration for the debtor's promises beyond past cohabitation. * Past consideration is not consideration recognized by the law…

The $1 paid by the mistress was nominal and could not support an executory promise to pay hundreds of thousands of dollars.

A contract for future illicit cohabitation is unlawful. There is consideration present in such a case, but the law strikes the agreement down as immoral

A promise to pay a woman on account of cohabitation which has ceased is void, not for illegality, but for want of consideration. The consideration in such a case is past. The mere fact that past cohabitation is the motive for the promise will not of itself invalidate it, but the promise in such a case, to be valid, must be supported by some consideration other than past intercourse.

*What impact will this case have on people in the future? *Restatement 86, Promise for a benefit previously received – binding to the extent necessary to prevent injustice. We don’t apply this law to this woman…*IF you were the lawyer for the woman and negotiating the deal with Mr. Greene- could you have shaped the deal in a way to make it enforceable? Or is it impossible to give your client legally enforceable rights? If they both want it to be enforceable? He’ll ask this for all the cases without consideration. -Stress that she relied on his promises in not getting a job?- she gave up her reputation?

Referee: A person appointed by a court to perform certain offices in the progress of a case pending in the court of his appointment, sometimes trying the issues or part of the issues and reporting findings of fact, at other times trying the case and rendering a decision therein.

Pre-existing duty rule: If a party does or promises to do what she is already legally obligated to do, or if she forbears or promises to forbear from doing something which she is not legally entitled to do, she has not incurred the kind of “detriment” necessary for her performance or forbearance to constitute consideration

There are exceptions and limitations to this rule:

Forbearance from bringing suit: It was explained above that if the existence or amount of a monetary claim is in reasonable and bona fide dispute, a settlement will not be invalid for lack of consideration.


1. Valid claim surrendered: if a plaintiff promises to waive a valid claim, all courts are in agreement that this promise is “detriment” to the P, and constitutes consideration for the D’s promise to pay a settlement

2. Surrender of invalid claim: If, on the other hand, the claim surrendered by the P (or potential p) is invalid (or of uncertain validity), courts are not in agreement as to whether that surrender is “detriment” giving rise to consideration for the D’s promise to pay a settlement.

a. Majority view: Most modern courts would probably hold that for the surrender of an objectively invalid claim to constitute consideration for a settlement, the P must, at the time of settlement, have had a bona fide subjective belief that the claim was valid, and this belief must not have been unreasonable.

P, an unmarried woman, becomes pregnant. Before the child is born, she tells D that he is the father, and D agrees to pay the expenses of having the child in return for P’s promise not to bring a paternity suit. After the child is born, D reneges, P brings a paternity suit, and the trial court finds that, on the basis of blood tests, D cannot possibly be the father. In a separate suit on the alleged agreement, D claims that since the claim given up by P (the claim of D’s paternity) is now known to be invalid, the agreement relinquishing it is unenforceable under the pre-existing duty rule. Held: the agreement is enforceable. To be so, P was to establish both that she had, at the time of the agreement, a bona fide belief that D was really the father, and that a reasonable person in her position might have had such a belief. P’s testimony, and the other facts, support both of these findings.

CASE BRIEF: Fiege v. Boehm



NAME: Fiege v. Boehm (Court of Appeals of Maryland, 1956)

FACTS:o The defendant Louis Fiege promised to make payments to the unmarried Hilda

Boehm (plaintiff) for the costs associated with the birth of her child and also to provide support payments for the child after its birth- the payment agreements were made before the child was born

o The plaintiff Hilda Boehm, an unmarried woman, became pregnant.o Before the child is born, she tells the defendant, Louis Fiege, who she’s had sexual

relations with, that he is the father.o According to Boehm’s testimony, Louis Fiege acknowledged on numerous

occasions that he was the father of her child


o Also before its birth, Fiege agreed to pay all of Boehm’s medical expenses and to compensate her for the loss of her salary caused by the child’s birth, and to pay $10 per week for its support until it reached 21 years old”

o This set of promises was made upon the condition that she would refrain from prosecuting him for bastardy (file a paternity suit).

o After the child’s birth and the promise to make payments, blood tests revealed that Fiege was not the father.

o Fiege only paid Boehm $480- she demanded that he pay her the further sum of $2,415.80- the balance due under the agreement.

o Fiege contends that even if he did enter into the contract as alleged, it was not enforceable, b/c P’s forbearance was not based on a valid claim, therefore the contract was without consideration

o The defendant claimed there was no consideration for his promise because the right relinquished by the plaintiff to sue for paternity was groundless and thus without value.

PROCEDURE: Plaintiff filed a breach of contract action to recover the expenses incident to the

birth of and to provide support for defendant's illegitimate child. A jury found in favor of plaintiff Boehm.

o D filed a motion for judgment notwithstanding the verdict or a new trial. D appealed from the Superior Court of Baltimore City (Maryland), which overruled defendant's motion for judgment notwithstanding the verdict or a new trial in plaintiff's action for breach of contract to recover the expenses incident to the birth of and to provide support for defendant's illegitimate child.

ISSUE: Whether forbearance to assert an invalid claim by one who has an honest and reasonable belief in its validity is sufficient consideration for a contract?

HOLDING: Yes.

REASONING:

For an objectively invalid claim to constitute consideration for a settlement, the P must, at the time of settlement, have had a bona fide subjective belief that the claim was valid, and this belief must not have been unreasonable

Court rule that so long as the original claim of paternity was in good faith, and was not “frivolous, vexatious, or unlawful,” the defendant’s promise would be enforced. The fact that the plaintiff’s good faith belief turned out to be mistaken did not matter, so long as the claim was not completely baseless.

P and D entered into an agreement whereupon defendant would pay the expenses related to the birth of and to provide support for defendant's illegitimate child. Blood tests later revealed that defendant could not have been the father. On appeal, the court affirmed the denial of defendant's motion since there was no proof of fraud or unfairness. The promise


of plaintiff that she would not institute bastardy proceedings against defendant was sufficient consideration for his promise to pay for the child's support, even though it was not certain whether defendant was the father.

DISPOSITION: Judgment affirmed, with costs.

Roughly 85% of cases that make it to court get settled- *Blackmail compared to this case, where you don’t really know/there’s a small that that it’s not his child.

Levine v. Blumenthal -not supported by any new consideration

o During the depths of the economic depression, the operator of a women’s clothing store negotiated a $25 per month reduction in the rent payable to his landlord, and was allowed to pay the reduced rate until business improved.

o When the tenant could not manage to pay the reduced rent, he quit the lease and the landlord sued to recover all of the rent due under the terms of the original contact.

o Because the landlord’s promise to accept less rent was not supported by any new consideration, the modification was unenforceable and the landlord was entitled to recover based on the terms of the original lease. Had a pre-existing duty to fulfill.

“Any consideration for the new undertaking, however insignificant, satisfies this rule…For instance, an undertaking to pay part of the rent before maturity, or at a place other than where the obligor was legally bound to pay, or to pay in property, regardless of its value….has been held to constitute a sufficient consideration” The most obvious way to handle this would be for X to agree to perform the contact one day earlier than originally agreed. This is a new and different obligation. Same problem can arise where an employer promises something extra, for work an employee has already promised to perform.

When an effort to modify a contract has failed, either due to the absence of a writing or because a lack of consideration, court ma find a term in the contact has been “waived.” A waiver is a voluntary relinquishment of a known right.

**How does this relate to In re Greene, how could you make In re Greene enforceable? The two rules, how do they affect Fiege v. Boehm, which one’s better?


CASE BRIEF: Levine v. Blumenthal

Ch. 2: The Bases of Contract LiabilitySec. 1: The Consideration Requirement

(D) Limits of the Consideration Doctrine(2) The Pre-existing Duty Rule

NAME: Levine v. Blumenthal (Supreme Court of New Jersey, 1936)

FACTS:o During the depths of the economic depression…

o The defendants, Blumenthal, were operators of a women’s clothing store.o The defendants entered into a two-year lease with a rent increase the 2nd year and

an option for renewal, with their landlord Levine, the plaintiff.- $2,100 for the first year, $2,400 for the second year, payable in equal monthly installments.

o Before the expiration of the first year, the defendants notified Levine that business was so bad that it was impossible for them to pay any increase in rent.

o The two parties negotiated a $25 per month reduction in the rent payable to Levine, through an oral agreement

o Levine allowed them to pay the reduced rate until business improved.o When Blumenthal could not manage to pay the reduced rent, he did not renew the

lease and left the premise leaving the last month’s rent unpaid.o The landlord sued to recover all of the rent due under the terms of the original

contact – the unpaid balance of the rent, $25 per month for 11 months, and $200 for the last month.

PROCEDURE: In the district court, P brought a successful action to recover the unpaid balance of

the rent for the second year- judge found that the oral agreement was not supported by “a lawful consideration”

On appeal, the court held that plaintiff's agreement to accept lower payments created no legal obligation where it was not supported by valid consideration.

ISSUE: Did the agreement between mistress and debtor have consideration?



REASONING: A subsequent agreement, to impose the obligation of a contract, must rest upon a

new and independent consideration. A promise to do what the promisor is already legally bound to do is an unreal

consideration The test for consideration of a supplemental agreement is whether there is an

additional consideration adequate to support an ordinary contract, and consists of something which the debtor was not legally bound to do or give.

DISPOSITION: Judgment affirmed, with costs

Levine sues for the old promise, Blumenthal says that they were operating under the NEW contract. There was no consideration…

How to make exchange in In re Greene*Fraudulent conveyanceExecuted gift- Trust- convey the property to the trustee

CASE BRIEF: Alaska Packers Ass’n v. Domenico

Ch. 2: The Bases of Contract LiabilitySec. 1: The Consideration Requirement


NAME: Alaska Packers Ass’n v. Domenico (United States Court of Appeals, 1902)

FACTS: The appellees, Domenico, a group of workmen, signed contracts to work on

appellant Alaska Packers Association’s ship during the salmon fishing season as the ship goes from San Francisco to Alaska and back

The contracts specified fixed rates of payment –some workers were to receive $50 and some $60 for the season, while all were to be paid “two cents for each red salmon” that they caught

After arriving in Alaska, the men stopped working and demanded $100 instead of the lesser sums in the original contracts

They stated that they would not perform the duties expressed in the contract, unless the superintendant agreed to increase their salary.

The evidence shows that the superintedant informed them that he had no authority to modify the contract, and could not get them to continue working

Since the superintendant could not get replacement men, he eventually yielded to the workers demands

In so doing, he substituted $100 for the previously agreed to rates, in a document which the workers signed.

The Ps start working again…


After arriving back in San Francisco, Alaska Packers refuses to pay the extra money, and some of the workers sue, alleging that the company had contracted to pay them higher wages

PROCEDURE: Appellant company challenges judgment of the district court

ISSUE:


REASONING: Held for defendant Alaska Packers. Consent to the workers demand, under the circumstances was without

consideration. By agreeing to work on the way back to San Francisco, the plaintiffs were simply

agreeing to do what they were already bound to do under the contract. Furthermore, the Ps conduct was coercive.

Exortion?Workers used their situational bargaining power – Case treated like a case of duress. Neth argues it’s a case involving labor and management and not so much duress

Hypo:Under 1st K: $60 + $2 per fish2nd K: Fishermen wanted $100 + $2, agreed that they would not be paid for more than X fish total. Now that the fishermen have another duty, that benefits Alaska Packers, there is consideration.

Austin got its bargaining power through circumstances that they were not responsible. War, government K between Loral, they took advantage of the situation.

There are a lot of situations where one side has much more bargaining power than the other- do we want to impose a limit? Unconcionability? Skier had no ability to assent and the bargain breached was unreasonable. Simeone: That judge should examine the K on the basis of whether or not it’s fair. If it wasn’t duress, it was certainly coming close to duress.


CASE BRIEF: Angel v. Murray



NAME: Angel v. Murray (Supreme Court of Rhode Island, 1974)

Parties: P= Alfred Angel and other citizensD= John E. Murray, Director of Finance of the City of Newport, the city of Newport, and James Maher

FACTS: Maher has history of entering a series of five-year contracts with the city of

Newport to collect garbage, since 1946. Maher enters into contract for a period of five years to collect garbage for the city

of Newport starting on July 1, 1964 and ending on June 30, 1969. Contract provided that Maher would receive $137,000 per year in return for

collecting and removed all waste materials within the city Testimony indicates that the contract has been predicated on the fact that since

1946 (initial contract), there had been an average increase of 20 to 25 new dwelling units per year.

Maher twice requests and additional $10,000 per year from the city council, on the grounds that his operating costs have substantially increased due to an unanticipated/unexpected increase of 400 new dwelling units.

After public meeting of the city council where Maher explained the reasons for his request, the city council agreed to pay him an additional $10,000 for the year ending in June, 1968.

Maher made similar request again in Just of 1968 for the same reasons, and city council again agreed to pay an additional $10,000 for the year ending in June, 1969.

After the additional payments are made, a citizen sues to have the additional payment refunded to the city.

PROCEDURE: - In trial court/Superior Court, plaintiffs, citizens, file a civil action alleging that

Maher had illegally been paid the sum of $20,000 by Murray, brought action so that defendant Maher be ordered to repay the city $20,000.

- In trial court, case was heard by a justice without a jury, who entered a judgment ordering Maher to repay the sum of $20,000 to the city of Newport.

Violation of the law because (1) additional payments had not been recommended in writing to the city council by the city manager; and (2) he found that Maher was not entitled to extra compensation b/c the original contract already required him to college all refuse generated


within the city, therefore including the additional 400 units, thereby he had a pre-existing duty.

- Maher appeals in Supreme Court

Civil action seeking recovery of $20,000 paid by City of Newport to a defendant pursuant to modified contract to collect refuse, before Supreme Court on appeal from judgment entered in Superior Court following nonjury trial before Carrellas, J.Defendants appealed the civil judgment of the Superior Court finding that additional payments under a contract were illegal and ordering defendants to repay the money.

ISSUE: Whether the additional payments were illegal because they were not supported by consideration?

HOLDING: No

REASONING:

The modification is enforceable. The modification was fair and equitable, voluntarily entered into, and motivated by events which were not anticipated at the time the original contact was created.

DISPOSITION: The Supreme Court reversed, holding that the city charter did not prohibit city from amending a contract, and the amendment was voluntary, made during the existence of the contract, and in response to unanticipated, substantial increases in refuse.

Pre-existing Duty Rule:General Rule in 2 party cases: Most courts hold that where one person promises another that he will do what he is already legally obligated to do for that other person, this promise is not a “detriment” sufficient to satisfy the consideration requirement.

A key reason for this rule is that courts want to deter “hold-up” behavior, where one party attempts to take unfair advantage of the other by threatening not to live up to his obligations.

*Restatement View: The 2nd Restatement is in accord with the majority of courts, in holding that an agreement to do what one is already legally obligated to do is not consideration.

“Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration…” (Rest. 2d, Sec. 73)

o Unforeseen circumstances: However, Rest. 2d Sec. 89(a) makes a modification binding if it is “fair and equitable in view of circumstances not anticipated by the parties when the contract was made” (See Angel v. Murray)

Doesn’t seem to be consideration- just merely doing what you already promised to do in Angel


If Austin would have brought up concern of the high price of steel, the dramatic increase in steel was not anticipated and is making it hard to make the components. Austin could have asked for more, and had Loral agreed to, maybe it would have been enforceable. But that would be on the assumption that the price asked for was reasonable.

Problem on

The city council did not have to approve the requested price- they could have said too bad, deal with the unanticipated circumstances.

When you make a K for the long-term, you have to take into account the possibility of change. Could have gone the other way, with LESS dwelling units (due to a storm, ppl moving, etc.)

They knew (just as in Bolin farmers) that the number of dwelling units could have fluctuated

The fact that there was a change of circumstances is foreseeable. Just not this dramatic of a change-

City could sue Maher if he refused to pick up the trash from the 400 dwellings. City could get the trash picked up for the price


Duress:Where the aggrieved party, who is accurately informed and primed to resist a proposed deal, is told by the defendant “unless you agree to this bargain, I will see that X happens.” Because X is presumably less pleasant that contracting, the aggrieved party, in the typical case, agrees to the bargain (which, by the way, may be perfectly fair) and later claims that the “apparent” assent was coerced. One’s “free will” was overcome by the threat and, therefore, the bargain is not enforceableWays of committing duress: (1) Violence or threats of it; (2) Imprisonment or threats of it (3) Wrongful taking or keeping of a party’s property, or threats to do so; (4) Threats to breach a contract or to commit other wrongful acts

CASE BRIEF: Austin Instrument, Inc. v. Loral Corp.

Ch. 5: Avoidance of ContractsSec. 2 Defects in Bargaining Process

(C) Duress and Undue Influence

NAME: Austin Instrument, Inc. v. Loral Corp. (Court of Appeals of New York, 1971)

FACTS:o Defendant Loral Corp. had a government contract to produce $6 million worth of

radar sets for the Navy- contract called for staggered monthly deliveries, and liquidated damages clause

o Loral solicited bids for some 40 precision gear parts needed to produce the radar sets, consequently sub-contracted with plaintiff Austin Instrument to supply 23 of the parts.

o After Austin Instrument began delivery of these parts, Loral entered a second contract with the Navy for more sets.

o Like before, Loral went about soliciting bidso Austin bid on all 40 components, but a representative from Loral informed

Austin’s president that his company would be awarded the subcontract only for the items on which it was a low bidder.

o In response, Austin told Loral that unless it receives a sub-contract for all 40 of the gear parts, and an increased price under the first contract, Austin will stop making deliveries under the first contract.

o Austin stopped deliveries.o Loral checked with all the sub-contractors on its approved list, but none could

make deliveries under the first contract in time to meet the requirements of their contract with the Navy.

o Loral faced substantial penalties, “substantial liquidated damages”- if it did not complete its underlying contract and faced losing future business

o In desperation, therefore, Loral agreed to Austin’s demands.


o After the last of the deliveries under both contracts, Loral stopped making any more payments, and said that it would sue to get back the excess amounts paid

o Austin sued first (for the balance due), and Loral counter-claims for these excesseso Austin instituted action against Loral to recover an amount in excess of $17,750,

the money due on the 2nd subcontract- the difference between the price they earlier agreed on and the 2nd contract- the increase in price on the 2nd contract

o On the same day, Loral filed an action against Austin claiming damages of $22,250- the sum of the price increases under the first subcontract- on the ground of economic duress

PROCEDURE: Appellate Division of the Supreme Court found for plaintiff subcontractor in

appellant contractor's claim for economic duress.

ISSUE: Whether Loral can collect damages on the ground of economic duress?

HOLDING: Yes

REASONING:Rule: A contract is voidable on the ground of duress when it is established that the part making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will.

Duress = “any wrongful act of threat which overcomes the free will of a party” “If a party’s manifestation of assent is induced by an improper threat by the other

party that leaves the victim no reasonable alternative, the contract is voidable by the victim” Rest. 2d, Sec. 175

The existence of economic duress is demonstrated by proof that “immediate possession of needful goods is threatened”/proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand i.) Satisfied by the fact that Austin’s threat to stop deliveries unless the prices were increased- deprived Loral of its free will. PLUS

It must also appear that the threatened party could not obtain the goods from another source of supply- Loral has burden of proof that it could not obtain the parts elsewhere within a reasonable time- It met this burden, as the 10 manufacturers whom Loral contacted on its list of “approved vendors” for precision gears were not able to commence delivery soon enough.*Unreasonable to hold that Loral should have gone to other vendors that it was either unfamiliar or dissatisfied with to get the needed parts.

Loral’s claim should not be held insufficiently supported because it did not request and extension from the Government


D agreed to the modification and the second contract only under “economic duress,” and is therefore entitled to damages. To prove such duress, D needed to show that it could not have gotten the goods elsewhere, but this showing was made here.

DISPOSITION: Reversed, remanded to trial court for a computation of its damages

CLASS NOTES, Austin:K#1 for 23 parts, money in returnK#2 23 parts, money in return + 40 parts, in return for money2nd K: Austin promised to produce all 40 gears required under the 2nd contract between the Navy and Loral. In the two sets of promises, there was no issue of consideration. They both had considerationHypo: K#3 Loral looks for someone to supply the parts, only 3 people can make the gears and one of them is currently on strike and the other 2 have other contracts so they can’t provide for Loral. Loral approaches the company on strike. We’ll pay you three times what we’d pay otherwise, you can use that to settle labor dispute. Is Loral subject to duress in that case?

Hypo: Mountainside, last skier is coming down and you have a broken leg you’re going to die. Last skier says sure I’ll take you down, that’ll be a million dollars. I don’t have a million, but I’ll give you all I have – Economic duress. Not an enforceable contract- Don’t have to pay a million, but do you have to pay anything?

Restitution is the lesser of the cost of the benefit- the cost to the promisee or the benefit to the promisor. But that doesn’t seem adequate…

Our law has been reluctant to recognize duress as a reason for breach of K. Austin is a rare case, but a pretty extreme cause

Suppose you’re a counselor for Loral: Loral insists on upholding Austin to their deliveries under the first contract. Expectancy damages = liquidated damages, future Ks missed out on with Navy. Difficult to calcuate the “right” amount of damages.

Go to Court and tell the judge Austin refuses to deliver, we’re under the gun with this contract with the Navy- please issue an injunction that they must deliver the parts. Immediate hearing required, must prove your case. The court might issue an injunction… Then they would not be in the same type of economic duress.

Alaska packers says to seaman, you want to not work except for more money? To hell with you, the ship comes back empty. Damages: what you would have earned if they would have gone fishing. But from season to season, they catch different amount of fish. Could have used a comparative approach, figured out the yields for that season. -Same position as Austin, in terms of able to sue to recover for nonperformance


Remedy: Usually, the remedy for duress is restitutionary in nature. That is, the party claiming it is allowed to recover an amount sufficient to undo the unjust enrichment that the other party has obtained. Thus, in Austin Instrument, D might have been able to recover the increased price in the first contract, and everything beyond a fair and reasonable price on the 2nd contract (less, of course, the amount owed on that contract)

Problem: Case of the Dissatisfied Entertainer The Plaintiff Ajax and defendant Bond entered written contract whereby Ajax, a

professional entertainer was to perform at Bond’s resort hotel for a week for the price of $20,000

Ajax got popular, demanded $50,000 from Ajax to perform Initially Bond refused to renegotiate, but when Ajax said he would not appear

unless the price was raised, Bond gave in to a price increase. Bond wrote up new K, with the sole modification that compensation would be

35,000 instead of $20,000 to perform the same duty. Ajax performed, Bond refused to pay for than $20,000 Ajax sued for the full amount of $35,000

Mutual consent? The 2nd Restatement is in accord with the majority of courts, in holding that an agreement to do what one is already legally obligated to do is not consideration.

“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, Sec. 73)

-Ajax’s duty of performance did not differ from the 1st KUnforeseen circumstances: However, Rest. 2d Sec. 89(a) makes a modification binding if it is “fair and equitable in view of circumstances not anticipated by the parties when the contract was made” (See Angel v. Murray) You did not bind yourself to do anything you weren’t already legally obligated to do, so the return promise to pay $35,000 can’t be binding…No extra duty was assumed to constitute the required “detriment”

If Ajax didn’t show up, there’s no way to find out how much he would have made. Who knows how many tickets they would have sold? How much beer/food did you not sell? Might lose your reputation within the community and lose business?Yet the legal remedy is inadequate because if you can’t prove what you would have made, you cannot recover the money.


If Ajax appears and is the big star, the venue then becomes important and you can get other stars.

If you mutually agree to release each other of obligations, neither are contractually bound (there was consideration, each step has consideration)

What if you were bond and tore up the K… Ovation?

The other way around: OJ Simpson, had a number of different contracts where he did advertising with a number of companies- after his wife died, the companies no longer wanted him as part of their advertising campaign. There is normally a “bad behavior” clause that allows the parties to negotiate a new deal. If there is not “bad behavior” clause, if the deal is “equitable and fair” and circumstances are unanticipated, they can usually negotiate a deal.

Suppose instead of having renegotiation take place, at noon on the day of the concert after all the tickets were sold and advertisements were paid for- the artist says that he’ll walk out and not perform unless they contract for a higher, but equitable and fair, price. Case of economic duress, the performer has overwhelming bargaining power, but if the demand and renegotiation is fair and equitable, shouldn’t it be upheld? Doesn’t it deprive Bond of his free will?

2209 of Restatements (Second), arg. 2 applies to AustinComment 2: Modification agreement must meet test of good faith of both parties.

(1) Mutuality of Obligation-Within our legal system, a contractual obligation is not easily imposed on an unwilling party. Ex.- One may refuse to negotiate, or explicitly state that one will not agree to any bargain unless the other party agrees to a particular term, ORWhen one expressly states that she will have no duty of performance unless a specified event first occurs, an enforceable K subject to an express condition has been created.Complication: when the final agreement of parties or some rule of law permits one of them to withdraw sometime after performance begins, for reasons totally or partially within his/her control

*Requirement that each side furnish consideration: For K to be binding, each of the contracting parties must undergo a “detriment” which was bargained for by the other

-Essence of mutuality-of-consideration defense is the D saying “Because you never bound yourself to do anything, I shouldn’t be bound, either” *Problem of mutuality only arises in bilateral contracts, i.e., contracts where each party makes a promise to the other


If Modification ExcuseNo change No No

Anticipated change No No (Bolin Farms) *Restatement 89 wouldn’t apply, requires an “unanticipated” change

Unanticipated, but not extreme Yes No

Unanticipated, extreme Yes, if both agree Yes

*You can modify contract for sale of goods, needs no consideration to be binding. 2209Restatement not a statute, rather an attempt to restate the law.

If the trash collector in Angel v. Murray said I want more money for picking up the unanticipated rise in dwellings/trash, and the city council said too bad, then he’d have to pick up the trash for the same price.


CASE BRIEF: Rehm-Zeiher Co. v. F.G. Walker Co.

Ch. 2: The Bases of Contract Liability Pp. 93-95Sec. 1: The Consideration Requirement

(D) Limits of the Consideration Doctrine(3) Mutuality of Obligation (Restatement says there is no such

thing as mutuality of obligation, what you’re really talking about is consideration)

NAME: Rehm-Zeiher Co. v. F.G. Walker Co. (Court of Appeals of Kentucky, 1913)

FACTS: The plaintiff Rehm-Zeiher Co., a whiskey retailer and defendant F.G. Walker Co.,

a whiskey distiller, entered into a multi-year contract for the purchase and sale of whiskey at pre-established prices and designated quantities.

The contract provided that the Rehm-Zeiher could purchase any number of cases per year up to a prescribed limit.

Up to 2,000 cases of old Walker delivered during the years 1909, up to 3,000 cases to be delivered during the year 1910, up to 4,000 cases to be delivered during the year 1911, and up to 5,000 cases to be delivered during the year 1912

Arrangement stipulated that if Walker’s whiskey was lost in a fire, then they are excused from selling

Also, if for any “foreseeable reason,” Rehm-Zeir found that they could not use the full amount of whiskey set forth in the contract, Walker agreed to release them from the contract

During the first two years, Rehm-Zeir only asked for a fraction of the contractually designated amounts.

In the third year (1911) Rehm-Zeir demanded the full year’s allotment of whiskey, which Walker refused to deliver because of increased price.

The distiller deliver about one-fourth of the demand. Rehm-Zeiher argued that the contract was an enforceable mutual agreement.

PROCEDURE: Rehm-Zeir filed a breach of contract against Walker to recover damages after the

distiller failed to sell 2,596 of the 4,000 cases to be delivered in 1911 under the contract.

Trial court entered a directed verdict in favor of Walker, declaring the contract was lacking in mutuality of obligation.

The P Rehm-Zeiher appeals.

ISSUE: Whether K was lacking in mutuality, and therefore could not be made the subject

of an action for its breach by either party- No consideration Does a contract that allows one party to act with unbridled discretion lack

mutuality of obligation?


HOLDING: Yes, K was lacking in mutuality and therefore could not be made subject for its breach

REASONING: The court affirmed the directed verdict that was entered in favor of the distiller. The court held that the wholesaler's action was not cognizable because the contract lacked mutuality of obligation.

The court stated that contracts that were valid must be mutual and binding upon both parties.

The court found that the mutuality was lacking because the contract was not binding for Rehm-Zeir, and that it was not enforceable by Walker

Lacking in mutuality of obligation: “unforeseen reason” that would excuse Rehm-Zeiher from only taking so much whisky as it desired to take was left to their own discretion: the K places no limit on “unforeseen reason,”

The Walker Co. was not obligated to furnish any whiskey in 1909, 1910, and 1911, nor was the Rehm-Zeiher Co. obliged to take any, and the fact that the Walker Co. voluntarily chose to furnish some did not deny to it the privilege of refusing at its election to furnish the remainder of the whisky. Ruled that Rehm-Zeiher Co. is seeking to enforce a K that was never binding on them.

DISPOSITION: Judgment of the lower court was correct, affirmed.

A requirements contract, wherein A agrees to furnish all of B’s needs in a certain item, is not lacking in mutuality, as B may require A to furnish all of the items B needs, and A may require B to take from A al of the items B needs.

However, if K allows B to take only so much as B desires, there is no such mutuality of obligation. P qualified its obligation to take with the completely unqualified “unforeseen reason” This qualification left the amount P would take entirely up to its own discretion.

***If D had brought suit in any year to compel P to take the full amount specified in K, it’s clear that P could have avoided liability. D was not obligated to furnish any whiskey, nor was P obligated to take any.

NOTES: The distiller couldn’t provide probably because the market price of whiskey went up.Rehm-Zeihr could buy from other whiskey companies- they bought from multiple companies and that was legit.


CASE BRIEF: McMichael v. Price


(3) Mutuality of Obligation

NAME: McMichael v. Price (Supreme Court of Oklahoma, 1936)

FACTS: Plaintiff Price was just starting a sand selling business, with a lot of experience

selling sand. Price entered a contract with McMichael, the defendant, in which he agreed to

“purchase and accept” all the sand of a specified quality from McMichael that he can sell- The sand had to be at least equal in quality and comparable with sand grades sold by other companies in the town

Contract provided that Price would purchased the sand for a fixed price- being 60% of the prevailing market price for sand.

The sand was to be shipped out on a monthly basis, lasting 10 years. McMichael then refused to provide the sand, saying that the contract was a

revocable offer and is not binding because it lacks mutuality/consideration. McMichael alleged that Price breached contract by refusing to pay for sand

shipped each month Price sued for breach of contract to recover damages-

PROCEDURE: Price filed action against defendant to recover damages for breach of a contract. Case was tried to a jury and a verdict was returned in favor of Price for $7,512.51 Trial court ordered a remittitur of $2,500 Trial court rendered judgment on verdict of $5,012.51 McMichael appeals

A remittitur is a ruling by a judge (usually upon motion to reduce or throw out a jury verdict) lowering the amount of damages granted by a jury in a civil case. Usually, this is because the amount awarded exceeded the amount demanded; however, the term is sometimes used for a reduction in awarded damages even when the amount awarded did not exceed the amount demanded, but is otherwise considered excessive.

ISSUE: Where P is just entering a business and has no requirements as of yet but D agrees

to sell to P all of Ps requirements, is there mutuality of obligation?

HOLDING: Yes. Judgment affirmed.

REASONING:


(a) Price had no business and might have escaped liability to buy from McMichael by not engaging in the sand business. But the contract was drafted on the assumption that P was in business, would have requirements, and would buy these requirements from D

(b) This is sufficient consideration to support D’s promise; there is mutuality and a valid contract

DISPOSITION: The court affirmed, finding the contract was mutually binding upon the partiesAlso held that the finding by the jury in favor of plaintiff regarding defendant's claim that plaintiff did not correctly pay for the sand was supported by competent evidence.

Like Hamer, you can the choice to sell sand, you’ve given up your right to buy sand from others if you

Price had no right to buy from other companies

Neth says that Rehm-Zeiher had sufficient consideration – if anything, no mutual obligation- but mutual obligation is not recognized by the 2d. Restatements


CASE BRIEF: Wood v. Lucy, Lady Duff-Gordon


(2) Mutuality of Obligation Exclusive contract: reasonable efforts implied

NAME: Wood v. Lucy (Court of Appeals of New York, 1917)

FACTS: The defendant, Lucy, is in the fashion industry- the clothing she designs is

popular, so that clothing takes on a greater value when issued in her name- her name was a valuable commodity at the time.

Wood (P) was employed by Lucy, and given an “exclusive right” by contract to place Lucy’s endorsement on the deigns of other companies/people that sell clothing- This right was subject to her approval.

He was also given the exclusive right and to place Lucy’s own designs on sale and to license others to sell them.

Contract provided that Lucy was to receive one-half of “all profits and revenues” from any contracts made by Wood

K was to last at least one year, thereafter from year to year unless terminated by notice of 90 days.

The contract indicated that Lucy had an organization capable of performing the contract, but it did not expressly indicate that Lucy would perform.

Lucy put her endorsement on the clothes of a competitor without Wood’s knowledge, and without giving him a share of the profits.

In light of this, Wood sued Lucy for breach of the contract Lucy syas that the contract lacks the elements of a contract, and that Wood

does not bind himself to anything.

PROCEDURE: The intermediate appellate court reversed the trial court’s denial of Lucy’s

motion for judgment on the pleadings. From a dismissal of the complaint, Wood appeals

ISSUE: Where P did not specifically promise to use reasonable efforts to promote D’s goods, and all compensation to D under the contract is to come from such efforts, is there a valid promise by P?

HOLDING: Yes. Judgment reversed.

REASONING:a.) A promise that Wood would use reasonable efforts to promote D’s goods is fairly implied here. The circumstances of the contract make such an implication reasonable: it


was an exclusive dealing contract Lucy awarded to Wood; any return to Lucy was to come from Wood’s profits. Meaning, if Lucy was to get anything at all, Wood had to perform.

DISPOSITION: Reversed.

CASE BRIEF: Omni Group, Inc. v. Seattle-First National Bank


(3) Mutuality of Obligation

“Satisfaction” as a condition precedent

NAME: Omni Group, Inc. v. Seattle-First National Bank

FACTS:Omni Group, Inc (P), a real estate development corporation, contracted to purchase property from the Clarks (D) through the Royal Realty Co. Royal was directed by Clarks to obtain further consideration in the nature of Omni’s agreement to make certain improvements on adjacent land not being offered for sale. Royal did not communicate additional terms to Omni.The earnest money agreement specified that the sale was subject to P’ receiving a feasibility report. If the report was satisfactory to P, P had to notify the Clarks of P’s acceptance. Otherwise, the transaction was null and void. After some negotiation about terms and price, P agreed to certain additional terms proposed by the Clarks.Later, however, the Clarks refused to proceed with the sale. PROCEDURE:

Omni Group sued to enforce the earnest money agreement The trial court held that Omni Group’s promise was illusory and entered judgment

for the Clarks. Omni Group appeals

ISSUE: Does a condition precedent to a promisor’s duty that the promisor be “satisfied” with some aspect of the deal render the promise illusory?

HOLDING: No. Judgment reversed.

REASONING:


(1) An illusory promise cannot constitute consideration for a contract, but a promise given in exchange for a promise is not illusory merely because it is dependent on a condition precedent. The language in the condition precedent here required Omni Group to obtain a feasibility report, and then to be satisfied by it before acceptance was required. This condition is governed by a duty of good faith; it is not illusory

(2) The satisfaction requirement may be objective or subjective. In either case, satisfaction is a question of fact, so the promise is not illusory. There may be numerous factors to assess in evaluating such a report for satisfaction, but the promisor’s duty to exercise judgment in good faith is an adequate consideration to support the contract. Omni does not have unfettered discretion to avoid the contract; it can only cancel by failing to give notice if the report is not satisfactory.

25

Documents

Transcript of 25