Slides · Class 13

By the end of class, you can

Apply R2d § 71 to a transaction where one side's benefit is escape from a cost (waste disposal) and decide whether bargained-for exchange exists.
Identify illusory promises and pre-existing-duty problems on a fact pattern and explain why consideration fails.
State the four elements of R2d § 90 and apply them to a tuition-promise hypothetical.

Today

Floor. ~40 min: callback to Hamer and Pennsy Supply, then R2d § 73 (pre-existing duty) and a preview of R2d § 90 through Conrad. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + Ricketts preview + Problem 7.2 (Betty and the Benefit) + synthesis.

R2d § 71: Requirement of Exchange; Types of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for. (2) 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.

R2d § 73: Performance of Legal Duty

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

R2d § 74: Settlement of Claims

(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless

(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.

(2) 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 is not asserting the claim or defense and believes that no valid claim or defense exists.

When bargain collapses: pre-existing duty and illusory promises

Two patterns look like bargains but fail for want of consideration:

Pre-existing duty (R2d § 73). A promise to do what you are already legally bound to do is not consideration — you surrender no new liberty. A sailor mid-voyage who demands more pay to finish the work he already agreed to do gives nothing new in exchange.
Illusory promise. A promise that reserves unfettered discretion ("I'll buy your goods if I choose to") binds the promisor to nothing, so it cannot be the price of anything.

Both trace back to the same idea: consideration requires a real surrender. Recasting an existing duty, or keeping a free way out, is no surrender at all.

Alaska Packers' Ass'n v. Domenico

117 F. 99 (9th Cir. 1902)
United States Court of Appeals for the Ninth Circuit

Rule. A modification of an existing contract demanding additional compensation for the same performance is unenforceable for lack of consideration (pre-existing duty rule) and, where coerced by the obligor's leverage over a counterparty with no realistic alternative, is also voidable as the product of duress.

R2d § 90: four elements

Flowchart of the four elements of promissory estoppel under R2d 90: clear promise, foreseeable reliance, actual reliance, injustice avoidable only by enforcement, yielding a binding promise. — Each element is doing work. Strike one and the doctrine fails.

Hamer v. Sidway

124 N.Y. 538, 27 N.E. 256 (1891)
New York Court of Appeals

Rule. Forbearance from the exercise of a legal right is sufficient consideration, even if the promisor receives no economic benefit. Consideration looks to the promisee's detriment as much as to the promisor's gain.

Pennsy Supply, Inc. v. American Ash Recycling Corp.

895 A.2d 595 (Pa. Super. Ct. 2006)
Pennsylvania Superior Court

Rule. A promisor's avoidance of a cost or burden can be consideration. When a promisee accepts a 'free' material at the promisor's invitation, and the promisor thereby escapes a disposal obligation, the transaction is a bargain, not a conditional gift.

Consideration decision map

Decision flowchart for the bargained-for-exchange test under R2d 71, branching through sought-in-exchange, given-in-exchange, pre-existing duty, and illusory-promise gates, with no-consideration leaves for conditional gift, past consideration, pre-existing duty, and illusory promise, and a bridge node to R2d 90 reliance. — The pre-existing duty branch is R2d § 73, the rule Hamer and Pennsy Supply cleared. Conrad and Ricketts enter from the bottom: no consideration found, but R2d § 90 may enforce anyway.

Conrad v. Fields

2007 WL 2106302 (Minn. Ct. App. July 24, 2007)
Minnesota Court of Appeals

Rule. Promissory estoppel requires a clear and definite promise, foreseeable reliance, actual reliance to the promisee's detriment, and injustice that can only be avoided by enforcement. Tuition for a course of study undertaken in reliance is a recoverable detriment.

Ricketts v. Scothorn

57 Neb. 51, 77 N.W. 365 (1898)
Supreme Court of Nebraska

Rule. A gratuitous promise that induces foreseeable, substantial action in reliance becomes enforceable to the extent justice requires. Reliance can supply what bargain does not.

Worked example: Problem 7.2, Betty and the Benefit

MJD applied to a bank for a loan to pay off its debt; the SBA guaranteed the loan, conditional on signatures from MJD's four principals (Meadors, Judd, and Mr. and Mrs. Ducote). At signing, Meadors's new wife Betty and Judd's wife Helen were present, and all six signed the guaranty. The SBA was not present and never asked for the wives' signatures. MJD defaulted; the government sued the guarantors, including Betty.

Applying the bargained-for-exchange test, did Betty receive consideration from the SBA for her signature?

Stretch: a Ricketts variation

Same facts as Ricketts v. Scothorn: grandfather promises Katie $2,000 and tells her she need not work. Katie quits her bookkeeping job. Grandfather dies before paying. Now vary one fact: a week before grandfather's promise, Katie had already given two-weeks' notice to her employer for unrelated reasons (she was leaving anyway to care for an ill aunt). Same result?

Does promissory estoppel still enforce the note?

Stretch: practice problem

Stretch problems from the chapter.

Problem 7.1. An Aunt’s Promise. See casebook Chapter 7.

Problem 7.2. Betty and the Benefit. See casebook Chapter 7.

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d § 71 (bargain), R2d § 73 (pre-existing duty), R2d § 74 (settlement), R2d § 90 (reliance — previewed).

Cases. Hamer v. Sidway · Pennsy Supply v. American Ash Recycling Corp. · Alaska Packers v. Domenico · Conrad v. Fields · Ricketts v. Scothorn.

Punchline. Bargain requires a real surrender. A recast pre-existing duty surrenders nothing new; an illusory promise surrenders nothing at all. Where no bargain runs but reliance does, R2d § 90 steps in.

Open question. R2d § 90 makes reliance an alternative to bargain. It does not tell us what counts as reliance "of a definite and substantial character" or what "justice" requires. Class 14 walks the four elements through Conrad and Ricketts in full and tests the doctrine's reach.

Next time

Next class: Promissory Estoppel & Promissory Restitution

_Consideration_ · Oct 15

Read Conrad v. Fields and Ricketts v. Scothorn in full, plus R2d §§ 86 and 90. The doctrine moves from bargain to reliance. Bring a one-line answer: what makes promissory estoppel different from a contract, and what does it cost?

Class 13: Consideration cont. + Promissory Estoppel setup