Consideration in Anglo American Contract

11/12/11- lesson 1
In medieval times, before the term assumpsit was used (a term from the 16th century), only three types of transactions were enforceable: Plaintiff could sue defendant only if defendant had an obli ation to: 1. Repay money (debt) !" Deliver goods he borrowed or sold # detinue $" o per!orm a promise made in writing "nder seal ( ) % covenant"

In the first case, all contracts were property based institutions %you promised to ive it bac& to me% this was a promise I could enforce a ainst you" In the second case% the defendant promised to deliver oods that he borrowed or sold" 'he third case is a little closer to today(s contracts% there is a written instr"ment with a !ormal seal, bindin in the stron sense of the term" 'oday% we are e#changing promises that create obligations " 'his form of contract was lar ely missin at this point" 'he first two instances remind us of property and tort suits" 'he third instance, the formal seal, is almost a formal act but still not a promise for promise, )uid pro )uo act" *s of the 16th century we have a new term called assumpsit, the legal term that was "sed to describe e#changes o! promises to be legally en!orceable " 'his was the bi chan e in *n lo%*merican law and allowed us to move to contract law as we &now it" 'his allowed suin over breached promises" 'hat would ive rise to a lawsuit, an enforceable claim under the law" $e move !rom a very narrow slice o! promises% in writing "nder seal% to the en!orceability o! m"ch wider types o! contracts " If we decide that some, but not all promises are enforceable% how do we di!!erentiate between en!orceable and non-en!orceable contracts + ,hy is consideration + ,hat does it mean% it means that consideration & serio"sness" ,hy do we care about consideration+ ,hy do we care that the promisor considered the promise+ -eriousness is where we draw the line" $e don't want to en!orce promises witho"t the re("isite serio"sness " ,hat test should we use+

,e cannot use seriousness sub.ectively as an independent, free standin criterion in a system operated by human bein s" ,e can(t &now independently what people thin&" $e have to ta)e into acco"nt the !act that there are in!ormational limits to what *"dges )now" ,e need some standard that would help us separate" ,hat would it be+ ,hat other tools shall we use to detect seriousness+ ,e could use a /ormality, li&e a seal, or writin " 0nly formal contracts will be enforced" 'he writin re)uirement may help discern" At the end o! the day going to co"rt is more c"mbersome than a writing re("irement" 1owever, In the 2- the courts focused on a bargain !or promises" $e are loo)ing !or an e#change% a quid pro quo" +ection 1, o! the restatement: (1) (Except as stated in subsection 2) the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. In Israel there is no re)uirement for bar ainin " +ection ,1 o! the restatement31(1) % 4onsideration in terms of a bar ain" a. To constitute consideration a performance or a return promise must be bargained for. 31(!) % 5efined 6ar ains for as: a. performance or return promise is bargained for if is sought b! the promisor in exchange for his promise and is gi"en b! the promisee in exchange for that promise. ,hy is the element of bar ained for promises important+ 'here are several possible .ustifications for endorsin the consideration re)uirement" 1" Capt"ring serio"s promises %/rom the vanta e point of the parties the consideration pro7y helps capture serious promises where promisor and promise anticipated or should have anticipated or intended le al enforcement: .!!iciency% bar ained for promises are presumably welfare enhancin % seemin ly they improve one(s situation" In )uid pro )uo the parties are supposedly better off"

A"tonomy% 4ommercial promises are presumably serious" If I ma&e a serious promise, by enforcin the promise you are respectin my autonomy as a rational individual" if I decided to bind myself, you should respect me" ,e are respectin the promisor as a rational person" Reliance% the promisee has a reason to rely"

'here are more .ustifications: !" .conomi/ing on +ocial Reso"rces %'he le al system costs a lot and we have to decide on which conflicts we want to spend that money" $ill we spend social reso"rces on a promise to ta)e o"t a son to the movies + -ociety needs to decide what to enforce throu h the le al system"

Political promises in many countries are not enforceable" ,hy not+ /irst of all, the court should not meddle in political matters (for e7ample the -upreme 4ourt bein critici8ed for doin so)" Politicians also may have superior information"

$" 0nstit"tional Competence% 'here are certain contracts which we don(t want sub.ect to prolon ed le al battles" here are certain social instit"tions that we want to )eep !ree o! legal intervention , to preserve a space of social interaction that is free of le al coercion" ,e don(t always want people to be so serious about everythin they do without worryin about le al conse)uences" It can also lead to opportunistic behavior" 4onsideration separates contracts that are enforceable and those non%enforceable, b"t it is not per!ect" In reality it's not a per!ect overlap. Consideration is both "nder and over incl"sive" 'here can be instances in which the promisor was very serious but there(s no consideration and cases where there was consideration and no seriousness" 1erillo's de!inition: A legal detriment to the promise% doin somethin that you didn(t have to or not doin somethin you(re le ally privile ed to do" Detriment ind"ces promise: i"e", promisor made the promise at least in part in order to et the detriment"

1romise ind"ces detriment: promise ave up somethin in order to et the promise% which in practice"

*s a promisor I made a promise to et somethin and that(s why I made the promise" 'he promisee a reed to do that thin in order to et my promise" 0t is important to disting"ish between bargained !or promises and gi!ts " 9ifts are not necessarily welfare%enhancin " 4oncernin bar ained%for promises, theres a ood chance to believe that both parties are better off" /or a ift there has to be: 1" 0ntent to ma)e a gi!t" !" Delivery% manual, symbolic, constructive" $" Acceptance"

2argained !or promises v. conditional gi!ts

* 4onditional ift is any ift to which strin s are attached" 3rom a legal standpoint these gi!ts are not en!orceable beca"se there is no consideration " *lso% promises to ma)e a gi!t are not en!orceable "nder .nglish and American law " In Israel it these promises can be enforceable"

4ohnson v. 5tterbein 6niversity (1778)

3acts: In /ebruary 1:6;, <ohnson si ns and delivers to an a ent of the 2niversity a promise to pay 1== dollars in three years to repay pre%e7istin university debts" <ohnson refuses to pay >ater on the university sues to collect the money"

R"ling: his promise is not en!orceable. Contract is void !or lac) o! consideration. It(s an e7treme result" *ccordin to the court, consideration is quid pro quo? however <ohnson made a ratuitous promise" 0t was a promise to give a gi!t that does not have an element o! consideration% and there!ore is not binding "

$hat sho"ld the college have done to ma)e it e!!ective + 'hey could have told him to ive them the money now% that(s delivery of a ift" 2"t to en!orce a promise to give something in the !"t"re consideration is needed " <ohnson didn(t et a benefit" 6ut maybe the university chan ed its situation" @ot in this case, !or the debts were pree#isting. 0! the "niversity had inc"rred more debts based on 4ohnson's promise% that wo"ld constit"te a detriment and there!ore constit"te a consideration" 'his result is a little difficult to stomach" 'he colle e ar ued that this isn(t .ust a promise, b"t rather it is a promise with directives" <ohnson directed us to use money to repay debt" <ohnson forced us to use the money for our debts rather than any other use" 'he court says that merely adding directives !or the "se o! the money is not eno"gh to be considered valid consideration" 'hey do not affect the analysis" 'he court decided that it is not a le al detriment" $e need to show a gain to 4ohnson or a detriment to the "niversity" ,hy can(t it be ar ued that <ohnson received some ain in ma&in the university better+ $hy isn't the !eeling o! philanthropy a valid consideration + 0t's beca"se it wasn't bargained !or% it wasn't part o! the consideration" 'he improvement was not bar ained for" It wasn(t tri ered by the transaction" 'he court viewed the situation as a conditional gi!t to help the "niversity repay its debt" It was not bindin and not enforceable because there was no consideration" >et(s e7amine a number of e7amples with this analysis" .#ample: I see a homeless person on the street and tell him, If you come with me to my house I will ive you a coat" Promise% I will ive you a coat if you come home with me" /rom the vanta e point of the promisee there is detriment - he has to go to the promisor. 9e changed his !reedom" ,as it induced by promise+ 'he answer is yes" -o we have: a detriment to the promisee 'he detriment was induced by promisor(s promise"

1owever% we need to show that the promisor wanted to ind"ce the res"lt" he promisor didn't intend !or his promise to ind"ce detriment, and there was no benefit bar ained for" ,e have a conditional ift" 'he coat is at home" 0 don't want him to come home with me% b"t in order to give him the coat we need to wal)

to my ho"se" 6ut I didn(t bar ain for a chan e in his plans" he detriment was not part o! the bargain-0! 0 co"ld have avoided it 0 wo"ld have "

9amer v. +idway- 17:1

3acts ,illiam A" -tory senior promises his nephew ,illy a sum of money if ,illy abstains from certain vices (drin&in , smo&in , playin cards, swearin ) until the a e of !1" ,illy mana es to perform his side of the bar ain" 'he 2ncle dies before ivin him the money"

;egal ("estion: 0s the "ncle's promise en!orceable+ R"ling: he promise is en!orceable% there was consideration " 6oth sides tried to ma&e some ar uments: he promisee% 1e claimed that he ave up his le al ri hts to drin& and amble and that constitutes a detriment to him" 'he second element is that the detriment was induced by the 2ncle(s promise" he promisor% 'he 2ncle(s e7ecutor tried to ar ue that there was no detriment to the nephew, that the a reement was ood for him" 1owever, this is e#ercising a moral *"dgment% not a legal *"dgment. he test is whether he gave "p on any o! his !reedoms" *lso, the detriment was clearly ind"ced by the promise % ,illy had a le al ri ht that he ave up because of his uncle(s promise" 'he estate tried to raise a second ob.ection, that there was no real bene!it to the "ncle" ,hy does he care whether ,illy drin&s or smo&es+ 1owever, ultimately the "ncle made a promise in order to ind"ce detriment to the promisee " 'he uncle sou ht to cause his nephew to !orebear from doin certain thin s" 'he court says% the "ncle was a!ter a certain res"lt" 'he uncle made the promise to et the result, and the chan e in the behavior was induced by the promise% he ot what he wanted" he co"rt is not loo)ing to see whether it was a rational e#change, but rather defers to the sub.ective desires of the party" Restatement 1, Be)uires consideration

/or somethin to constitute consideration it has to be bar ained for: 1" Performance !" Beturn promise 2argained !or: a" -ou ht by promisor in e7chan e for promise" b" 9iven by promisee in e7chan e for same promise" .#ample: I promised my teacher 1=== dollars to induce him to write a recommendation letter and the teacher promised to write a recommendation letter for 1=== dollars" 0s this an en!orceable contract+ he answer is yes- 0 o!!ered the money to sec"re per!ormance% and the teacher o!!ered per!ormance !or the promise (the money)" .#ample: >et(s assume that the uncle is havin a reat day" 1e sees ,illy and says if he comes over he(ll ive him 1=== dollars" In this case it(s not a bar ain for promise" 0t's tr"e that there is a detriment occ"rred by the nephew% b"t !rom the "ncle's point o! view it's not a bargain !or detriment% it's a conditional gi!t " .#ample- <I will pay you money if you(re lottery tic&et is bad% this promise is not enforceable because he already purchased the tic&et" here is no re("irement !or a bene!it to the promisor to establish a consideration% 0t is eno"gh that the promisor by his promise ind"ced a detriment to his promisee" 2ene!it to the promisor is merely an indication that the promise was made to ind"ce per!ormance or e#change promise on the promisee's side" Another indication is the degree o! detriment to the promisee % the smaller the detriment the less li&ely that it was bar ained for" 4onsideration also does not mean that detriment to the promisee is a necessary re)uirement of consideration" 0t can be a detriment or a bene!it"

1=/12/11- lesson 2 1ast and >oral Consideration

'his is an analytical and conte7t based re)uirement of contract law . 0n many instances the consideration re("irement leads to harsh res"lts " ,e thou ht the person who made the promise had the re)uisite seriousness, and yet because of the

ri id structure of the consideration re)uirement the bar ain fell throu h in the end" 'his is not an easy outcome to accept" 0ne party relied on the other party% it(s a little unfair (for e7ample in the case of <ohnson v" 0tterbein 2niversity)" .#ample% If we were promised that the e7am is a multiple choice e7am and then it turns out to be an essay test% he teacher can say that it was a grat"ito"s promise" $hy is the a"tonomy o! the promisor more important than the reliance o! the promisee+ 'here is a constant movement between ri id rules (yieldin unfair rules and fle7ibility, distinctions and nuances" 'he more nuances we introduce it stops bein a rule but rather a standard" -ections 13 and 31 established the ri id structure re)uirin the inducin element" -ection :6 constitutes an e7ception to the rule" +ection 7? o! the restatement
(1) promise made in recognition of a benefit pre"iousl! recei"ed b! the promisor from the promisee is binding to the extent necessar! to pre"ent in#ustice. (2) promise is not binding under $ubsection (1) (a) %f the promisee conferred the benefit as a gift or for other reasons the promisor has not been un#ustl! enriched& or (b) To the extent that its "alue is disproportionate to the benefit.

'his section bears on our class"

>oore v. .lmer (1:@1)

3acts * person oes to a clairvoyant and she reads him his future" *fter the readin , after the service rendered, the person promises to pay her if her prediction comes true" 1e doesn(t pay" 1e rene ed on the promise"

;egal A"estion: is the promise enforceable in the case of past consideration+ It was not a standard transaction% there was no e#-ante bargaining" R"ling: he promise is not en!orceable-past consideration is not consideration " $hat's done is done% thin s * did for 6 in the past cannot form valid consideration and constitute a basis for enforcin a future promise"

Past consideration is important in two social settin s% 1" 3amily% husband promises to ta&e out wife for help she ave him% there is no past consideration, therefore the promise is not enforceable" !" +ocial settings between !riends% I promise to ive you my notes from the lecture" 'hat person rene es on the promise, and you(re upset, but its past consideration"

>ills v. $yman (1728)

3acts 'he son came from a voya e overseas and returned sic&" 'he plaintiff (a nurse) too& care of the son for two wee&s thereafter the son died" 'he nurse simply as&ed for e7penses" 5efendant (the father) writes bac& after four days and promises to pay" 5efendant then rene es on his promise and doesn(t pay"

R"ling- Contract is not en!orceable- past consideration is not valid consideration " his is a harsh res"lt" 4an we ma&e an ar ument on the part of the nurse+ 'here was some benefit" here was a moral obligation. 2"t there is no legal obligation " ,hy not% it wasn(t bar ained for" It(s true that money was promised and it(s true that the promise was made based on the help the nurse ave" 2"t it wasn't the promise that ind"ced the n"rse to e#tend help" Is there a tort claim+ 'here is no duty of care" 2n.ust enrichment or restitution is another option" -omeone was benefited" ,ould there be a cause of action" 1owever, the father was not the direct recipient of the care, but rather the son" +ection 7? is s"pposed to deal with precisely these sit"ations " 6enefit received for a past act" 'he contract would then not be fully enforceable, but could be enforced to the point that in.ustice would be prevented (for instance allowin a refund for the nurse(s e7penses incurred while assistin the plaintiff(s son"

$ebb v. >cgow (1:=8)

3acts-

,ebb was badly in.ured when he saved defendant(s life by divertin a 3C pound bloc& fallin from the top of a mill" *fter this incident and based on what ,ebb did for him, Dc owin promised to pay plaintiff 1C dollars every two wee&s for the rest of ,ebb(s life" 1e does it for a while until Dc owin dies? payments continue for $ years and then stop" ,ebb brin s suit for the rest of the payments to have the promise enforced%

;egal ("estion- is the promise en!orceable on the basis o! moral consideration + R"ling- he promise is en!orceable- a moral obligation is s"!!icient consideration% when the promisor receives material bene!it. 'his rulin is a deviation in two senses: 1" Doral obli ation is consideration, whereas past consideration is consideration

!" @ow the court e7amines what the parties receive in return" ,hy do I care about the si8e of the benefit+ ,e have focused thus far on the bar ained #for element" 0ne can(t .ust create e7ceptions" If there was no bar ain, he should count his blessin s for what he ot% where do you have the uts to file this lawsuit+ ,hy was there consideration in this case+ 'he court says that there was: 1" A moral d"ty to pay !" A material bene!it $" Detriment to the promisee 6enefit to the promisor or detriment to the promise is sufficient" 6ut why% 'his is .ust half the consideration" $e don't have the second hal! o! the bargain re("irement : the detriment to the promise was not bargained !or" 'he answer is% here was no bargain in this story" In such cases the subse)uent promised pay is an affirmance of the services rendered carryin with it the presumption that a previous re)uest for service was made" 'hus is the implicit bac& round assumption or hypothesis about bar ainin " $e can ass"me that i! parties were ever as)ed they wo"ld agree on those terms "

Di!!erences between Webb and Mills >aterial bene!it% in the case of Webb 'here is direct material benefit to the promisee, whereas in Mills 'he +ame person% promisor is direct recipient of benefit, unli&e in Mills ('he father was the promisor and the son received the benefit)" 1artial per!ormance% in Webb part of the money had been paid already and in Mills none had yet been paid at time of suit" >agnit"de o! detriment% the ma nitude of the detriment in Webb is si nificantly reater than in Mills"

,e(re tryin to find a bar ain in a case where it is not possible" It(s not a calculated act% It .ust happens and you react" 2ased on section 7?% this promise is probably en!orceable " ,hy+ 1" .n!orcement is necessary to prevent in*"stice " !" A list o! e#ceptions to the e#ception (that do not apply):

1romisee meant to con!er bene!it as a gi!t " @o, ,ebb didn(t intend a ift" 1romisor was "n*"stly enriched% he was 1romise val"e is not disproportionate to bene!it received % no

'heoretically there could be a suit to enforcer the contract on restitution based rounds" .mergency services: 'he absence of a promise severely limits recovery for necessary services furnished to a person under disability and for emer ency purposes" Assentially there is no duty to pay, even under restitution law" 1owever, a subse)uent promise may remove doubt as to the reality of the benefit and its value and may ne ate dan er of an imposition of a full claim"

,hy is it that in re ular cases of emer ency we don(t impose restitution+ 'he promise is an indication that the recipient of the service actually .ud ed that there was value in the sacrifice" 'he teacher thin&s that it doesn(t add very much and is redundant"

>odi!ication
+til) v. >yric) (.ngland 17@:)
3acts: 6ritish sailors contracted to wor& on a ship for C pounds a month" 'he whole crew was supposed to be 11 sailors and two of them deserted the ship durin the .ourney" 'he captain approached the sailors and told them that he can(t find substitutes and offered to divide their wa es amon st the remainin sailors" 'he sailors a ree" 'hey perform their duties and et the ship bac& to the 2E" *t this point the captain says he doesn(t intend to pay the money" 1e says he will pay the C pounds a month"

;egal ("estion- 0s there considerationB R"ling- here was no consideration as there was already a pre-e#isting d"ty " 'his seems very wron " ,hy not enforce the contract+ 'here is somethin called the hold "p problemC- the court is wary of opportunistic behavior" >et(s e7amine the story a ain" In the be innin , there was freedom of choice on both sides, meanin the captain could choose to wor& with these particular sailors and vice versa" If they weren(t free then we would have a case of duress or unconscionability" 'he circumstances chan e% a contract"al party% in reliance on the contract% materially changed its position" Assentially the captain is sayin that when he a reed to the modification they were away at sea, he couldn(t find other crew members, and therefore the court should not enforce the modification, because it will promote opportunistic behavior amon soldiers in similar cases" 'he crew claims% we weren(t in the middle of sea" Fou could have found two alternative crew members" 'he captain will say that it is hard to find such replacements, however

in this story he was the one who approached the soldiers " 9ow can he claim that there was opport"nistic behavior+ 0t seems li)e the sailors were treated "n!airly" 9ow do we get to the !act that they had a pree#isting d"ty+ 'he duty was to do a certain amount a wor&%a total amount of wor& divided by 11 people, which is less than total wor& divided by ;G he co"rt interprets the promise o! the sailors as s"ch that they wo"ld do anything in their power to !inish the voyage" 5eath and desertions were not so rare at this time" .very sailor in agreeing to the contract too) this possibility into acco"nt" 2eca"se they were already "nder contract it is irrelevant that they had to wor) more- they already promised they wo"ld- the captain's promise is witho"t consideration" 'he court is construin the contract" 1ow does the court &now how to do this+ Is it reasonable+ *t first si ht it seems really farfetched" 0ne e7ample was whether or not there was a pree7istin duty to attend class" /or e7ample, I(m bein ta&en to medical treatment for a car accident" I tell the doctor that if he saves my left le I will pay him C= thousand dollars" 1e saves the le " 'hen I rene e on the promise" I will say that she is under the 1ippocratic oath and therefore already has a pre%e7istin duty" 'he courts will probably say that it is not a le al obli ation and therefore does not constitute a pre%e7istin duty" -uppose I am in the army" ,hat are my obli ations as a soldier+ 'his promise may be unenforceable% if the soldier has a pree7istin duty to ma&e the mission successful then the promise was without consideration" $hat is the bene!it o! this r"le+ 'he opportunistic behavior can be on both sides" he <hands tyingC r"le is a pre-commitment device intended to create a situation where the sailors cannot even thin& about behavin opportunistically" -ailors &now that whatever the captain promises them they cannot collect" Astablish the rule and sailors will &now there is not much point in misbehavin " 'he sailors can(t .ust decide not to wor&, because that would constitute a breach of contract" $e ta)e away their incentive to engage in opport"nistic behavior : @o incentive to behave opportunistically 'here is a stron incentive to monitor deserters Incentive to pic& ood crewmembers

9ow to deal with the behavior:

,rite it into the contract% but it is very hard" It(s difficult to foresee every contin ency" 'o price it you need to &now the probability" Dultiple counterparties% multiple suppliers" >on term relationship% tit for tat"

5pport"nistic behavior is a ris) on both sides. $hat abo"t the captain + 'he captain is in a very different place now" 1e can substitute ood e)uipment with cheap labor" 1e can ta&e advanta e of the sailors"

Alas)a 1ac)ers (1:@2)

3acts: * fishin voya e to *las&a and bac&, where the defendant had a factory" 'he a reement was to pay the fishermen C= dollars for the season and ! cents per each salmon cau ht" 'he fishermen were re)uired to do ship duty alone" * few days later they stopped the wor& and demanded 1== dollars for the season" 'he captain had no choice and a reed, otherwise the whole fishin season would have been lost" 'he captain si ns the document but on return refuses to pay"

'he fishermen claimed that the nets were rotten and that made it harder for them" 'his hurt their premium" In their minds, there was asymmetric information (this could be a case of misrepresentation in Israel)" Interestin ly the trial co"rt re*ected the arg"ment and decided that the nets were o) b"t that the sailors were in the right " R"ling - here is no consideration" his is a <real hold"pC sit"ation" 'he captain had no other option and the sailors were already under pree7istin duty that was drafted very clearly% any other wor) whatsoever re("ired by the captain% 'hat is a broad re)uirement"

'he court decided to adopt the trial court rulin about the nets% that they were o&" Also it doesn't ma)e sense that the captain wanted them to have bad nets- the incentives were per!ectly aligned- why wor) with s"bstandard nets+ Di!!erences between Stilk and Alaska Packers 'here are several distinctions: 1" Stilk wasn't strictly an emergency case% they were at the port, they could do thin s" It(s not li&e bein in the middle of the Pacific 0cean" In the case of Alaska Packers% there were no other options" !" Alaska Packers% plaintiffs seem to have been as&in for more witho"t their being any real change in the circ"mstances " In Stilk two sailors deserted the ship" $" Alaska packers- the fishermen initiated the modification whereas in Stilk the captain initiated modification" 'here are differences that could have led the court to decide differently, however both cases are essentially similar" ,hat have we fi ured out in this case+ $hat role does consideration play here+ $hat are the co"rts trying to do here+ he two cases establish a lin) between o"r desire to c"rb opport"nistic behavior and consideration" ,e use the pree7istin duty rule to diminish the incentive of both parties to en a e in opportunistic behavior" 1owever, it is a very imprecise mechanism: 1" he r"le wor)s on the sailors' side b"t not on the captain's sid e"

!" +ometimes modi!ications are wanted by both parties % the rule of consideration doesn(t do anythin on this side of the e)uation" $" 0t's very easy to get aro"nd" 1ow+ 'he sailors will as& for payment up front% they will bar ain e7%ante" 0t doesn't seem to ma)e sense to ma)e s"ch a rigid r"le in this area o! law " If we want to re ulate opportunistic behavior this seems li&e a very crude measure" 0t's both over and "nder incl"sive" It seems li&e the courts should .ust deal with opportunistic behavior when they locate it in the circumstances"

2rian constr"ction (1:,7)

R"ling- he contract is en!orceable% there is valid consideration.

,hy was this modification considered enforceable, while the others were not+ ,hy do we see the court reach such a rulin + 'he court says that in this case there was additional "ne#pected wor) that co"ld not have been !oreseen by the original parties " ,hat is the implication+ 0ne possibility is that the court misread the lan ua e% not li&ely" 'he other theory is that even tho"gh the d"ties o! the s"bcontractor were written broadly% there are still some developments that lie o"tside the broadest lang"age "sed" >an ua e, broad thou h it is, may not cover everythin " 'he court does not read this clause to include everythin " 'hat is why this case is different" 'he main concern was opportunistic behavior" ,e showed how it controls opportunism on one side" Is this a typical sit"ation where coercion might arise + 'his isn(t a ship in the middle of the ocean" 'his is a more mundane situation and a new contractor co"ld have been bro"ght in" 'he subcontractor seems to be more opportunistic" 'he contractor is not raisin the consideration ar ument, but rather the subcontractor" ,e said there could be opportunistic behavior on the captain(s side as well" Co"ld it be that the contractor was ta)ing advantage o! the s"bcontractor + 'he type of clause in the contract ne ates asymmetric information" 'he subcontractor tried to rely on the pree7istin duty rule to say that the second contract is null and void" 'his is an absurd ar ument because he was essentially admittin that he breached the first contractG 'he court upheld the modification" Fet the court determined that there was no breach by the subcontractor because in order to et rid of the debris the subcontractor had to et permission either from plaintiff, the owner of the site" 'he necessary permission was not ranted so he was not in breach of contract"

Restatement section 7:: * promise modifyin a duty under a contract not fully performed on either side is bindin : 0! the modi!ication is !air and e("itable in view o! circ"mstances not anticipated by the parties when the contract was made or to the e7tent provided by statute

0r to the e7tent that .ustice re)uires enforcement in view of material chan e of position in reliance on the promise"

,hy do we have the re)uirement that the duties were performed on both sides% if neither of us performed there is less incentive for opportunistic behavior"

18/12/11- lesson = Ade("acy o! consideration

4ourts will not review the ade)uacy of consideration" 'he courts seemin ly don(t care for the followin reasons: 'he autonomy of the parties -ub.ective value attributed by the parties"

0nce certain parties reali8ed this, they started to outsmart the law"

Dewman E +nell's (1:27)

3acts 1usband borrows $3== dollars with C= shares of stoc& as collateral" 1usband oes ban&rupt" 1usband dies" ,ife a rees to ive ban& new I02 (assumes husband debt) and $3== dollars for return of old one" 6an& attempts to collect, Drs" 1" says no consideration for new I02"

R"ling- the 056 is "nen!orceable contract !or lac) o! valid consideration. 'his court reverses the trial court(s rulin and holds for defendant" $as the note o! a ban)r"pt given in e#change !or a new note !rom decedent's wi!e% consideration !or the new note+

9olding: Do- the old note was worthless% and hence the plainti!! neither gave anything o! val"e% nor did the de!endant receive anything o! val"e " ,hy is there no consideration in this case+ % he plainti!! s"rrendered <nothing o! val"e % he de!endant received <nothing o! val"e ,hat(s wron here+ he widow did give something to the widow" he law is s"pposedly that the co"rts don't review the val"e o! consideration G ,hy is each item not of value+ he note o! ;ee 9"nter%it was worthless since it couldn(t enerate cash" 2an)s right to be a creditor o! the estate%there was nothin in the estate to pay for other thin s such as funeral e7penses or widow(s allowance which would presumably ta&e precedence over the ban& which would then have nothin to collect from"

here are a !ew ways to loo) at the deal here:

1" +"ppose she didn't get what she tho"ght she was getting % ,hy did she a ree+ 'he formation is tainted or undermined by fraud or mista&e of facts" /raud mi ht have been appropriate

2"t there are no indications that these claims were made- they weren't in her de!enses. !" +he did get a something o! val"e: +"b*ective val"e% revealed preference% acts spea& louder than words% in many bar ainin situations one would say this means nothin to me because it improves my bar ainin position (cheap tal&)" If so, there is a commitment here% she didn(t .ust tal& about it" It seems that there could be an element of sub.ective value" his something was bargained !or% if so it does not matter that the note from the ban& was worthless"

+entimental val"e% not because she cared about the note"

0r we could construe it as a ratuitous promise to ma&e a ift to the ban&% if so it is not enforceable" -he made the promise first, while the ban&, bein savvy tried to ma&e it loo& li&e a )uid pro )uo to ma&e it enforceable" 'here was consideration for this promise only if either: +"ch sentimental reasons are considered to be good consideration (but then all ifts would be bindin )" 6se !ormalities (seal etc")"

'here is @0 review of ade)uacy unless: he val"e is /ero here is no val"e at all here is sham consideration here is nominal consideration

Restatement section ,: comment d: Dot reviewing the ade("acy allows deceiving the co"rts by a !a)e contract " 1retend e#change: 5isparity in value with or without other circumstances sometimes indicates that the p"rported consideration was not in !act bargained !or b"t was a mere !ormality or pretense" +"ch a sham or nominal consideration does not satis!y the re("irement o! ,1 " Promises are enforced if at all either as promises bindin without consideration under :!%;H or as promises bindin by virtue of their formal characteristics under 6I

+hnell v. Dell (17?1)

3acts: -hnell(s wife made a will leavin !== dollars" -he dies" -he had no property in her own name to leave" 1er husband drafted a document recitin all of this and because

1" -he has been a dutiful and lovin wife to Jach -hnell and has materially aided him in the ac)uisition of all property now possessed by him !" In consideration of the love and respect he bears by his wife $" In consideration of one cent he a rees to pay 66 dollars per year for $ years until each has received !== dollars H" 'he heirs refrain from ma&in a claim on the estate in consideration of the money to be received" F possible considerations: 1" A promise by each o! the plainti!!s to pay the de!endant one cent % as if the one cent induced the promise% they ave him $ cents for 6== dollars and vice versa% does not ma)e m"ch sense" !" he love and a!!ecting he bore !or his wi!e G sentimental only"

$" +he had done her part in the ac("isition o! the property% this is past consideration% it can(t support the promise" H" 3orbearance !rom s"ing% this is an empty threat% there is no claim a ainst the husband" 9e didn't get anything !rom her" ,hat reasons does the court ive as to why the promise to pay 1 cent is not consideration for his promise to pay 6== dollars: 0nade("acy% the sub.ective value ar ument does not apply because it is money on both sides" 'he courts will deviate from the rule" .#change is "nconscionable% 'he court believes that Dr" -hnell is bein ta&en advanta e of" Dominal consideration% there was nothin of value e7chan ed here" In some cases it is ri ht to intervene such as this case"

@ consideration- no consideration. 1 cent- nominal consideration. 0t's abo"t o"tsmarting the system% to et within the rule of no review of ade)uacy" ,e will try to et as close as possible to the =" 0t creates negative e#-ante incentives. Restatement section ,1% comment b-

A mere pretense o! bargain does not s"!!ice as where there is a !alse recital o! consideration or where the p"rported consideration is merely nominal " 'here is a problem however and that is the fact that the parties drafted the contract to be real consideration" 'hey understood what they were doin % why not enforce it+

+mith v. $heeler
3acts -mith ranted ,heeler an option to buy real estate" 'he contract recited consideration of the sum of one dollar to me in hand paid, receipt thereof is hereby ac&nowled ed"

R"ling- Contract is en!orceable% there is valid consideration +mith's arg"ment: 'he one dollar is not consideration because it is nominal consideration, and because in actuality it was never paid" @evertheless the court re.ects this ar ument and rulin that the promise to pay one dollar is valid consideration" 9eor ia follows the minority view which maintains that if the contract specifies that consideration was paid for an option, as it did in this case? !ail"re to pay does not render the contract void !or lac) o! consideration. Co"rts m"st in("ire into the !acts in order to proceed" Restatement section 7,(1)(a): 'his allows non%bar ained for options to be enforced when there is either nominal consideration or a recital of purported consideration" 6" 0ffers made in consideration of one dollar paid or promised are often irrevocable" 'he irrevocability of an offer may be worth much or little to the offeree" 'he courts do not ordinarily in)uire into the ade)uacy if the consideration bar ained for" 9ence a comparatively small payment may !"rnish consideration !or the irrevocability o! an o!!er proposing a transaction involving m"ch larger s"ms. 2"t gross disproportion between the payment and the val"e o! the option commonly indicates that the payment was not in !act bargained !or b"t was a mere !ormality or pretense" In such a case there is no consideration as that term is defined in 31" -uch a nominal consideration is re ularly held sufficient to support a short term option proposin an e7chan e on fair terms"

3ormalities

+eal In the past, whether or not a promise was made under seal was always bindin " 0t was an absol"te r"le" Compliance with !ormalities can be a strong indication o! serio"sness" ,hat would we want from a formal rule indicatin seriousness+ In contracts we want somethin that is not ordinary, that we don(t do every day" $e want something that stands o"t" It(s: Ca"tionary .videntiary Channeling

$hat ma)es !ormality special is precisely that !act that it is special% o"t o! the ordinary" Promises made under seal were always bindin "

Aller v. Aller (17,7)

3acts Peter borrowed 1===K from wife Dary and ives her an I02" 1e repaid $3HK to Dary, leavin 6!6 still owed" Dary dies" 1er estate oes to peter" If he dies it oes to all his &ids" Peter ma&es out I02(s to his ! dau hters from Dary

;egal ("estion- 0s an e#ec"tory promise "nder seal to give da"ghters money valid despite the lac) o! consideration + ,hat was peters motive for writin the ! new notes to his dau hters+ ,e can assume that he wanted Dary(s dau hters to have that part of her estate" 'he main )uestion was whether the intention of the promisor was le ally and conclusively manifested so that it could be enforced" 1ow did the court interpret the statue of *pril 1:3C+ +eal is a reb"ttable pres"mption% it will not be enforced if the counter%promise was not respected% this represents a wea&enin of the status of the seal" 3ail"re o! consideration de!eats the seal in this case" ,hat functions does the court thin& that the seal performs+

Ca"tionary% to uard a ainst haste in enterin contracts, oral promises mi ht be made li htly" .videntiary% the best way to authenticate an a reement" Channeling% fully and absolutely serious% nothin to prevent its e7ecution where there is no fraud or ille ality"

,hat does the *ller case su est about the desirability of reco ni8in the le al effect of a formality li&e the seal% it provides a way to commit to a grat"ito"s promise and helps get aro"nd the need to design the transaction in a ro"ndabo"t way " $e want to give people the tool to bind themselves" It allows us to reach the hi hest level of seriousness and commit to somethin " here are other ways to mani!est serio"sness than consideration" It(s not .ust about choices but about autonomy, respectin the desire to bind oneself, and about reliance" ,hat would happen if we don(t offer this channel+ 'hen we need to move bac& to ifts in the here and now% I have to commit the action now" @owadays, there is constant erosion in the status of the seal" It also must be said that a mechanism to allow contracts to get past the e#amination o! the co"rts can be "sed in a negative way especially against wea) parties" oday the seal has become m"ndane and ordinary % courts went in the other direction% they suspected that the seal is not as serious as it was in the past" 'he 244 that applies to sales of oods has a provision, !!=$% seal inoperative, ne atin the importance of seals" 'he more seals are bein used the less unusual they become, the less wei ht is afforded to seals" It depresses the status of seals" ,e made the channel of the seal less and less important" 5o we have a better option than the seal+ Is there a better alternative+ If not, does the benefit outwei h the cost+ .ven i! !ormalities are not as important as they once were% they co"ld certainly serve a p"rpose " $agner v. ;ectro# (1:,?) It was an employment contract that was challen ed on multiple rounds by the employee% even thou h the contract was made under seal, the co"rt sho"ld review the ade("acy o! consideration" 'he court said, it is not apparent how any insufficiency of the consideration in the written a reement could have affected the

outcome of the case since the a reement bein under seal would not thereby have been rendered unenforceable" 1ere the court invo&es it to address a different ar ument% the seal imm"ni/es it !rom n"ll and void% b"t not !rom challenging the ade("acy o! the contract " 'he court refuses to et involved in the case"