3.7 The Bargain Theory of Contracts and the Reliance Principle
  • 1 3.7.1.1 The Bargain Theory of Contracts and the Reliance Principle Introduction

    1

    The consideration doctrine, regarded by many as the centerpiece of contract law, has produced a vast literature and intense controversy. Its origins are still shrouded in mystery, [87] and its functions, of which there are many, [88] are ill-defined. Because the history of the doctrine has many layers, those who have attempted to study it from the perspective of their own age have often been misled into taking a narrower view of its meaning than the historical record would warrant.

    2

    The best way to approach the problem is to begin with the most basic feature of consideration doctrine: the notion of reciprocity that underlies the classical theory of contract as bargain. The notions of exchange, bargain, and reciprocity have had a long association with consideration. Reciprocity was "a principle of contemporary morality, 'part of the common stock of ideas of medieval Europe,'" [89] and it would have been extraordinary if a paid-for promise was not held binding. [90] The intuitive appeal of the bargain idea was not lost on the judges and lawyers of the fourteenth and fifteenth centuries, a fact that may help to explain the ease with which executory bilateral contracts came to be recognized. [91]

    3

    But the idea of a reciprocal bargain was not the only one that lay behind the emerging doctrine of consideration. A second principle, associated with "promises and statements, rather than bargains," emphasized the element of reliance and asserted that "if a man make a promise or a statement, and another relies on the promise or statement, the other is liable for the loss." [92]

    4

    The two principles of bargain and reliance were often confused and the relation between them remained unclear until the sixteenth century, when an uneasy alliance was established by the definition of consideration as either a benefit to the promisor or a detriment to the promisee. [93] After this, the main task was to determine which benefits and detriments would in fact constitute a valid consideration, and the common law system of adjudication made it inevitable that this process of definition was carried out in a more or less ad hoc fashion. [94]

    5

    Holmes, recognizing that the doctrine of consideration, in its historically evolved form, lacked logic and consistency, sought to give it greater rigor by emphasizing the element of bargain, In his well-known discussion of the problem, Holmes narrowed the meaning of the bargain idea by insisting that promise and consideration must each purport to be the motive for the other. [95] The Holmes formula can be interpreted to mean, in the words of Professor Dawson, that both parties must agree "that each was induced to promise or to act by the promise or the act of the other." On this view, the doctrine of consideration requires that the parties "agree not only on what was to be exchanged, but also on why; this would mean that the way - the inducement - for each must be disclosed and agreed to by the other.” [96]

    6

    Holmes' rather stringent interpretation of the consideration doctrine was rejected by both Restatements, which define consideration in broader terms. [97]  Even under this broader approach, however, a question remained as to whether the principle of detrimental reliance could be completely absorbed by the bargain theory. If a court is confronted with a claim for damages based on A's reliance on B's promise, can B defend on the grounds that his promise was in no way motivated by a desire that A take the particular action he took (that A's reliance was in no sense the “price” of B’s promise)?

    7

    It is one thing to say that courts will grant relief for detrimental reliance on a promise. It is something quite different to say that the only kind of reliance for which relief will be granted is reliance that in one way or another has been bargained for by the promisor. Bargained-for consideration may be a sufficient cause for enforcing a promise. It is not a necessary one. This insight has found expression in §90 of both Restatements; under §90, promises not bargained for but reasonably relied upon are enforceable without assent or consideration. [98] Section 90 of the Restatement First stated that

    8

    A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

    9

    In the Restatement Second, the language of §90 was changed as follows:

    10

    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. [99]

    11

    The reasons for the change are explained in the Reporter’s Notes.  Though Corbin objected to it, [100] the term used to describe a cause of action under §90 is “promissory estoppel.” The end result of this development is that the law of contractual liability is today a two-track system, one track resting on the notion of bargain and the other on the “vaguely delictual” [101] idea that an act of reasonable reliance can create liability for a subsequent loss.

    12

    The history of consideration doctrine has in large part been determined by the effort to reconcile individual responsibility with protection of the expectations raised by reposing trust and confidence in the words of the promisor. The bargain theory proved insufficiently flexible to achieve such a reconciliation, and the doctrine of promissory estoppel helped to keep the system open by accommodating a new (and more generous) attitude towards reliance that began to take shape in the late nineteenth century. In the words of Atiyah:

    13

    In a period of greater stability, greater regularity of law, and greater predictability of behaviour of the courts and of businessmen, reliance became more natural and more justifiable, The concept was in a sense pulling itself up by its own bootstraps. As people grew to rely on others so they grew to think it justifiable to do so; and as they found it more justifiable to do so, they expected the law to protect them when their confidence turned out to have been misplaced. [102]

    14

    Since there is a fundamental difference between the ideas underlying the bargain theory of consideration, on the one hand, and the doctrine of promissory estoppel, on the other, a problem arises as to how to distinguish these two kinds of liability (a problem that is compounded by calling them both "contractual"). Innumerable attempts to draw the line have left the issue still in doubt and as a result, both branches of liability have come under attack, the former for its narrowness of focus, the latter for its expansiveness and the potential it creates for exuberant social engineering. This is illustrated by the tendency in some jurisdictions to be satisfied with an implied promise (rather than an express promise) based on surrounding circumstances and to extend the protection given to reasonable expectations. [103]

    15

    Small wonder that a reform movement has set in. The first serious attack on the doctrine was contained in a famous article by Lord Wright entitled, "Ought the Doctrine of Consideration to be Abolished from the Common Law?" [104] In his words: "a scientific or logical theory of contract would . . . take as the test of contractual intention the answer to the overriding question whether there was a deliberate and serious intention free from illegality, immorality, mistake, fraud, or duress to make a binding contract." In this view, consideration ceases to be a condition of the contract and becomes merely a piece of evidence.

    16

    The Sixth Interim Report of the English Law Revision Commission (1937) attempted to follow a middle course. "In very many cases the doctrine of consideration is a mere technicality which is irreconcilable either with business expedience or common sense." Nevertheless, the Commission regarded as unwise the recommendation to abolish the doctrine "root and branch. . . . It is so deeply imbedded in our law that any measure which now proposed to do away with it altogether would almost certainly arouse suspicion and hostility." Consequently, the Report limited its suggestions for reform to certain areas where application of the doctrine caused hardship and inconvenience (12 et. seq.) [105]

    17

    In this country the reform movement also took a less radical approach, [106] seeking primarily to eliminate the historical excrescences with which the doctrine of consideration had become overburdened. Modification and discharge, for example, were taken out from under the domination of consideration doctrine. Firm offers received similar treatment and an expansion in our notions of duress and unconscionability helped to take pressure off the doctrine of consideration in other areas as well.

    18

    A question remains whether, stripped of these unnatural growths, the consideration doctrine is still needed. [107] The defenders of the doctrine point out that in addition to its evidentiary role, it has a cautionary function (serving to guard the promisor against ill-considered action), a deterrent function (discouraging transactions of doubtful utility), and finally, a channeling function (helping to distinguish one particular type of transaction from other types and from tentative or exploratory expressions of intent). [108] No legal system, they emphasize, has seen fit to enforce all promises indiscriminately without some safeguard for the promisor. To be sure, the civil law has no consideration doctrine. (The doctrine of causa, whatever its early connection with consideration, is not its equivalent). But the absence of a consideration requirement in civilian systems does not entail unqualified enforcement of all informal gratuitous promises. In German law, for example, a gratuitous promise has to be made in a most solemn form to be enforceable (Civil Code §518).

    19

    Still the bargain theory, pruned of its outgrowths, has an important precautionary function. We cannot simply say that a bilateral contract becomes binding by offer and acceptance whether or not there is consideration; a gift promise, for example, cannot be turned into a bilateral contract merely by the offeree's promise to accept.  

    20

    It can even be doubted whether it makes good sense to make a gift promise binding if couched in the form of a simulated bargain. [109]

    21

    In these and other ways, the influence of the bargain idea can still be felt. It is an old idea and one firmly rooted in our moral intuitions. Suitably trimmed, and balanced by the reliance principle, it is likely to remain an enduring feature of our law of contracts. [110]

    22

    This introduction would be incomplete if it failed to note the close connection between the principles of bargain and reliance and the system of remedies available for their protection. A most challenging study of the interrelationship has recently been undertaken by Eisenberg, The Bargain Principle and Its Limits, 95 Harv. L. Rev. 741 (1982). Part of the conclusion of his article is worth quoting:

    23

    The proposition that promises made as part of a bargain ought to be enforced is relatively straightforward; the real question is to what extent.

    24

    The traditional answer to this question is embodied in the paradigmatic bargain principle, namely, that damages for the unexcused breach of a bargain promise should invariably be measured by the value that the promised performance would have had to the plaintiff, regardless of the value for which the defendant's promise was exchanged.

    25

    This principle, which in the typical case is supported by considerations of both fairness and efficiency, finds its fullest justification in the exemplary case of a half-completed bargain made in a perfectly competitive market. Bargains made in other kinds of markets are not intrinsically suspect. Nevertheless, that a market is less than perfectly competitive does set the stage for transactions in which the bargain principle loses much or all of its force, because it is supported by neither fairness nor efficiency. For example, a market that involves a monopoly sets the stage for the exploitation of distress; a market in which transactions are complex and differentiated rather than simple and homogeneous sets the stage for the exploitation of transactional incapacity; a market in which actors do not simply take a price established by a general market and are susceptible to transient economic irrationality sets the stage for unfair persuasion; a market that involves imperfect price-information sets the stage for the exploitation of price-ignorance.

    26

    Until recently, courts have tended either to apply the bargain principle to cases raising such problems, despite the difficulties this application presents, or to deal with these difficulties in covert and unsystematic ways. Over the past thirty years, however, a new paradigmatic principle - unconscionability - has emerged. This principle explains and justifies the limits that should be placed upon the bargain principle on the basis of the quality of a bargain.

    27

    95 Harv. L. Rev. at 798-799.

    28

    [87] Simpson, Historical Introduction at 8-9; Simpson, ch. 4 (with further literature); Baker, Introduction at 285-290; J. L. Barton, The Early History of Consideration, 85 L.Q. Rev. 372 (1969).

    29

    [88] 1A Corbin §204, at 489 (1963): the doctrine of consideration is many doctrines.  Corbin’s thesis (Recent Developments in the Law of Contracts, 50 Harv. L. Rev. 449, 454 (1937)) -- that the courts determine whether a sound and sufficient reason exist for the enforcement of the promise and “cheerfully” call the reason found a “sufficient consideration” -- is no longer as heretical as it was when his article first appeared.  See, e.g., P. Atiyah, Consideration in Contract: A Fundamental Restatement 11 (1971).

    30

    [89] Baker, Introduction at 294.

    31

    [90] Simpson at 326.  The remarks of Milsom at 311 help round out the picture:

    32

    … [I]f the promise was enforceable because of some overall morality in the circumstances, that may still have been the residue of the almost proprietary notion the quid pro quo, to the extent that the idea of the common law of contracts has its ultimate basis in bargain rather than in promise may reflect history.

    33

    See also the second edition at 357-358.

    34

    [91] See Strangeborough v. Warner, discussed supra p. 38, and its discussion in Simpson at 461.

    35

    [92] Baker, Introduction at 296-297.

    36

    [93] “Every consideration that doth charge the defendant in an assumpsit must be to the detriment of the defendant or charge to the plaintiff, and no case can be put out of this rule.”  Stone v. Wythipol, Cro. Eliz. 126, 1 Leon. 113, Owen 94 (1588).  The narrow approach laid down by Lord Coke was not shared by Barton Manwood, who, in arguing his own case in Manwood v. Burston, 2 Leon. 3 (1587), broadened the scope of consideration:

    37

    There are three manner of considerations upon which an assumpsit may be grounded: 1. a debt of precedent; 2. where he to whom such a promise is made is damnified by doing any thing or spends his return at the instance of the promiser, although no benefit cometh to the promiser, as I agree with a surgeon to cure a poor man (who is a stranger unto me) of a sore, who doth it accordingly, he shall have an action; 3. or there is a present consideration.

    38

    On the conflicting interpretation of the passage, see 8 Holdsworth, History of English Law 7; Fifoot at 40.

    39

    [94] “The life of the law has not been logic; it has been experience.” O. W. Holmes, The Common Law 5 (M. Howe ed. 1963). To paraphrase Simpson, the bargain theory of consideration would have been adopted had the sixteenth-century lawyers been consistent.  Simpson at 432-433.

    40

    [95] Holmes, supra note 94, at 293-294.

    41

    [96] J. P. Dawson, Gifts and Promises 203-204 (1980). Holmes’ formula, whatever its interpretation, is one of many expressions of the individualistic spirit animating his great book. For a challenging criticism of the Holmesian approach, see G. Gilmore, The Death of Contract 18 (1974).

    42

    [97] Sections 75 and 71, respectively; see Corbin, supra note 88, at 453.

    43

    [98] It makes good sense that the Restatement does not treat §90 in the chapter on consideration.  Corbin, Recent Developments in the Law of Contracts, 50 Harv. L. Rev. 449, 453-457 (1957).  The contrary thesis, advanced in preceding editions of this casebook, has been abandoned.

    44

    [99] At common law, prior to the nineteenth century, all promises were, in a manner of speaking, enforced only to the extent required by justice.  Juries at the time had wide discretion in awarding damages and could tailor relief according to the requirements of justice in each particular case. Today, liability under §90 may in many cases be a weaker form of liability than the protection afforded the promisee’s expectancy in a regular contract action, an idea already expressed in 2 F. Hutcheson, System of Morals 5-6, as quoted in P. Stein, Legal Evolution (1980).  We owe this reference to Professor Jan Vetter, University of California, Berkeley.

    45

    [100] 1A Corbin §204 (1963).  For the distinction between promissory and equitable estoppel (misrepresentation of fact relied upon by the other party), see Mazer v. Jackson Ins. Agency, 340 So. 2d 770 (Ala. 1976).

    46

    [101] Atiyah at 185-186.  The “weakness of the reasonable expectation principle” is emphasized by Baker, From Sanctity of Contract to Reasonable Expectation?, 32 Current Legal Problems 17, 25 et seq. (1979); see further Knapp, Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel, 81 Colum. L. Rev. 52 (1980); Feinman, Promissory Estoppel and Judicial Method, 97 Harv. L. Rev. 678 (1984).

    47

    [102] Atiyah at 186-189.

    48

    [103] The controversial and conflicting case law is discussed in Feinman, Promissory Estoppel and Judicial Method, 97 Harv. L. Rev. 678 (1984).

    49

    [104] 49 Harv. L. Rev. 1225 (1936)

    50

    [105] For a summary of the report and a criticism, see G. H. Treitel, The Law of Contracts 104-106 (5th ed. 1979).

    51

    [106] In 1937, a statute abolishing the consideration doctrine was passed by the New York legislature, but vetoed by Governor Lehman “upon urgent representation from bench, bar and business organizations that the great commercial fabric of the Empire State was unprepared for so radical a change without opportunity for study and discussion.” Thompson, Some Current and Political Impacts on the Law of Contracts, 26 Cornell L.Q. 4 n.7 (1940).

    52

    [107] Some of these reforms have not taken place throughout the country, but the tendency to abolish the excrescences is unmistakable.  For an admirable discussion of the problems, see Patterson, An Apology for Consideration, 58 Colum. L. Rev. 929 (1955). Dawson, supra note 96, at ch. IV.

    53

    [108] Fuller, Consideration and Form, 41 Colum. L. Rev. 799 (1941); Restatement Second §72, Comments a-d.

    54

    [109] Restatement Second §71, Illus. 5; E. Farnsworth, Contracts 66 et seq. (1982).

    55

    [110] Note, 39 N.Y.U. L. Rev. 816, 829 et seq. (1964); Comment, 37 U. Chi. L. Rev. 559, 572 et seq. (1970).

  • 2 3.7.2.1 Siegel v. Spear & Co.

    1

    234 N.Y. 479
    WILLIAM SIEGEL, Respondent,
    v.
    SPEAR & COMPANY, Appellant.
    Court of Appeals of New York.

    2

    January 16, 1923.

    3

     

    4

    [479] Bailment — where gratuitous bailee of furniture agrees, before receiving same, to procure insurance for owner's benefit and fails to do so it is liable for its loss by fire while in its charge.

    5

    Where plaintiff, who had purchased furniture from defendant and was about to leave the city, arranged with defendant's creditman that the plaintiff should send his furniture by his own truck to the defendant's storehouse where defendant would keep it free of charge, and there is evidence sufficient to sustain a finding that, at the time of making these arrangements, and while the furniture was still in plaintiff's possession, the creditman also promised and agreed to insure the furniture for plaintiff's benefit, the promise was part of the whole transaction and was linked up with the gratuitous bailment. The bailee, if such a contract was within its creditman's agency — and his authority to act is not raised by any sufficient exception — was then under as much of an obligation to procure insurance as ho was to take care of the goods, and where no insurance was placed upon the furniture and it was destroyed by flre after delivery at the warehouse the defendant is liable for the loss. (Thome v. Deas, 4 Johns. 84, 99, distinguished and questioned.)

    6

    Siegel v. Spear & Co., 195 App. Div. 845, affirmed.

    7

    (Submitted November 22, 1922; decided January 16, 1923.)

    8

    APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered May 17, 1921, which affirmed a determination of the Appellate Term affirming a judgment of the City Court of the city of New York in favor of plaintiff entered upon a verdict.

    9

    Alfred A. Walter and Edwin B. Wolff for appellant. There was no consideration for the defendant's alleged promise to effect insurance. (Thorne v. Deas, 4 Johns. 84; Glanzer v. Shepard, 233 N. Y. 236; Nellis v. DeForest, 16 Barb. 61; Ainsworth v. Backus, 4 Hun, 414; Condon v. [480] Exton-Hall Brokerage V. Agency, 80 Misc. Rep. 369; Rose v. U. S. Tel. Co., 3 Abb. Pr. [N. S.] 408; 34 How. Pr. 308; 6 Robt. 305; Boniface v. Relyea, 5 Abb. Pr. [N. S.] 259; 36 How. Pr. 457, 465; 6 Robt. 397; Doupe v. Gennin, 37 How. Pr. 5; 1 Sweeney, 25; Harrigan v. Cahill, 100 Misc. Rep. 48; 164 N. Y. Supp. 1005; Stone v. Demarest, 95 Misc. Rep. 543; 159 N. Y. Supp. 800; Miller v. Inter. Harvester Co., 193 App. Div. 258; 184 N. Y. Supp. 91.) There was no valid contract to secure the issuance of a policy of insurance. (May on Ins. [4th ed.] § 43; Bradley v. Standard L. & Ace. Ins. Co., 112 App. Div. 536; Baptist Church v. Brooklyn Fire Ins. Co., 28 N. Y. 153.)

    10

    Lawrence B. Cohen and Gilbert M. Levy for respondent. The plaintiff's abandonment of his purpose to insure, in reliance on the defendant's promise, was a sufficient consideration for the defendant's promise. (Trustees v. Smith, 118 N. Y. 634; Draper v. O. C. Fire Relief Assn., 190 N. Y. 16; Witherell v. Kelly, 195 App. Div. 227.)

    11

    CRANE, J.

    12

    The plaintiff commenced this action in the City Court of the city of New York to recover his loss sustained by failure of the defendant to insure his household furniture stored in its storehouse. The action is based upon an alleged agreement to insure made with the defendant's creditman. So far the plaintiff has been successful, the Appellate Division, however, certifying that in its opinion there is a question of law involved which should be reviewed by this court.

    13

    In August of 1917 and January of 1918 the plaintiff purchased of the defendant certain household furniture for the sum of $909.25 and took it to his apartment in New York city. He gave back to the defendant two chattel mortgages, which provided for monthly payments of the purchase price, and also that the furniture should not be removed from the plaintiff's-residence without the written consent of the mortgagee.

    14

    [481] By May of 1918 the plaintiff had paid in all $295. In that month, desiring to move from the city for the summer months and give up his apartment, the plaintiff went to the defendant's place of business in New York city to see about storing his furniture until his return. It was arranged with the defendant's creditman, McGrath, that the plaintiff should send his furniture by his own truck to the defendant's storehouse and that the defendant would keep it for him free of charge. It is claimed that McGrath at the time of making these arrangements also promised and agreed to insure the furniture for the plaintiff's benefit. The furniture had not been insured by the plaintiff at any time. The conversation is given by Mr. Siegel as follows:

    15

    "At that time he said, 'You had better transfer your insurance policy over to our warehouse.' I said 'I haven't any insurance. I never thought of taking it out, as I never had time to take it out.' But I said: ' Before the furniture comes down I will have my insurance man, who insures my life, have the furniture insured and transferred over to your place.' He said, 'That won't be necessary to get that from him; I will do it for you; it will be a good deal cheaper; I handle lots of insurance; when you get the next bill — you can send a check for that with the next installment.'"

    16

     

    17

    The furniture was sent to the defendant's storehouse about the 15th of May and about the 15th of the following June was destroyed by fire. No insurance had been placed upon it.

    18

    Upon these facts the plaintiff has recovered the amount of his loss. The defendant raises at least two objections to this result. It claims first, that there was no consideration for the alleged agreement made with McGrath to insure the furniture and, second, that McGrath had no authority to make any such contract even if he did.

    19

    We are inclined to think that if the contract were made — and we must assume it was as there is evi-[482]dence to sustain the findings of the jury to this effect — there was in the nature of the case a consideration sufficient to sustain the promise. It is, of course, a fact that the defendant undertook to store the plaintiff's property without any compensation. The fact that it had a chattel mortgage upon the property did not affect its relationship as a bailee without pay. Under these circumstances it was not liable for the destruction of the goods by fire unless due to its gross neglect. (Van Zile on Bailments & Carriers, § 93; First Nat. Bank of Lyons v. Ocean Nat. Bank, 60 N. Y. 278.) There is no such element in this case.

    20

    But if in connection with taking the goods McGrath also voluntarily undertook to procure insurance for the plaintiff's benefit, the promise was part of the whole transaction and was linked up with the gratuitous bailment. The bailee, if such a contract were within McGrath's agency, was then under as much of an obligation to procure insurance as he was to take care of the goods.

    21

    When McGrath stated that he would insure the furniture it was still in the plaintiff's possession. It was after his statements and promises that the plaintiff sent the furniture to the storehouse. The defendant or McGrath entered upon the execution of the trust. It is in this particular that this case differs from Thorne v. Deas (4 Johns. 84, 99) so much relied upon by the defendant. In that case A and B were joint owners of a vessel. A voluntarily undertook to get the vessel insured but neglected to do so. The vessel having been lost at sea it was held that no action would lie against A for the non-performance of his promise, although B had relied upon that promise to his loss. It was said that there was no consideration for the promise. In that case there was the mere naked promise of A that he would insure the vessel. B parted with nothing to A. He gave up possession of none of his property to A, nor of any [483] interest in his vessel. The case would have been decided differently, no doubt, if he had. As Chancellor KENT said in referring to the earlier cases: "There was no dispute or doubt, but that an action upon the case lay for a misfeasance, in the breach of a trust undertaken voluntarily."

    22

    The same may be said regarding the case of Brawn v. Lyford (103 Me. 362).

    23

    In the case of Rutgers v. Lucet (2 Johns. Cas. 92, 95) the law on this point was stated to be as follows:

    24

    "A mere agreement to undertake a trust, in futuro, without compensation, it is true, is not obligatory; but when once undertaken, and the trust actually entered upon, the bailee is bound to perform it, according to the terms of his agreement. The confidence placed in him, and his undertaking to execute the trust, raise a sufficient consideration; a contrary doctrine would tend to injure and deceive his employer, who might be unwilling to consent to the bailment on any other terms."

    25

     

    26

    In Hammond v. Hussey (51 N. H. 40, 50) the court, quoting Professor Parsons, says: " If a person makes a gratuitous promise, and then enters upon the performance of it, he is held to a full execution of all he has undertaken."

    27

    Where one had gratuitously undertaken to carry the money of a bailor to a certain place and deliver it to another and after receiving the money the bailee gave it to a neighbor who undertook to make delivery and lost it, it was held that the bailee had violated his trust in handling the money, that he was guilty of gross negligence in not fulfilling the terms of the bailment. (Colyar v. Taylor, 41 Tenn. 372; Van Zile on Bailments & Carriers, § 98; Davis v. Gay, 141 Mass. 531, 534; Isham v. Post, 141 N. Y. 100, 106; Glanzer v. Shepard, 233 N. Y. 236; 6 Ruling Case Law, p. 656, § 67)

    28

    From this aspect of the case we think there was a consideration for the agreement to insure. This renders [484] it unnecessary to determine whether the plaintiff in refraining from insuring through his own agent at the suggestion of McGrath surrendered any right which would furnish a consideration for McGrath's promise.

    29

    I find that Thome v. Deas (supra) has been seldom cited upon this question of consideration and whether or not we would feel bound to follow it to-day must be left open until the question comes properly before us.

    30

    As to McGrath's authority to act in this matter, we do not find the point raised by any sufficient exception. For the reasons here stated, the judgment must be affirmed, with costs.

    31

    HISCOCK, Ch. J., HOGAN, CARDOZO, POUND, MCLAUGHLIN and ANDREWS, JJ., concur.

    32

    Judgment affirmed.

  • 3 3.7.2.2 Notes - Siegel v. Spear & Co.

    1

    NOTE

    2

    1. See Shattuck, Gratuitous Promises — A New Writ?, 35 Mich. L. Rev. 908 (1937); Seavey, Reliance on Gratuitous Promises and Other Conduct, 64 Harv. L. Rev. 913 (1951).

    3

    Could plaintiff's lawyer have avoided the risk of losing his client's case on the consideration issue by bringing a tort action? Consult Colonial Savings Assn. v. Taylor, 544 S.W.2d 116 (Tex. 1976) and Restatement of Torts Second §323 (1965).

    4

    2. In Hazlett v. First Federal Savings & Loan Ass'n, 14 Wash. 2d 124, 127 P.2d 273 (1942), the court considered the application of §90 and observed that every illustration following that section deals with a promise inducing affirmative action on the part of the promisee. "Surely, forbearance was not intended to include the mere passive failure of the promisee to procure elsewhere, or by other means, the service as the thing promised. If so it would be difficult to imagine a promise which would not be supported by some sort of 'forebearance' consideration." Id. at 131, 127 P.2d at 277. Do you agree? Is the same not true of affirmative action taken in reliance? Goetz & Scott, Enforcing Promises: An Examination of the Basis of Contract, 89 Yale L.J. 1261, 1267-1270, 1291 (1980).

    5

    3. Early cases draw a sharp distinction between misfeasance and nonfeasance in determining the liability of a gratuitous promisor. Comfort v. McCorkle, 149 Misc. 826, 268 N:Y.S. 192 (1933); Wilkinson v. Coverdale, 1 Esp. 73, 170 E.R. 284 (1793); Thorne v. Deas, 4 Johns. 84 (N.Y. 1809), discussed in Seavey, Reliance upon Gratuitous Promises and Other Conduct, 64 Harv. L. Rev. 913 (1951). See also Cardozo's opinion in Barile v. Wright, 256 N.Y. 1, noted in 26 Ill. L. Rev. 916 (1932). The Restatement of Torts Second §323 expresses no opinion as to whether nonfeasance of a gratuitous promise is sufficient to impose liability. The Restatement of Agency Second §378 does not distinguish between misfeasance and nonfeasance. The Comments to that section suggest, however, that a gratuitous agent may be liable either in tort or for breach of contract under §90. See Comments a and e.

    6

    For a case that holds a gratuitous promisor liable for nonfeasance, see Spiegel v. Metropolitan Life Ins. Co., 6 N.Y.2d 91, 188 N.Y.S.2d 486 (1959). See also the Lusk-Harbison-Jones case that follows.

    7

    4. In Dufton v. Mechanicks National Bank, 95 N.H. 299, 62 A.2d 715 (1948), noted in 62 Harv. L. Rev. 1069 (1949), the court held a promisor liable for failure to procure insurance by implying a promise on the part of the promisee to pay the premium. By implying a promise, the court created a bilateral contract and thereby avoided the problems associated with gratuitous promises.

    8

    5. The enforcement of gratuitous promises to obtain insurance has been explained on the grounds that the promisee would have attained similar insurance from someone else if the promise had not been made. "In this case, the opportunity cost of acceptance of a promisor's representations that designated property would be insured or safeguarded is equal to the entire loss if the risk materializes after the promise is broken." Goetz & Scott, Enforcing Promises: An Examination of the Basis of Contract, 89 Yale L.J. 1261, 1318 (1980). Judicial reluctance to impose liability in such cases is probably attributable to great disparity between the amount of the promisee's reliance loss and the value of the promise. Id. at 1317 n.158. Note that the Restatement of Agency Second §378 imposes a duty of care on a gratuitous agent when the gratuitous promise "causes the [promisee] to refrain from having such acts done by other available means," and the duty of care ceases if the promisor gives notice that he will not perform "while other means are available." See Seavey, Reliance Upon Gratuitous Promises or Other Conduct, 64 Harv. L. Rev. 913 (1951). If the promisee could not have paid the premium at the time the promise was made, could he still recover? See East Providence Credit Union v. Geremia, 103 R.I. 597, 239 A.2d 725 (1968) (the court relied on §90, but also found consideration for the promise).

    9

    6. Should the amount of the premium be deducted from the award to the promisee? See Eisenberg, Donative Promises, 47 U. Chi. L. Rev. 1, 30 (1979):

    10

    A final problem is the treatment of benefits received under a relied-upon donative promise. If the benefits are financial or tangible, and damages are measured by reliance, the amount of the benefits should normally be de- ducted from the recovery. For example, suppose A makes a donative promise to buy on B's behalf fire insurance covering B's goods, B accordingly forbears from insuring the goods himself, A does not buy the policy, and the goods are destroyed by fire. If the goods had been insured, the premium would have been $50 and the insurance company would have paid $2000 to make good B's loss. B's damages against A should be, not $2000, but $1950, his net proceeds had he insured the goods himself.

  • 4 3.7.3.1 Lusk-Harbison-Jones, Inc. v. Universal Credit Co.

    1

    145 So. 623

    2
    LUSK-HARBISON-JONES, INC.
    v.
    UNIVERSAL CREDIT CO.
    3

    (Division B. Jan. 30, 1933.)
    No. 30351.

    4

    APPEAL from circuit court of Washington county.

    5

    HON. S. F. DAVIS, Judge.

    6

    Action by the Universal Credit Company against Lusk-Harbison-Jones, Inc. Judgment for plaintiff, and defendant appeals. Reversed and remanded.

    7

    Percy, Strauss & Kellner, of Greenville, for appellant.

    8

    It is settled law of this state that where one of the parties to a contract assumes an additional obligation not required by the original contract, such assumption is void unless there is a legal consideration therefor.

    9

    H. B. Owen Tie Co. v. Bank of Woodland, 114 Miss. 136.

    10

    A subsequent oral agreement to modify, abandon or rescind a prior written contract is valid and proof thereof does not violate the parol evidence rule, especially where the subsequent agreement is acted upon.

    11

    3 Jones on Evidence (2. Ed.), sec. 1500; Mackie & Co. v. Dale & Co., 122 Miss. 430.

    12

    Except in the case of contracts for the benefit of third persons an agreement by the parties to a contract to rescind their contractual duties or duties to make compensation, discharges such duties if the agreement is under seal, or is based on sufficient consideration, or induces such a change of position as is stated in section 90; but otherwise is operative only in cases within the rules stated in sections 410-416.

    13

    2 Restatement of the Law of Contracts, page 765 sec. 406.

    14

    A promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

    15

    1 Restatement of the Law on Contracts page 110 sec 90.

    16

    Farish, Bell & Felts, of Greenvillle, for appellee.

    17

    In this case we have not a general contract of bailment, but we have a special bailment contract, whereby the defendant undertook to store the automobiles at its sole risk as to loss or injury. The obligations of the defendant, in this special contract of bailment, were fixed by the contract itself, the contract in this case being the receipt executed. By the terms of these receipts the defendant undertook and agreed to store and keep the automobiles at its sole risk as to loss or injury.

    18

    The plaintiff reframed from taking possession of the automobile and left them with the defendant so that they could be sold to the best advantage to the defendant. The plaintiff could have sold them immediately and the defendant would have then been liable for the full amount of the deficiencies.

    19

    There is a sufficient consideration for a promise if there be any benefit to the promisor or any loss, detriment. Or inconvenience to the promisee. The consideration is sufficient if the person to whom the promise is made retrains from doing anything which he has the right to do, whether there be any loss to him or actual benefit to the party making the promise or not.

    20

    13 C. J., par. 150, p. 316; Lawson on Contracts (2 Ed.), pars. 98,99, pp. 1161, 117; Miller v. Bank of Holly Springs, 131 Miss. 56, 95 So. 192.

    21

    The testimony for the defendant that employees or agents of the plaintiff said that it was not necessary to insure the automobiles could not relieve the defendant of its liability under this special contract of bailment, for the reason that a written contract cannot be varied by parol.

    22

    Confidential Pamphlet B did not supersede the special contract of bailment entered into, for it had reference not to any special contracts theretofore made by plaintiff with others, but attempted only to outline future dealings between plaintiff and those from whom it purchased conditional sales contracts.

    23

    Argued orally by Ernest Katiner, for the appellant.

    24

    Griffith, J., delivered the opinion of the court.

    25

    During the years herein mentioned, appellant was the authorized agent for Ford automobiles at Leland and adjacent territory. Appellee is a dealer in automobile paper; that is to say, it advances the cash to' the local distributors of automobiles on the conditional sales contracts and notes of the purchasers evidencing deferred installment payments. It would appear from the record that appellee is a subsidiary of the Ford company. In any event, it works in close connection with that company and its local distributors. In 1929 three, and in 1930, two, sales contracts were purchased by appellee from appellant. Under these contracts appellant guaranteed the payment of the full amount of the installments. At different times during the latter part of 1930 default in the installment payments were made by the purchasers under each of the five conditional sales contracts, and, by authority of the terms thereof the five automobiles were repossessed.

    26

    There was no available market for these repossessed cars, and it was deemed to be to the best interest of both the parties hereto that appellant should repair and recondition the cars and hold them in its possession until the times might improve and a more favorable market condition might be found for resale. The cars were therefore allowed by appellee to be repaired and reconditioned by appellant and thereupon to remain in appellant's possession, but appellant was required to execute and did execute a written agreement for each of the five repossessed cars confirming the fact that the title was and remained in appellee, and that appellant had taken and would hold the automobiles for appellee but at appellant’s "sole risk as to all loss or injury." Nothing was said in the said written agreement about insurance.

    27

    In October, 1931, while still in appellant's possession the five automobiles were destroyed by a nonnegligent fire. Appellant had no insurance on the five cars, and it is the claim of appellee that it had none. Appellee thereupon sued appellant for the balance due on the five vehicles, and recovered judgment.

    28

    Effective on January 1, 1931, appellee had issued to Ford distributors what is termed Confidential Pamphlet B. In this pamphlet there is contained the following paragraph:

    29

    "Dealer Protection on Repossessed Cars: In cases where a car is repossessed by the dealer and/or U C C, insurance protection for the dealer's interest will continue in force from the date of physical possession until the account is liquidated, after which the dealer should provide such coverage as he may require."

    30

    After this pamphlet came out, the matter of insurance was the subject of interviews between appellant and the authorized representatives of appellee, and on each occasion, when discussed, appellant was advised by these agents of appellee that appellant should not carry or attempt to carry any insurance on these repossessed cars; that appellee would carry the insurance and that this was one of the purposes of pamphlet B to announce. The proof of these statements, representations, and advice to appellant by the agents of appellee was received without any objection by appellee, nor was any intimation advanced that these agents were not authorized in the premises.

    31

    Appellee contends that the representations or statements of its agents, as above mentioned, are of no force here for three asserted reasons: First, that pamphlet B did not apply to sales and sales contracts upon which defaults had occurred or where the repossession had taken place prior to January 1, 1931; and, second, that the statements and representations of appellee's agents that appellant should not take insurance and that appellee was carrying and would continue to carry insurance on the repossessed cars here involved are not to be allowed to be effective, because this would modify by oral evidence the previous written agreement between the parties that appellant would hold the cars at appellant’s "sole risk as to all loss or injury;" and, third, that such a modification would be without any consideration to support it.

    32

    As to appellee's first contention, pamphlet B is not clear and free from doubt upon an examination of its entire contents that it refers only to sales and sales contracts made on and after January 1, 1931. But, if otherwise, that question is absorbed in what is said in respect to the second contention, as to which second contention we have only to apply the rule, well settled generally and in this state, that a subsequent oral agreement to modify a prior written contract is valid and proof thereof does not violate the parol evidence rule, especially where the subsequent agreement is acted upon. 3 Jones on Evidence (2 Ed.), section 1500 et seq., and authorities there cited. Moreover, we have already called attention to the fact that the written agreement relied on by appellee makes no mention of insurance.

    33

    Upon the third point that no consideration is shown for the alleged agreement that appellee would carry the insurance, we bottom our conclusion upon the fact that appellant acted upon the statements made by appellee that the latter had the insurance and would continue to carry it; a very reasonable course on the part of appellant and about which if appellant had acted otherwise there might have arisen the question of unauthorized double concurrent insurance on the same property, and upon the well-recognized principle applicable to such a situation, which has been summarized in A. L. I. Restatement of the Law of Contracts, vol. 1, p. 110, as follows:

    34

    "A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does il1duce such action and forbearance is binding if injustice can be avoided only by the enforcement of the promise."

    35

    We are mindful that the principle just stated is one to be applied with caution and only when the facts are well within it; but here the parties had each an insurable interest in the property, and the evidence in the record is not only to the effect that appellee's agents after January 1, 1931, represented that appellee had the insurance, but the statements and representations made were equivalent to a promise to continue that insural1ce in force; and the promisee having reasonably relied thereon, the promise can only be enforced by casting the loss on the promisor, if, in fact, the promisor contrary to the promise carried no insurance.

    36

    Reversed and remanded.

  • 5 3.7.4.1 Fisher v. Jackson

    1
    142 Conn. 734 (1955)
    2
    GEORGE A. FISHER
    v.
    JOHN D. JACKSON
    3

    Supreme Court of Connecticut.

    4
    Argued October 11, 1955.
    5
    Decided November 15, 1955.
    6

     

    7

    INGLIS, C. J., BALDWIN, O'SULLIVAN, WYNNE and DALY, JS.

    8

    [735] Curtiss K. Thompson, with whom was John H. Weir, for the appellant (defendant).

    9

    Charles G. Albom, with whom, on the brief, were Nelson Harris and Joseph R. Apter, for the appellee (plaintiff).

    10

    WYNNE, J.

    11

    The plaintiff instituted this action to recover damages for the breach of an oral agreement of employment. The defendant has appealed from the judgment rendered upon a plaintiff's verdict. The questions presented are whether the court was in error in denying the defendant's motion to set the verdict aside on the ground that it is not supported on the issue of liability, and in denying the defendant's motion for judgment notwithstanding the verdict.

    12

    The substituted complaint alleged that the defendant, through his authorized agent, induced the plaintiff to give up his employment with a firm of bakers, where he was making $50 per week, and to enter upon employment as a reporter, for $40 per week, under [736] an oral contract that the employment would be for the life of the plaintiff or until he was physically disabled for work, with a yearly increase in salary of $5 per week. The defendant's contention is that there was no evidence that the parties had agreed upon such a contract. The defendant's claim is that the job under discussion was a permanent one rather than for a definite term and was terminable at will by either party.

    13

    In the absence of a consideration in addition to the rendering of services incident to the employment, an agreement for a permanent employment is no more than an indefinite general hiring, terminable at the will of either party without liability to the other. Carter v. Bartek, 142 Conn. 448, 450, 114 A.2d 923, and cases there cited.

    14

    The plaintiff was hired by the defendant's managing editor in January, 1944, and went to work as a reporter for the New Haven Register, a newspaper owned by the defendant. He was discharged on or about January 7, 1949. The contact between the parties began with a notice which was put in a trade magazine by the defendant, just prior to the admitted hiring of the plaintiff. That advertisement set forth that a "permanent position" as a reporter awaited an "all-around male newsman with experience on several beats and educational background that [would stand] up in a University city." The plaintiff wrote a letter in response to the advertisement and as a result was interviewed by the defendant's managing editor for about ten minutes and was thereafter hired. Whether or not the plaintiff was an "all-around newsman" with experience on several beats and with an educational background, however nebulous, that would stand up in a university city nowhere appears. The managing editor, [737] who was the only other party to the interview, was deceased at the time of the trial. The plaintiff, in his letter seeking an interview, had written that he was looking for a connection which, "in the event my services are satisfactory, will prove permanent." So it must be quite apparent that the significant thought expressed was in his mind during his brief interview with the defendant's managing editor. It seems clear to us that the negotiations amounted to nothing more than the hiring of a reporter for a job which was permanent in the sense that it was not a mere temporary place. The hiring was indefinite as to time and terminable by either party at his will.

    15

    There is no occasion to discuss at length the claim advanced by the plaintiff that special consideration moved to the defendant because the plaintiff gave up his job with the bakery firm. The plaintiff did no more than give up other activities and interests in order to enter into the service of the defendant. The mere giving up of a job by one who decides to accept a contract 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. Chesapeake & Potomac Telephone Co. v. Murray, 198 Md. 526, 533, 84 A.2d 870; Minter v. Tootle, Campbell Dry Goods Co., 187 Mo. App. 16, 28, 173 S.W. 4; Adolph v. Cookware Co., 283 Mich. 561, 568, 278 N.W. 687.

    16

    The plaintiff argues that he suffered a detriment by giving up his job. To constitute sufficient consideration for a promise, an act or promise not only must be a detriment to the promisee but must be bargained for and given in exchange for the promise. Lynas v. Maxwell Farms, 279 Mich. 684, 688, 273 N.W. 315; Edwards v. Kentucky Utilities Co., 286 [738] Ky. 341, 346, 150 S.W.2d 916; Heideman v. Tall's Travel Shops, Inc., 192 Wash. 513, 516, 73 P.2d 1323; Restatement, 1 Contracts § 75. In the present case, the plaintiff's giving up of his job at the bakery was not something for which the defendant bargained in exchange for his promise of permanent employment. Nowhere in the plaintiff's testimony does it appear that the defendant's agent even suggested that the plaintiff give up the job he had with the bakery firm, much less that the agent induced him to do so. It would thus appear that there was not even a semblance of a claim that the giving up of the plaintiff's job was consideration for any promise that may have been made by the defendant's agent.

    17

    Practice Book, § 234, provides that a trial court under certain circumstances can direct a judgment notwithstanding the verdict or order a new trial. We are faced with the question in the present case whether the court erred in not adopting one or the other of these alternatives. Under the rule, action upon a motion for judgment notwithstanding the verdict is, in part, postponed action upon a motion for a directed verdict. Accordingly, the first test to be applied to a court's action upon a motion for judgment notwithstanding the verdict is the determination whether a direction of the verdict in favor of the defendant would have been proper. On the evidence in the present case, there was no basis for a verdict in favor of the plaintiff.

    18

    Inasmuch as the contract of employment which was proved would not in any event warrant a judgment in favor of the plaintiff, even though the case were retried, the court should have directed judgment for the defendant notwithstanding the verdict. Robinson v. Southern New England Telephone Co., 140 Conn. 414, 421, 101 A.2d 491.

    19

    [739] There is error, the judgment is set aside and the case is remanded with direction to render judgment for the defendant notwithstanding the verdict.

    20

    In this opinion the other judges concurred.

  • 6 3.7.4.2 Notes - Fisher v. Jackson

    1

    NOTE

    2

    Compare Millsap v. National Funding Corp., 57 Cal. App. 2d 772, 776, 135 P.2d 407 (1943):

    3

    Where the prospective employee clearly states to his prospective employer, as in the case before us, that he will not give up his present employment unless the prospective employer will agree to give him permanent employment and the prospective employer expressly agrees to those terms, it seems clear that the prospective employee (to paraphrase the language of section 1605 Civil Code) in giving up his present employment suffers a prejudice as an inducement to the promisor for his promise of permanent employment. "It is not necessary to the existence of a good consideration that a benefit should be conferred upon the promisor. It is enough that a 'prejudice be suffered or agreed.to be suffered' by the promisee." (6 Cal.  Jur. 171.)

    4

     

    5

    On the other hand, in Forrer v. Sears Roebuck & Co., 36 Wis. 2d 388, 153 N.W.2d 587 (1967), where the plaintiff alleged that he gave up his farming operation at a loss on the strength of the defendant's promise to provide him with permanent employment, the court held that although it "would not hesitate to apply the doctrine of promissory estoppel under these facts if justice required it . . . [j]ustice . . . does not require the invocation of the doctrine, for the promise of the defendant was kept, and this court is not required, therefore, to enforce it." Id. at 392, 153 N.W.2d at 589. The court went on to point out that the presumption that a contract for permanent employment is terminable at will is based on public policy grounds, and laid down the rule that "a permanent employment contract is terminable at will unless there is additional consideration in the form of an economic or financial benefit to the employer. A mere detriment to the employee is not enough." Id. at 394,153 N.W.2d at 590.

  • 7 3.7.5.1 Underwood Typewriter Co. v. Century Realty Co.

    1

    119 S.W. 400
    220 Mo. 522

    2
    UNDERWOOD TYPEWRITER CO.
    v.
    CENTURY REALTY CO.
    3

    Supreme Court of Missouri.
    May 22, 1909.

    4

    1. LANDLORD AND TENANT (§ 76)—CONSENT TO ASSIGNMENT OF LEASE—CONSIDERATION —UNILATERAL CONTRACT—PERFORMANCE OF PROMISE.

    5

    Plaintiff's lease prohibited assignment without the lessor's written consent. The lessor promised in writing to give such consent on plaintiff's obtaining an acceptable tenant. Held that, plaintiff in reliance on such promise having spent time and labor in securing an acceptable tenant, plaintiff's act in so doing constituted a sufficient consideration for defendant's formal unilateral promise.

    6

    2. CONTRACTS (§ 10)—MUTUALITY OF OBLIGATION—UNILATERAL CONTRACT.

    7

    Mutuality of obligation is not an essential element of a unilateral contract.

    8

    Valliant, C. J., and Woodson and Burgess, JJ., dissenting.

    9

    In Banc. Case Certified from St. Louis Court of Appeals.

    10

    Action by the Underwood Typewriter Company against the Century Realty Company. A judgment for defendant was reversed on plaintiff's appeal (118 Mo. App. 197, 94 S. W. 787), and the case was transmitted to the Supreme Court by reason of a division in the Court of Appeals. Reversed and remanded.

    11

    This case originated in the circuit court of the city of St. Louis, and had for its object the recovery of $4,500 damages, alleged to have been sustained by plaintiff because of a breach of written permission, whereby the latter was authorized to sublet certain floor space in defendant's building, which plaintiff had leased from defendant.

    12

    The petition was in the following language (omitting caption):

    13

    "Now comes the plaintiff in the above-entitled cause, and, by leave of court first had and obtained, files this its second amended petition herein, and for cause of action states that it is a coporation duly organized and existing under and by virtue of the laws of the state of New Jersey. That the defendant is a corporation organized and existing under and by virtue of the laws of the state of Missouri. That the plaintiff was formerly known as the 'Wagner Typewriter Company,' but it has duly changed its name to 'Underwood Typewriter Company.' That defendant, Century Realty Company, is the successor of the Century Building Company. That on the 5th day of December, 1900, plaintiff entered into an agreement in writing with said Century Building Company, whereby plaintiff leased the space known as No. 309 North Ninth street in the city of St. Louis, state of Missouri, and certain space appurtenant thereto, for a period of five (5) years [119 S.W. 401] beginning on the 1st day of February, 1901, and ending on the 31st day of January, 1906. That plaintiff thereupon entered into possession of said premises. That said agreement provided, among other things, that neither said premises nor any part thereof should be assigned or underlet without the written consent of defendant indorsed thereon. That plaintiff secured from defendant its written agreement to give its written consent to an assignment of said lease to an acceptable tenant. That, relying upon said written agreement, plaintiff, with the knowledge of defendant, expended a large amount of time and labor in securing an acceptable and satisfactory tenant for the space embraced in said lease, and did secure such tenant for said space. That, notwithstanding the fact that plaintiff had procured an acceptable tenant for said space, defendant refused and still refuses to consent to the assignment of said lease and to permit said tenant to enter into the possession of said premises, though often requested to do so. That, by reason of defendant's refusal to consent to said assignment of said lease as aforesaid, plaintiff was and is prevented by defendant from securing such tenant at a large advance over the rent reserved by defendant under said lease, to its damage in the sum of four thousand five hundred ($4,500) dollars. Wherefore, plaintiff prays judgment for four thousand five hundred ($4,500) dollars."

    14

    To this petition the defendant filed a general demurrer, which was by the trial court sustained. The plaintiff declined to plead further, and judgment was rendered for the defendant. From that judgment the plaintiff appealed to the St. Louis Court of Appeals. By a divided court the judgment of the circuit court was reversed and the cause remanded. Bland, P. J., filed a dissenting opinion for the reasons therein stated, and the cause was for that reason transferred to this court under the mandate of the Constitution.

    15

    Jno. B. Denvir, Jr., and Carter, Collins & Jones, for appellant. Dawson & Garvin, for respondent.

    16

    WOODSON, J. (after stating the facts as above).

    17

    1. By reading this petition it will be seen that the respondent leased to appellant certain floor space in the Century Building for a period of five years, with a clause therein prohibiting the latter from assigning or subletting the premises without written permission. The petition then charges respondent agreed to give its consent to appellant to assign said lease to an acceptable tenant, but subsequently refused to consent to said assignment, notwithstanding respondent had procured an acceptable tenant; and that, relying upon said agreement, it had expended a large amount of time and labor, with the knowledge of respondent, in securing said tenant. The petition then states plaintiff had been damaged in the sum of $4,500. The demurrer challenges the sufficiency of the allegations of the petition to constitute a cause of action against the respondent.

    18

    The petition does not allege that appellant paid or agreed to pay respondent any sum whatever in consideration for the permit to appellant to assign the lease. If that was the extent of the agreement between them, then clearly the agreement would be void for want of consideration to support it. Realizing that infirmity in the so-called agreement, the appellant undertakes to strengthen and cure that defect by alleging that it relied upon the agreement, and with the knowledge of respondent it expended a large amount of time and labor in securing an acceptable tenant for the former. There can be no question but what the expenditure of time and labor, in pursuance to a contract, constitutes a valid consideration therefor, and, if otherwise valid, its validity will be upheld by the courts. That rests upon hornbook law, and as far back as the case of Marks v. Bank, 8 Mo., loc. cit. 319, this court, in speaking through Scott, J., used this language: "It is unnecessary that the consideration should be adequate in point of actual value, the law having no means to decide upon this matter. If the least benefit or advantage be received by the promisor from the promisee or a third person, or if the promisee sustain any, the least, injury or detriment, it will constitute a sufficient consideration to render the agreement valid." While the case in which that language was used has been practically overruled in some of the later cases, yet none of them question the soundness of the principle of law enunciated in those words. Wiley v. Hight, 39 Mo. 130; Wild v. Howe, 74 Mo., loc. cit. 553.

    19

    But that principal of law falls far short of healing the imperfection before pointed out in the appellant's case, for the reason that that rule does not apply except in bilateral contracts, where there is a promisor and promisee. In the case at bar the promise of respondent to permit appellant to assign the lease was unilateral, and was without consideration of any kind to support it. The appellant never at any time, even down to the time of bringing this suit, agreed to find or furnish respondent a suitable tenant; and if appellant had at any time, or even now should withdraw its tender of such tenant, clearly the respondent would have no cause of action against the former for said refusal or withdrawal, for the obvious reason that it never agreed to do so. According to the allegations of the petition, the appellant was under no legal or moral obligation to find for respondent a suitable tenant for the occupancy of the floor space in question.

    20

    For the purpose of illustration, let us suppose a farmer should enter a shoe store and ask the proprietor thereof if he would take a cord of hickory wood for a certain designated [119 S.W. 402] pair of shoes, and in reply thereto the proprietor should say, "Yes," and without more the farmer should turn and walk from the store without agreeing to take the shoes or to furnish the wood, and he should then return home and chop a cord of hickory wood, load it upon his wagon, haul it to town, drive up to the store, and say to the proprietor that he had chopped the wood, hauled it in for him, and demand the shoes in consideration of and in payment for the wood; and in reply thereto suppose the merchant had said to the farmer that he was sorry, but he could not deliver the shoes to him, for the reason that he had sold them during the time which had elapsed between the first conversation and the time when the wood was hauled to town and tendered to the merchant—could it be seriously contended that the farmer would have a cause of action against the merchant for breach of contract for his failure to deliver the shoes? I think not, for the reason the farmer never agreed to take the shoes, or to cut, haul, and deliver the wood in exchange for them. Such a contract, if it may be so called, would clearly be unilateral in character, and the subsequent tender of the wood would not change the agreement into a bilateral contract. The tender of the wood could not perform the twofold office of furnishing a consideration for the contract, and at the same time constitute an agreement to accept the shoes, which had never been done before. And the same is true as regards the case at bar. The finding of a suitable tenant could not perform the twofold function of furnishing a consideration to support the promise of the Century Realty Company to agree to subletting of the floor space to such tenant, and at the same time constitute an agreement on the part of the typewriter company to furnish such tenant, which, confessedly, it has never done down to this date in any mode or manner whatsoever.

    21

    The principle announced in the majority opinion is too far-reaching and startling in its effect. Under that holding no merchant or property owner could safely answer a question as to what he would take for a certain article or piece of property, for, if he should do so, he would be liable at any time within the period prescribed by the statute of frauds to be called upon to deliver the property to the party who asked the question, and be subjected to an action for damages for breach of contract for failure to deliver the property, if for any reason he should see proper to decline to deliver it, even though he had disposed of it in the meantime.

    22

    It should be borne in mind that the promise of the realty company was not made for its benefit, but was made solely for the benefit of the typewriter company, and there was, of course, no occasion for appellant to make a promise of any kind to furnish a tenant for the respondent, and if the allegations of the petition are true, then no such promise was in fact ever made. Quite a different proposition would have been presented had the petition alleged appellant agreed to secure the tenant, and that in pursuance to that agreement it had procured an acceptable tenant, at an expenditure of a large amount of time and labor; but, as before stated, no such allegation is found in the petition, nor is any such idea hinted at therein.

    23

    2. I am also clearly of the opinion that the demurrer was properly sustained upon another ground, and that is this: The petition charges, "that notwithstanding the fact that plaintiff had procured an acceptable tenant for said space, defendant refused and still refuses to consent to the assignment of said lease and to permit said tenant to enter into the possession of said premises, though after requested to do so." According to the contract pleaded, plaintiff was required to furnish a tenant to defendant who was acceptable to the latter, which, of course, was personal to it, and under the contract the defendant alone had the right to determine who was an acceptable tenant, and no one else could determine that question for it. Now, the allegation of the petition is that plaintiff "procured an acceptable tenant for said space," but fails to charge that it was acceptable to defendant, or that defendant had informed plaintiff that the tenant so procured was acceptable to it. In other words, the petition pleads a conclusion—that is, that the tenant was acceptable—and not facts which show the tenant was acceptable to defendant. It is elementary that such pleading is bad, and that a demurrer thereto admits as true only the facts pleaded, and which are well pleaded. Knapp, Stout & Co. v. City of St. Louis, 156 Mo. 345, 56 S. W. 1102; Warder v. Evans, 2 Mo. 205; Plant Seed Co. v. Michel Plant & Seed Co., 23 Mo. App. 579.

    24

    I am, therefore, of the opinion that the action of the trial court in sustaining the demurrer to the petition was proper, and that the judgment of the St. Louis Court of Appeals reversing the judgment of the circuit court is erroneous.

    25

    VALLIANT, C. J. and BURGESS, J., concur.

    26

    LAMM, J.

    27

    This case is here from the St. Louis Court of Appeals on the dissent of Judge Bland. 118 Mo. App. 197, 94 S. W. 787. The majority opinion of that court reversed the judgment of the circuit court sustaining a demurrer to the petition, and remanded the case to be tried on its merits. We think the majority opinion is soundly reasoned on both principle and precedent. It should be read in connection with this; for we shall not restate its reasoning, but rest content with adopting it, only supplying [119 S.W. 403] a sufficient statement here to make this opinion intelligible, and adding some observations of our own.

    28

    The statement: Plaintiff was tenant of defendant in possession under a written lease for a five-year term beginning on the 1st day of February, 1901, and ending on the last day of January, 1906. The lease provided, inter alia, that plaintiff could not assign or underlet without the written consent of defendant indorsed on it. Thereafter plaintiff and defendant entered into a written agreement to the effect that defendant would give its written assent to an assignment of the lease to an acceptable tenant. The petition pleads the lease, the provision against assigning or subletting, and the subsequent written agreement to give consent in writing to an acceptable tenant; and then states, in substance, that plaintiff, in reliance on said written agreement, with the knowledge of defendant, expended a large amount of time and labor in securing an acceptable and satisfactory tenant, and did secure such tenant, but that, notwithstanding that fact, defendant refused and still refuses to consent to the assignment of said lease and to permit said tenant to enter into the possession of said premises, though often requested to do so; that by reason of defendant's refusal to consent to said assignment of said lease plaintiff was and is prevented by defendant from securing such tenant at a large advance over the rent reserved by defendant under said lease, to its damage in the sum of $4,500. Wherefore, etc. The circuit court sustained a general demurrer to the petition. Thereat plaintiff stood on its petition, and, refusing to plead over, judgment went on the demurrer. From that judgment plaintiff appealed to the court of appeals, with the result indicated. When the case came here it was assigned to Division 1, and there argued and submitted. That division was evenly divided, and the cause came into banc. So much by way of statement.

    29

    The observations: True, the typewriter company was not bound to do anything under the written agreement. True, it was executory only, and may be called in a sense a nude pact as born. True, defendant realty company could at no time have sued the typewriter company on that agreement for failure to perform. Why should it sue? It already had a tenant in the person of the typewriter company. It wanted no other. But mutuality, in its essence, is but a phase, strictly speaking, of the consideration that will support a contract. It is not the only phase. If mutuality, in a broad sense, was held to be an essential element in every valid contract, to the extent that both contracting parties could sue on it, there could be no such a thing as a valid unilateral or option contract, or a contract evidenced by a subscription paper, or a contract to enforce a reward offer, or a guaranty, or in many other instances readily put in ordinary business affairs. The contract sued on in this case was made for the benefit of the typewriter company. It could furnish an acceptable tenant to defendant to take its place, or let it alone. In that respect it does not differ from many contracts, the breach of which is actionable at the option of the promisee.

    30

    Being in writing, and signed by the party to be charged, it was not obnoxious to the statute of frauds. Being fully performed by the promisee, it was no longer a nude pact, but became clothed with a consideration executed on request. That performance, on the strength of the offer made, having been accomplished at an outlay of time and labor on the part of the offeree or promisee, with defendant's knowledge as alleged in the petition, makes it enforceable against the offerer or promisor so long as both parties were capable of contracting and their contract be not vitiated by fraud or as against good morals or public policy.

    31

    We take it as good doctrine worthy of all acceptance that it is the primary duty of courts to enforce contracts, not to abrogate them. A contract (such as this) between two parties not in fiduciary relation, but dealing at arm's length, free from taint of fraud, duress, or other form of overreaching or oppression, when performed by the promisee, comes into a court of justice entitled to every fair presumption of validity. Such a contract bespeaks, in the first instance, judicial diligence and astuteness to support the act of the party by the act and art of the law. To that extent, at least, those fine rules of personal honor obtaining between man and man, requiring one to keep his word with another, accord with the rules of law.

    32

    It is afield to point to the contract word "acceptable," and say that it would be illusory or unthinkable to suppose that its terms could be complied with by the plaintiff by its furnishing a tenant acceptable to the landlord. As to whether a landlord could stand on mere whim and caprice or some fanciful conceit in rejecting a party furnished by his tenant, under the contract sued on and the lease out of which it grew, we need not inquire. It is likely his refusal would have to stand on something better than mere caprice and whim. It is likely the law would compel such landlord to acquit himself by acting with reason, and that courts would hold that the contract implied he would so act. But in this case, as pointed out in the majority opinion in the court of appeals the petition says that the party furnished was acceptable. The demurrer assumes that allegation true; hence, for present purposes, it is true.

    33

    Discussing the question of mutuality, a law-writer, whose views are fortified by the weight due to a virile and a luminous mind, enriched with great research and strengthened [119 S.W. 404] by a profound grasp of legal principles, lays down the right doctrine to be: "But if, without any promise whatever, the promisee does the thing required, then the promisor is bound on another ground. The thing done is itself a sufficient and a completed consideration; and the original promise to do something, if the other party would do something, is a continuing promise until the other party does the thing required of him. A very large proportion of our most common contracts rest upon this principle." 1 Parsons on Contracts (9th Ed.) bottom p. 488.

    34

    In a learned note to American Cotton Oil Co. v. Kirk, 15 C. C. A. 543, Mr. Clark, author of Clark on Contracts, in speaking to the point, says:

    35

    "Again, contracts may be formed by the offer of a promise for an act and acceptance by performing the act, as where a man requests another to perform services for him, and the latter does so. The request is an offer of a promise to pay for the services, and performance of the services is an acceptance of the offer. This is described as consideration executed upon request. Here, also, the act of one party forms the consideration which supports the promise of the other. In these two cases one of the parties, in the formation of the contract, does all that he can be required to do, and there remains an outstanding obligation on the other side only. The contract is unilateral. It is obvious that in these cases the question of mutuality of obligation or contract cannot arise. The question is whether the act is such as to supply a consideration for the promise of the other party."

    36

    To illustrate, if Roe writes Doe: "If you loan Lowe your Jersey cow, I will see she is returned in good order." And, if Doe (relying) loan her to Lowe and she is not returned in good order, is Roe not liable to Doe?

    37

    If Box write Cox: "If you find my lost horses, Bucephalus and Rosinante, I will release the debt of $50 you owe me." And if Cox (relying) find and return Bucephalus and Rosinante, is his debt not paid to Box?

    38

    If Smith agree in writing with Jehu that he will pay him $100 if he drive from Jefferson City to Kansas City and return in four days, and Jehu presently (relying) drives it in four days, is not Smith liable?

    39

    If John agree in writing with Gambrinus that if the latter will not drink beer for a year he will pay him a sum certain, and if Gambrinus (relying) drink no beer for that year, is not John bound?

    40

    Yet in each of these cases neither Doe, Cox, Jehu, nor Gambrinus was bound to do anything. In each of them there was no consideration other than acceptance by actual performance on request. In the last two and the first no benefit accrued to Roe, Smith, or John. But in each of them there was a consideration (i. e., performance) moving from the promisee in the form of labor done and inconvenience and detriment suffered.

    41

    In an old case, Lindell v. Rokes, 60 Mo. 249, 21 Am. Rep. 395, Rokes agreed to pay Lindell $50 if he would not use intoxicating liquors and beer for one year. Lindell performed. Rokes refused to pay, and, being sued, set up a want of consideration as a defense. The learned judge deciding that case referred to the statute (Rev. St. 1899, § 894 [Ann. St. 1906, p. 830]) ordaining that: "All instruments of writing made and signed by any person or his agent, whereby he shall promise to pay to any other or his order, or unto bearer, any sum of money or property therein mentioned, shall import a consideration, and be due and payable as therein specified." But his reference to that statute was merely arguendo. The case was put on the reason of the thing, and the law was declared to be that: "It is true that the plaintiff did not undertake, in direct terms, to do anything when the note was made; but the prevailing doctrine now is that if one promise to pay another a sum of money if he will do a particular act, and he does the act, the contract is not void for want of mutuality, and the promisor is liable, though the promisee did not at the time of the promise engage to do the act; for upon the performance of the condition by the promisee the contract becomes clothed with a valid consideration, which relates back and renders the promise obligatory."

    42

    Referring to section 894, supra, it should be observed that it merely directs that the particular kind of contract within the purview of the lawmaker shall import a consideration; that is, a consideration need not be pleaded in the first instance. County of Montgomery v. Auchley, 92 Mo., loc. cit. 129, 4 S. W. 425. In other cases it is necessary to plead the consideration and prove it, whether by the contract or aliunde we need not consider, for in this case the contract states the promise and points the consideration, viz., the act of performance in furnishing an acceptable tenant. And in all cases on contracts it is open to the defendant to plead and prove a want or failure of consideration. Rev. St. 1899, § 645 (Ann. St. 1906, p. 664). In the case just quoted, the contract in evidence showed no consideration passed to the promisor, so that the law announced by the court became pertinent to that view of the case.

    43

    In another case (Williams v. Jensen, 75 Mo. 681), Stonebreaker, as principal, and Jensen, as surety, executed a note to Williams. Being sued on the note, Jensen contended he was released from liability on two grounds. One of them was an extension of time to the principal by a valid contract without his consent. It was held that the contract to extend was valid as supported by a sufficient consideration, hence Jensen [119 S.W. 405] was discharged as surety. The consideration for the extension agreement arose in this way: When the note was about due, Williams agreed with Stonebreaker he would extend the time to a date certain if Stonebreaker would get his wife to sign the note. Stonebreaker procured this to be done without his surety's knowledge or consent. The signature of Mrs. Stonebreaker was worthless, as the law then stood, she being a married woman with no separate estate, and Williams contended there was no consideration for the extension agreement. But this court, disallowing that contention, said: "Whatever may have been his motive, he agreed to extend the time of payment upon the condition that her husband would obtain her signature to the note; and the obtainment of her signature, though such signature be of no value to Williams, constitutes a sufficient consideration for his agreement to extend the time of payment. It is not always necessary that the consideration for a promise should be of some value to the promisor. Damage or inconvenience to the promisee is a sufficient consideration, and where the court can see that there may have been such inconvenience it will uphold the contract. It may have been an inconvenience for Stonebreaker to secure the signature of his wife, and, thus much appearing, the law will shut its eyes to the inequality between the consideration and the promise." At this point the court cites Lindell v. Rokes, supra. Continuing, the court said: "In Brooks v. Ball, 18 Johns. (N. Y.) 337, a promise to pay a certain demand if the claimant would swear to its correctness was enforced. Any trouble or labor, however slight, undertaken by one person at the request of another, will support a promise by such other person, although the trouble or labor be of no benefit to the promisor. Addison on Contracts (Morgan's Ed.) § 9; Clark v. Sigourney, 17 Conn. 511. Being of opinion that the agreement to extend the time of payment was supported by a sufficient consideration, the judgment, which was for the defendant, will be affirmed."

    44

    In a late case in banc (Strode v. Transit Co., 197 Mo., loc. cit. 622 et seq., 95 S. W. 851), to which we all agreed, our Brother Graves reviewed authorities and case learning on the question of consideration, and announced the right doctrine to be, as laid down in 6 Am. & Eng. Ency. of Law (2d Ed.) p. 689, viz., "If the promisee do any act to his injury, however slight, at the request of the promisor, either express or implied, the detriment sustained operates as a consideration."

    45

    Barclay, J., in Trustees of Christian Univ. v. Hoffman, 95 Mo. App., loc. cit. 495, 69 S. W. 475, with the concurrence of all his learned brethren, said: "But, apart from the inference of law arising under the above-mentioned statute" (Rev. St. 1899, § 894, supra), "it has been held that where such a promise as that under review has been made to an institution like that of the plaintiffs, and, before the promise is withdrawn, obligations have been created or expenses incurred by the promisee upon the faith of the promise, these facts furnish a consideration to support the original agreement, although, in the first instance, it may have partaken somewhat of the nature of a gift. Koch v. Lay, 38 Mo. 147; Pitt v. Gentle, 49 Mo. 74; Corrigan v. Detsch, 61 Mo. 290; School District v. Sheidley, 138 Mo. 672, 40 S. W. 656, 37 L. R. A. 406, 60 Am. St. Rep. 576." See, also, authorities collected in the principal opinion, 118 Mo. App. 197, 94 S. W. 787, and there applied.

    46

    But I have pursued the matter further than intended. The upshot of it all is the conclusion that the petition was good and the demurrer bad. Hence, the judgment of the circuit court should be reversed, and the cause remanded to be tried on its merits. It is so ordered.

    47

    GANTT, FOX, and GRAVES, JJ., concur. WOODSON, J., dissents in an opinion filed, in which VALLIANT, C. J., and BURGESS, J., concur.

  • 8 3.7.5.2 Notes - Underwood Typewriter Co. v. Century Realty Co.

    1

    NOTE

    2

    1. Consult Raedeke v. Gibraltar Savings & Loan Assn., 10 Cal. 3d 665, 517 P.2d 1157, 111 Cal. Rptr. 693 (1974).

    3

    2. Fisher and Brill are partners and together operate a flower shop. Fisher decides to withdraw from the business and set up a shop of his own in a nearby town. The landlord who owns the flower shop in which Fisher and Brill are currently doing business (Fried) agrees to release Fisher from any remaining obligations under the lease, and states that he will be "perfectly satisfied" if Brill assumes sole responsibility for it. Fisher pays Fried nothing for his release. Subsequently, after Fisher has moved away and Brill has defaulted on his rent payments, Fried recovers judgment against both Fisher and Brill for breach of contract. Fisher appeals from the judgment, invoking Section 90 of the Restatement. Result? See Fried v. Fisher, 328 Pa. St. 497, 196 A. 39, 115 A.L.R. 147 (1938). Suppose that Fisher has been hugely successful in his new business. Should this affect the outcome?

  • 9 3.7.6.1 Capitol Savings and Loan Association v. Przybylowicz

    1
    268 N.W.2d 662
    2
    83 Mich.App. 404
    3
    CAPITOL SAVINGS AND LOAN ASSOCIATION,
    a Michigan Corporation, Plaintiff-Appellant,
    v.
    Richard S. PRZYBYLOWICZ and Maureen M. Przybylowicz,
    his wife, Defendants-Appellees.
    4
    Docket No. 29770.
    5
    Court of Appeals of Michigan.
    6
    May 22, 1978.
    Released for Publication Aug. 18, 1978.
    7

     

    8

    [268 N.W.2d 663] [83 Mich.App. 405] Milton F. Cooney, Pontiac, for plaintiff-appellant.

    9

    Bruce H. Yuille, Drayton Plains, for defendants-appellees.

    10

    [83 Mich.App. 406] Before D. E. HOLBROOK, Jr., P. J., and ALLEN and FREEMAN, [*] JJ.

    11

    D. E. HOLBROOK, Jr., Presiding Judge.

    12

    In this case we must make the difficult choice of allocating a loss between an innocent party and a party who made an innocent mistake.

    13

    There is no dispute about the basic facts. Defendants approached the plaintiff savings and loan institution about obtaining a residential mortgage loan of $34,500. Plaintiff's representative told defendants that to repay a twenty-five year mortgage loan at a 9% Interest rate the monthly payment would be $251.76. This same combination of figures appears in the mortgage loan application, the mortgage commitment letter and in the mortgage note itself. The figures in the loan application were undoubtedly dictated by plaintiff's representative and the other two documents were prepared by plaintiff.

    14

    Stated quite simply, the problem is that this combination of figures is hopelessly inconsistent payments of $251.76 per month for 300 months will not pay off a $34,500 loan at a 9% Interest rate. Defendants sold their former home and entered into a building agreement for a new home. When the first mortgage payment was due, plaintiff discovered the inconsistency and demanded that defendants execute a new note and pay the amount, $289.53 per month, which plaintiff claims should have been used in the first place. When defendants refused plaintiff's demands, plaintiff filed suit.

    15

    The complaint requested a declaratory judgment and a reformation of the contract on the grounds of mutual mistake. Defendants [268 N.W.2d 664] answered, claiming [83 Mich.App. 407] the mistake was unilateral on the part of the plaintiff and that plaintiff was engaging in fraud and deception by demanding a higher monthly payment than agreed. Defendants contend they relied on plaintiff's calculations and representations that 300 payments of $251.76 would pay off a $34,500 loan at a 9% Rate and that plaintiff is estopped from demanding any greater monthly amount. In order to correct the inconsistent figures, defendants requested the interest rate be reformed so that 300 monthly payments of $251.76 would discharge their $34,500 obligation.

    16

    In a written opinion the trial judge agreed with defendants.

    17

    This is a proceeding which is equitable in nature and the Court feels that the burden must be placed on the party responsible for the error, and whose superior position of knowledge and control requires it to assume resulting hardship or economic loss, since it is too late to undo the transaction.

    This Court is of the opinion that the mortgage obligation should be reformed to provide an interest rate which will satisfy the loan obligation, within the specified twenty-five (25) years at the specified payment of Two Hundred Fifty One and 76/100 ($251.76) Dollars.

    18

     

    19

    An order of declaratory judgment was entered consistent with the judge's opinion. We agree with the trial court.

    20

    This Court reviews equity cases De novo, but does not reverse or modify unless convinced it would have reached a different result had it occupied the position of the trial court. Mazur v. Blendea, 74 Mich.App. 467, 469, 253 N.W.2d 801 (1977); Ford v. Howard, 59 Mich.App. 548, 552, 229 N.W.2d 841 (1975).

    21

    A court of equity may reform a contract where [83 Mich.App. 408] there is clear evidence of a mutual mistake, Ross v. Damm, 271 Mich. 474, 481, 260 N.W. 750 (1935); Kidder v. Collum, 61 Mich.App. 281, 283, 232 N.W.2d 384 (1975), or in other appropriate circumstances, Najor v. Wayne National Life Ins. Co., 23 Mich.App. 260, 178 N.W.2d 504 (1970), Lv. den., 383 Mich. 802 (1970).

    22

    A written instrument may be reformed where it fails to express the intentions of the parties thereto as the result of accident, inadvertence, mistake * * *

    23 Mich.App. at 272, 178 N.W.2d at 511.

    23

     

    24

    It is clear the inconsistent terms in the mortgage note cannot be reconciled and that at least one term must be reformed. Unfortunately there is no perfect solution. Either the defendants will be required to pay almost $40 a month more than they anticipated and for which they budgeted or the plaintiff will be forced to absorb a loss due to a lowered interest rate (approximately 73/8% Rather than 9%).

    25

    The combination of a number of equitable considerations leads us to conclude that the interest rate, rather than the monthly payment, should be reformed. As noted above plaintiff's representative told defendants what the terms would be and defendants applied for a mortgage loan on the basis of those terms. Plaintiff prepared the mortgage commitment letter and the mortgage note which essentially confirmed the inconsistent figures. Defendants were led to believe that payments of $251.76 per month would satisfy their loan obligation.

    26

    Calculations of the proper monthly payments to satisfy a long term debt at a specified interest rate are quite difficult to make and indeed plaintiff admits it resorts to tables to determine payment [83 Mich.App. 409] amounts. Plaintiff is in the business of lending money and engages in such mortgage transactions all the time. As a matter of course plaintiff calculates interest rates and determines payment schedules. Defendant Richard Przybylowicz, according to the loan application, has an eleventh grade education and is employed as a surface grinder at a tool and die shop. We find a helpful analogy in the case of Hetchler v. American Life Ins. Co., 266 Mich. 608, 254 N.W. 221 (1934), in which an insurance company made some erroneous calculations of the date of coverage under a policy and advised the insured by letter that he was to be covered through a certain [268 N.W.2d 665] date. The insured died before that date and, discovering its error, the insurance company refused to pay the beneficiaries. In concluding the insurance company was estopped from denying liability on the policy, the Court said:

    27

    The fact that the representations of the company here relied upon were not made fraudulently, but were due solely to a mistake in computation, does not operate to prevent the raising of an estoppel. It is commonly held that, although the party making the representations was ignorant or mistaken as to the real facts, if he was in such a position that he ought to have known them, ignorance or mistake will not prevent an estoppel. (Citations omitted.) In the instant case defendant had all the facts and figures before it from the time of the first letter to the insured until his death, almost six years later. Under the circumstances the error was the result of defendant's own negligence, and knowledge of the real facts must be imputed to the company.

    It cannot be said that the insured was negligent in not discovering the error, or that he was charged with knowledge as to the time when his policy could expire. He had a right to rely on defendant's statements in the two letters written to him by the company. It is well-nigh impossible for the ordinary layman to understand the intricacies of actuarial accounting. The insurance [83 Mich.App. 410] company itself even deemed it necessary to have its figures checked by a university professor. The alleged mistake is not a palpable one that could be easily discovered." Hetchler, supra, At 613-614, 254 N.W. at 223.

    28

     

    29

    The calculation of the proper monthly payment on a long term debt is also quite complicated and the plaintiff's error was not one easily discoverable by defendants. Defendants justifiably relied on plaintiff's expertise in setting a payment schedule and on plaintiff's repeated representations that $251.76 a month would repay the loan.

    30

    While plaintiff argues the parties contemplated a 9% Interest rate and that therefore the interest rate should control the monthly payment figure, we believe the ordinary consumer applying for a mortgage loan is more concerned with a monthly payment which will fit within the purchaser's budget. A consumer has no control over the mysterious fluctuations in interest rates but he or she can decide whether a monthly payment is or is not affordable. Defendants contemplated a contract which would require them to pay $251.76 a month.

    31

    We address several of plaintiff's arguments. Plaintiff argues vigorously that a court is without power to make a new contract never contemplated by the parties. All the cases cited by plaintiff, however, militate just as strongly against plaintiff's prayer for reformation of the monthly payment to an amount never contemplated by defendants. Plaintiff next argues that the "scrivener's mistake" doctrine allows a court of equity to correct human error. In order for this doctrine to apply the scrivener must be acting for Both parties. Miles v. Shreve, 179 Mich. 671, 679, 146 N.W. 374 (1914). Since the mistake was one made by plaintiff's employee, the "scrivener's mistake" doctrine is not available to plaintiff. Finally plaintiff [83 Mich.App. 411] relies on Drysdale v. Marheine, 240 Mich. 529, 215 N.W. 329 (1927), which allowed reformation of an option based on an error in mathematical computation. We find this case distinguishable on the grounds that the error involved was so glaring requiring one party to pay $150,000 rather than $38,890 that there was no question that there was a simple copying mistake. The instant case is much more like Hetchler, supra, Where the erroneous calculation was not obvious and not easily checked by a layman.

    32

    Balancing the equities on each side leads us to conclude the interest rate on the mortgage note should be reformed so that the defendants will discharge their obligation by making 300 monthly payments of $251.76. Recognizing the potential for fraud in cases where a party deliberately conceals an error from the other contracting party, we narrowly confine our holding to the combination of factors in this case.

    33

    [268 N.W.2d 666] Finally plaintiff contends its motion to amend its complaint to add a count for recision was improperly denied by the trial court. In general, leave to amend is to be freely given when justice so requires, GCR 1963, 118. In plaintiff's motion for rehearing the trial judge stated that basically he had made a decision on the merits since there was really no factual dispute. Recision would have been an appropriate and actually a preferred remedy had defendants not sold their former home and entered into a building agreement for their new home. Since there was no way to restore defendants to their prior position, recision was not an available option and the trial judge did not abuse his discretion in denying plaintiff's motion for leave to amend.

    34

    Affirmed.

    35

    ---------------

    36

    [*] DONALD R. FREEMAN, 7th Judicial Circuit Judge, sitting on Court of Appeals by assignment pursuant to Const.1963, Art. 6, Sec. 23, as amended 1968.

    37

     

  • 10 3.7.6.2 Notes - Capital Savings & Loan Assn. v. Przybylowicz

    1

    NOTE

    Equitable estoppel or estoppel in pais has frequently been asserted in insurance litigation. Hetchler v. American Life Ins. Co., discussed in the principal case, is illustrative. In most cases, the doctrine has been used to prevent the insurer from insisting on conditions that result in forfeiture. For example, suppose that A, who has suffered a fire loss, has a fire policy that calls for proof of loss within 60 days. On the third day after the loss, A asks for an extension of 10 days in order to go on a trip. His request is granted. The insurance company would likely be estopped from insisting on the condition of proof of loss within 60 days after the 60 days has run. But suppose the company remains silent and A allows the 60 days to expire, relying on the extension. Is the company bound? Suppose that one day after the 60-day period has expired A, who has not previously asked the company for an extension, files proof of loss and a duly authorized agent of the company informs A that he should forget about the delay — is the company bound to pay?

    Most courts refuse to apply equitable estoppel when the insured is attempting to expand coverage that was not provided for or was excluded in the contract. Ahnapee & Western Ry. Co. v. Challoner, 34 Wis. 2d 134, 148 N.W.2d 646 (1967). At least one court, however, has imposed liability on an insurance company for representing to the insured that he was covered under his policy, when in fact he was not. See Travelers Indemnity Co. v. Holman, 330 F.2d 142 (5th Cir. 1964), where the court, while acknowledging that equitable estoppel did not apply, held that the facts of the case "exactly fit the mold of §90."

  • 11 3.7.7.1 Chapman v. Bomann

    1
    381 A. 2d 1123
    2
    John W. CHAPMAN, Jr. and Margaret Chapman and Chapman-Hall Realty
    v.
    George A. BOMANN, III.
    3
    Supreme Judicial Court of Maine.
    4
    Jan. 24, 1978.
    5
     
    6

    [381 A.2d 1124] Westcott & Lynch, P. A. by John J. Lynch, Damariscotta (orally), for John and Margaret Chapman.

    7

    Clayton N. Howard, Damariscotta (orally), for defendant.

    8

    Before DUFRESNE, C. J. and POMEROY, WERNICK, ARCHIBALD, DELAHANTY and GODFREY, JJ.

    9

    WERNICK, Justice.

    10

    On September 13, 1974 John W. Chapman, Jr., his wife Margaret Chapman and Chapman-Hall Realty, as plaintiffs, brought a civil action in the Superior Court (Lincoln County) against George A. Bomann, III as [381 A.2d 1125] defendant. Plaintiffs sought specific performance, or alternatively damages for breach, of a contract allegedly made between plaintiffs and defendant for the sale and purchase of real property in New Harbor, Maine owned by defendant and his wife Betsy as joint tenants and used by them as a summer residence. Defendant's answer included the affirmative defense that the agreement plaintiffs were seeking to enforce was unenforceable for failure to meet particular requirements of the Maine Statute of Frauds, 33 M.R.S.A. § 51(4).

    11

    Ruling on a motion by defendant asking that summary judgment be awarded in his favor, the presiding Justice on May 27, 1975, ordered entry of summary judgment for the defendant. Plaintiffs John and Margaret Chapman have appealed from this judgment.[1]

    12

    We sustain the appeal.[2]

    13

    On June 8, 1974 plaintiffs signed a document, not yet signed by defendant, the contents of which set forth an agreement that, through Chapman-Hall Realty, defendant Bomann would sell and plaintiffs would purchase the Bomann summer residence at New Harbor.

    14

    The presiding Justice ordered summary judgment for defendant on the rationale that since defendant had never signed the above-described document, the agreement contained in it was unenforceable for failure to comply with the writing requirement of the Maine Statute of Frauds. 33 M.R.S.A. § 51(4).

    15

    The presiding Justice had before him for consideration facts stated in sworn answers to interrogatories and in various affidavits submitted in connection with the motion for summary judgment.

    16

    The affidavit of Joan E. Simonds, a Chapman-Hall Realty broker, disclosed that plaintiffs rejected an initial offer made by defendant and defendant then submitted a counter-proposal for a sale and purchase agreement. Plaintiffs accepted it and signed the document setting forth the agreement. Thereafter, on June 14, 1974, Chapman-Hall Realty received from plaintiff John Chapman a check for $4,000.00 which, as added to an earlier down payment of $500.00, completed a 10% Down payment to be deposited in an escrow account for the benefit of defendant. On the same day that the plaintiffs signed the document containing defendant's proposal for a purchase-sale contract the document was returned to the office of Chapman-Hall Realty. It was then forwarded to the defendant to be signed on his part.

    17

    On July 2, 1974 another person associated with Chapman-Hall Realty arranged for Joan Simonds to communicate with defendant regarding the document already signed by plaintiffs and forwarded to defendant for signature. This was done because plaintiffs had arranged, and were scheduled that same day to complete, a refinancing of their home in Massachusetts in anticipation of their purchase of defendant's summer residence in New Harbor. Joan Simonds reached defendant's wife by telephone and explained these circumstances to her and the consequent need for confirmation that the Bomanns would sign the document which had been forwarded for signature. Defendant's wife told Joan Simonds that she and her husband would sign the contract and return it to the office of Chapman-Hall Realty the following Saturday. Joan Simonds then called plaintiff Margaret [381 A.2d 1126] Chapman and told her exactly what defendant's wife had said. The Chapmans then refinanced their Massachusetts house that same day.[3]

    18

    Defendant filed an affidavit stating that he had not signed the purchase-sale document and had not signed either a note or memorandum as to it, and he had never received any portion of the purchase price and, further, plaintiffs never took possession of the premises or made any repairs to them. Defendant's affidavit also said that defendant lacked authority to bind his wife to a contract for the sale of their summer residence and that defendant had no knowledge that plaintiffs were refinancing their home on the basis of any oral negotiations.

    19

    A separate affidavit of defendant's wife stated that she had not authorized defendant to make an agreement to sell the Bomann residence in New Harbor.

    20

    To avoid applicability of the Statute of Frauds to the document signed by them and which they seek to enforce against defendant plaintiffs invoke the equitable principles of estoppel in pais and part performance.

    21

    While we conclude that plaintiffs' appeal must be sustained, we reach this decision on grounds other than those asserted by plaintiffs. We find it unnecessary to reach the question whether in the instant circumstances the document signed by plaintiffs, but not signed by defendant, should as such be directly enforceable as a contract binding on defendant, despite applicability of the Statute of Frauds.Rather, as more fully explained hereinafter, we decide this case by holding that the doctrine of promissory estoppel (as distinguished from estoppel in pais) applies, here, to raise genuine issues of material fact concerning (1) whether the separate ancillary promise made by defendant's wife, as attributable also to defendant, that she and her husband would sign, and return, the document signed by plaintiffs became a contract binding on defendant, and (2) whether, further, with the promise of defendant's wife being deemed a promise binding on defendant's wife and also defendant, defendant should be barred from asserting the Statute of Frauds to deny its enforceability.

    22
    I
    23

     

    24

    The doctrine currently formulated and identified by the label "promissory estoppel" has substantive roots in the law which long antecede the use of the label. It has often been said that promissory estoppel is the principle by which contract law avoids injustice through recognition of a substitute for traditional consideration. See Williston on Contracts §§ 116, 139; Allegheny College v. National Chautauqua County Bank of Jamestown, 246 N.Y. 369, 159 N.E. 173 (1927) (Cardozo, C. J.). Another approach views promissory estoppel as a particularized formulation of estoppel functioning generally as an instrument utilized by equity to prevent injustice. Professor Ames observed that even before 1500, equity gave relief to a plaintiff who had incurred detriment on the faith of a defendant's promise. Ames, Lectures on Legal History at 143 (1913). See also Pomeroy's, Equity Jurisprudence § 808b (5th Ed. 1941).

    25

    Several Maine cases mention that reasonable and detrimental reliance on the promise of another may act as a substitute for consideration. Although charitable subscriptions have been upheld on a variety of theories, in Central Maine General Hospital v. Carter, 125 Me. 191, 195, 132 A. 417, 418 (1926) this Court noted:

    26

    "It may also be true that in strict theory the sustaining of such promises to give cannot be upheld as a contract based on a valid consideration. . . . However, the courts have sustained them as contracts in numerous instances . . . where the performance in part at least of the purpose for which the funds were subscribed or promised were shown, or where liabilities were incurred on the [381 A.2d 1127] strength of such promise . . . ." (emphasis supplied)

    27

     

    28

    See also Carr v. Bartlett, 72 Me. 120 (1881).

    29

    In Colbath v. H. B. Stebbins Lumber Company, 127 Me. 406, 415, 144 A. 1 (1929) this Court referred to promissory estoppel as distinguishable from the more traditionally recognized equitable doctrine of estoppel in pais on the ground that estoppel in pais involves the misrepresentation of an existing fact. Simultaneously, however, in Colbath the Court suggested that, absent traditional consideration to make a promise binding as a contract, promissory estoppel can serve to excuse future performance of a condition or obligation.

    30

    In LaGrange v. Datsis, 142 Me. 48, 46 A.2d 408 (1946) this Court mentioned promissory estoppel as a particularized form of estoppel conceived broadly as a doctrine to do equity. Moreover, further language in LaGrange purporting to limit promissory estoppel to circumstances in which the promise involves a representation concerning the intent to abandon existing rights[4] is only dictum. The actual decision of the case is that defendant in fact made no promise; hence, there was nothing to generate at all the applicability of promissory estoppel, however broadly or narrowly conceived.

    31

    We are satisfied that the formulation of the principle of promissory estoppel in the Restatement of Contracts, § 90, as refined in Restatement (Second) of Contracts, § 90 (Tentative Drafts Nos. 1-7, 1973) to authorize limitation of the remedy and thus acknowledge the possibility of partial enforcement, is fundamentally in harmony with the principles already acknowledged in the law of Maine. Moreover, we find compelling the reasoning in support of the Restatement's formulation of promissory estoppel and are impressed by the widespread acceptance of that formulation in the case law of this country. See generally, 1A Corbin, Contracts §§ 193-209 (1963); 1 Williston, Contracts §§ 138-140 (3rd Ed. 1957); Annots., 48 A.L.R.2d 1069; 115 A.L.R. 152; Boyer, Promissory Estoppel: Principle from Precedents, 50 Mich.L.Rev. 639, 873 (1952).

    32

    Accordingly, we now adopt as the law of Maine the comprehensive formulation of the doctrine of promissory estoppel set forth in § 90 of the Restatement (Second) of Contracts (Tentative Drafts Nos. 1-7, 1973), reading as follows:

    33

    "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."

    34

     

    35

    With the law of Maine thus declared, it is apparent that the circumstances set forth in the record raise several genuine issues of fact material to the question whether the promise made by Betsy Bomann should be attributable to her husband, and if so, whether that promise should be held binding by virtue of promissory estoppel.

    36

    The affidavit of Joan Simonds discloses sufficient information warranting factual conclusions that when Betsy Bomann made her promise that she and defendant would sign and return the document forwarded to them, she should reasonably have expected that her promise would induce plaintiffs to act in reliance on it. Betsy Bomann gave the promise in direct response to what she had been told was an inquiry being specially made because plaintiffs were about to undertake a substantial financial commitment to refinance their Massachusetts home in connection with their undertaking to purchase the Bomanns' summer residence. The "substantial financial commitment" language appearing in the affidavit also indicates a genuine factual issue concerning [381 A.2d 1128] whether plaintiffs had suffered harm or detriment by relying on the promise.

    37

    Despite the conclusory statement in defendant's affidavit concerning his wife's lack of authority to act on his behalf, the record reveals a genuine issue of fact on this question. The document containing the sale-purchase agreement identifies not only defendant but also his wife as a "seller." In his sworn answer to interrogatories John C. Chapman, President of Chapman-Hall Realty, stated that defendant had suggested various changes to be made in the drafting of the document setting forth defendant's counter-proposal for a sale-purchase agreement with the plaintiffs. These circumstances would warrant a finding that by participating in the drafting of the document defendant knew its contents, and the designation of defendant's wife as well as defendant as a "seller" was a holding out by defendant that defendant and his wife were acting together in selling their summer residence and, therefore, defendant's wife was authorized to act for defendant in relation to the sale.[5]

    38
    II
    39

     

    40

    The question remaining to be discussed, then, is whether, in addition to making Betsy Bomann's separate ancillary promise binding as a contract capable of being attributed to defendant, promissory estoppel will bar defendant from asserting the Statute of Frauds to deny enforceability of that otherwise binding promise.

    41

    In Lawrence v. Chase, 54 Me. 196, 200 (1866) this Court acknowledged, as generally accepted, the principle that a separate oral" . . . agreement on the part of the defendant to execute and deliver . . . his writing obligatory to convey . . . certain real estate, upon certain terms and conditions . . . named (in said writing)", though not itself within the textual language of the Statute of Frauds, is deemed to be within the penumbra of the Statute's policy and thus becomes unenforceable like the underlying agreement to which it relates and to which the Statute of Frauds applies in terms. Simultaneously, however, this Court noted in Lawrence v. Chase that even if such would be the rule in a "suit at law", a court of equity could provide "remedy against the fraud thus attempted." (at 201) Although some authorities hold to the contrary, many others agree with the Lawrence v. Chase statement that on principles of equity (among which estoppel would be included) a defendant may be barred from asserting the policy of the Statute of Frauds to deny enforceability to a separate, ancillary oral promise, otherwise binding, to sign as a writing an agreement which, lacking such signature, the Statute of Frauds in terms renders unenforceable.

    42

    This limitation upon the penumbral policy applicability of the Statute of Frauds is conceived to be a particularized application of the general equitable principle that since it is the purpose of the Statute of Frauds to prevent fraud, that Statute cannot be permitted to be itself an instrument of fraud. Cf. Dehahn v. Innes, Me., 356 A.2d 711 (1976); Gosselin v. Better Homes, Inc., Me., 256 A.2d 629 (1969).

    43

    Comment f. to § 178 of the Restatement of Contracts states this principle in particular relation to the doctrine of estoppel, including both estoppel in pais and promissory estoppel, as follows:

    44

    [381 A.2d 1129] "Though there has been no satisfaction of the Statute, an estoppel may preclude objection on that ground in the same way that objection to the non-existence of other facts essential for the establishment of a right or a defence may be precluded. A misrepresentation that there has been such satisfaction if substantial action is taken in reliance on the representation, precludes proof by the party who made the representation that it was false; and a promise to make a memorandum, if similarly relied on, may give rise to an effective promissory estoppel if the Statute would otherwise operate to defraud."

    45

     

    46

    See also Seymour v. Oelrichs, 156 Cal. 782, 106 P. 88 (1909); Alaska Airlines v. Stephenson, 15 Alaska 272, 217 F.2d 295 (9th Cir. 1954); 21 Turtle Creek Square, Ltd. v. New York State Teachers' Retirement System, 432 F.2d 64 (5th Cir. 1970), cert. den. 401 U.S. 955, 91 S.Ct. 975, 28 L.Ed.2d 239 (1971).

    47

    This principle, perceived many years ago in the generalized discussion in Lawrence v. Chase, supra, we now reaffirm as the law of Maine. We adopt it as it is formulated in Comment f. to § 178 of the Restatement of Contracts, above quoted.

    48

    In further clarification of this exposition of Maine law we address specifically the phrase in Comment f., "if the Statute would otherwise operate to defraud." This does not contemplate that the person who makes a separate ancillary promise to sign, or make a sufficient memorandum of, an already existing agreement to which the Statute of Frauds applies in terms must have made the promise with an actual subjective intention to relinquish the right to assert the Statute of Frauds or with an actual intention otherwise to deceive. While the existence of such subjective intention would be sufficient to preclude assertion of the Statute of Frauds, other circumstances can also be sufficient. The criterion signified by the words "if the Statute would otherwise operate to defraud" is whether all the particular circumstances in which the separate ancillary promise to sign or execute a sufficient memorandum is made show, objectively, that a fraud, or a substantial injustice tantamount to a fraud, would be perpetrated upon the promisee were the promisor allowed to assert the Statute of Frauds as a bar.

    49

    In the present situation the affidavits sufficiently indicate that the defendant's wife, as a joint tenant with defendant of the realty at issue, was told (1) plaintiffs were about to make a substantial change in their financial position in connection with the already existing oral agreement for the sale and purchase of the land, (2) before plaintiffs did this, they wanted to know whether defendant would sign the document which plaintiffs had already signed. Fully aware of what plaintiffs were seeking, defendant's wife gave exactly the confirmation being sought, promising that she and her husband would sign the purchase and sale agreement as a writing and return it to the real estate broker involved in the transaction.

    50

    These circumstances give rise to genuine issues of material fact concerning whether defendant's wife, by conduct attributable also to defendant, actually intended or reasonably should have expected that the promise made would induce plaintiffs to make a substantial change in their financial position, a change which plaintiffs in fact made in reliance upon their justifiable belief that the absence of a writing was not to be a matter of concern. In sum, the totality of the circumstances depicted in the record precipitate general factual issues material to whether it would be grossly unjust and, therefore, tantamount to a fraud on the plaintiffs to allow defendant to assert the Statute of Frauds, by invoking the penumbral policy (rather than the actual terms) of the Statute, to bar enforceability of the separate ancillary promise for the making of a sufficient writing.

    51

    If, after the requisite evidentiary hearing, it is found that on promissory estoppel grounds defendant is barred from asserting the Statute of Frauds to deny specific enforcement of the binding separate ancillary promise of defendant's wife, as attributable also to defendant, the Court, as an incident of the present proceeding, [381 A.2d 1130] could order defendant to sign the document which plaintiffs had already signed. By defendant's compliance with that order, the Statute of Frauds would be rendered inapplicable to the principal sale-purchase agreement between defendant and plaintiffs, and plaintiffs would be in position to continue seeking enforcement of it as alleged in their complaint. See 21 Turtle Creek Square, Ltd. v. New York State Teachers' Retirement System, supra; see also enlightening discussion in Annot. 56 A.L.R.3d 1037, 1058-1064.[6]

    52

    The entry is:

    53

    Appeal sustained; judgment for defendant set aside; remanded to the Superior Court for further proceedings consistent with the opinion herein.

    54

    DELAHANTY, J., sat at argument and conference but did not otherwise participate.

    55

    DUFRESNE, A. R. J., sat at oral argument as Chief Justice, but retired prior to the preparation of the opinion. He has joined the opinion as Active Retired Justice.

    56

    ---------------

    57

    [1] Chapman-Hall Realty initially participated as a plaintiff, but it is not a party to the appeal.

    58

    [2] It should here be noted that defendant had filed a counterclaim. This Court twice remanded the case because the present appellants had purported to appeal from the judgment deciding the merits of the complaint against them before a disposition had been made of other aspects of the case (Rule 54(b) M.R.Civ.P.). Subsequently, by stipulation, judgments were entered dismissing the complaint as to Chapman-Hall Realty as well as the counterclaim of the defendant. Thereafter, defendant claimed that plaintiffs had still failed to take a proper appeal. Defendant's contention was that plaintiffs had failed to comply with a provision of the order of remand specifying the manner in which the appeal was to be returned to this Court. This continuing controversy as to the propriety of the appeal was not resolved until November 21, 1977 when the parties ultimately stipulated that the instant appeal was to be heard on the record originally before this Court, a supplemental record and the briefs originally submitted.

    59

    [3] Although Joan Simonds did not have personal knowledge that the refinancing had occurred, her lack of such knowledge would not bear upon the decision made by the presiding Justice. Defendant's brief seems to admit that such was the fact, at least for the purposes of the disposition of the present appeal.

    60

    [4] Courts in other jurisdictions initially limited application of promissory estoppel to cases involving promises as to the abandonment of existing rights. Now, however, the doctrine has become generally recognized as having applicability, comprehensively, to promises relating to the future, provided the other requirements of the doctrine are satisfied. See, e. g., Peoples National Bank v. Linebarger Construction Company, 219 Ark. 11, 240 S.W.2d 12 (1951), and appropriate cases collected in Annots., 48 A.L.R.2d 1069 and 56 A.L.R.3d 1037.

    61

    [5] It may also be noted that there is likewise a genuine issue of fact as to whether there was actual, or apparent, authority for defendant to act on behalf of his wife Betsy. By her making the promise described in the affidavits, defendant's wife could be taken to have known the contents of the document she was promising to sign. This being so, her promise to sign a document designating her, as well as her husband, as a "seller" could be a ratification by her of her husband's prior undertaking to act for her in arranging a contract of sale. Moreover, defendant's wife could be taken as acknowledging a continuing authority in her husband to act on her behalf in relation to selling their summer residence in light of one of the sworn answers to interrogatories in which it was asserted that when defendant's wife made the promise that she and her husband would sign the document containing the sale-purchase agreement, she also stated that she was " . . . waiting to have Mr. Bomann bring the contract up to Damariscotta (the location of the Chapman-Hall Realty office)."

    62

    [6] We previously emphasized in delineating the precise scope of our decision herein that we do not reach, or intimate opinion on, the question whether promissory estoppel would enable plaintiffs directly to enforce the oral sale-purchase agreement as such, notwithstanding that the Statute of Frauds applies in terms to that agreement. The Restatement (Second) of Contracts § 197 (Tentative Drafts Nos. 1-7, 1973) has taken the position that:

    63

    "A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement."

    64

     

    65

    The Comment to § 197 indicates that the section restates the "part performance doctrine." The Restatement (Second) of Contracts (Tentative Drafts Nos. 1-7, 1973) further provides in § 217A:

    66

    "(1) 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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

    (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

    (a) the availability and adequacy of other remedies, particularly cancellation and restitution;

    (b) the definite and substantial character of the action or forbearance in relation to the remedy sought;

    (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

    (d) the reasonableness of the action or forbearance;

    (e) the extent to which the action or forbearance was foreseeable by the promisor."

    67

     

    68

    See also Comment to said § 217A.

    69

    Estoppel in pais and part performance have been invoked in many cases to allow enforceability of a contract, despite textual applicability of the Statute of Frauds, where there was a misrepresentation of an existing fact or a part performance constituted by acts specifically referable to such contract. See Green v. Jones, 76 Me. 563 (1885); Woodbury v. Gardner, 77 Me. 68 (1885); McGuire v. Murray, 107 Me. 108, 77 A. 692 (1910); Berman v. Griggs, 145 Me. 258, 75 A.2d 365 (1950); Busque v. Marcou, 147 Me. 289, 86 A.2d 873 (1952). Yet, at this time we refrain from deciding whether we should adopt the broad formulation of principle, as including also promissory estoppel, contained in the Restatement (Second) of Contracts §§ 197 and 217A (Tentative Drafts Nos. 1-7, 1973). Indeed, before we could so decide, we should be obliged to analyze the policy considerations seeming to underlie LaFlamme v. Hoffman, 148 Me. 444, 95 A.2d 802 (1953).

  • 12 3.7.7.2 Notes - Chapman v. Bomann

    1

    NOTE

    2

    For the use of estoppel in avoiding the requirements of the Statute of Frauds, see Chapter 6, Section 4. See also Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 Yale L.J. 343, 381-383 (1969).

    3

    Is a court order compelling defendants to sign the contract justifiable? If the doctrine of promissory estoppel is designed to protect the plaintiffs' reliance interest only, shouldn't their remedy be limited to damages? The plaintiffs presumably still have the money they borrowed, which they could pay back early; if so, their loss will be limited to interest and points already paid and a prepayment penalty, if any.

  • 13 3.7.8.1 Feinberg v. Pfeiffer Co.

    1

    322 S.W. 2d 163

    2
    Anna Sacks FEINBERG (Plaintiff), Respondent,
    v.
    PFEIFFER COMPANY, a Corporation, Formerly Known as S.
    Pfeiffer Manufacturing Co., a Corporation
    (Defendant), Appellant.
    3

    Nos. 30183, 30204.
    St. Louis Court of Appeals, Missouri.
    March 17, 1959.
    Motion for Rehearing or for Transfer to Supreme Court Denied.
    April 13, 1959.

    4

    [322 S.W.2d 164] Robert S. Allen; Lewis, Rice, Tucker, Allen & Chubb, St. Louis, for appellant.

    5

    J. Leonard Kline, Sylvan Agatstein, St. Louis, for respondent.

    6

    DOERNER, Commissioner.

    7

    This is a suit brought in the Circuit Court of the City of St. Louis by plaintiff, a former employee of the defendant corporation, on an alleged contract whereby defendant agreed to pay plaintiff the sum of $200 per month for life upon her retirement. A jury being waived, the case was tried by the court alone. Judgment below was for plaintiff for $5,100, the amount of the pension claimed to be due as of the date of the trial, together with interest thereon, and defendant duly appealed.

    8

    The parties are in substantial agreement on the essential facts. Plaintiff began working for the defendant, a manufacturer of pharmaceuticals, in 1910, when she was but 17 years of age. By 1947 she had attained the position of bookkeeper, office manager, and assistant treasurer of the defendant, and owned 70 shares of its stock out of a total of 6,503 shares issued and outstanding. Twenty shares had been given to her by the defendant or its then president, she had purchased 20, and the remaining 30 she had acquired by a stock split or stock dividend. Over the years she received substantial dividends on the stock she owned, as did all of the other stockholders. Also, in addition to her salary, plaintiff from 1937 to 1949, inclusive, received each year a bonus varying in amount from $300 in the beginning to $2,000 in the later years.

    9

    On December 27, 1947, the annual meeting of the defendant's Board of Directors was held at the Company's offices in St. Louis, presided over by Max Lippman, its then president and largest individual stockholder. The other directors present were George L. Marcus, Sidney Harris, Sol Flammer, and Walter Weinstock, who, with Max Lippman, owned 5,007 of the 6,503 shares then issued and outstanding. At that meeting the Board of Directors adopted the following resolution, which, because it is the crux of the case, we quote in full:

    10

    The Chairman thereupon pointed out that the Assistant Treasurer, Mrs. Anna Sacks Feinberg, has given the corporation many years of long and faithful service. Not only has she served the corporation devotedly, but with exceptional ability and skill. The President pointed out that although all of the officers and directors sincerely hoped and desired that Mrs. Feinberg would continue in her present position for as long as she felt able, nevertheless, in view of the length of service which she has contributed provision should be made to afford her retirement privileges and benefits which should become a firm obligation of the corporation to be available to her whenever she should see fit to retire from active duty, however many years in the future such retirement may become effective. It was, accordingly, [322 S.W.2d 165] proposed that Mrs. Feinberg's salary which is presently $350.00 per month, be increased to $400.00 per month, and that Mrs. Feinberg would be given the privilege of retiring from active duty at any time she may elect to see fit so to do upon a retirement pay of $200.00 per month for life, with the distinct understanding that the retirement plan is merely being adopted at the present time in order to afford Mrs. Feinberg security for the future and in the hope that her active services will continue with the corporation for many years to come. After due discussion and consideration, and upon motion duly made and seconded, it was —

    Resolved, that the salary of Anna Sacks Feinberg be increased from $350.00 to $400.00 per month and that she be afforded the privilege of retiring from active duty in the corporation at any time she may elect to see fit so to do upon retirement pay of $200.00 per month, for the remainder of her life.

    11

    At the request of Mr. Lippman his sons-in-law, Messrs. Harris and Flammer, called upon the plaintiff at her apartment on the same day to advise her of the passage of the resolution. Plaintiff testified on cross-examination that she had no prior information that such a pension plan was contemplated, that it came as a surprise to her, and that she would have continued in her employment whether or not such a resolution had been adopted. It is clear from the evidence that there was no contract, oral or written, as to plaintiff's length of employment, and that she was free to quit, and the defendant to discharge her, at any time.

    12

    Plaintiff did continue to work for the defendant through June 30, 1949, on which date she retired. In accordance with the foregoing resolution, the defendant began paying her the sum of $200 on the first of each month. Mr. Lippman died on November 18, 1949, and was succeeded as president of the company by his widow. Because of an illness, she retired from that office and was succeeded in October, 1953, by her son-in-law, Sidney M. Harris. Mr. Harris testified that while Mrs. Lippman had been president she signed the monthly pension check paid plaintiff, but fussed about doing so, and considered the payments as gifts. After his election, he stated, a new accounting firm employed by the defendant questioned the validity of the payments to plaintiff on several occasions, and in the Spring of 1956, upon its recommendation, he consulted the Company's then attorney, Mr. Ralph Kalish. Harris testified that both Ernst and Ernst, the accounting firm, and Kalish told him there was no need of giving plaintiff the money. He also stated that he had concurred in the view that the payments to plaintiff were mere gratuities rather than amounts due under a contractual obligation, and that following his discussion with the Company's attorney plaintiff was sent a check for $100 on April 1, 1956. Plaintiff declined to accept the reduced amount, and this action followed. Additional facts will be referred to later in this opinion.

    13

    Appellant's first assignment of error relates to the admission in evidence of plaintiff's testimony over its objection, that at the time of trial she was sixty-five and a half years old, and that she was no longer able to engage in gainful employment because of the removal of a cancer and the performance of a colocholecystostomy operation on November 25, 1957. Its complaint is not so much that such evidence was irrelevant and immaterial, as it is that the trial court erroneously made it one basis for its decision in favor of plaintiff. As defendant concedes, the error (if it was error) in the admission of such evidence would not be a ground for reversal, since, this being a jury-waived case, we are constrained by the statutes to review it upon both the law and the evidence, Sec. 510.310 RSMo 1949, V.A.M.S., and to render such judgment as the court below ought [322 S.W.2d 166] to have given. Section 512.160, Minor v. Lillard, Mo., 289 S.W.2d 1; Thumm v. Lohr, Mo.App., 306 S.W.2d 604. We consider only such evidence as is admissible, and need not pass upon questions of error in the admission and exclusion of evidence. Hussey v. Robinson, Mo., 285 S.W.2d 603. However, in fairness to the trial court it should be stated that while he briefly referred to the state of plaintiff's health as of the time of the trial in his amended findings of fact, it is obvious from his amended grounds for decision and judgment that it was not, as will be seen, the basis for his decision.

    14

    Appellant's next complaint is that there was insufficient evidence to support the court's findings that plaintiff would not have quit defendant's employ had she not known and relied upon the promise of defendant to pay her $200 a month for life, and the finding that, from her voluntary retirement until April 1, 1956, plaintiff relied upon the continued receipt of the pension installments. The trial court so found, and, in our opinion, justifiably so. Plaintiff testified, and was corroborated by Harris, defendant's witness, that knowledge of the passage of the resolution was communicated to her on December 27, 1947, the very day it was adopted. She was told at that time by Harris and Flammer, she stated, that she could take the pension as of that day, if she wished. She testified further that she continued to work for another year and a half, through June 30, 1949; that at that time her health was good and she could have continued to work, but that after working for almost forty years she thought she would take a rest. Her testimony continued:

    15

    Q. Now, what was the reason — I'm sorry. Did you then quit the employment of the company after you — after this year and a half? A. Yes.

    Q. What was the reason that you left? A. Well, I thought almost forty years, it was a long time and I thought I would take a little rest.

    Q. Yes. A. And with the pension and what earnings my husband had, we figured we could get along.

    Q. Did you rely upon this pension? A. We certainly did.

    Q. Being paid?

    A. Very much so. We relied upon it because I was positive that I was going to get it as long as I lived.

    Q. Would you have left the employment of the company at that time had it not been for this pension?

    A. No.

    Mr. Allen: Just a minute, I object to that as calling for a conclusion and conjecture on the part of this witness.

    The Court: It will be overruled.

    Q. (Mr. Agatstein continuing): Go ahead, now. The question is whether you would have quit the employment of the company at that time had you not relied upon this pension plan?

    A. No, I wouldn't.

    Q. You would not have. Did you ever seek employment while this pension was being paid to you —

    A. (interrupting): No.

    Q. Wait a minute, at any time prior — at any other place?

    A. No, sir.

    Q. Were you able to hold any other employment during that time?

    A. Yes, I think so.

    Q. Was your health good?

    A. My health was good.

    16

    It is obvious from the foregoing that there was ample evidence to support the findings of fact made by the court below.

    17

    We come, then, to the basic issue in the case. While otherwise defined in defendant's third and fourth assignments of error, it is thus succinctly stated in the argument in its brief: “. . . whether plaintiff has proved that she has a right to recover from defendant based upon a legally binding [322 S.W.2d 167] contractual obligation to pay her $200 per month for life.”

    18

    It is defendant's contention, in essence, that the resolution adopted by its Board of Directors was a mere promise to make a gift, and that no contract resulted either thereby, or when plaintiff retired, because there was no consideration given or paid by the plaintiff. It urges that a promise to make a gift is not binding unless supported by a legal consideration; that the only apparent consideration for the adoption of the foregoing resolution was the “many years of long and faithful service” expressed therein; and that past services are not a valid consideration for a promise. Defendant argues further that there is nothing in the resolution which made its effectiveness conditional upon plaintiff's continued employment, that she was not under contract to work for any length of time but was free to quit whenever she wished, and that she had no contractual right to her position and could have been discharged at any time.

    19

    Plaintiff concedes that a promise based upon past services would be without consideration, but contends that there were two other elements which supplied the required element: First, the continuation by plaintiff in the employ of the defendant for the period from December 27, 1947, the date when the resolution was adopted, until the date of her retirement on June 30, 1949. And, second, her change of position, i. e., her retirement, and the abandonment by her of her opportunity to continue in gainful employment, made in reliance on defendant's promise to pay her $200 per month for life.

    20

    We must agree with the defendant that the evidence does not support the first of these contentions. There is no language in the resolution predicating plaintiff's right to a pension upon her continued employment. She was not required to work for the defendant for any period of time as a condition to gaining such retirement benefits. She was told that she could quit the day upon which the resolution was adopted, as she herself testified, and it is clear from her own testimony that she made no promise or agreement to continue in the employ of the defendant in return for its promise to pay her a pension. Hence there was lacking that mutuality of obligation which is essential to the validity of a contract. Middleton v. Holecraft, Mo.App., 270 S.W.2d 90; Solace v. T. J. Moss Tie Co., Mo.App., 142 S.W.2d 1079; Aslin v. Stoddard County, 341 Mo. 138, 106 S.W.2d 472; Fuqua v. Lumbermen's Supply Co., 229 Mo.App. 210, 76 S.W.2d 715; Hudson v. Browning, 264 Mo. 58, 174 S.W. 393; Campbell v. American Handle Co., 117 Mo.App. 19, 94 S.W. 815.

    21

    But as to the second of these contentions we must agree with plaintiff. By the terms of the resolution defendant promised to pay plaintiff the sum of $200 a month upon her retirement. Consideration for a promise has been defined in the Restatement of the Law of Contracts, Section 75, as:

    22

    (1) Consideration for a promise is

    (a) an act other than a promise, or

    (b) a forbearance, or

    (c) the creation, modification or destruction of a legal relation, or

    (d) a return promise, bargained for and given in exchange for the promise.

    23

    As the parties agree, the consideration sufficient to support a contract may be either a benefit to the promisor or a loss or detriment to the promisee. Industrial Bank & Trust Co. v. Hesselberg, Mo., 195 S.W.2d 470; State ex rel. Kansas City v. State Highway Commission, 349 Mo. 865, 163 S.W.2d 948; Duvall v. Duncan, 341 Mo. 1129, 111 S.W.2d 89; Thompson v. McCune, 333 Mo. 758, 63 S.W.2d 41.

    24

    Section 90 of the Restatement of the Law of Contracts states that: “A promise which the promisor should reasonably expect to induce action or forbearance of a [322 S.W.2d 168] definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This doctrine has been described as that of “promissory estoppel,” as distinguished from that of equitable estoppel or estoppel in pais, the reason for the differentiation being stated as follows:

    25

    It is generally true that one who has led another to act in reasonable reliance on his representations of fact cannot afterwards in litigation between the two deny the truth of the representations, and some courts have sought to apply this principle to the formation of contracts, where, relying on a gratuitous promise, the promisee has suffered detriment. It is to be noticed, however, that such a case does not come within the ordinary definition of estoppel. If there is any representation of an existing fact, it is only that the promisor at the time of making the promise intends to fulfill it. As to such intention there is usually no misrepresentation and if there is, it is not that which has injured the promisee. In other words, he relies on a promise and not on a misstatement of fact; and the term “promissory” estoppel or something equivalent should be used to make the distinction.

    26

    Williston on Contracts, Rev. Ed., Sec. 139, Vol. 1.

    In speaking of this doctrine, Judge Learned Hand said in Porter v. Commissioner of Internal Revenue, 2 Cir., 60 F.2d 673, 675, that “. . . 'promissory estoppel' is now a recognized species of consideration.”

    27

    As pointed out by our Supreme Court in In re Jamison's Estate, Mo., 202 S.W.2d 879, 887, it is stated in the Missouri Annotations to the Restatement under Section 90 that:

    28

    "'There is a variance between the doctrine underlying this section and the theoretical justifications that have been advanced for the Missouri decisions.'"

    29

    That variance, as the authors of the Annotations point out, is that:

    30

    This §90, when applied with §85, means that the promise described is a contract without any consideration. In Missouri the same practical result is reached without in theory abandoning the doctrine of consideration. In Missouri three theories have been advanced as ground for the decisions (1) Theory of act for promise. The induced 'action or forbearance' is the consideration for the promise. Underwood Typewriter Co. v. Century Realty Co. (1909) 220 Mo. 522, 119 S.W. 400, 25 L.R.A., N.S., 1173. See Sec. 76. (2) Theory of promissory estoppel. The induced 'action or forbearance' works an estoppel against the promisor. (Citing School District of Kansas City v. Sheidley (1897) 138 Mo. 672, 40 S. W. 656 [37 L.R.A. 406]) . . . (3) Theory of bilateral contract. When the induced 'action or forbearance' is begun, a promise to complete is implied, and we have an enforceable bilateral contract, the implied promise to complete being the consideration for the original promise.

    31

    (Citing cases.)

    32

    Was there such an act on the part of plaintiff, in reliance upon the promise contained in the resolution, as will estop the defendant, and therefore create an enforceable contract under the doctrine of promissory estoppel? We think there was. One of the illustrations cited under Section 90 of the Restatement is: “2. A promises B to pay him an annuity during B's life. B thereupon resigns a profitable employment, as A expected that he might. B receives the annuity for some years, in the meantime becoming disqualified from again obtaining good employment. A's promise is binding.” This illustration is objected to by defendant as not being applicable to the case at hand. The reason advanced by it is [322 S.W.2d 169] that in the illustration B became “disqualified” from obtaining other employment before A discontinued the payments, whereas in this case the plaintiff did not discover that she had cancer and thereby became unemployable until after the defendant had discontinued the payments of $200 per month. We think the distinction is immaterial. The only reason for the reference in the illustration to the disqualification of A is in connection with that part of Section 90 regarding the prevention of injustice. The injustice would occur regardless of when the disability occurred. Would defendant contend that the contract would be enforceable if the plaintiff's illness had been discovered on March 31, 1956, the day before it discontinued the payment of the $200 a month, but not if it occurred on April 2nd, the day after? Furthermore, there are more ways to become disqualified for work, or unemployable, than as the result of illness. At the time she retired plaintiff was 57 years of age. At the time the payments were discontinued she was over 63 years of age. It is a matter of common knowledge that it is virtually impossible for a woman of that age to find satisfactory employment, much less a position comparable to that which plaintiff enjoyed at the time of her retirement.

    33

    The fact of the matter is that plaintiff's subsequent illness was not the “action or forbearance” which was induced by the promise contained in the resolution. As the trial court correctly decided, such action on plaintiff's part was her retirement from a lucrative position in reliance upon defendant's promise to pay her an annuity or pension. In a very similar case, Ricketts v. Scothorn, 57 Neb. 51, 77 N.W. 365, 367, 42 L.R.A. 794, the Supreme Court of Nebraska said:

    34

    . . . According to the undisputed proof, as shown by the record before us, the plaintiff was a working girl, holding a position in which she earned a salary of $10 per week. Her grandfather, desiring to put her in a position of independence, gave her the note accompanying it with the remark that his other grandchildren did not work, and that she would not be obliged to work any longer. In effect, he suggested that she might abandon her employment, and rely in the future upon the bounty which he promised. He doubtless desired that she should give up her occupation, but, whether he did or not, it is entirely certain that he contemplated such action on her part as a reasonable and probable consequence of his gift. Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration.

    35

    The Commissioner therefore recommends, for the reasons stated, that the judgment be affirmed.

    36

    PER CURIAM. The foregoing opinion by DOERNER, C., is adopted as the opinion of the court. The judgment is, accordingly, affirmed.

    37

    WOLFE, P. J., and ANDERSON and RUDDY, JJ., concur.

  • 14 3.7.8.2 Notes - Feinberg v. Pfeiffer Co.

    1

    NOTE

    2

    1. Consult 45 Iowa L. Rev. 656 (1960); 56 Colum. L. Rev. 251, 263-26B (1956); 23 U. Chi. L. Rev. 96 (1956); 70 Colum. L. Rev. 909, 920 (1970). See also Employee Retirement Income Security Act (ERISA) 514(a), 20 U.S.C.A. §1144(a).

    3

    2. In July 1930 an employer sent to a number of employees the following letter:

    4
    Confirming our conversation of today, it is necessary with conditions as they are throughout the petroleum industry, to effect substantial economies throughout the plant operation. This necessitates the reducing of the working force to a minimum necessary to maintain operation. In view of your many years of faithful service, the management is desirous of shielding you as far as possible from the effect of reduced plant operation and has, therefore, placed you upon a retirement list which has just been established for this purpose.

    Effective August 1, 1930, you will be carried on our payroll at a rate of $ — per month. You will be relieved of all duties except that of reporting to Mr. T. E. Sullivan at the main office for the purpose of picking up your semi-monthly checks. Your group insurance will be maintained on the same basis as at present, unless you desire to have it cancelled. [Signed by the vice-president.]
    5


    Payments were regularly made until June 1, 1931 when the employees were told that the arrangement was terminated. Consideration? Plowman v. Indian Refining Co., 20 F. Supp. 1 (D.C. Ill. 1937).