Anglo-American Contract and Torts. Prof. Mark P. Gergen. 17. Consideration--Legal Bases for Enforcing Promises

Transcription

1 Anglo-American Contract and Torts Prof. Mark P. Gergen 17. Consideration--Legal Bases for Enforcing Promises

2 Not all promises are enforceable as contracts. A promise to make a gift is not enforceable as a contract absent special grounds. The doctrine of consideration generally defines what promises the law will enforce. Additional bases for enforcing a promise include reliance (US) and a witnessed deed (England). In England, the device of a witnessed deed replaced the device of a seal.

3 So what is consideration? Bargain theory (US and Australia) Text 114 Benefit given or detriment incurred in return for promise (England) Text In the US, consideration is equated with bargain. Other bases for enforcing a promise (e.g., reliance) are described as alternatives to consideration.

4 So what is a bargain? Anything that is in someone s legal power to do or not do can be the subject of a bargain... an act, a promise to act, a forbearance, a promise to forbear, a change in a legal relationship... See Text 114, citing Restatement Second Section 71. But there must be a bargain...

5 Restatement Second, Contracts 71 (Text 114) (1) To constitute consideration, a performance or return promise must be bargained for. (2) A performance or return promise is bargained for it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

6 reciprocal... inducement, each for the other (Holmes) There is no bargain in these two cases, so the promise is not enforceable: 1) A performs a service for B, asking nothing in return. Grateful B promises A $. 2) B promises A $, asking nothing in return. Grateful A performs a service for B. Grandparent promises Grandchild $1,000 to buy a new suit. Is this a bargain?

7 In the US, a gratuitous promise is not enforceable even if B declares it to be a legal obligation. Nor can it be made enforceable by falsely casting the promise in the form of a bargain. The device of a trust is used to retain control over resources while committing them to another in the future.

8 Performance of a pre-existing legal duty is not consideration. Foakes v. Beer (House of Lords 1884), Text 119 Beer agrees to forego the payment of interest on a 2019 judgment to which she is entitled if Foakes pays 500 principal immediately so long as the balance is paid in 150 half-yearly installments. Foakes pays the 500. This is a bargain. Beer promised to forego interest to induce Foakes to pay. And Foakes was induced to pay by her promise. Held the promise is unenforceable. Payment of a preexisting debt is not consideration.

9 The outcome would have been different under English law at the time if the agreement had been made under seal. The outcome would have been different if the agreement had been fully performed. Selbourne, LC, says there then would have been an effective accord and satisfaction. Text 119 bottom. The issue of consideration arises only if a party seeks to enforce an executory (unperformed) agreement. The outcome would have been different if the debtor had agreed to do more than his original obligation, thus giving new consideration. Text 120 bottom.

10 The rule in Foakes v. Beer prevents mutual beneficial adjustments of contracts when the adjustment is onesided. Consideration exists if the adjustment is a settlement of an honest dispute or if than debtor does more than perform the existing obligation. See Text 121 top. Other responses Abolish requirement of consideration for contract modifications. UCC 2-209(1), Text 119 (top)(applies only to sales of goods) Some states have statutes that give effect to signed releases without consideration.

11 Combe v. Combe (KB 1951), Text 116 After divorce is finalized ex-husband promises to pay exwife 100 per year. Ex-wife promises nothing in return.* Ex-husband doesn t keep promise, apparently because exwife earned more. Seven years on ex-wife sues for the money. At Text Denning addresses the possibility that exwife s forbearance from applying for maintenance was consideration for ex-husband s promise. He concludes: It may not have been in ex-wife s power to bind herself in this way. And if it was, such a promise cannot be implied.

12 Lower court held the promise was binding on the basis of promissory estoppel. This was relying on Central London Property Trust, Ltd. v. High Trees House, Ltd. ( High Trees ). Landlord agrees to accept half rent in 1940 for an unstated period. In June 1945 Landlord demands full rent going forward. Held Landlord may increase rent going forward but it may not demand unpaid rent before June In Combe, Lord Denning holds the lower court erred in applying the doctrine. What was its error? What does he mean by the principle [of estoppel] never stands alone as giving a cause of action in itself? (Text 117, 2 nd paragraph).

13 Restatement Second, Contracts Section 90 (Text ). A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. After divorce is finalized ex-husband promises to pay exwife 100 per year. Ex-wife promises nothing in return. Exhusband doesn t keep promise, apparently because ex-wife earned more. Seven years on ex-wife sues for the money. What result in the US? Do you need more facts?

14 Grandparent promises Grandchild $1,000 to buy a new suit. Grandchild buys the suit in reliance on the promise. Grandparent dies before she can pay. Does a Grandchild have a contract (promissory estoppel) claim under US law? What of English law? If Grandparent pays the money to grandchild to reimburse him for the cost of the suit, then can Grandparent sue to get the money back on the ground there was no consideration for the promise under English law? Grandparent agrees to release Grandchild from a $1,000 debt to enable Grandchild to buy a suit. Grandchild buys the suit. Is the agreement enforceable under English law?

15 Doctrine of consideration generally defines what promises a court will enforce. Consideration test is a surrogate for a test of intent to be legally bound. In US reliance/promissory estoppel is an alternative basis for enforcing a promise. In England promissory estoppel can be used negatively or defensively but not positively or affirmatively.