Contract Law

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CONTRACT AND RELATED OBLIGATION
Prof. Hillman

I) Theories of Obligation

A) CONTRACT: Agreement with Consideration – Bargain Theory of Consideration Definition: A promise that is supported by consideration because the promisor gets something (extracts) from the promissee in exchange for the promise. Ex: I tell Alice I will sell her my piano for 400 dollars and she agrees. I promised my piano in exchange for something (400 dollars) therefore my promise is enforceable.

1) Bargained for Exchange v. Gift Promise
a. Legally enforceable while a gift promise is not.
b. In a gift promise, there is no consideration.
i. Consideration is the “price of the promise” c. Condition on a promise v. Consideration
i. If a benevolent man tells a homeless man to walk to the corner so he can get a free coat: the walk to the corner is a condition on the promise and not a consideration. If the homeless man was sitting outside a restaurant that the benevolent man owned and the benevolent man wanted to get the homeless man to leave and told him to walk to the corner to receive the coat, then that would constitute consideration. d. Consideration must include bargained for exchange e. A promisor’s gratitude for past performance or service does not constitute consideration because the promisor is not extracting and the promissee is not supplying anything at the time of the promise. i. Example: Dougherty v. Salt (1919) Aunt pulls nephews cheeks for free i) Facts

1. An 8 year old boy was given a note by his aunt promising 3000 dollars payable at her death or before 2. It was given with the words “You have always done for me, and I have signed this note for you. Now do not lose it. Some day it will be valuable.” 3. After the death of his aunt, the boy’s mother on behalf of the buy is asking for the money 4. The estate of the Aunt refuses

ii) Note: If we apply Fuller’s Functions (see below) 1. lacked cautionary
iii) Rule
1. A promise based on a person’s past good conduct or service does not constitute a consideration and therefore is not enforceable as a contract, rather it is a gift promise

2) Promisor’s Motive
a. There are two important caveats to motive:
i. A reasonable person must believe that your motive for making the promise of the piano was to obtain a return promise of 400 dollars. A promisor’s actual motive is irrelevant. ii. A Promisor’s motive (determined objectively) does not have to the primary or even a substantial reason for making the promise: it simply has to be one of the reasons. i) Example: Allegheny College v. Jamestown

ii) The fact that what is bargained for does not of itself induce the making of the promise does not prevent it from being consideration for the promise. b. Not only must a reasonable person believe that one of the promisor’s motive was to extract consideration, but a reasonable person must believe that the promise induces the promissee to deliver that consideration: i. Example: Baehr v. Penn O- Tex Oil Corp (1960). Slick as oil i) Facts

1. Baehr’s leverage as a promise not to sue Kemp. Baehr’s theories: contractual and that Penn O Texx was in possession and an assignee of Kemp’s lease. The argument was that because Penn was holding Kemp’s accounts, then Kemp’s liability transfers to Penn. So all we have left is the contract portion of the case. 2. The Court decides that there is nothing in the evidence that the defendant sought any forbearance by P or thought that it was securing such action: therefore no bargain here, i.e no consideration. ii) Rule

1. If promisee's forbearance to sue induced the promisor's promise...
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