Remedies for breach of contract



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Contracts

Greenfield


Fall 2003
REMEDIES FOR BREACH OF CONTRACT


  1. Specific Performance – an order from a court to a party to perform as promised

  2. Damages – an award of money

    1. Goals of Contract Damages

      1. Restitution Interest (quasi-contract damages) – the interest of a party in recovering the value conferred on the other party through efforts to perform a contract. Requires the DD to give the money value of the benefit that the DD received from partial performance of the contract. Ordinarily, no enforceable contract exists at the time the suit is brought (either rescinded or never existed) or it is a losing contract (where the victim of the breach would have lost money had the contract been performed). Two elements of restitution: benefit conferred on DD. Retention of benefit w/o compensation would be unjust

      2. Reliance Interest – a party’s interest in recovering losses suffered by virtue of reliance on the contract, whether or not there was a corresponding gain to the opposite party. If expectation damages cannot be ascertained. Puts nonbreaching party back in the position they were in when the contract was made…makes the party ‘whole’ again. = costs incurred by the nonbreaching party in partial performance of the contract.

      3. Expectancy Principle – give the nonbreaching party what he was promised so far as money damages can satisfy; compensation for nonbreaching party, not punishment for breaching party. Aim is to put promise “in as good a position as he would have occupied had the defendant performed his promise.” Limited to reasonably foreseeable damages. There is also a “duty to mitigate damages.”



    • Groves v. John Wunder (MN) – leased land and wanted it leveled on return.


      • Objective: Expectancy

      • In a breach of contract by defendant, the PP is entitled to the cost of completing the work/ remedying the defect, which the DD failed to complete, even if the cost of completion exceeds the increase in the fair market value that the work would bring (backward looking)

        • First restatement…the aggrieved party can get judgment for: the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste (say it’s not economic waste bc it’s not wrecking a completed physical structure)

      • The dissent argues for the diminution in value…difference in the value of the property as it is and what it would have been worth if it had been built in conformity with the contract (give the mkt/economic value). They believe there would be economic waste here. They want to award the cost of completion only when it is not disproportionate to the value of the property or when changes are aesthetic in nature. (economic waste applies when a structure already exists and would have to be torn down and rebuilt at a cost that would be imprudent and unreasonable). (forward looking)

        • First restatement…the aggrieved party can get judgment for: the difference btwn the value that the product contracted for would have had and the value of the performance that has been received by the PP, if construction and completion in accordance with the contract would involve unreasonable economic waste

      • In both cases, replacement cost is the upper level of what PP can recover

        • i.e., if cost of completion was $8,000 and it added a value of $12,000, then the damages awarded would be $8,000

      • Measure gives expectancy and deters breach


    • Peevyhouse v. Garland Coal & Mining Co. (Note) - PP leased DD farm to mine as long as they filled in all pits and smoothed the surface.


      • Courts granted only the diminution in value of the land, not the cost of completion (Restatement Second)

      • No person can recover a greater amount of damages for breach of an obligation that he would have gained from full performance

      • Remedial work was incidental…primary object of contract was economic




    • Advanced, Inc. v. Wilks (Note) – suit by homeowners dissatisfied with a contractor’s work, court gave a cost-of-repair figure far higher than the probable diminution in mkt value of the house

      • If property is held for economic value, damages should not exceed change in fair mkt value

      • However, if property is held for other reasons (special significance) or if court is confident that the money will be used to complete the contract, cost of completion can be awarded even if it exceeds the diminution in value.




  • Restatement Second

    • §347, 348

      • the reasonable cost of completing performance OR of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him (no talk about economic waste)




    • Acme Mills Elevator Co. v. Johnson – contracted to sell grain to PP, then sold to a 3rd party at a higher contract price and thus failed to deliver goods to PP
      • In a breach of contract for the delivery of goods, the damages formula is mkt price of the goods at the time and place of delivery minus the contract price, even when the breach occurs because the party contracts to a 3rd party at a higher price than the mkt value of the original contract.


        • This formula may result in a negative number, in which case, the damages would be zero. This is true even if the breaching party benefits

        • Under the UCC, If buyer covers, he can recover: cover price – contract price.

      • Efficient breach – when the detriment to the nonbreaching party is smaller than the gains to the breaching party, then the breach is efficient. Breaching party compensate and no one loses . No party is made worse off by nonperformance and at least one party is better off. (Restatement, 2nd, of Contracts)

      • Looks to replacement costs to put PP in expectancy position

        • Gives expectancy, but doesn’t deter breach




    • Laurin v. DeCarlis (Note) – PP bought land from DD and prior to the closing of the transaction, DD took gravel and PP sued for the FMV of the gravel

      • With a willful breach, PP can collect from the benefit the breacher received. If value of taken property outweighs change in value to real property, cost of taken property is the measure.

      • Even though it was economically efficient, they must pay

        • Removal of gravel did not diminish value of land

      • public policy, fairness



Limitations on Expectation Damages


  • There are times where the court will not award the expectancy damages that the PP claims. Expectancy awards are limited to reasonable (account for what the nonbreaching party could have/should have done), foreseeable (includes essential and special, but communicated), and measurable (excludes intangibles).



    • Rockingham County v. Luten Bridge – PP broke contract partway through, but DD completed bridge anyway


      • If DD rescinds a construction contract, but PP continues construction, the PP is not entitled to damages incurred from the work done past the date of the breach; only entitled to compensation that resulted up until the date of the breach and any profit that would have been made.

      • Measure of damages – expenses (including labor and material) plus profit on the contract. Only expenses up to notification of breach and total profit expected from the contract. Alternative measure is contract price – expenses saved. This puts them in expectancy position

      • Doctrine of avoidable consequences – injured party may recover for breach of contract only those losses/expenses which could not have reasonably been avoided. Burden of proof is on breacher to show how much of the loss could’ve been avoided.




    • Leingang v. City of Mandan Weed Board – contract to cut weeds, weed board breaches

      • PP can recover constant overhead expenses because the PP must pay them whether or not the contract was breached




    • Kearsarge Computer, Inc. v. Acme Staple Co. – contract for computer service for a year, DD breaches

      • PP wants contract price (expectancy), but DD says savings realized and money made by PP after breach from other jobs should be deducted….full contract price given

      • Gains made by the injured party on other transactions after the breach are not to be deducted from the damages that are otherwise recoverable, unless such gains could not have been made had their been no breach.

      • Collect the contribution toward fixed expenses that it would have received but for the breach



    • Parker v. Twentieth Century-Fox – Film studio broke a contract with actress to star in a musical set in L.A. She declined the offer to star in a Western in Australia and sued for contract salary.


      • In a breach of an employment contract when alternative employment is different and inferior (not comparable and substantially similar) to that which PP has been deprived, the doctrine of avoidable consequences cannot be applied to mitigate the damages awarded PP when the PP rejects this alternative employment (put her in her expectancy)

      • Claim for lost wages will be reduced by whatever wages the employee did earn or could reasonably have earned from other employment that is similar in kind/location/conditions. When employee doesn’t obtain other employment, the court must determine whether the employee could reasonably have found or should have reasonably accepted another position

        • Rule for recovery: contract salary – amt employer affirmatively proves employee has earned or might have earned from other employment.

      • Puts PP in expectancy, but doesn’t encourage productivity

      • If employee had breached…replacement costs – contracted salary




    • Billetter v. Posell (Note) – PP employed to work in retail store, DD fires and offers her another job for lower salary

      • DDs aren’t entitled to credit for unemployment compensation PP received … benefits of this character are intended to alleviate the distress of unemployment and not diminish the amount an employer must pay as damages for the wrongful discharge of an employee…since PP paid, PP should get the benefit of it

      • If she could get the same job in another company, but for a lower salary, she can take the job and get the difference. If she doesn’t take the job, the lower salary will be deducted anyway.

      • If she accepts the same job for less pay at the same company, it replaces the previous contract and she can’t sue…would modify her original contract.
      • Collateral Source Rule – tort rule that denies to tortfeasor a reduction in damages for compensation received by the injured PP from other sources (insurance, unemployment compensation). This is often applied in contract cases.





    • United Protective Workers. Local No. 2 v. Ford Motor Co., - forced PP into early retirement

      • Deducted social security and retirement annuity payments from his damages

      • Otherwise he receives more in damages than if the contract had not been breached




    • Missouri Furnace Co. v. Cochran – DD stops delivery on coke, PP has to get new contract

      • In a breach of a delivery contract with delivery dates set in installments and the PP enters in a new forward contract, the PP is entitled to damages calculated by the formula: mkt price at time and place of delivery – contract price (same as Acme Mills)

        • Breach doesn’t occur until time and place of delivery

        • Not: New contract – old contract

      • Future contracts to mitigate damages are entered into at the risk of the nonbreaching party

      • If UCC had been around, it may have changed things

        • measure of damages is contract price – market price of the goods at the time the buyer learned of the breach (or reasonable time)

      • In mitigating damages, the nonbreaching party must act reasonably. But the problem is in determining reasonableness…the nonbreaching party has to act before it knows the consequences (Luten may have thought he was acting reasonably).




    • Reliance Cooperage Corp. V. Treat (Note) – oak bourbon staves to be delivered in December, but DD repudiates in August.

      • Court says there is no need to mitigate damages until there are damages to mitigate, and this does not occur until delivery date.

      • Anticipatory breach – repudiation of a party’s contract duties before the time has come for performance


      • Nonbreaching party can sue when breach occurs or wait until time of contract, but is discharged from any duties to the other party




    • Oloffson v Coomer – farmer agreed to sell corn and then anticipatorily repudiated, PP covered

      • Must cover on date of repudiation, not on date of delivery according to the contract

      • UCC – await performance by the repudiating party for a commercially reasonable time expires on date you learn of repudiation




    • Cargill, Inc. v. Stafford – PP was to sell wheat to Cargill

      • A buyer may urge performance for a reasonable time

      • If a buyer does not cover within a reasonable time, damages should be based on the price at the end of that reasonable time (when he learned of repudiation) rather than on the price when performance is due.




    • Neri v. Retail Marine Corp – Contract to sell boat breached by buyer, who had paid a deposit. Retailer later resold the goods.

      • If a buyer breaches a contract for the sale of goods and later the retailer sells the goods in question, the retailer is still entitled to recover lost profit (and any incidential damages, but not attorney’s fees) if there’s an expandable inventory. Thus contract price – mkt price at time and place of delivery + any incidential damages. But if this doesn’t put the seller in expectancy, then he gets profit + incidential expenses. This is because he would have had both the sales had the contract been fulfilled. This is in line with the UCC. Put him in expectancy position.
      • If there is no expandable inventory, if they sell at the same price, no recovery, but if it is sold at a lower price, he gets the contract price – resell price (contract price – mkt price), and can recover additional expenses incurred in trying to sell it.





    • Hadley v. Baxendale – vital mill part broken and sent for repairs. Delivery delayed by neglect and thus shaft was delayed by several days and the mill lost profits.

      • In a breach of contract to transport goods, when the injured party doesn’t communicate special circumstances regarding the contract, if the breacher’s actions result in unforeseeable, unnatural consequences, the breacher is not liable for damages that result from these consequences. Breacher doesn’t have to pay for damages that couldn’t have been reasonably foreseen, those not communicated; only responsible for those arising naturally because of the breach.

      • The injured party can recover only those damages that should reasonably be considered as arising naturally (according to the usual order of things) from the breach or might reasonably be supposed to have been in the contemplation of both parties at the time the contract was made, as the probable result of the breach of it.

        • General damages – those arising naturally out of the breach…always give (ex. Contract price – mkt price or price of cover).

        • Special or consequential damages – arising out of special circumstances (usually lost profits due to not having the item) – only recoverable if the seller had reason to foresee that the consequential damages were the probably result of the breach.

      • Tacit agreement test – extent of breaching party’s liability should be within contemplation. Would party have entered into agreement knowing about extent of liability expected/inferred by nonbreaching party? Did the party actually foresee the damages? It is not fair to assume that the party would have agreed to be liable for special damages if it had been part of the contract.
        • Permits consequential damages only if the seller specifically contemplated or actually assumed the risk of such damages


        • Not shown in these case???




    • Lamkins v. International Harvester – lights for tractor to farm at night were delayed for a year

      • When damages arise from special circumstances and are so large as to be out of proportion to the consideration agreed to be paid for the services rendered under the contract, it raises a doubt as to whether the party would have assented to such liability had it been called to his attention at the making of the contract unless the consideration to be paid was also raised so as to correspond in some respect to liability assumed. (no tacit consent…would not have)

      • The damages may have been foreseeable, but that’s not enough because damages are way too out-of-proportion to contract price

      • UCC would overturn this




    • Victoria Laundry Ltd. V. Newman Industries Ltd. – DD fails to deliver laundry boiler

      • In cases of breach of contract, the aggrieved party is only entitled to such part of the loss actually resulting, which at the time of the contract was reasonably foreseeable as a likely result of the breach.

      • What is reasonably foreseeable depends on the knowledge possessed by breaching party. Here DD would’ve known what the boiler would have been used for.

      • Not everything has to be communicated, can just be reasonably foreseeable – there can be more than one foreseeable possibility.




    • Prutch v. Ford Motor Co. (note) – defective equipment caused damages to crop

      • Std. for forseeability is not actually what is foreseen, but what is foreseeable
        • UCC/this case – rejects the tacit agreement test (that permits consequential damages only if the seller specifically contemplated or actually assumed the risk of such damages).





  • Restatement Second

    • § 351. Unforeseeability and Related Limitations on Damages

      • Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.

      • Loss may be foreseeable as a probable result of the a breach because it follows from the breach

        • In the ordinary course of events, or

        • As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know

      • A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid dispropropiate compensation




    • Valentine v. General American Credit, Inc. – lost job and sought mental distress damages

      • In a breach of an employment contract, discharged employee cannot recover mental distress damages resulting from the breach on the basis that the damages were foreseeable because there is a mkt standard by which damages can be adequately determined



Reliance


    • Chicago Coliseum Club v. Dempsey – boxer breached contract to perform

      • PP can only recover expenses that were recovered btwn date of K and date of breach and were incuurred as a necessary expense in furtherance of the performance.
      • In a breach of a performance contract, the DD is not liable for lost profits that are purely speculative and cannot be calculated to a reasonable degree of certainty.


      • DD not liable for expenses incurred by PP prior to the signing of the agreement…action is based on written agreement…Greenfield says its wrong

      • DD not liable for damages incurred by PP attempting to force PP to comply with contract,,,took steps at own risk

      • DD IS liable for damages incurred by PP after signing the agreement but before the date of breach…only those that are special (including employees) and in furtherance of the contract (put in reliance position)



    • Security Stove & Mfg. Co. v American Ry. Express Co. – failed to deliver the entire oil and gas burner for an exhibition

      • Party may recover expenses incurred in relying upon the contract even though the expenses would have been incurred even if contract had not been breached. This includes permanent employee’s time and costs as well as those of booth rental.

        • This is because PP knew DD would deliver (common law duty) and all its losses were caused by DD’s breach




    • Anglia v. Reed – actor repudiates, cannot find substitute, cannot produce play

      • Where lost profits cannot be proved, PP is entitled to recover wasted expenditure and isn’t limited to that incurred after the contract was made

      • Aggrieved party cannot recover both lost profits and wasted expenditures; must choose btwn them….Greenfield says wrong….Luten Bridge right…they get both….to put in expectancy




    • L. Albert & Son v. Armstrong Rubber Co. – buyer agreed to buy four machines for reconditioning old rubber. Two were delivered two years late.
      • Buyer was allowed to recover his reliance expenses – any loss the buyer would have had if the contract had been performed





  • Restatement of Contracts, Second

    • §349 Damages based on Reliance Interest

      • alternative to expectation interest

      • injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.


Restitution


    • United States v. Algernon Blair, Inc. – subcontractor ceases work because of contractor’s breach and wants to recover the value of labor already furnished

      • A subcontractor who justifiably ceases work under a contract because of a prime contractor’s breach may recover the value of labor and equipment already furnished pursuant to the contract regardless of whether he would have been entitled to recover in a suit on the contract.

      • Where std. expectancy damages produce no recovery for the PP, the PP can recover for benefit conferred on PP (option to sue for either breach of contract or restitution)

      • He can collect the fair value of goods or services he has conferred even though such a recovery would put him in a better position than the expectation measures would….put him where he was if the contract had never happened.

      • PP has conveyed a benefit on DD and retention of that benefit w/o compensation would be unjust

      • Contract price does not limit recovery…since it’s not based on contract….. mkt price of what that work



    • Oliver v. Campbell – PP agreed to represent DD for a divorce, but was later fired


      • Where an employment contract is terminated by wrongful discharge before performance is complete, the contract doesn’t operate as a limit to recovery (can treat contract as rescinded).

      • However, in this case the contract in effect completed and thus he was limited to that contract price and restitution was not permitted under Restatement, Contracts §350 .




    • Noyes v. Pugin – PP had only partially performed when DD breached the contract.

      • PP can’t get more compensation than the contract price

      • The parties agreed to a rate/contract…the court should fulfill that…court should not provide a new contract




    • Kearns v. Andree – PP made requested changes to a house so that DD would pay for it

      • Although the contract itself was unenforceable, he can still get restitution

      • If the changes were done in good faith and in the honest belief that the agreement was sufficiently definite to be enforced, the Pp is entitled to recover reasonable compensation therefore.




    • Britton v. Turner – PP cut short his work on the farm and wants recover for his 9.5 months of work

      • A party who has breached a contract is entitled to recover the value of his performance even though he obviously couldn’t recover damages upon the contract itself.

      • Prevent unjust enrichment of DD.

      • Breaching party can collect restitution for benefit conferred, but damages are limited to the contract price (not mkt value) and replacement costs

      • Measure of damages: contract price – cost of completion.
        • However, this formula is fundamentally flawed – shouldn’t start with the contract price because that is the employer’s expectancy.


        • Formula should be: value of benefit conferred (can’t be greater than contract) – injury to employer (damages and cost of replacement labor)


Enforcement in Equity


    • Van Wagner Advertising Corp. v. S&M Enterprises – has billboard lease…wants specific performance

      • Physical uniqueness isn’t used to grant specific performance if the court can determine with certainty the value of the damage and those damages are an adequate remedy

      • Specific performance will not be enforced when there is an adequate remedy at law. According to Restatement of Contracts Second, damages are inadequate when:

        • Damages are too speculative

        • Can’t attain a substitute

        • Damages can’t be collected from the breaching party

      • Specific performance will also not be granted when damages are an adequate remedy to compensate the tenant and equitable relief would impose a disproportante burden on the defaulting party.




    • Curtice Bros. Co. v. Catts (note) – farmer agreed but failed to sell entire tomato crop to a canning plant

      • Inability to attain substitute at time and quantity needed would cause serious harm (needs of business are extraordinary), so specific performance will be enforced

      • Most efficient…affect business rep and break other contracts




    • Paloukos v. Intermountain Chevrolet Co. – dealership was unable to deliver car because of product shortage

      • Mkt value was readily ascertainable
      • Courts will not order the impossible such as ordering the seller to sell to the buyer that which the seller doesn’t have





    • Fitzpartick v. Michael – nurse agrees to care for man for life, he kicks her out, she wants specific performance

      • Specific performance will not be granted in a contract for personal services even if there is no adequate remedy at law

      • contracts that can’t be performed in less than a year must be in writing (but not the case here).

      • Even though a remedy in contract may not be available, a remedy in restitution may be




    • Pingley v. Brunson (note) – organ player who wouldn’t play at restaurant for his 3 years contract

      • When others can substitute (no exceptional skill or ability), specific performance isn’t available




    • Northern Delaware Indus. Dev. Corp. v. E.W. Bliss Co. – contract in which DD agreed to furnish labor and materials to modernize a plant, didn’t go as fast as agreed, PP wants DD to use more employers as stated in contract

      • Court is reluctant to enforce specific performance, especially in anticipatory breaches and where they’d have to keep enforcing the performance

      • Contract of personal services, even of a unique nature, will not be affirmatively and directly enforced.

      • Relief in equity is discretionary with the court




  1. Court’s objective is expectancy in a breach of contract

  • valuation to non-breaching party

    • replacement costs (upper limit)

    • may be less (PV House)

II. Limitations to Expectancy

  • has to establish that loss was caused by conduct of DD


  • has to be Foreseeable (Hadley)

    • Lamkins…loss not dispropriante to contract

  • doctrine of avoidable consequences

    • deduct savings (note case)

    • expenses of mitigation

  • Damages must be proved to a reasonable degree of certainty

    • Higher std than anything else PP has to prove

    • Includes emotional distress




  • Breach by owner

    • After the builder has completed…contract price

    • Before completion…expenses incurred + profit

    • Contract price – expenses saved (note cases)

  • Sales of goods

    • Breach by seller

      • Mkt price at t&p – contract price

      • Doctrine of avoidable consequences is built in

    • Breach by buyer

      • Contract price – mkt price at t&p

      • Unless it causes one to lose a sale..then lost profits is the measure

  • Employment contract

  • Breach by employee

    • m/d excess cost of replacement costs

IV. When expectancy isn’t available



  • Reliance losses

    • Dempsey

    • Post/Pre Formation (Anglia takes opposite view)

    • Limited if it’s a losing contract (note…Armstrong Rubber)

  • Equitable

    • Remedy at law must be inadequate

      • often for land contracts…and specific performance is routinely granted…

      • unique goods or mkt isn’t available for the good

      • if one can’t put a valuation on the product

      • it is discretionary with the court
        • Compare benefit to PP and harm to DD if relief granted (Van Wagner)


        • Employment contract (not often available…equity)

          • Difficulty of supervising performance

          • Involuntarily servitude

          • Injuctive relief is often available

        • Construction contracts (rarely available)

          • Hard to oversee

V. Restitution

- Independent of contract

- Non breaching party

- available when there is a contract and nonbreaching party seeks to look to restitution instead of contract

measure of damages (m/d)



  • breaching party

    • m/d recovery can’t exceed the contract price

    • subject to dd’s contract rights

Put in outline why one is better than the other…pros and cons



Grounds for Enforcing Promises

Formality


    • Congregation Kadimah Toras-Moshe v. DeLeo – oral promise of decedent to donate $25,000

      • Oral contract cannot be enforced when the court determines that there’s neither reliance nor consideration

      • Consideration – benefit to promisor OR detriment to promisee

        • A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other.

      • Hope or expectation isn’t equivalent to either legal detriment or reliance


Exchange Through Bargain

Bargain Theory of Consideration

- an exchange of promises, acts, or both, in which each party views what she gives as the price of what she gets.


- promisor – person who makes the promise and whose enforceability is in issue


    • Hamer v. Sidway – uncle would give nephew $500 at 21 if he stopped certain bad habits

      • A contract in which the promise gives up some legal right or freedom (legal detriment) for money is consideration and therefore the promise is entitled to what the contract stipulates (even though promisor has not benefited form the promise).

      • Detriment is forbearance of a legal right..doing something not legally required to do…not necessarily physical detriment

      • Uncle was benefited in the legal sense….price uncle was willing to pay for nephew’s abstention.

      • Mutual reciprocal inducement (for uncle it was love and affection of nephew)




    • Earle v. Angell – aunt promised nephew $500 if he attended her funeral

      • There is a promise for a promise

      • This is valid




    • Whitten v. Greeley-Shaw – parties engaged in extra-marital affair and signed a contract make by DD

      • The contract was neither bargained for by PP nor given in exchange for his promises

      • Cannot constitute consideration




  • Restatement of Contracts, Second

    • Requirement of Exchange; Types of Exchange

      • To constitute consideration, a performance or a return promise must be bargained for

      • A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise

        • The performance may consist of:

          • An act other than a promise, or


          • A forbearance, or

          • The creation, modification, or destruction of a legal relation

        • The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person




    • Consideration as Motive or Inducing Cause

      • The fact that what’s bargained for doesn’t itself induce the making of a promise does not prevent it from being consideration for the promise

      • Fact that a promise itself does not itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise




    • Fischer v. Union Trust Co. – land given to handicapped daughter with promise to pay mortgage

      • In a conveyance of property by gift, with no consideration, the grantor isn’t liable for promises made along with the conveyance (promise to pay mortgage).

      • Mutual reciprocal inducement – two promises that don’t induce each other don’t constitute consideration – the promise must be induced by each other; bargained for

      • Writing doesn’t matter

      • Courts won’t inquire into adequacy of consideration – thus size of consideration doesn’t matter as long as it’s bargained for

      • Purported consideration or consideration for land only?




    • Simmons v. United States (note) – guy won $25,000 from a fishing contest

      • So long as an outstanding offer was known to one, a person may accept an offer by rendering performance, even if he does so primarily for reasons unrelated to the offer (not a gift)




    • Schnell v. Nell – promised three people $100 for one cent

      • Courts will consider the adequacy of consideration where the exchange is for unequal sums of money




    • Embola v. Tuppela – insane man promised $10,000 if PP gave him $50 to get his mine back

      • There was consideration since there was an uncertain event conditioning getting the $10,000

      • The DD considered the exchange fair and to his advantage




    • Duncan v. Black – sells land and cotton allotment

      • Forbearance of a claim may be consideration as long as such a claim is made in good faith and has some foundation.

      • It must not be against public morals, public policy, or inherently illegal

        • Here, the claim was invalid. When a claim is invalid, surrender of it in exchange for money isn’t enforced because the surrender of an invalid claim isn’t a detriment




  • Restatement of Contracts, Second

    • Section 74. Settlements of Claims

      • Forbearance to assert or the surrender of a claim or defense which proves to be invalid isn’t consideration, unless

        • The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

        • The forbearing or surrendering party believes the claim or defense may be fairly determined to be valid.
      • The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he isn’t asserting the claim or defense and believes that no valid claim or defense exists




Promises Grounded in the Past



    • Mills v. Wymanson nursed away from home, father promised to pay expenses, but didn’t

      • Moral obligation is not consideration to enforce a promise made after services were rendered but not requested.

      • No mutual reciprocal inducement.




    • Webb v. McGowin – PP fell with pine block and became crippled to avoid injuring DD, who paid for his upkeep

      • Moral obligation is consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor

      • Material benefit = valid consideration for his promise…valid because he saved life

      • When a substantial material benefit is conferred upon a party without being requested, but the party promises something in exchange for it after the fact, the contract is enforceable. It’s implied that he would’ve made the promise beforehand.




    • Harrington v. Taylor – took ax blow on hand to avoid it hitting DD in head. Promised to pay her damages, but paid small sum and stopped

      • A humanitarian act voluntarily performed is not such consideration as would entitle her to recovery at law.




    • Edson v. Poppe – PP drilled a well and installed casing

      • Since the circumstances do not indicate that the PPs drilling was gratuitous or an act of voluntary courtesy to the DD, the subsequent promise was therefore supported by consideration.

Give them what they didn’t ask for


No consideration

Fairness/morality


  • Restatement of Contracts, Second

    • Section 86. Promise for Benefit Received.

      • A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

      • A promise is not binding under Subsection (1)

        • If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

        • To the extent that its value is disproportionate to the benefit



Reliance on a Promise


    • Kirksey v. Kirksey (former rule)– brother-in-law promised PP place to raise her family, but kicked her out two years later

      • Rule at one time was that reliance was irrelevant and a promise is unenforceable even if relied upon

      • No mutual reciprocal inducement




    • Ricketts v. Scothorn (note) – grandfather promised PP that she wouldn’t have to work anymore and gave her a note worth $2,000

      • Promise without a bargain is enforceable where it would be grossly inequitable not to enforce.




    • Prescott v. Jones (note) – policy not renewed automatically as expected

      • Letter to renew insurance policy unless notified otherwise is only an intention of purpose; estopple is not available for a promise

      • Not a statement of fact, just an intention

      • Without acceptance (some type of words or over action), there is no contract
      • Promise of future action is distinguishable from factual representations about the past or present





    • Seavey v. Drake – PP orally given land by father and spent $3000 improving it

      • Specific performance can be awarded to the promisee when the only proof of consideration of the oral promise is part performance induced by the donor’s promise…Greenfield says its wrong

        • Displaces statute of frauds

      • Reliance on a promise is a substitute for consideration if a party relies on the promise reasonably and to its detriment….restatement induces action/forbearance



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