Contracts I - Validation Devices - Cases Flashcards
Horsley v. Chesselet (1978) was the first case we covered. There was a principle in law that we encountered nowhere else. What was it?
“De minimis non curat lex” is a Latin legal maxim that translates to “the law does not concern itself with trifles” in English. In contract law, the law may not provide a remedy for a minor or insignificant breach of contract. Courts may focus on substantial breaches that have a material impact on the contract’s purpose or value. This is in the eye of the judge. There is no clear cut-off in monetary value.
Reliance requires both foreseeable detrimental reliance and actual detrimental reliance. What is the difference?
Foreseeable detrimental reliance refers to the question whether the plaintiff has reasonably relied on the promise.
Actual means if there has been a material detriment (NOT legal detriment).
In what cases is moral obligation used as validation device?
Where the statute of limitations bars a claim.
Are gifts enforceable?
No, there is a lack of bargained for exchange and return promise. It’s one-sided.
Can there be consideration for something that has been provided in the past?
No, past consideration. This is not enforceable.
In Knott v. Racicot (2004), an options contract was discussed. In what cases do the restatements say can options contracts be enforced?
Restatement (Second) of Contracts §87(1) concerning the validity of such contracts. “An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or (b) is made irrevocable by statute.
In Hamer v. Sidway (1891), William E. Story, Sr. promised his nephew, William E. Story, Jr., a sum of money (5000 USD) if the nephew refrained from certain behaviors (such as drinking, using tobacco, gambling, and swearing) until he reached a certain age (21). Jr. was 16 years old. For 5 years. These were all legal activities for a 16-year-old at that time. The nephew adhered to these conditions and refrained from the specified behaviors until the promised age.
Once the nephew reached the specified age, he requested the money that had been promised to him. However, the uncle, William E. Story, Sr., refused to pay the promised sum of money, leading to a legal dispute. Is this an enforceable promise?
Court said yes. Consideration.
Forbearance can be a legal detriment to the promisee (not drinking is a right).
Schnell v Nell (1861) taught us three lessons regarding consideration, which?
What were the lessons?
Case of passing wife transferring her belongings to her husband, which executes her will.
1) Inadequacy of consideration / nominal consideration: As it is, the mere promise to pay six hundred dollars for one cent, even had the portion of that cent due from the plaintiff been tendered, is an unconscionable contract, void, at first blush, upon its face, if it be regarded as an earnest one. Might have been different if it had been a particular cent. Consideration of one cent intended to be nominal.
2) Moral consideration: The fact the Schnell loved his wife did not constitute consideration. This was his legal obligation – just moral obligation.
3) Past consideration: There was past consideration – it was to just be a gift.
Two key words that must be known when discussing bargained-for-exchange
Which doctrine is connected to that?
Pretense or sham.
Doctrine of inadequacy of consideration.
Explain what fungibles are and how they relate to the doctrine of inadequacy.
Fungibles. Are goods that are bought or sold in bulk. Each unit of the same description, same quality, is interchangeable. Gold is fungible. But diamonds are not (ever diamond is unique). A court decides what a fungible is.
Fungibles have to do with the doctrine of inadequacy. Courts will not enforce contracts unless there was an actual exchange.
When there’s a simple exchange of money for money, especially if the value is precisely fixed (like exchanging a specific amount of currency), the concept of adequacy of consideration becomes less relevant. In other words, the law is less concerned with the inadequacy. The value of the consideration is apparent and fixed. For example, if you give someone $10 in exchange for a $10 item, the adequacy of consideration isn’t a major concern because the value of what’s exchanged is equal and clear.
On the other hand, if something other than money, or something of indeterminate value, is being exchanged for money or another item, the principle of adequacy of consideration becomes more significant. This means that the law becomes more concerned. This is because the value of the consideration might be harder to quantify, and there’s potential for one party to be disadvantaged if the exchange seems too one-sided. For instance, if someone promises to give you a car in exchange for a small trinket, a court might scrutinize whether the consideration you’re receiving (the trinket) is adequate compared to the value of what you’re giving (the car).
What is the general proposition regarding the doctrine of inadequacy of consideration?
It is true, that as a general proposition, inadequacy of consideration will not vitiate (“spoil”) an agreement. In other words, under usual circumstances, courts do not consider inadequacy of consideration.
In certain circumstances, the doctrine of inadequacy of consideration comes into play to determine whether the value exchanged is so disproportionately low that it renders the contract unconscionable or suggests that there might be some form of coercion, fraud, or undue influence involved (key words sham or pretense).
Under US contracts law, is nominal consideration allowed?
In U.S. contract law, nominal consideration is generally not considered valid or sufficient consideration to support a contract. Nominal consideration is a token or minimal amount that lacks real economic value, and it is typically not viewed as meeting the requirement of consideration.
For a contract to be valid, there should be a bargained-for exchange, meaning that each party must give up something of value (i.e., consideration) in exchange for what the other party is offering. Nominal consideration, such as a token payment of one dollar, is generally not seen as constituting a true exchange of value and may not be sufficient to create a legally binding contract.
It’s important to note that the adequacy of consideration (i.e., whether the value exchanged is fair or reasonable) is a separate issue from whether consideration exists at all. While nominal consideration is often insufficient, courts are generally more concerned with whether there was a genuine exchange of something of value between the parties. If there is a true exchange, the consideration is usually deemed sufficient even if it is of relatively low value.
In Thomas v Thomas (1842), the executors of will let the widow live in one of her husband’s houses for a mere rent of 1 pound per year. She also has the obligation to do any repairs in the house. Is there consideration?
The court found yes. Consideration must be only legally but not economically adequate (although not mentioned by the court, also need to consider the doctrine of inadequacy of consideration).
In Fisher v. Jackson, Mr. Fisher, a baker, responded to an advertisement by Mr. Jackson, who owned the New Haven Register newspaper, offering a “permanent position” as a reporter. Fisher applied, was interviewed, and hired as a reporter, leaving his baking job. He worked as a reporter for about three years before being let go. Fisher sued Jackson for breach of an oral employment agreement, claiming that Jackson had promised him lifelong employment with annual salary increases. Jackson argued that there was no such agreement and that the employment was permanent but terminable at will. The case resulted in a verdict in Fisher’s favor, which Jackson appealed, seeking to set it aside. Fisher claimed that he had faced a legal detriment by giving up his old job in exchange for a promise of lifetime employment. What did the court say?
The mere giving up of a job by someone who decides to accept a contact for alleged life employment is but an incident necessary on his part to place himself in a position to accept and perform the contract. It is not consideration for a contract of life employment.
To constitute consideration, there must be not only a detriment, but the detriment must be bargained for in exchange for a promise. Here, there is no indication that Defendant required or asked Plaintiff to leave his job at the bakery to take the position as a reporter.
What is “permanent employment” in the US?
At will employment. Either party can terminate the contract at any time. Other party cannot sue the leaving party.
Why are fixed-term contracts better in the US?
Because you cannot get fired without a good cause. Conversely, you also cannot resign during the period. You can be sued if you resign.
Actors and athletes have fixed-term contracts. What remedies are available if they breach the contract?
Equity. Can forbid them to work for a different team or company.
Law. Damages, but hard to determine what the damages are.
In In Fisher v. Jackson, the defendant in this case has made two motions – one to set aside the verdict and another for judgment notwithstanding the verdict. What do they mean? What is a verdict?
Verdict: A verdict is a formal decision reached by a jury in a trial, determining whether the defendant is liable (legally responsible) for the claims made against them.
Setting Aside the Verdict: When a defendant requests to set aside a verdict, they are essentially asking the court to invalidate or nullify the jury’s decision. This can be done for various reasons, such as procedural errors, irregularities during the trial, or if the verdict is not supported by the evidence presented.
Judgment Notwithstanding the Verdict (JNOV): A motion for judgment notwithstanding the verdict is made when the defendant believes that, even after considering the evidence in the light most favorable to the plaintiff (the party bringing the case), there is still no legal basis for the jury’s verdict in favor of the plaintiff. In other words, the defendant argues that the jury’s decision goes against the law and the evidence.
In Anderson v. Douglas & Lomason Co. (1995), the court had to consider if a “progressive” discipline handbook created an enforceable contract. What could be two potential defenses of the employee?
1) There was no bargained-for-exchange when he did not read the handbook.
2) The language was too vague. A promise has to be clear.
In the US, what is the difference between a unilateral and bilateral contract?
Unilateral Contract:
In a unilateral contract, one party makes a promise that is contingent on the other party’s performance. It is often characterized by an “if…then” structure. For example, “I will pay you $100 if you find my lost dog.”
The offeror (the one making the promise) is only obligated to fulfill their promise if the offeree (the other party) performs the required act. Until the offeree performs, there is no contract, and the offeror has no obligation.
Once the offeree performs the requested act, a binding contract is formed, and the offeror must fulfill their promise. In the example above, if the offeree finds the lost dog, the offeror must pay $100.
Bilateral Contract:
In a bilateral contract, both parties make promises to each other. It involves a mutual exchange of promises. For example, “I promise to deliver a product, and you promise to pay me $50 upon delivery.”
Each party’s promise is binding immediately upon consideration. There is no requirement for one party to perform an act before the contract becomes binding. In a bilateral contract, both parties are obligated to fulfill their promises simultaneously or according to the agreed-upon terms.
In July 1997, Joppich entered into an earnest money contract with 1464-Eight Ltd. and Millis Management Corporation. Joppich agreed to buy and Millis agreed to convey an undeveloped residential lot located in a subdivision being developed by Millis. The purchase price was 65 k USD. The location was Shiloh Lake Estates Subdivision.
The contract contained a provision as an addendum. This was an option agreement that provided Millis the option to purchase the property (back) at a price of 90% if Joppich failed to commence construction of a private residence within 18 months since the contract.
Millis paid an option fee of 10 USD to Joppich. In return, Joppich granted Millis the option. The option was to be exercised any time from and after January 21, 1999.
Is this option enforceable? Does it matter if the 10 USD have been paid?
Under the Restatements yes.
An offer is binding as an option contract if the offer is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.
It does not matter if the 10 USD have been paid (Joppich can sue Millis).
Is a nominal consideration is sufficient to support a short-time option proposing an exchange on fair terms?
According to Restatements, a nominal consideration is regularly held sufficient to support a short-time option proposing an exchange on fair terms: 1464-Eight Ltd. v. Joppich (2004).
I’m offering you to buy a used car for 500 dollars. I will give you 30 days to think about it. What do you want for the option? 10 dollars. Is this an enforceable contract?
Yes. 10 dollars. Then you have a contract. A contract not to withdraw the offer. I still have the power of choice, the one who gave the option does not.
The professor mentioned that it’s not unusual for courts to use public policy to overcome lack of consideration. Give three examples.
Promissory Estoppel (Detrimental Reliance): In cases where one party makes a promise to another, and the second party relies on that promise to their detriment, a court may enforce the promise through the doctrine of promissory estoppel. This is often seen as an exception to the general rule of consideration. For example, if a parent promises to provide financial support to their child to encourage them to quit their job and focus on education, and the child relies on this promise to their detriment, a court may enforce the promise due to the public policy of promoting education and family support.
Charitable Pledges: Courts may enforce promises to make charitable donations even in the absence of consideration. When an individual or organization pledges a certain amount of money to a charity or nonprofit organization, and that pledge is relied upon by the charity to its detriment, public policy may come into play. Courts may enforce such pledges to support the public interest in encouraging charitable giving and fulfilling philanthropic commitments.
Family Settlement Agreements: Courts often enforce settlement agreements reached in family disputes, like divorce settlements, even without traditional consideration. This is done to promote family harmony and ensure that agreements made within the family are honored.
What is an illusory promise?
An illusory promise is a statement that may appear, on the surface, to be a promise but lacks a commitment to perform or do anything definite. It often leaves one party with complete discretion and the ability to avoid any obligation. Illusory promises typically lack the certainty and definiteness required for a valid contract because they don’t create any real obligation to act or perform.
