basis for enforcing promises: which promises should the law enforce? chapter 1,§3, pp.29-46...

Basis for Enforcing Promises: Which Promises Should the Law Enforce?

Chapter 1,§3, pp.29-46

©Knippenberg

Should All Promised Be Enforced?

• The law might be such that all promises made would be enforced. Were that the case, a promisor (the party making the promise) would be subject to liability (obliged to pay damages) to the promisee (the party to whom the promise was made) for failure to fulfill it.

• Indeed, that is not the law: not all promises are enforceable. Why might that be? Shouldn’t we be required to fulfill the promises we make? What negative consequences might follow from enforcing all promises?

Impracticality of Enforcing All Promises?

• Bare promises for which nothing is asked in return (gift promises) are easily made and easily broken.

• Shouldn’t one have the option of changing one’s mind?

• Evidentiary Issues• Flood the courts? So, which promises should

the law enforce?

So, which promises should the law of Kx enforce? Why?

• In general, the law of Contract will enforce those promises for which something (called ‘consideration’) is asked in return, but not promises for which no consideration is sought, so called ‘Gift Promises’. Why should that be the case? There are a number of theoretical explanations. Here’s an explanation offered by finance theorists:

Promises Seeking Consideration and Pareto Efficiency

• A transaction or rule of law leads to a Pareto Efficient outcome where at least one of the parties involved is better off and none of the parties are worst off.

• Thus, enforcing a promise makes economic sense where to enforce it would yield a Pareto efficient result. Consider the following:

(So, which promises should the law enforce?)

• Assume A promises to sell 100 bushels of apples to B for 10 Inter-galactic units per bushel, for a total of 100 Units, and that it costs A 5 units per bushel to produce the apples.

• Assume further that B has entered into a contract to sell the 100 bushels of apples to C at 15 units per bushel. B enters into a Kx with D, a common carrier, to deliver the 100 bushels of apples to C at a cost of 2 units per bushel. It costs D 1 unit per bushel to perform (deliver the apples)

(Promises Seeking Consideration)

B

Promise to sell Apples at 10 Units /bushel

A

Promise to buy Apples at 10 Units /bushel

Promise to sell ApplesAt 15 Units /bushel

Promise to buy Apples at 15 Units /bushel

C

If A’s promise is enforceable under Kx law, there is a net gain to all: A gains 5 Units per bushel, while B, who values the apples at 15 Units per bushel, realizes a net gain of 3 Units, and so on.

No Rotten Apples• A’s cost to produce the apples = 5 units, so A nets 5 units (is 5

units better-off) if the Kx between A and B is enforced. B is better off if this Kx is enforced because B values the apples at more than 10 units per bushel.

• B’s cost to purchase (10 units per bushel) and ship (2 units) is 12 units. If the Kx between B and C is enforced, B realizes a net gain of 2 units and is better off.

• C apparently values the apples at 15 units, so if the Kx is enforced between C and B, C is no worse off, and, again, B is better off.

• Consider also the Kx between B and D for portage: if B couldn’t rely on the A’s promise to sell being enforced, B could not safely enter into the carriage Kx with D

Promises without consideration: Gift Promises

• By contrast consider the following:– A promises to pay B 10,000 Inter-galactic Units,

asking nothing in return, i.e., A makes a gift promise, which looks like this:

Promise to pay 10,000

A B

(Gift Promises)

• Assume that A refuses to perform the promise (defaults), but that we live in a world in which all promises are enforceable, including gift promises. Thus, B sues A and recovers damages for A’s breach of promise.

• Is there any economic gain here?

Promises Seeking Consideration: look like this . . .,

B

Promise to sell Apples at 10 Units /bushel

APromise to buy Apples at

10 Units /bushel

Promise to sell ApplesAt 15 Units /bushel

Promise to buy Apples at 15 Units /bushel

C

Each of A, B and C are seeking something in return for their own promises. A, for its promise to sell, is seeking B’s promise to pay. B, for its promise to buy the apples and pay for them, is seeking A’s promise to sell at the agreed upon price. In short, A is not making a promise to give the apples to B, nor is B promising to make a gift of 1000 IU’s to B. B’s promise to pay is the consideration sought by A for its promise to deliver apples, and A’s promise to deliver apples is the consideration for B’s promise to pay.

Promises Seeking Consideration Look Like this:

B

Promise to sell Apples at 10 Units /bushel

APromise to buy Apples at

10 Units /bushel

Promise to sell ApplesAt 15 Units /bushel

Promise to buy Apples at 15 Units /bushel

C

Consideration for A’s promise to sell

Consideration for B’s promise to buy

In this Kx C’s promise to pay is Consideration for B’s promise to sell, B’s

promise to sell is Consideration for C’s

promise to buy

Thus—General Rule: Promises with consideration, called Contract Promises, are enforceable, gift promises are notIs there consideration (quid pro quo, something

sought) for the promise?

No

Gift Promise-generally NOT enforceable

Kx Promise (promises for which there is consideration-generally enforceable

Yes

Antecedents of the Consideration Doctrine—some old historical stuff

• The consideration doctrine did not spring Ex nihilo into the law of Kx, like Minerva sprang from Jove’s brow

• Rather, it evolved from English Common Law, really gnarly and old concepts

Promises historically enforceable under English Common Law: The Sources of the Consideration

Doctrine Common Law Actions

• Covenant (promises under seal)– Evidentiary– Cautionary– Later supplanted by signature

• Action for Debt– Debtor had something belonging to promisee

• Action for Assumpsit– Misfeasance, but, early on, not for NON-feasance

Assumpsit

• Allowed recovery only for misfeasance until mid-fifteenth century

• Thereafter, permitted recovery for nonfeasance, but required detrimental reliance (keep this in mind for later!)

• Replaces the action of Debt to recover for unpaid loans and delivery of goods not paid for.

• End of 16th Century, enforces promise-for-promise (Bilateral Kx)

Consideration(Sources of the Doctrine)

• By the 17th Century, Assumpsit becomes the action for enforcing all manner of promises

• The term “consideration” expressed the conditions necessary for a promise to be enforceable

• The action of Debt contributes the concepts quid pro quo and benefit conferred to the Consideration Doctrine. The action of Assumpsit supplies the notion of detriment.

Yeah, so what?

• Bottom line is, around the end of the 17th, the basis for enforcing Kx’s was consideration—the historical stuff shows where the concept of consideration came from: the concept of benefit conferred from the old writ of Debt , and the concept of detriment from the action/writ for Assumpsit

• Also, the concepts of benefit and detriment which form the basis of the Consideration Doctrine will continue into the modern law of Kx in other contexts, as we’ll see later in the course, so keep them in mind!

So: General Rule: Promises with consideration, called Contract Promises, are enforceable, gift promises are not

No

Gift Promise-generally NOT enforceable

Kx Promise (promises for which there is consideration-generally enforceable

Yes

Kx Promises (Promises with Consideration): Analysis

• While we will discuss gift promises (promises without consideration, or Non-Kx Promises, and the occasions on which they are enforceable (remember the rule that gift promises are unenforceable is a general rule, suggesting there are exceptions), our initial focus will be on Kx Promises.

• The following slide shows what will be our Kx Model or rubric—our ‘Road Map’. It will be the basis for analyzing issues arising in Kx law.

All Kx issues arise under the categories delineated in the road map below

Road Map for Kx Analysis

1. Scope2. Kx Formation3. Enforcement4. Performance and Breach5. Remedies

All Kx issues arise under the categories delineated in the road map below

Road Map for Kx Analysis

1. Scope2. Kx Formation3. Enforcement4. Performance and Breach5. Remedies

Two questions are raised under this part of the Kx Analysis: first, “which state’s law governs this transacton?”. And, second: “What law within that state governs?”The first may be referred to as an issue of Geographic Scope; the second may be referred to as an issue of Subject Matter Scope.

(Road Map)

1. Scopea. Geographic: which state’s law governs the

transaction?

In many transactions, more than one state may be implicated. For instance, in a Kx for the sale of goods, the seller may reside in Oklahoma, while the buyer resides in Texas. These are “choice of law” or “Conflicts” issues relating to jurisdiction and venue.

(Road Map)

(1. Scope)b. Subject Matter

Having decided, if necessary, which state’s law controls, the next step is to decide which law within that state governs the transaction.

Kx law is embodied in statutes and codes (from legislatures) and the common law, or case law (from the courts). This step in the road map entails determining if the transaction is governed by statute or code on the one hand or case law on the other.

(Subject Matter Scope)

In addition, various organizations (e.g., the National Conference of Commissioners on Uniform State Laws) interested in clarity and uniformity in the law, as well as law transformation, have been influential in the development of Kx law. Most notable among such organizations is the ALI, which drafted the Restatements of the Law, including the law of property, torts and other areas, as well as the Restatement of Contracts.

(Subject Matter Scope)

The Restatement of Contracts endeavors both to state the law as it is and to and, with respect to various issues, what the law should be.

The Restatement is not a statute or code—the ALI is not a legislative body. It is not, absent some action, the law. As the product of a Kx brain trust, however, it has been extremely influential and is frequently cited by courts. Where a Restatement provision thus becomes part of a judicial opinion, it becomes part of the case law of that jurisdiction.

(Road Map)

2. Kx FormationThe question here is whether a Kx has

been formed. Is the promise under scrutiny a Contract Promise (i.e., a promise for which there is consideration) or a Gift Promise? A cause of action for breach of Kx requires initially that a Kx has been formed between the parties. The first part of this course will be devoted to determining the requirements for Kx formation.

(Road Map)

3. EnforcementOnce it has been determined that a

Kx has been formed, the next step is to decide if there are any bars to enforcing it. The rule that Kx promises (as opposed to gift promises) are enforceable , a general rule, implying exceptions. Not all Kx’s are enforceable for various policy reasons. What might some examples Kx’s the law should decline to enforce?

(Road Map)

4. Performance and BreachIn an action for breach of, if Kx is found, and there are no bars to enforcement, it remains to decide if there has been a breach. If so, the party against whom breach is alleged has an array of Responses to Breach available. These are considered under this part of the analysis.

(Road Map)

5. Remedies

If we find Kx, no bars to enforcement, and breach to which there is no response, the complaining party is entitled to a Remedy for Breach of Kx. Generally, the remedy will be money damages, though under some circumstances, an “Equitable Remedy” (e.g., Injunction or Specific Performance) may be available in lieu of $ Damages.

More on the Restatement

• Until the 1st Restatement, individual transactions involving contracts were separately governed (e.g., Kx for shipping, purchases, storage, employment, etc.)

• The theme of the Restatement was to propose a single body of law governing all manner of contracts, whatever the subject matter of the contract

• Even after the Restatement, general categories of Kx are still identifiable

Categories of Kx’s

1. Family Kx– Non-commercial, family contracts regularly

implicate personal, family relationships. As such, they frequently do not lend themselves readily to resolution through judicial process

– They are frequently oral – They are frequently gift promises• Promises made among family members are routinely

presumed gratuitousThe following case is an example of a family Kx

Hamer v. Sidway

• At a wedding celebration, Story promises his nephew, Hamer, $5,000 if Hamer would refrain from drinking, smoking, etc. until age 21. Good Ole Uncle

Story

(Hamer v. Sidway)

• Nephew assented and refrained until age 21, fully performing as uncle requested.

• Uncle deposited the money in a bank account at interest.

Nephew

(Hamer v. Sidway)

• Who’s Sidway?

Briefing Hamer v. Sidway

• Who sued whom for what (what is the cause of action)?

• What is the remedy sought?• What is the outcome below?• Who appeals, and what is the outcome on

appeal?

Issues in the case

• What is the defendant’s argument?

• How does the NY Ct. of Appeals define consideration?

• How might the issue(s) in this case be stated?

Hamer v. Sidway

• Issue:– Whether Nephew’s refraining from smoking,

drinking and gambling, all of which he had a legal right to do, was consideration for Uncle’s promise to pay $5,000, though Nephew’s refraining was of no measureable benefit to Uncle?

*Why wasn’t Nephew’s refraining a benefit to Uncle? Isn’t what that what Uncle wanted?

(Hamer v. Sidway)

• Rule: – A Promisee’s performance is consideration for the

Promisor’s promise if it is either beneficial to the Promisor or detrimental to the Promisee. Forgoing the exercise of a legal right constitutes a detriment to the Promisee.

(Hamer v. Sidway)

• Holding/Application: Since Nephew had a legal right to smoke, drink and gamble, his forbearing constituted a detriment to him and was, therefore, consideration for Uncle’s promise to pay $5,000.

• Would the result be different in the case if, under NY law, Nephew could not drink or gamble until age 21?

Where does Hamer fit within the Kx Analysis/Road Map?

1. Scope: no question about what state’s law governs, or what law (it’s the law of Kx) which controls.

2. Kx Formation3. Enforcement4. Performance and Breach5. Remedies

Rather, Hamer v. Sidway raises the question, is there a Kx, or was Uncle’s promise to pay a Kx promise for which there was consideration, or a mere gift promise.

Requirements for Kx Formation

2. Kx FormationHamer v. Sidway, then, tells us something

about what is required for a Kx to be formed, namely, there must be consideration. The case helps define when there is consideration for a promisor’s promise. That is to say, the case explores the doctrine of consideration.

Requirements for Kx Formation

2. Kx FormationRequirement: Promisee’s performance must

be consideration for Promisor’s promise.From Hamer v. Sidway:To be consideration, a performance must either be a benefit the promisor (Uncle in the case) OR constitute a detriment to the promisee (Nephew). Forfeiting a legal right constitutes a detriment to the Promisee.

What constitutes a detriment to Promisee?

A Promisee suffers a detriment in forgoing something the Promisee otherwise has a right to do.

Nephew had a legal right to drink, smoke and so forth which he forfeited in response to Uncle’s promise.

Note 1: Benefit and Detriment, p.38

• Recall that the notion that a benefit had been conferred on the promisor has its historical antecedent in the common law action of Debt

• The concept of detriment is traceable to the action of Assumpsit.

• Which is/are required according to the Hamer case?• Do those concepts find their way into the Restatement ?

What constitutes consideration under the Restatement §§71 and 79?. Would there be a contract formed between Story and Hamer under The Restatement? See Holmes’ ‘Bargained For Exchange’

Note 2: Bargain Theory of Exchange

• According to eminent jurist, Justice Holmes, the central requirement for consideration is the “reciprocal conventional inducement”. What does that mean? What does “Bargained For” mean?

• Is the Restatement definition of consideration consistent with Holmes’ view?

• If Bargained For is one of the requirements for consideration, would there be a Kx in Hamer?

• We will return to the Bargained for requirement with Feinberg v. Pfeiffer, p.46.

Note 3: Sufficiency of Consideration

• Is it required that the relative value of consideration given be “enough”? What was the position of the Restatement 1st ? (See §§76-81)

• What is the position of the Second Restatement on sufficiency? See Restatement 2nd §79. Why did the Restaters adopt this position in the Second Restatement?

• What is meant by Peppercorn consideration? Restatement 1st §84, Re.2nd §71

Note 4: Peppercorn

• What is meant by “Peppercorn” consideration?

• Why is it a matter for concern under the Bargain Theory of Exchange?

• Is it a problem where a benefit to Promisor or Detriment to Promisee is required?

• How do the Restatements 1st and 2nd deal with Peppercorn consideration?

Note 5: Unilateral and Bilateral Kx

• Unilateral Kx refers to a promise given for a performance in return. Restatement §71(1). Bilateral Kx refers to a contract in which parties exchange promises.

• Which sort was involved in Hamer v. Sidway?• What if, on receiving Uncle’s promise, Hamer

promised to refrain until age 21. Would there have been a Kx formed?

Gift (Gratuitous) Promises versus Completed Gifts (p.39)

• Are completed gifts—where something is actually transferred by one party to another, “enforceable”, or should the party conferring the gift be able to deploy the courts to force the recipient to return the item?– They are enforced

• If completed gifts are “enforceable”, why shouldn’t a promise to give a gift (a gratuitous promise without consideration) not be enforceable?

(Kx Formation)

So far, the requirements for Kx look like this:• Promise• Price for the promise (performance or return

promise)• Consideration: Requires Promisee’s

performance to be . . .(1) a Benefit to Promisor or Detriment to Promisee (about a half-dozen jurisdictions)(2)*Bargained For-will be added as a requirement

(Road Map: 2. Kx Formation)• Promise plus a price for that promise– What might be a working definition for Promise?– The price for the Promisor’s promise will be either• In unilateral Kx, a performance by the Promisee (e.g.,

Nephew’s refraining in Hamer v. Sidway).• In bilateral Kx, which we’ll study later, the price for the

Promisor’s promise will be the Promisee’s return promise.

Promisor’s Promise

Prom’ee’s Perf or return Promise

E.g., “to pay”

E.g., RefrainingPrice

Settlement Agreements

• For all the cases you find in your casebooks, by far most cases settle before trial. If a party gives up a valid claim against another, that certainly constitutes consideration. Question is, does a party who forfeits a claim in a settlement agreement that turns out to be without merit give consideration?

Kx Formation in Settlement Agreements (Contracts)

Consideration in Settlement Contracts

Promisor

Promise to forfeit claim

Promise to forfeit claim Promisee

Note 2: Fiege v. Boehm

• Facts: Boehm had an intimate relationship with Fiege, became pregnant and later gave birth to a daughter.

• Before the birth, Fiege promised to pay Boehm’s medical expenses associated with the pregnancy and birth, compensate her for lost wages, and pay $10 per week for support until the child reached age 21 provided Boehm would not institute Bastardy proceedings against Fiege.

• It was later determined that Fiege was not the father, whereupon he discontinued paying Boehm.

Note 2: Fiege v. Boehm

• Fiege first argued that he did not make his promise to pay support, etc., in order to get Boehm to refrain from bringing bastardy proceedings. Why did he?

If not to get Fiege’s promise not to prosecute, why did Boehm agree to pay?

(Fiege v. Boehm)

• Issue: Whether Boehm’s refraining from bringing bastardy proceedings against Fiege, whom she believed to be the father of her child, was consideration for Fiege’s promise to pay expenses and support though the claim later proved to be invalid?

(Fiege v. Boehm)

• Rule: – Forbearance to assert an invalid claim is consideration provided

there is an honest and reasonable belief that the claim is valid. See also, Re. section 44. Feige was decided under the older ‘minority’ view to which the Dyer Court refers: there were two requisites: GF and reasonable belief in the validity of the claim. Contrast Dyer. Note that the objective requirement drops out.

• Application: – Since Boehm honestly and reasonably believed she could

prosecute Fiege for bastardy under Maryland law, her refraining from prosecution was consideration for Boehm’s promise to pay, although her claim later proved to be invalid as Fiege was not the father of her child.

Note 1: Objective Requisite (p.45)

• What is meant by the ‘objective requisite’? • What, then, is the ‘subjective requisite’?• What does the Restatement 1st require?• What does the Restatement 2nd require?• What did the Fiege court require?• What did the Dyer court require?

Note 2: Nondisclosure

• What significant fact did Boehm omit? • Could she have enforced promises made by

two promisors?• What about . . . . Three?

• More?

Dyer v. National By-Products, Inc., p.43

• Dyer, an employee of NBP, lost his foot in the course of his employment. NBP orally promised Dyer a job for life in exchange for his foregoing bringing and action for his personal injury. After returning to work, Dyer was thereafter laid off. It later was determined that his personal injury claim was invalid. Why?

Kx Formation: Dyer

Promisor’s(NBP) Promise

Lifetime Job

Relinquish personal injury

claim

Promisee’s(Dyer’s) Promise

(Kx Formation: Dyer)

• Kx Formation– Promisor’s (NBP’s) promise: lifetime employment– Price for Promisor’s promise: Promisee’s (Dyer’s)

promise to forgo personal injury suit– Was the price, Dyer’s promise to forgo the lawsuit,

consideration for NBP’s promise of lifetime employment? Given what we learned from Hamer v. Sidway and the Re2nd, section 71, what’s the inquiry?• BF?• Beneficial to Promisor, NBP? OR• Detrimental to Dyer?

(Dyer v. National By-Products, Inc.)

• C/A: Dyer sues NBP for breach of Kx• Remedy: $Dmgs• Issue?– Whether Dyer’s forbearing from bringing a

personal injury action against NBP was consideration for NBP’s promise of lifetime employment, although Dyer’s personal injury claim was invalid, provided Dyer believed in good faith his claim was valid at the time?

(Dyer v. National By-Products, Inc.)

• C/A: Dyer sues NBP for breach of Kx• Remedy: $Dmgs• Rules:– First, the Court observes there are two types of

invalid claim cases-what are they? See bottom of page 43, top page 44. Which type is before the court?

– The Court discusses two views in the ‘unfounded’ type cases, such as those before it. What are the two views?

(Dyer v. National By-Products, Inc.)

• Rules:– What is the Restatement 2nd approach? When,

under section 74, is forbearing from asserting an invalid claim consideration?

– What is Corbin’s view? Williston’s view?– Finally, which view does the Court adopt? Why-

what is the policy behind the rule it chooses?

(Dyer v. National By-Products, Inc.)

• Rules from the case?– Failure to assert an invalid claim is consideration

for a promise, provided the party forbearing has a good faith believe in the validity of the claim.

– Does the fact that a claim is ‘clearly invalid’ have any bearing at all? In what way might patent invalidity be relevant? See Note 2, p.46. Contrast the requirements from the Restatement/Dyer with Fiege v. Boehm, following:

Dyer and Fiege compared:

Unreasonable Belief(Objective)

Reasonable Belief(Objective)

Good Faith Belief(Subjective) Bad Faith Belief

(Subjective)

Good Faith AND Reasonable

Belief

In Fiege, two? Three?

Maybe

In Fiege, six?

Good Faith, maybe, BUT Reasonable

Belief?

Note 2, cont’d: (Forbearing invalid claims as consideration in settlement agreements)

• How do Dyer and Fiege differ from one another apart from the different tests they deploy-Subjective, GF belief only in Dyer versus GF plus Reasonable belief (Objective) in Fiege?

Note 3: Lawyer’s Ethical Responsibility and Invalid Claims-Rule 11. An attorney may face serious sanctions on bringing a frivolous claim!

• Recall Justice Holmes’ “reciprocal conventional inducement” that drives his Bargained for Theory of consideration back in Note 2, p.38.

• Did Holmes’ theory influence the drafters of the Restatement 1st? See Feinberg v. Pfeiffer, following.

Bargained for Exchange Requisite: Action in the Past

Feinberg v. Pfeiffer, p.46

• The Board of Directors of Pfeiffer Co.(Co.) passed a resolution to pay Feinberg a pension for life on her retirement in consideration of her outstanding past service to the company.

• Co. did not ask Pfeiffer to retire in exchange• Co. did not require her to continue working in

exchange.• Pfeiffer continued to work for Co., then retired. • Thereafter, Co. discontinued paying Pfeiffer

(Feinberg v. Pfeiffer)

• C/A: Feinberg sued Co. for Br/Kx• Remedy: Money Dmg’s-lifetime pension

payments withheld and payment of pension for life.

• Decision: Trial Ct. held for P, D appealed to Sp. Ct. of Mass. Rev’d (on Kx issue).

Issue: Kx Analysis (Road Map)

• 2. Kx Formation– Promise plus price.

The Promisor’s (Co.’s) promise was a promise to pay Feinberg a pension of $200 for life. What was the Price for Co.’s promise?

Recall, the price of the promisor’s promise will be either the Promisee’s performance or return promise. Feinberg made no promise: what was her performance, then? Are there any actions we might consider as a possible ‘performance’ by Fienberg?

Feinberg v. Pfeiffer: Finding the Issue

• Now that you’re familiar with our Kx Analysis, in preparing your briefs and discovering the issue, that’s where you go!

• Recall, every Kx issue can be relegated to a part of the Analysis: Scope, Formation, Enforcement, Performance and Breach and Remedies. Here, of course, we’re concerned with Formation, which raises the basic question, “Is there a Kx”. Without a finding of Kx, one can’t state a C/A for breach of Kx and the analysis stops here.

(Kx Analysis: Feinberg v. Pfeiffer Co.)

(2. Kx Formation)• Promise plus Price• Consideration– Benefit/Detriment (ala Hamer v. Sidway)

Did Feinberg’s performance, her years of faithful service, constitute consideration as to the Benefit/Detriment requirement?

(Feinberg v. Pfeiffer Co.)

2. Kx Formation: the two requirements a) Was Feinberg’s 37 years of service a benefit

to D (Pfieffer Co.)?Was it a detriment (as we defined it in

Hamer) to Feinberg?b) Was Feinberg’s performance, viz, 37 years of faithful service bargained for, that is, sought by the promisor, Pfeiffer Co., in exchange for it’s promise to pay a retirement income for life? Now, we’re ready to state the issue.

(Feinberg v. Pfeiffer)

Issue: Whether Feinberg’s 37 years of service to Co. was consideration for Co.’s promise to pay her a pension for life, though her performance was action in the past?

(Feinberg v. Pfeiffer)

Rule? To be consideration for the Promisor’s promise, the Promisee’s performance must be bargained for (Re 2nd, Section 71(1)); that is, the Promisor must have made the promise in order to get the Promisee’s performance. Section 71(1), . Action in the past is not bargained for.

(Feinberg v. Pfeiffer)

Holding/App: Since Co. already had Feinberg’s 37years of service, they could not have made their promise to pay her a pension for life in order to get her services. Thus, Feinberg’s past services were not bargained for and not consideration for Co.’s promise to pay. Conclusion, no Kx, and the Trial Court erred in finding one. The judgment on this issue (was there a Kx) was, thus, reversed.

(Feinberg v. Pfeiffer Co.)Follow-up

• If Feinberg’s past performance was not consideration for Co.’s promise to pay, what about her continuing to work?

• What about her retiring?Note 2, p. 50. If Co. wished to make the

promise a promise with consideration (a Kx promise) and therefore binding, how might the resolution been drafted?

Interlude: Outlining-plugging in cases and Restatement Provisions

2. Kx Formation• Promise plus Price• Consideration

– Benefit/Detriment: • Hamer v. Sidway—Benefit-Detriment a requirement for Consideration.

Benefit-must be measureable; Detriment-forfeiting legal right • Restatement §§71 and 79: a performance or return promise is consideration

if Bargained For; benefit/detriment abandoned (majority view). Small group of states retains Ben/Det requirement

• Dyer v. NBP, Inc. & Fiege v. Boehm—Forfeiting what proves to be an invalid claim is consideration for a promisor’s promise if Promisee held an honest and good faith belief in the validity of the claim at the time of Kx Formation. I.e., beneficial to Promisor/detrimental to Promisee at the time of Kx Formation. – Restatement §44(1): failure to assert an invalid claim is consideration if Promisee

honestly believed claim was valid.

What does Feinberg add?

– Elaborates the Bargained-For requirement:• Feinberg v. Pfeiffer—Promisee’s performance or

return promise must be Bargained For, so past services cannot be consideration for a Promisor’s promise.• Restatement §71: To be consideration for

Promisor’s promise, the Promisee’s performance or return promise must be Bargained For—sought by the Promisor in exchange for its promise.

Interlude: Outlining-plugging in cases and Restatement Provisions

2. Kx Formation• Promise plus Price• Consideration– Bargained For:

• Feinberg v. Pfeiffer—Promisee’s performance or return promise must be Bargained For, so past services cannot be consideration for a Promisor’s promise.• Restatement §71: To be consideration for Promisor’s

promise, the Promisee’s performance or return promise must be Bargained For—sought by the Promisor in exchange for its promise.

(Outlining-plugging in cases and Restatement) 2. Kx Formation• Promise plus Price• Consideration

– Bargained-for• Feinberg v. Pfieffer-performance must be sought by promisor for its promise:

consideration in the past cannot be ‘sought’ by the promisor.– Ben/Det

• Hamer v. Sidway—Benefit-Detriment a requirement for Consideration. Benefit-must be measureable; Detriment-forfeiting legal right

• Restatement §§71 and 79: a performance or return promise is consideration if Bargained For; benefit/detriment abandoned (majority view). Small group of states retains Ben/Det requirement

• Fiege v. Boehm—Forfeiting what proves to be an invalid claim is consideration for a promisor’s promise if Promisee held an honest and good faith belief in the validity of the claim at the time of Kx Formation. I.e., beneficial to Promisor/detrimental to Promisee at the time of Kx Formation. – Restatement §44(1): failure to assert an invalid claim is consideration if

Promisee honestly believed claim was valid.

Moral Obligation as ConsiderationMills v. Wyman, p.52.

• Levi Wyman became after returning from a sea voyage

• Mills took care of Levi for two weeks, incurring expenses in the process

• Seth Wyman wrote Mills promising to pay the expenses Mills incurred in caring for Levi. Thereafter, Wyman refused to pay.

(Mills v. Wyman)

• Was Mills’ performance, taking care of Levi, consideration for Seth Wyman’s promise to pay Mills’ expenses under the Kx Analysis as developed so far?

• No—not bargained for, as the ‘performance’, taking care of Jr., had already occurred.

• If it is a agreed that Seth Wyman was morally obliged to fulfill his promise, why wasn’t his moral obligation consideration notwithstanding the requirements for consideration in the Kx analysis? (See Note 1, p.53).

(Mills v. Wyman)

Note 3, p.54: Exceptions

Do these exceptions relate to Kx formation or some other part of the Kx analysis?

Harrington v. Taylor, p.57.

• Remedy: $Dmgs, measured by amount of compensation pyts promised.

• Issue: Kx Analysis• 2)Kx Formation– Offer? Promisor’s promise? Price? Was the price of

the promisor’s promise consideration for the Promisor’s promise?

– The Sp. Ct of N.Car sustains the demurrer—No Kx. What’s missing?

– Rational?

Webb v. McGowin, p.52

• Webb, an employee of Smith Lumber Yard, dropped a heavy pine block from the upper floor of the mill to the yard below.

• At the instant Webb dropped the block, he saw McGowin below, and, in an effort to save McGowin from injury or death, Webb fell with the block to divert it, thereby preventing injury to McGowin.

• McGowin was not injured; however, Webb was severely injured and unable to work.

• Thereafter, in consideration of Webb’s selfless act, McGowin agreed to pay Webb an income for life. McGown paid until his death, upon which the executor of his estate refused further payments.

(Webb v. McGowin)

• Is there a Kx between Webb and McGowin under the Kx Analysis? If not, what’s missing?

Question: The case seems to say Moral Obligation is consideration for a promise (see Note 2). If so, can the Webb case be reconciled with Mills v. Wyman? How do they differ? Does Webb really stand for the proposition that moral obligation is consideration?

(Webb v. McGowin)

• Answer: the Webb court refers to a material benefit—McGowin’s life which, the court notes, is measurable in dollars and cents. Might it be that the benefit received by Seth Wyman was not measurable? Not material?

• McGowin actually made payments to Webb for about ten years. Wyman Sr. paid nothing. How might that distinction be relevant?

• Finally, note the dates of the two cases . . . .

(Webb v. McGowin)

Can the case be reconciled with the consideration requirements for Kx formation? That is, can the same outcome be reached without scrapping the analysis, just throwing up our hands, and declaring that the case says moral obligation = consideration? Indeed, a number of scholars and courts have done so. Read very closely this language from the case (last paragraph of p.53), where the court refers to the Boothe v. Fitzpatrick case: “ . . . [A] promise by defendant for the past keeping of a bull which had escaped from defendant's premises . . . .”

(Webb v. McGowin: the ‘implied promise’ fiction)

Webb diverts block

McGowan promises to pay

• Material Benefit conferred upon McGowin

• Material Detriment suffered by Webb

Implied promise to pay occurs here

(Alternate reading of Webb)

• Through this fiction, the Implied Promise to Pay now pre-dates Webb’s performance, diverting the block.

(Webb v. McGowin)

• Using the implied promise, the analysis now looks like this:

2. Kx FormationPromisor’s (Webb’s) promise: the implied promise to pay a monthly income to Webb for life.

Bargained for? Did McGowan make his implied promise to pay in order to get Webb’s performance, diverting the block? What facts indicate he did (or would have)?

Note 2: Statutory Reform

• Would McGowan’s promise have been enforceable under the New York statute?

• Would Wyman’s promise have been enforceable by Mills?

Harrington v. Taylor, p.57.

• Harrington diverted an axe propelled at Taylor by his wife so as to decapitate him. Harrington diverted the axe with her and, which was mutilated as a result, saving Taylor’s life. Thereupon, Taylor promised to compensate Harrington for her injuries, made payments for a period, then discontinued them.

• C/A: Harrington sues Taylor for Br/Kx, discontinuing payments

• Decision: Δ demurred, Trial Ct sustained; P appealed to Sp Ct No. Car, aff’d.