The Consideration Requirement and Alternatives

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We began by asking whether the parties have made a promise. Did West give Bailey sufficient reason to believe that he wished to board Bascom’s Folly at Bailey’s farm? Was Lucy justified in taking seriously Zehmer’s decision to sign the contract for the sale of the Ferguson Farm? Our two most recent principal cases explored whether some promises are simply too indefinite to be enforced. Either the parties had no intention of being contractually bound, or the purported contract gives the court too little information to be able to discern the substance of the parties’ agreement.

In this chapter, we will examine the doctrines that determine whether courts will enforce even reasonably definite promises.

1. Consideration Doctrine

Begin by reading the following Restatement (Second) provisions concerning consideration doctrine:

Restatement (Second) of Contracts
§ 17. Requirement of a Bargain

(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

(2) Whether or not there is a bargain, a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.

§ 71. Requirement of Exchange; Types of Exchange

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

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

(3) The performance may consist of

(a) an act other than a promise, or

(b) a forbearance, or

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

(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

The Restatement defines consideration in terms of exchange, and with the exceptions noted in § 17(2), requires that a promise be supported by consideration in order to be legally enforceable. Professor Stanley Henderson has offered the following explanation for this doctrinal requirement.

The essential function of consideration is to determine the types of promises which should not be enforced. The promise which does not purport to exact an exchange is singled out by consideration doctrine as the one least worthy of enforcement, because it may well have been given without the care which an exchange relationship encourages and because it is least likely to serve a useful economic function.

Stanley D. Henderson, Promissory Estoppel and the Traditional Contact Doctrine, 78 Yale L.J. 343, 346 (1969). Although we will focus on the Restatement (Second)‘s formulation of the consideration doctrine, you should also be aware that many older decisions instead analyze consideration as a benefit to the promisor or a detriment to the promisee. In our discussion of Hamer v. Sidway, we will try to reconcile these two distinct ways of talking about consideration.


1.1 Principal Case – Hamer v. Sidway

The court in Hamer v. Sidway decided to enforce a rich uncle’s generous promise to reward his nephew for abstaining from certain vices. As you read, consider precisely what facts made the uncle’s promise enforceable.

Hamer v. Sidway

Court of Appeals of New York

124 N.Y. 538, 27 N.E. 256 (1891)

[1]    APPEAL from order of the General Term of the Supreme Court in the fourth judicial department, made July 1, 1890, which reversed a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term and granted a new trial.

[2]    This action was brought upon an alleged contract.

[3]    The plaintiff presented a claim to the executor of William E. Story, Sr., for $5,000 and interest from the 6th day of February, 1875. She acquired it through several mesne assignments from William E. Story, 2d. The claim being rejected by the executor, this action was brought. It appears that William E. Story, Sr., was the uncle of William E. Story, 2d; that at the celebration of the golden wedding [anniversary] of Samuel Story and wife, father and mother of William E. Story, Sr., on the 20th day of March, 1869, in the presence of the family and invited guests he promised his nephew that if he would refrain from drinking, using tobacco, swearing and playing cards or billiards for money until he became twenty-one years of age he would pay him a sum of $5,000. The nephew assented thereto and fully performed the conditions inducing the promise. When the nephew arrived at the age of twenty-one years and on the 31st day of January, 1875, he wrote to his uncle informing him that he had performed his part of the agreement and had thereby become entitled to the sum of $5,000. The uncle received the letter and a few days later and on the sixth of February, he wrote and mailed to his nephew the following letter:

BUFFALO, Feb. 6, 1875.

W. E. STORY, Jr.:

DEAR NEPHEW–Your letter of the 31st ult. came to hand all right, saying that you had lived up to the promise made to me several years ago. I have no doubt but you have, for which you shall have five thousand dollars as I promised you. I had the money in the bank the day you was 21 years old that I intend for you, and you shall have the money certain. Now, Willie I do not intend to interfere with this money in any way till I think you are capable of taking care of it and the sooner that time comes the better it will please me. I would hate very much to have you start out in some adventure that you thought all right and lose this money in one year. The first five thousand dollars that I got together cost me a heap of hard work. You would hardly believe me when I tell you that to obtain this I shoved a jackplane many a day, butchered three or four years, then came to this city, and after three months’ perseverence I obtained a situation in a grocery store. I opened this store early, closed late, slept in the fourth story of the building in a room 30 by 40 feet and not a human being in the building but myself. All this I done to live as cheap as I could to save something. I don’t want you to take up with this kind of fare. I was here in the cholera season ’49 and ’52 and the deaths averaged 80 to 125 daily and plenty of small-pox. I wanted to go home, but Mr. Fisk, the gentleman I was working for, told me if I left then, after it got healthy he probably would not want me. I stayed. All the money I have saved I know just how I got it. It did not come to me in any mysterious way, and the reason I speak of this is that money got in this way stops longer with a fellow that gets it with hard knocks than it does when he finds it. Willie, you are 21 and you have many a thing to learn yet. This money you have earned much easier than I did besides acquiring good habits at the same time and you are quite welcome to the money; hope you will make good use of it. I was ten long years getting this together after I was your age. Now, hoping this will be satisfactory, I stop. One thing more. Twenty-one years ago I bought you 15 sheep. These sheep were put out to double every four years. I kept track of them the first eight years; I have not heard much about them since. Your father and grandfather promised me that they would look after them till you were of age. Have they done so? I hope they have. By this time you have between five and six hundred sheep, worth a nice little income this spring. Willie, I have said much more than I expected to; hope you can make out what I have written. To-day is the seventeenth day that I have not been out of my room, and have had the doctor as many days. Am a little better to-day; think I will get out next week. You need not mention to father, as he always worries about small matters.

Truly Yours,


P. S.–You can consider this money on interest.

[4]    The nephew received the letter and thereafter consented that the money should remain with his uncle in accordance with the terms and conditions of the letters. The uncle died on the 29th day of January, 1887, without having paid over to his nephew any portion of the said $5,000 and interest.

Parker, J.

[5]    The question which provoked the most discussion by counsel on this appeal, and which lies at the foundation of plaintiff’s asserted right of recovery, is whether by virtue of a contract defendant’s testator William E. Story became indebted to his nephew William E. Story, 2d, on his twenty-first birthday in the sum of five thousand dollars. The trial court found as a fact that “on the 20th day of March, 1869, …William E. Story agreed to and with William E. Story, 2d, that if he would refrain from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he should become 21 years of age then he, the said William E. Story, would at that time pay him, the said William E. Story, 2d, the sum of $5,000 for such refraining, to which the said William E. Story, 2d, agreed,” and that he “in all things fully performed his part of said agreement.”

[6]    The defendant contends that the contract was without consideration to support it, and, therefore, invalid. He asserts that the promisee by refraining from the use of liquor and tobacco was not harmed but benefited; that that which he did was best for him to do independently of his uncle’s promise, and insists that it follows that unless the promisor was benefited, the contract was without consideration. A contention, which if well founded, would seem to leave open for controversy in many cases whether that which the promisee did or omitted to do was, in fact, of such benefit to him as to leave no consideration to support the enforcement of the promisor’s agreement. Such a rule could not be tolerated, and is without foundation in the law. The Exchequer Chamber, in 1875, defined consideration as follows: “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” Courts “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.” (Anson’s Prin. of Con. 63.)

[7]    “In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise.” (Parsons on Contracts, 444.)

[8]    “Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise.” (Kent, vol. 2, 465, 12th ed.)

[9]    Pollock, in his work on contracts, page 166, after citing the definition given by the Exchequer Chamber already quoted, says: “The second branch of this judicial description is really the most important one. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.”

[10]    Now, applying this rule to the facts before us, the promisee used tobacco, occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise of the testator that for such forbearance he would give him $5,000. We need not speculate on the effort which may have been required to give up the use of those stimulants. It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement, and now having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it, but were it a proper subject of inquiry, we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. Few cases have been found which may be said to be precisely in point, but such as have been support the position we have taken.

[11]    In Shadwell v. Shadwell (9 C. B. [N. S.] 159), an uncle wrote to his nephew as follows:


I am so glad to hear of your intended marriage with Ellen Nicholl, and as I promised to assist you at starting, I am happy to tell you that I will pay to you 150 pounds yearly during my life and until your annual income derived from your profession of a chancery barrister shall amount to 600 guineas, of which your own admission will be the only evidence that I shall require.

Your affectionate uncle,


It was held that the promise was binding and made upon good consideration.

[12]    In Lakota v. Newton, an unreported case in the Superior Court of Worcester, Mass., the complaint averred defendant’s promise that “if you (meaning plaintiff) will leave off drinking for a year I will give you $100,” plaintiff’s assent thereto, performance of the condition by him, and demanded judgment therefor. Defendant demurred on the ground, among others, that the plaintiff’s declaration did not allege a valid and sufficient consideration for the agreement of the defendant. The demurrer was overruled.

[13]    In Talbott v. Stemmons, 12 S. W. Rep. 297, (a Kentucky case not yet reported), the step-grandmother of the plaintiff made with him the following agreement: “I do promise and bind myself to give my grandson, Albert R. Talbott, $500 at my death, if he will never take another chew of tobacco or smoke another cigar during my life from this date up to my death, and if he breaks this pledge he is to refund double the amount to his mother.” The executor of Mrs. Stemmons demurred to the complaint on the ground that the agreement was not based on a sufficient consideration. The demurrer was sustained and an appeal taken therefrom to the Court of Appeals, where the decision of the court below was reversed. In the opinion of the court it is said that “the right to use and enjoy the use of tobacco was a right that belonged to the plaintiff and not forbidden by law. The abandonment of its use may have saved him money or contributed to his health, nevertheless, the surrender of that right caused the promise, and having the right to contract with reference to the subject-matter, the abandonment of the use was a sufficient consideration to uphold the promise.” Abstinence from the use of intoxicating liquors was held to furnish a good consideration for a promissory note in Lindell v. Rokes (60 Mo. 249).…

[14]    The order appealed from should be reversed and the judgment of the Special Term affirmed, with costs payable out of the estate.


1.1.1 The Benefit-Detriment Test

We have seen that the Restatement (Second) § 71 frames consideration in terms of bargain and exchange. Here is how one court reconciled this modern formulation with the traditional discussion of benefits and detriments.

The words “benefit” and “detriment” in contract cases involving consideration have technical meanings. “Detriment” as used in determining the sufficiency of consideration to support a contract means “‘legal detriment’ as distinguished from detriment in fact. It means giving up something which immediately prior thereto the promisee was privileged to retain, or doing or refraining from doing something which he was then privileged not to do, or not to refrain from doing.” (Hamilton Bancshares, Inc. v. Leroy (1985), 131 Ill. App. 3d 907, 913, quoting 1 Willison, Contracts § 102A, at 380-382 (3d ed. 1957).) For example, a promise to give up smoking is also a legal detriment and sufficient consideration to support a contract.

Davies v. Martel Laboratory Services, Inc., 189 Ill. App. 3d 694, 545 N.E.2d 475, 477 (1989).

1.1.2 Consideration and Motive

It may be tempting to focus on a party’s motive for acting in determining whether an act can or cannot serve as consideration. The following excerpt from Oliver Wendell Holmes, The Common Law 293-94 (1887) describes a more subtle role for motive.

It is said that consideration must not be confounded with motive. It is true that it must not be confounded with what may be the prevailing or chief motive in actual fact. A man may promise to paint a picture for five hundred dollars, while his chief motive may be a desire for fame. A consideration may be given and accepted, in fact, solely for the purpose of making a promise binding. But, nevertheless, it is the essence of consideration, that, by the terms of the agreement, it is given and accepted as the motive or inducement of the promise. Conversely, the promise must be made and accepted as the conventional motive or inducement for furnishing the consideration. The root of the whole matter is the relation of reciprocal conventional inducement, each for the other between consideration and promise.

1.1.3 Discussion of Hamer v. Sidway

Why does Uncle William’s executor resist paying Willie the $5,000 plus interest? What is the estate’s argument against enforcement of this promise?

Notice that the court discussed consideration in terms of benefits and detriments. Under this traditional understanding of the doctrine, why does the plaintiff prevail?

Now consider the modern definition of consideration in Restatement (Second) § 71. How would the plaintiff argue for enforcement under this version of the doctrine?


1.2 Principal Case – St. Peter v. Pioneer Theatre

In the following case, as in Hamer, the court chooses to enforce a promise. Try to decide whether the court’s rationale for enforcement in St. Peter v. Pioneer Theatre differs from the reasoning in Hamer. Also notice that the court’s opinion exemplifies the sort of tedious legal writing that you should strive not to emulate in your own writing.

St. Peter v. Pioneer Theatre Corp.

Supreme Court of Iowa

227 Iowa 1391, 291 N.W. 164 (1940)

Miller, Justice.

[1]    This controversy involves a drawing at a theatre under an arrangement designated as “bank night”, not identical with, but substantially similar to the arrangement involved in the controversy heretofore presented to this court by the case of State v. Hundling, 220 Iowa 1369, 264 N.W. 608, 103 A.L.R. 861. In that case, we held that the arrangement was not a lottery in violation of the provisions of Section 13218 of the Code, 1931, and that the proprietor of the theatre was not subject to criminal prosecution. In this case, we are confronted with the question whether the arrangement is such that one, to whom the prize is awarded, has a cause of action to enforce the payment thereof.

[2]    Plaintiff’s petition alleges that the Pioneer Theatre Corporation operates a theatre at Jefferson, Iowa, known as the Iowa Theatre, and that the defendant Parkinson was at all times material herein manager of such theatre. The bank night drawing by defendants was conducted on Wednesday evening, at about 9 p.m. On December 21, 1938, the prize or purse was advertised by defendants in the amount of $275. At about 9 p.m., plaintiff and her husband were outside the theatre when an agent of the defendants announced that plaintiff’s name had been called. Plaintiff immediately went into the theatre and made demand upon the manager, who refused to pay her the prize or purse, although plaintiff made demand therefor within the three minutes allowed by defendants. Plaintiff demanded judgment for the $275 and costs.

[3]    In count II of the plaintiff’s petition, plaintiff alleged that her husband’s name was drawn, he presented himself within three minutes, demanded the $275 and payment was refused, if he was not within the allotted time it was due to acts of defendants, her husband assigned his claim to plaintiff and plaintiff demanded judgment as such assignee.

[4]    Defendants’ answer admitted that the Pioneer Theatre Corporation is operating the Iowa Theatre at Jefferson, Iowa, and that the defendant Parkinson is and has been for more than five years manager of said Iowa Theatre for the corporate defendant. The answer denied all other allegations of both counts of the petition.

[5]    The only witnesses to testify at the trial were the plaintiff and her husband. Their testimony is not in conflict. Accordingly, no disputed question of fact is presented, only questions of law.

[6]    They testified that each had signed the bank night register, plaintiff’s number was 6396, her husband’s number 212. The husband signed the register at the express invitation and request of Parkinson. Plaintiff signed the register later at the theatre in the presence of an usher. Plaintiff attended every bank night, often accompanied by her husband. Sometimes they attended as patrons of the theatre. Other times they stood on the sidewalk outside. On the occasions when they remained on the sidewalk outside the theatre, one Alice Kafer habitually announced the name that had been drawn inside the theatre. The only other person seen by them to make such announcement was Parkinson.

[7]    On the evening of December 21, 1938, plaintiff and her husband were on the sidewalk in front of the theatre. They observed a sign reading “Bank Night $275”. About 9 o’clock Alice Kafer came out and said to plaintiff, “Hurry up Mrs. St. Peter, your name is called.” Plaintiff entered the theatre and called to Parkinson. He came back and said, “I am sorry, but it was your husband’s name that was called, where is your husband?” She said, “He is right behind me,” turned around and motioned to him and said, “It’s your name that was called.” As he started toward them, the lights went out and in the darkness they lost track of Parkinson. They sent an usher to look for him. When Parkinson came out and approached them he said to plaintiff’s husband, “You are too late, just one second too late.” Mr. St. Peter said, “You have a pretty good watch.” Parkinson replied, “One second is just as good as a week.” Mr. St. Peter said, “Why don’t you call the name outside like you do inside?” Parkinson replied, “I have a lady hired to call the name out.” When asked who she was, he said, “It’s none of your business.” When told that Mr. St. Peter intended to see a lawyer, Parkinson stated, “That is what we want you to do; the law is backing us up on our side.” Plaintiff and her husband then left the theatre. Plaintiff’s husband testified that he assigned his claim to the plaintiff before the action was commenced.

[8]    At the close of plaintiff’s evidence, which consisted solely of her testimony, that of her husband, and defendants’ bank night register, defendants made a motion for a directed verdict on seven grounds, to wit: (1) there was no adequate or legal consideration for the claimed promise to give the alleged purse, (2) there was no evidence that Alice Kafer was employed by or in any manner authorized by defendants to announce the winner of the drawing, and defendants were not bound by her statements, (3) the most that could be claimed for plaintiff’s alleged cause of action was a mere executory agreement to make a gift upon the happening of certain events without legal or adequate consideration, and no recovery could be had, (4) if a verdict were returned for plaintiff under the evidence offered, it would be the duty of the court to set the same aside, (5) there was no evidence that either plaintiff or her husband claimed the purse within the time limit fixed by defendants, (6) there was no relevant, competent or material proof that the name of either plaintiff or her husband was drawn, (7) if there is any legal or sufficient consideration for the promise sought to be enforced, then such consideration would constitute the transaction a lottery and, therefore, an illegal transaction upon which no recovery could be had.

[9]    The court sustained the motion generally. A verdict for the defendants was returned accordingly and judgment was entered dismissing the action at plaintiff’s costs. Plaintiff appeals, assigning as error the sustaining of the motion and the entry of judgment pursuant thereto.


[10]    Since the motion was sustained generally, it is incumbent upon appellant, before she would be entitled to a reversal at our hands, to establish that the motion was not good upon any ground thereof. People’s Trust & Savings Bank v. Smith, 212 Iowa 124, 126, 236 N.W. 30, 31; Slippy Eng. Corp. v. City of Grinnell, 226 Iowa 1293, 286 N.W. 508, 513. Realizing such burden, and undertaking to discharge the same, appellant has made seven assignments of error, each attacking a similarly numbered paragraph of the motion for directed verdict.


[11]    Appellant’s assignments of error Nos. 1, 3 and 7, attacking paragraphs 1, 3 and 7 of the motion for directed verdict, are definitely related to each other, and will be considered together. In such consideration, we are faced at the outset with our decision in the case of State v. Hundling, 220 Iowa 1369, 264 N.W. 608, 103 A.L.R. 861, heretofore referred to, wherein we held that an arrangement such as is involved herein does not constitute a lottery, and that the proprietor of the theatre is not subject to criminal prosecution on account thereof. In defining a lottery, we state at page 1370 of 220 Iowa, at page 609 of 264 N.W., 103 A.L.R. 861, as follows: “The giving away of property or prizes is not unlawful, nor is the gift made unlawful by the fact that the recipient is determined by lot. Our statute provides that the recipient of a public office may be determined by lot in certain cases where there is a tie vote. Section 883, Code 1931. To constitute a lottery there must be a further element, and that is the payment of a valuable consideration for the chance to receive the prize. Thus, it is quite generally recognized that there are three elements necessary to constitute a lottery: First, a prize to be given; second, upon a contingency to be determined by chance; and, third, to a person who has paid some valuable consideration or hazarded something of value for the chance.”

[12]    In applying such definition to the facts presented in that case, we state at page 1371 of 220 Iowa, at page 609 of 264 N.W., 103 A.L.R. 861, as follows:

The term “lottery,” as popularly and generally used, refers to a gambling scheme in which chances are sold or disposed of for value and the sums thus paid are hazarded in the hope of winning a much larger sum. That is the predominant characteristic of lotteries which has become known to history and is the source of the evil which attends a lottery, in that it arouses the gambling spirit and leads people to hazard their substance on a mere chance. It is undoubtedly the evil against which our statute is directed. The provisions of the statute making it a crime to have possession of lottery tickets with intent to sell or dispose of them indicates not only what is regarded as characteristic of a lottery, but it indicates the particular incident of a lottery which is regarded as an evil. To have a lottery, therefore, he who has the chance to win the prize must pay, or agree to pay, something of value for that chance.

In the particular scheme under consideration here, there is no question but [that] two elements of a lottery are present, first, a prize, and, second, a determination of the recipient by lot. Difficulty arises in the third element, namely, the payment of some valuable consideration for the chance by the holder thereof. The holder of the chance to win the prize in the case at bar was required to do two things in order to be eligible to receive the prize, first, to sign his name in the book, and, second, be in such proximity to the theater as that he could claim the prize within two and one-half minutes after his name was announced. He was not required to purchase a ticket of admission to the theater either as a condition to signing the registration book or claiming the prize when his name was drawn. In other words, paying admission to the theater added nothing to the chance. Where then is the payment by the holder of the chance of a valuable consideration for the chance, which is necessary in order to make the scheme a lottery?

[13]    In holding that there was not such a valuable consideration as would constitute the arrangement a lottery, we state at page 1372 of 220 Iowa, at page 610 of 264 N.W., 103 A.L.R. 861, as follows: “It is urged on behalf of the state that the defendant theater manager gained some benefit, or hoped to gain some benefit, from the scheme in the way of increased attendance at his theater, and that this would afford the consideration required. If it be conceded that the attendance at the theater on the particular night that the prize was to be given away was stimulated by reason of the scheme, it is difficult to see how that would make the scheme a lottery. The question is not whether the donor of the prize makes a profit in some remote and indirect way, but, rather, whether those who have a chance at the prize pay anything of value for that chance. Every scheme of advertising, including the giving away of premiums and prizes, naturally has for its object, not purely a philanthropic purpose, but increased business….Profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has the chance to win the prize must pay a valuable consideration therefor, in order to make the scheme a lottery.”

[14]    Appellees rely upon the language above quoted to support their contention that the arrangement involved in both cases constitutes merely an offer to make a gift, which is not supported by a valuable consideration and is, therefore, unenforceable.

[15]    In 12 American Jurisprudence, pages 564 and 565, in Section 72, it is stated, “It is well settled, however, that ordinarily consideration is an essential element of a simple contract, and want or lack of consideration is an excuse for nonperformance of a promise.” It is also stated, “The policy of the courts in requiring a consideration for the maintenance of an action of assumpsit appears to be to prevent the enforcement of gratuitous promises.” Such principles have been recognized by this court. In the case of Farlow v. Farlow, 154 Iowa 647, 135 N.W. 1, we held that a promise to make a gift is without consideration and not enforceable. See also, Lanfier v. Lanfier, Iowa, 288 N.W. 104.

[16]    Appellees contend that the foregoing principles, considered with our statements in State v. Hundling, supra, show that this action is based upon a promise that cannot be enforced. In the Hundling case, we state, “The giving away of property or prizes is not unlawful,” and, “profit accruing remotely and indirectly to the person who gives the prize is not a substitute for the requirement that he who has a chance to win the prize must pay a valuable consideration therefor.” Appellees contend that these pronouncements commit us to the proposition that the arrangement involved herein constituted nothing more than a promise to make a gift which is not supported by a legal consideration, and, accordingly, is not enforceable. We are unable to agree with the contentions of appellees.

[17]    At the outset, it is important to bear in mind that the plaintiff herein seeks to recover on a unilateral contract. A bilateral contract is one in which two promises are made; the promise of each party to the contract is consideration for the promise of the other party. In a unilateral contract, only one party makes a promise. If that promise is made contingent upon the other party doing some act, which he is not under legal obligation to do, or forbearing an action which he has a legal right to take, then such affirmative act or forbearance constitutes the consideration for and acceptance of the promise.

[18]    In discussing the difference between bilateral contracts and unilateral contracts, this court, in the case of Port Huron Mach. Co. v. Wohlers, 207 Iowa 826, 829, 221 N.W. 843, 844, states as follows:

The law recognizes, as a matter of classification, two kinds of contracts—unilateral and bilateral. In the case at bar a typical example of unilateral contract is found, since it is universally agreed that a “unilateral contract” is one in which no promisor receives a promise as consideration, whereas, in a “bilateral contract” there are mutual promises between the two parties to the contract. This matter of definition has recently received careful consideration by the American Law Institute and may be found in the Restatement of the Law of Contracts. Proposed Final Draft No. 1 (April 18, 1928) p. 17, § 12.

In the instant case the offer of the defendant must be viewed as a promise. It is promissory in terms. The rule is well stated by Prof. Williston: 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. See Williston on Contracts, vol. 1, § 139. Clearly the instant offer signed by the defendant was of this character. Appellant, however, contends that there was no acceptance of the offer. Words are not the only medium of expression of mutual assent. An offer may invite an acceptance to be made by merely an affirmative answer or by performing a specific act. True, if an act other than a promise is requested, no contract exists until what is requested is performed or tendered in whole or in part. We are here dealing with a unilateral contract, and the act requested and performed as consideration for the contract indicates acceptance as well as furnishes the consideration.

[19]    The case of Scott v. People’s Monthly Co., 209 Iowa 503, 508, 228 N.W. 263, 265, 67 A.L.R. 413, involved an action for a $1,000 prize offered in a “Word-building Contest”. We there state:

In 34 Cyc. 1731, we find the following apt language:

“An offer of or promise to pay a reward is a proposal merely or a conditional promise, on the part of the offeror, and not a consummated contract. It may be said to be in effect the offer of a promise for an act, and the offer becomes a binding contract when the act is done or the service rendered in accordance with the terms of the offer.”

It is the doing of the act in accordance with the terms and conditions of the offer which completes the contract. 34 Cyc. 1738. In other words, to make a binding and enforceable contract, the act must be done in accordance with the terms and conditions of the offer. 34 Cyc. 1742. See, also, 13 Corpus Juris 275; 13 C.J. 379; 13 C.J. 281-283; 13 C.J. 289; Baker v. Johnson County, 37 Iowa 186; Breen v. Mayne, 141 Iowa 399, 118 N.W. 441.

[20]    The principles applicable to the question of the adequacy of the consideration are clearly and concisely stated by Chief Justice Wright in the early case of Blake v. Blake, 7 Iowa 46, 51, as follows: “The essence and requisite of every consideration is, that it should create some benefit to the party promising, or some trouble, prejudice, or inconvenience to the party to whom the promise is made. Whenever, therefore, any injury to the one party, or any benefit to the other, springs from a consideration, it is sufficient to support a contract. Each party to a contract may, ordinarily, exercise his own discretion, as to the adequacy of the consideration; and if the agreement be made bona fide, it matters not how insignificant the benefit may apparently be to the promissor, or how slight the inconvenience or damage appear to be to the promisee, provided it be susceptible of legal estimation. Story on Contracts, section 431. Of course, however, if the inadequacy is so gross as to create a presumption of fraud, the contract founded thereon would not be enforced. But, even then, it is the fraud which is thereby indicated, and not the inadequacy of consideration, which invalidates the contract.”

[21]    The principles announced in the above quotation have been recognized and applied by us in our later decisions. State ex rel. v. American Bonding & Casualty Co., 213 Iowa 200, 206, 238 N.W. 726; Edwards v. Foley, 187 Iowa 5, 9, 173 N.W. 914; Harlan v. Harlan, 102 Iowa 701, 704, 72 N.W. 286.

[22]    Applying the principles above reviewed, it is readily apparent that, in this action on a unilateral contract, it was necessary for the plaintiff to show that a promise had been made which might be accepted by the doing of an act, which act would constitute consideration for the promise and performance of the contract. There is no basis for any claim of fraud herein. Plaintiff had nothing to do with inducing the defendants’ promise. That promise was voluntarily and deliberately made. Defendants exercised their own discretion in determining the adequacy of the consideration for their promise. If the plaintiff did the acts called for by that promise, defendants cannot complain of the adequacy of the consideration.

[23]    Of course, it is fundamental that the act which is asserted as the consideration for acceptance and performance of a unilateral contract must be an act which the party sought to be bound bargained for, and the acts must have been induced by the promise made. Appellees contend that the facts are wholly insufficient to meet such requirements, contending as follows: “Although the action of Appellant in writing her name or standing in front of the theater might under some circumstances be such an act as would furnish a consideration for a promise, yet under the facts in the case at bar,…no reasonable person could say that the requested acts were actually bargained for in a legal sense so as to give rise to an enforceable promise.”

[24]    We are unable to concur in the contentions of counsel above quoted. We think that the requested acts were bargained for. We see nothing unreasonable in such holding. If there is anything unreasonable in this phase of the case, it would appear to be the contentions of counsel.

[25]    This brings us to the proposition raised by paragraph 7 of the motion for directed verdict, wherein it is asserted that, if there was a legal consideration for the promise sought to be enforced, then such consideration would constitute the transaction a lottery. To sustain such contention would require us to overrule State v. Hundling, supra, and to overrule such contention requires a differentiating of that case from this case. We think that the two questions are different and may be logically distinguished.

[26]    In the Hundling case, we point out that the source of the evil which attends a lottery is that it arouses the gambling spirit and leads people to hazard their substance on a mere chance. Accordingly, it is vitally necessary to constitute a lottery that one who has the chance to win the prize must pay something of value for that chance. The value of the consideration, from a monetary standpoint, is the essence of the crime. However, in a civil action to enforce the promise to pay a prize, the monetary value of the consideration is in no wise controlling. It is only necessary that the act done be that which the promisor specified. The sufficiency of the consideration lies wholly within the discretion of the one who offers to pay the prize. “It matters not how insignificant the benefit may apparently be to the promisor, or how slight the inconvenience or damage appear to be to the promisee, provided it be susceptible of legal estimation.” Blake v. Blake, supra. Accordingly, it is entirely possible that the act, specified by the promisor as being sufficient in his discretion to constitute consideration for and acceptance of his promise, might have no monetary value and yet constitute a legal consideration for the promise. Under such circumstances, the arrangement is not a lottery. The promoter of the scheme cannot be prosecuted criminally. But, if the act specified is done, the unilateral contract is supported by a consideration, and, having been performed by the party doing the act, can be enforced against the party making the promise. We hold that such is the situation here. There is no merit in grounds 1, 3 and 7 of the motion for directed verdict.


[27]    Appellant’s second assignment of error challenges paragraph 2 of the motion for directed verdict, which asserted that the evidence was insufficient to establish that Alice Kafer was employed by or authorized by defendants to announce the winner of the drawing, and that defendants were not bound by her statements. The answer admitted that Parkinson was manager of the theatre. As manager of the theatre, he asserted that he had a lady hired to call out the name outside the theatre. This assertion upon his part is binding upon the defendants. The evidence shows that the only person who called out the name other than Parkinson was Alice Kafer, and that she habitually announced the name that had been drawn on prior occasions. The evidence was sufficient to establish her agency and to make her announcement binding on defendants.


[28]    Appellants’ fifth assignment of error challenges paragraph 5 of the motion for directed verdict, which asserts that there was no evidence that either plaintiff or her husband claimed the purse within the time limit fixed by defendants. The evidence shows that, when the plaintiff claimed the prize, Parkinson said, “I am sorry, but it was your husband’s name that was called, where is your husband?” When her husband came, he said to him, “You are too late, just one second too late.” Obviously, under Parkinson’s statement, plaintiff claimed the prize in time. If her husband was the one entitled to it, the delay on his part was due to the defendants’ act in permitting their agent, Alice Kafer, to announce the wrong name outside the theatre. Under such circumstances, defendants are estopped to claim the advantage of the one second delay. The basis for such estoppel was pleaded in the petition. It must be enforced against defendants.


[29]    Appellant’s sixth assignment of error challenges paragraph 6 of the motion for directed verdict, which asserted that no relevant, competent, or material proof tended to establish that the name of either the plaintiff or her husband was drawn. Plaintiff’s name was announced by one agent, her husband’s name by another agent, both of whom were in a position to bind the defendants. There is no merit in this ground of the motion.


[30]    Appellant’s fourth assignment of error attacks paragraph 4 of the motion for directed verdict, which is a blanket statement that under the evidence it would be the duty of the court to set aside a verdict for the plaintiff. The disposition of the other propositions herein demonstrates that there is no merit in this ground of the motion.

[31]    All of appellant’s assignments of error are well grounded. No ground of the motion for directed verdict was sufficient to warrant a sustaining of the motion. The court’s ruling was erroneous.

The judgment entered pursuant thereto must be and it is reversed.


1.2.1 The Legality of “Bank Nights” in Iowa

In State v. Hundling, discussed above in St. Peter, the Iowa Supreme Court held that participants in a Bank Night contest had not given valuable consideration within the meaning of the state’s criminal statute prohibiting lotteries. Several decades later, the same court reversed itself and ruled that Bank Nights violated Iowa lottery laws. For a detailed history of the Bank Night litigation, see Annotation, 103 A.L.R. 866; 109 A.L.R. 709; 113 A.L.R. 1121.

1.2.2 Discussion of St. Peter v. Pioneer Theatre

Is the alleged contract in this case bilateral or unilateral? What do you suppose that those terms mean?

How would you apply the bargain theory of consideration to the facts of St. Peter v. Pioneer Theatre?

Consider whether there is anything fishy about Pioneer Theatre’s arguments. Do you see any problem with arguing that the promotional scheme is not an illegal lottery while also maintaining that the Bank Night prize is merely an unenforceable promise to give a gift?

1.2.3 Problem on Consideration

Consider the following variation on Hamer v. Sidway. Suppose that New York state law made it illegal for Willie to drink, smoke or gamble before the age of 21. Uncle William offers, and Willie accepts, $5,000 to abstain from these vices until age 21.

Would this promise be enforceable under the language of the Hamer decision?

What about under the principles of Restatement (Second) § 71?

Can you think of any reason(s) that a court might be reluctant to enforce in these circumstances?

Suppose now that the agreement concerns armed robbery and homicide instead. New York state law makes it illegal to commit armed robbery or homicide. Uncle William offers, and Willie accepts, $5,000 to abstain from armed robbery and homicide until age 21.

How would you expect a court to analyze this promise?

2. Bargain or Gift?

Our analysis of consideration has thus far introduced the benefit-detriment test used in Hamer v. Sidway as well as the more modern bargain theory of consideration, which is described in Restatement (Second) § 71 and applied in St. Peter v. Pioneer Theatre. We have also explored the relationship between these two versions of consideration doctrine. When parties feel the need to bargain, it is ordinarily because they each hope to obtain a benefit that the other party regards as a detriment. Thus, the existence of a bargain usually implies the existence of both a benefit to the promisor and a detriment for the promisee.

The cases that follow will allow us to refine our understanding of the rules concerning consideration. As we will see, consideration doctrine polices the line between enforceable bargains and unenforceable promises to make gifts. Consideration also can be understood as a legal formality.

Professor Lon Fuller proposed that consideration doctrine serves four important objectives: an evidentiary function, a cautionary function, a deterrent function and a channeling function. See Lon Fuller, Consideration and Form, 41 Colum. L. Rev. 799, 800-802 (1941). According to Fuller, satisfying the formal requirement of consideration provides evidentiary assurance about the existence of an agreement. This legal formality also has the potential to check rash or impulsive action and prevent parties from assuming legally enforceable obligations without sufficient deliberation. Finally, the consideration requirement allows parties to choose a legally binding form for certain important promises. Fuller sought to explain this final channeling function of legal formalities with an analogy to the use of language.

One who wishes to communicate his thoughts to others must force the raw material of meaning into defined and recognizable channels; he must reduce the fleeting entities of wordless thought to the patterns of conventional speech. One planning a legal transaction faces a similar problem. His mind first conceives an economic or sentimental objective, or, more usually, a set of overlapping objectives. He must then, with or without the aid of a lawyer, cast about for the legal transaction (written memorandum, sealed contract, lease, conveyance of the fee, etc.) which will most nearly accomplish all these objectives. Just as the use of language contains dangers for the uninitiated, so legal forms are safe only in the hands of those who are familiar with their effect ….

Id. at 801.


2.1 Principal Case – Kirksey v. Kirksey

We begin with a short and somewhat mysterious case involving a relative’s promise to give a widow a comfortable place to live.

Kirksey v. Kirksey

Supreme Court of Alabama

8 Ala. 131 (1845)

[1]    Assumpsit by the defendant, against the plaintiff in error. The question is presented in this Court, upon a case agreed, which shows the following facts:

[2]    The plaintiff was the wife of defendant’s brother, but had for some time been a widow, and had several children. In 1840, the plaintiff resided on public land, under a contract of lease, she had held over, and was comfortably settled, and would have attempted to secure the land she lived on. The defendant resided in Talladega county, some sixty, or seventy miles off. On the 10th October, 1840, he wrote to her the following letter:

Dear sister Antillico–Much to my mortification, I heard, that brother Henry was dead, and one of his children. I know that your situation is one of grief, and difficulty. You had a bad chance before, but a great deal worse now. I should like to come and see you, but cannot with convenience at present. …I do not know whether you have a preference on the place you live on, or not. If you had, I would advise you to obtain your preference, and sell the land and quit the country, as I understand it is very unhealthy, and I know society is very bad. If you will come down and see me, I will let you have a place to raise your family, and I have more open land than I can tend; and on the account of your situation, and that of your family, I feel like I want you and the children to do well.

[3]    Within a month or two after the receipt of this letter, the plaintiff abandoned her possession, without disposing of it, and removed with her family, to the residence of the defendant, who put her in comfortable houses, and gave her land to cultivate for two years, at the end of which time he notified her to remove, and put her in a house, not comfortable, in the woods, which he afterwards required her to leave.

[4]    A verdict being found for the plaintiff, for two hundred dollars, the above facts were agreed, and if they will sustain the action, the judgment is to be affirmed, otherwise it is to be reversed.

Ormond, J.

[5]    The inclination of my mind, is, that the loss and inconvenience, which the plaintiff sustained in breaking up, and moving to the defendant’s, a distance of sixty miles, is a sufficient consideration to support the promise, to furnish her with a house, and land to cultivate, until she could raise her family. My brothers, however think, that the promise on the part of the defendant, was a mere gratuity, and that an action will not lie for its breach. The judgment of the Court below must therefore be reversed, pursuant to the agreement of the parties.


2.1.1 The Law of Gifts

The court in Kirksey concluded that Isaac Kirksey’s promise to give his sister-in-law a place to live was “a mere gratuity.” Here is what another court had to say about what a donor must do to make a gift enforceable:

A gift is a contract without valid consideration, and, to be valid, must be executed. A valid gift is therefore a contract executed. It is to be executed by the actual delivery by the donor to the donee, or to someone for him, of the thing given or by the delivery of the means of obtaining the subject of the gift, without further act of the donor to enable the donee to reduce it to his possession. “The intention to give must be accompanied by a delivery, and the delivery must be made with the intention to give.” Otherwise there is only an intention or promise to give, which, being gratuitous, would be a mere nullity. Delivery of possession of the thing given, or of the means of obtaining it so as to make the disposal of it irrevocable, is indispensable to a valid gift.

Spooner’s Administrator v. Hilbish’s Excecutor, 23 S.E. 751, 753 (Va. 1895).

2.1.2 Williston’s Tramp and Conditional Gifts

It is something of a puzzle in Kirksey that the trouble and inconvenience Antillico suffered in moving her family was not sufficient consideration to support her brother-in-law’s promise. Resolving this puzzle requires us to determine whether what Antillico did was the price of a bargain with Isaac or merely a condition precedent to receiving a gift. Professor Samuel Williston used the following hypothetical to distinguish contractual consideration from a conditional gift:

If a benevolent man says to a tramp: “If you go around the corner to the clothing shop there, you may purchase an overcoat on my credit,” no reasonable person would understand that the short walk was requested as consideration for the promise, but that in the event of the tramp going to the shop the promisor would make him a gift. Yet the walk to the shop is in its nature capable of being consideration. It is a legal detriment to the tramp to make the walk, and the only reason why the walk is not consideration is because on a reasonable construction it must be held that the walk was not requested as the price of the promise, but was merely a condition of a gratuitous promise. It is often difficult to determine whether words of condition in a promise indicate a request for consideration or state a mere condition in a gratuitous promise. An aid, though not a conclusive test in determining which construction of the promise is more reasonable is an inquiry whether the happening of the condition will be a benefit to the promisor. If so, it is a fair inference that the happening was requested as a consideration. On the other hand, if, as in the case of the tramp stated above, the happening of the condition will be not only of no benefit to the promisor but is obviously merely for the purpose of enabling the promisee to receive a gift, the happening of the event on which the promise is conditional, though brought about by the promisee in reliance on the promise, will not properly be construed as consideration. In case of doubt where the promisee has incurred a detriment on the faith of the promise, courts will naturally be loath to regard the promise as a mere gratuity and the detriment incurred as merely a condition. But in some cases it is so clear that a conditional promise was intended even though the promisee has incurred a detriment, the promise has been held unenforceable.

1 Samuel Williston, The Law of Contracts § 112 (1922).

2.1.3 The Story of Kirksey v. Kirksey

Some commentators have suggested that perhaps Isaac Kirksey had romantic designs on his widowed sister-in-law and only evicted her when the relationship soured. Others have argued that he sought financial rather than romantic advantage by inviting her to live with him.

Isaac Kirksey … had an ulterior motive. He meant to place Antillico on public land to hold his place … so that he could buy the land from the U.S. government at a lucrative discount. … Isaac evicted Antillico because a change in the laws made Isaac ineligible to buy [the land] at a discount, but the same law allowed Antillico a right to the land on which Isaac placed her…. Only by evicting her could Isaac hope to retain that land.

William R. Castro & Val D. Ricks, “Dear Sister Antillico …” The Story of Kirksey v. Kirksey, 94 Geo. L.J. 321, 323-25 (2006).

2.1.4 Discussion of Kirksey v. Kirksey

How do you make a gift enforceable? Is a promise enough? Why is the offer of an overcoat to Williston’s tramp merely a conditional gift? Can you apply the same analysis to Kirksey?

Is there any plausible interpretation of the facts in Kirksey that would supply evidence of consideration to support Isaac’s promise?


2.2 Principal Case – In re Greene

In re Greene

United States District Court, Southern District of New York

45 F.2d 428 (1930)

Woolsey, District Judge.

[1]    The petition for review is granted, and the order of the referee is reversed.

[2]    The claimant, a woman, filed proof of claim in the sum of $375,700, based on an alleged contract, against this bankrupt’s estate. The trustee in bankruptcy objected to the claim. A hearing was held before the referee in bankruptcy and testimony taken. The referee held the claim valid and dismissed the objections. The correctness of this ruling is raised by the trustee’s petition to review and the referee’s certificate.

[3]    For several years prior to April 28, 1926, the bankrupt, a married man, had apparently lived in adultery with the claimant. He gave her substantial sums of money. He also paid $70,000 for a house on Long Island acquired by her, which she still owns. Throughout their relations the bankrupt was a married man, and the claimant knew it. The claimant was well over thirty years of age when the connection began. She testified that the bankrupt has promised to marry her as soon as his wife should get a divorce from him; this the bankrupt denied. The relations of intimacy between them were discontinued in April, 1926, and they then executed a written instrument under seal which is alleged to be a binding contract and which is the foundation of the claim under consideration.

[4]    In this instrument, which was made in New York, the bankrupt undertook (1) to pay to the claimant $1,000 a month during their joint lives; (2) to assign to her a $100,000 life insurance policy on his life and to keep up the premiums on it for life, the bankrupt to pay $100,000 to the claimant in case the policy should lapse for nonpayment of premiums; and (3) to pay the rent for four years on an apartment which she had leased. It was declared in the instrument that the bankrupt had no interest in the Long Island house or in its contents, and that he should no longer be liable for mortgage interest, taxes, and other charges on this property. The claimant on her part released the bankrupt from all claims which she had against him. The preamble to the instrument recites as consideration the payment of $1 by the claimant to the bankrupt, “and other good and valuable consideration.” The bankrupt kept up the several payments called for by the instrument until August, 1928, but failed to make payments thereafter.

[5]    In the proof of claim it is alleged that a total of $375,700 was due because of breach of the agreement, made up as follows: $250,000 for failure to pay $1,000 a month; $99,200 for failure to maintain the insurance policy; and $26,500 for failure to pay the rent. The claim was sustained by the referee for the full amount.

[6]    It seems clear that the $250,000 allowed as damages for failure to pay $1,000 a month was excessive. The bankrupt’s undertaking was to pay $1,000 a month only so long as both he and the claimant should live; it was not an annuity for the claimant’s life alone, as she seems to have assumed. There is nothing in the record to indicate the bankrupt’s age, and consequently there is a failure of proof as to this element of damage. In view of my conclusion that the entire claim is void, however, the matter of damages is of no present importance.

[7]    A contract for future illicit cohabitation is unlawful. There is consideration present in such a case, but the law strikes the agreement down as immoral. Williston on Contracts, Sec. 1745. Here the illicit intercourse had been abandoned prior to the making of the agreement, so that the above rule is not infringed. This case is one where the motive which led the bankrupt to make the agreement on which the claim is based was the past illicit cohabitation between him and the claimant. The law is that a promise to pay a woman on account of cohabitation which has ceased is void, not for illegality, but for want of consideration. The consideration in such a case is past. The mere fact that past cohabitation is the motive for the promise will not of itself invalidate it, but the promise in such a case, to be valid, must be supported by some consideration other than past intercourse. Williston on Contracts, Secs. 148, 1745.

[8]    The problem in the present case, therefore, is one of consideration, not of illegality, and it is clear that the past illicit intercourse is not consideration. The cases dealing with situations where there is illegitimate offspring or where there has been seduction are of doubtful authority, for the doctrine that past moral obligation is consideration is now generally exploded. But these cases and others speaking of expiation of past wrong, cited by the referee, are not in point. Here there was not any offspring as a result of the bankrupt’s union with the claimant; there was not any seduction shown in the sense in which that word is used in law. Cf. New York Penal Law, art. 195, Sec. 2175. There was not any past wrong for which the bankrupt owed the claimant expiation—volenti non fit injuria. Cases involving deeds, mortgages, and the like are not analogous, because no consideration is necessary in an executed transaction.

[9]    The question, therefore, is whether there was any consideration for the bankrupt’s promises, apart from the past cohabitation. It seems plain that no such consideration can be found, but I will review the following points emphasized by the claimant as showing consideration:

[10]    (1) The $1 consideration recited in the paper is nominal. It cannot seriously be urged that $1, recited but not even shown to have been paid, will support an executory promise to pay hundreds of thousands of dollars.

[11]    (2) “Other good and valuable consideration” are generalities that sound plausible, but the words cannot serve as consideration where the facts show that nothing good or valuable was actually given at the time the contract was made.

[12]    (3) It is said that the release of claims furnishes the necessary consideration. So it would if the claimant had had any claims to release. But the evidence shows no vestige of any lawful claim. Release from imaginary claims is not valuable consideration for a promise. In this connection, apparently, the claimant testified that the bankrupt had promised to marry her as soon as he was divorced. Assuming that he did—though he denies it—the illegality of any such promise, made while the bankrupt was still married, is so obvious that no claim could possible arise from it, and the release of such claim could not possibly be lawful consideration.

[13]    (4) The claimant also urges that by the agreement the bankrupt obtained immunity from liability for taxes and other charges on the Long Island house. The fact is that he was never chargeable for these expenses. He doubtless had been in the habit of paying them, just as he had paid many other expenses for the claimant; but such payments were either gratuitous or were the contemporaneous price of the continuance of his illicit intercourse with the claimant. It is absurd to suppose that, when a donor gives a valuable house to a donee, the fact that the donor need pay no taxes or upkeep thereafter on the property converts the gift into a contract upon consideration. The present case is even stronger, for the bankrupt had never owned the house and had never been liable for the taxes. He furnished the purchase price, but the conveyance was from the seller direct to the claimant.

[14]    (5) Finally, it is said that the parties intended to make a valid agreement. It is a non sequitur to say that therefore the agreement is valid. A man may promise to make a gift to another, and may put the promise in the most solemn and formal document possible; but, barring exceptional cases, such, perhaps, as charitable subscriptions, the promise will not be enforced. The parties may shout consideration to the housetops, yet, unless consideration is actually present, there is not a legally enforcible contract. What the bankrupt obviously intended in this case was an agreement to make financial contribution to the claimant because of his past cohabitation with her, and, as already pointed out, such an agreement lacks consideration.

[15]    The presence of the seal would have been decisive in the claimant’s favor a hundred years ago. Then an instrument under seal required no consideration, or, to keep to the language of the cases, the seal was conclusive evidence of consideration. In New York, however, a seal is now only presumptive evidence of consideration on an executory instrument. Civil Practice Act, Sec. 342; Harris v. Shorall, 230 N.Y. 343, 348, 130 N.E. 572; Alexander v. Equitable Life Assurance Society, 233 N.Y. 300, 307, 135 N.E. 509. This presumption was amply rebutted in this case, for the proof clearly shows, I think, that there was not in fact any consideration for the bankrupt’s promise contained in the executory instrument signed by him and the claimant.

[16]    An order in accordance with this opinion may be submitted for settlement on two days’ notice.


2.2.1 The Use of Sealed Contracts

A wax “seal” was an ancient device used to identify the maker of a document and to verify its authenticity. As the following excerpt reveals, this legal formality has lost the power it once had:

Given that unrelied-upon donative promises are normally unenforceable, the question arises whether the law should recognize some special form through which a promisor with the special intent to be legally bound could achieve that objective. “It is something,” said Williston, “that a person ought to be able … if he wishes to do it … to create a legal obligation to make a gift. Why not? … I don’t see why a man should not be able to make himself liable if he wishes to do so.”

At early common law the seal served this purpose. In modern times, most state legislatures have either abolished the distinction between sealed and unsealed promises, abolished the use of a seal in contracts, or otherwise limited the seal’s effect. The axiomatic school, however, never rejected the rule that a seal makes a promise enforceable, and that rule is now embodied in § 95(1)(a) of the Restatement Second, which provides that “[i]n the absence of statute a promise is binding without consideration if … it is in writing and sealed ….”

The Restatement Second makes no attempt to justify this rule. Originally, the seal was a natural formality—that is, a promissory form popularly understood to carry legal significance—which ensured both deliberation and proof by involving a writing, a ritual of hot wax, and a physical object that personified its owner. Later, however, the elements of ritual and personification eroded away, so that in most states by statute or decision a seal may now take the form of a printed device, word, or scrawl, the printed initials “L.S.,” or a printed recital of sealing. Few promisors today have even the vaguest idea of the significance of such words, letters, or signs, if they notice them at all. The Restatement Second itself freely admits that “the seal has come to seem archaic.” Considering this drastic change in circumstances, the rule that the seal renders a promise enforceable has ceased to be tenable under modern conditions. The rule has been changed by statute in about two-thirds of the states, and at least one case held even without the benefit of a statute that the rule should no longer be strictly applied.

Melvin Eisenberg, The Principles of Consideration, 67 Cornell L. Rev. 640, 659-60 (1982).

2.2.2 The Compromise of Legal Claims as Consideration

Parties most often end litigation before trial by entering into a settlement agreement. These agreements commonly require some payment by one party in exchange for a release or compromise of legal claims brought by the other party. The Restatement (Second) of Contracts (1981) explains how consideration doctrine relates to these promises.

§ 74. Settlement of Claims

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

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

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

(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

2.2.3 Discussion of In re Greene

What is the strongest argument for the position that there was no consideration for Greene’s promise to Leila Trudel? Do you see how Restatement (Second) § 74 might support Trudel’s contention that this promise should be enforced? How would you expect the court to respond?

Consider whether the interaction between Greene and Trudel satisfies each of the four functions of legal formality that Lon Fuller identified. Can you think of any other factors that might explain the court’s evident reluctance to enforce Greene’s promises?

Does the fact that the parties memorialized their agreement in a sealed contract affect its enforceability? Should the presence of a seal make a court more likely to enforce? Do you believe that contract law should provide a device that allows parties to make legally enforceable donative promises?

3. Adequacy Doctrine

As we saw in In re Greene, courts are sometimes skeptical about whether purported consideration embodies a genuine exchange or merely disguises an otherwise unenforceable gift. Parties themselves are sometimes heard to complain that they have not received real or sufficient consideration for their promises. This section explores the doctrinal rules that determine whether this argument succeeds or fails.


3.1 Principal Case – Batsakis v. Demotsis

The court in Greene decided that Leila Trudel had failed to provide legally sufficient consideration to support Greene’s promises. Contrast with Greene the following case in which the court decides to enforce a promise to pay despite one party’s contention that she received inadequate consideration. As you read, try to identify the facts and circumstances that produce these disparate results.

Batsakis v. Demotsis

Court of Civil Appeals of Texas

226 S.W.2d 673 (1949)

McGill, Justice.

[1]    This is an appeal from a judgment of the 57th judicial District Court of Bexar County. Appellant was plaintiff and appellee was defendant in the trial court. The parties will be so designated.

[2]    Plaintiff sued defendant to recover $2,000 with interest at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a translation from the original, which is written in the Greek language:


April 2, 1942

Mr. George Batsakis

Konstantinou Diadohou #7


Mr. Batsakis:

I state by my present (letter) that I received today from you the amount of two thousand dollars ($2,000.00) of United States of America money, which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America.

The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event that you might be able to find a way to collect them (dollars) from my representative in America to whom I shall write and give him an order relative to this you understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal.

I thank you and I remain yours with respects.

The recipient,

(Signed) Eugenia The. Demotsis.

[3]    Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2, 1942 to the date of judgment, totaling $1163.83, with interest thereon at the rate of 8% per annum until paid. Plaintiff has perfected his appeal.

[4]    The court sustained certain special exceptions of plaintiff to defendant’s first amended original answer on which the case was tried, and struck therefrom paragraphs II, III and V. Defendant excepted to such action of the court, but has not cross-assigned error here. The answer, stripped of such paragraphs, consisted of a general denial contained in paragraph I thereof, and of paragraph IV, which is as follows:

IV. That under the circumstances alleged in Paragraph II of this answer, the consideration upon which said written instrument sued upon by plaintiff herein is founded, is wanting and has failed to the extent of $1975.00, and defendant pleads specially under the verification hereinafter made the want and failure of consideration stated, and now tenders, as defendant has heretofore tendered to plaintiff, $25.00 as the value of the loan of money received by defendant from plaintiff, together with interest thereon.

Further, in connection with this plea of want and failure of consideration defendant alleges that she at no time received from plaintiff himself or from anyone for plaintiff any money or thing of value other than, as hereinbefore alleged, the original loan of 500,000 drachmae. That at the time of the loan by plaintiff to defendant of said 500,000 drachmae the value of 500,000 drachmae in the Kingdom of Greece in dollars of money of the United States of America, was $25.00, and also at said time the value of 500,000 drachmae of Greek money in the United States of America in dollars was $25.00 of money of the United States of America.

[5]    The allegations in paragraph II which were stricken, referred to in paragraph IV, were that the instrument sued on was signed and delivered in the Kingdom of Greece on or about April 2, 1942, at which time both plaintiff and defendant were residents of and residing in the Kingdom of Greece, and

[Plaintiff] avers that on or about April 2, 1942 she owned money in the United States of America, but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500,000 drachmae, which at that time, on or about April 2, 1942, had the value of $25.00 in money of the United States of America. That the said plaintiff, knowing defendant’s financial distress and desire to return to the United States of America, exacted of her the written instrument plaintiff sues upon, which was a promise by her to pay to him the sum of $2,000.00 of United States of America money.

[6]    Plaintiff specially excepted to paragraph IV because the allegations thereof were insufficient to allege either want of consideration or failure of consideration, in that it affirmatively appears therefrom that defendant received what was agreed to be delivered to her, and that plaintiff breached no agreement. The court overruled this exception, and such action is assigned as error. Error is also assigned because of the court’s failure to enter judgment for the whole unpaid balance of the principal of the instrument with interest as therein provided.

[7]    Defendant testified that she did receive 500,000 drachmas from plaintiff. It is not clear whether she received all the 500,000 drachmas or only a portion of them before she signed the instrument in question. Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500,000 drachmas if she would sign the instrument. She testified:

Q.…who suggested the figure of $2,000.00?

That was how he asked me from the beginning. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00 American money.

[8]    The transaction amounted to a sale by plaintiff of the 500,000 drachmas in consideration of the execution of the instrument sued on, by defendant. It is not contended that the drachmas had no value. Indeed, the judgment indicates that the trial court placed a value of $750.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff’s testimony. Therefore the plea of want of consideration was unavailing. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place. National Bank of Commerce v. Williams, 125 Tex. 619, 84 S.W.2d 691.

[9]    Mere inadequacy of consideration will not void a contract. 10 Tex.Jur., Contracts, Sec. 89, p. 150; Chastain v. Texas Christian Missionary Society, Tex.Civ.App., 78 S.W.2d 728, loc. cit. 731(3), Wr. Ref.

[10]    Nor was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to her own testimony. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the instrument sued on, with interest as therein provided. We construe the provision relating to interest as providing for interest at the rate of 8% per annum. The judgment is reformed so as to award appellant a recovery against appellee of $2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942. Such judgment will bear interest at the rate of 8% per annum until paid on $2,000.00 thereof and on the balance interest at the rate of 6% per annum. As so reformed, the judgment is affirmed.

Reformed and affirmed.


3.1.1 The Background of Batsakis v. Demotsis

Here is a compelling account of the harrowing conditions residents faced in German-occupied Athens during the early years of World War II:

During the first winter of the occupation, 1941-2, the blockaded cities and the mountain villages, cut off from the plains which had supplied them with grain, salt, and oil, suffered the most. Athens became a nightmare landscape of skeletal figures with bellies swollen, shuffling hopelessly in search of food, falling dead and lying unburied in the streets. The children and the elderly died first.

In the first two months of winter, 300,000 people starved to death in the capital. In order to keep the deceaseds’ ration cards, families did not report deaths but threw the corpses surreptitiously over the walls of cemeteries ….

The ration cards were nearly worthless, since bread was nonexistent, the food shops closed and shuttered. The smallest purchases required sacks of paper money…. If a baker happened to find enough flour to bake and sell a loaf of bread, he set the price in British gold sovereigns.

Everyone who could walk spent the entire day until curfew searching for food. The poor stripped the countryside of greens for miles outside of Athens. Trees in the avenues and parks were cut down for firewood. Servants of the wealthy were sent to outlying villages and islands with family treasures in search of a loaf of bread or a chicken ….

During the winter of 1941 in Athens, packs of stray dogs howled in the hills below the Acropolis, mass graves were dug in the gardens of the royal palace, and death waited on every street corner.

Nickolas Gage, Eleni 65-67 (1983).

3.1.2 Adequacy Doctrine

Courts ordinarily honor the rule that the parties are the best judge of the value of the promises they choose to exchange. The Restatement (Second) puts the matter this way:

§ 79. Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of

(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or

(b) equivalence in the values exchanged; or

(c) “mutuality of obligation.”

Students should read Comment c to § 79 from an outside source for further elaboration.

Additionally, Comment d to § 79 explains the complementary doctrine of nominal or sham consideration and should be read.

A prominent contracts scholar reconciles the doctrines in the following excerpt:

Parting with a document, the contents of which can in fact render no service, has been held to be a sufficient consideration for a promise to pay a large sum. Services or property are sufficient consideration for a promise to pay much more money than anyone else would pay for them ….

The rule that market equivalence of consideration is … to be left solely to the free bargaining process of the parties, leads in extreme cases to seeming absurdities. When the consideration is only a “peppercorn” or a “tomtit” or a worthless piece of paper, the requirement of a consideration appeared to Holmes to be as much of a mere formality as is a seal. In such extreme cases, a tendency may be observed to refuse to apply the rule; but it is a tendency that has not been carried very far. Such cases can sometimes be explained on the ground that the stated consideration was a mere pretense.

1 Corbin on Contracts § 127 (1963).

3.1.3 Discussion of Batsakis v. Demotsis

Why do you suppose that the parties chose to draft a contract saying that Demotsis had received $2,000 when she really received 500,000 drachmae instead?

On what grounds does the court reject Demotsis’s contention that the contract should be unenforceable?

Can you think of any policy justifications for the adequacy doctrine expressed in Batsakis and in § 79 of the Restatement (Second), ?

4. Promissory Estoppel

Courts have been unwilling to confine contractual liability within the narrow limits of consideration doctrine. Although bargained-for exchanges remain central to contract enforcement, an important line of cases embraces a competing principle of reliance-based enforcement. Even in the absence of an express bargain, a promise may be enforceable if the promisor should reasonably expect it to induce action or forbearance. Thus, promissory estoppel doctrine offers some hope of legal protection to a person who incurs costs or confers benefits in justifiable reliance on a promise.

As many jurists and commentators have observed, however, this reliance principle has the potential to obliterate the distinction between enforceable bargains and unenforceable donative promises that consideration doctrine strives so mightily to maintain.

It would cut up the doctrine of consideration by the roots, if a promisee could make a gratuitous promise binding by subsequently acting on it.

Commonwealth v. Scituate Savings Bank, 137 Mass. 301, 302 (1884) (Holmes, J.). The Restatement (Second) offers the following description of the circumstances warranting reliance-based enforcement:

§ 90. Promise Reasonably Inducing Action or Forbearance

(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 such action or forbearance is binding if inj

ustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Comment b to § 90 elaborates:

The principle of this Section is flexible. The promisor is affected only by reliance which he does or should foresee, and enforcement must be necessary to avoid injustice. Satisfaction of the latter requirement may depend on the reasonableness of the promisee’s reliance, on its definite and substantial character in relation to the remedy sought, on the formality with which the promise is made, on the extent to which the evidentiary, cautionary, deterrent and channeling functions of form are met by the commercial setting or otherwise, and on the extent to which such other policies as the enforcement of bargains and the prevention of unjust enrichment are relevant.

The language of the Restatement (Second) incorporates a large number of factors and explicitly suggests that courts should apply promissory estoppel doctrine flexibly. It remains to be seen whether this flexibility produces a narrow or a broad exception to the bargain theory of consideration. Several prominent commentators have argued that courts still display a reluctance to enforce unbargained-for promises.

[D]etrimental reliance is likely to occur even if no visible evidence of it exists. Between the date of the [gratuitous] promise and that of the repudiation, [the promisee] will have modified his consumption habits in adjustment to his suddenly increased wealth. If this expectation is disappointed, [the promissee’s] excessive consumption will have produced a permanent net loss in welfare; this loss is his reliance injury. Courts rarely acknowledge the existence of such uncompensated reliance when they refuse to enforce gratuitous promises. The absence of bargained-for consideration triggers instead a presumption of nonenforcement.

Charles J. Goetz & Robert E. Scott, Enforcing Promises: An Examination of the Basis of Contract, 89 Yale L.J. 1261, 1302 (1980). After surveying case law to determine how courts were using promissory estoppel doctrine, Professor Stanley Henderson similarly concluded that the success of a § 90 claim depends:

on the ability of the court to reconcile the reliance factor implicit in promissory estoppel with a general theory of consideration which is dominated by notions of reciprocity…. Moreover, the disposition to treat action in reliance as proof of bargain … seriously impairs the reliance principle in the very cases [of gratuitous promises] in which reliance is likely to be the only available ground for relief…. [Thus] the risk that action in reliance will be found to be not sufficiently serious to justify application of § 90, or merely the condition of a gratuitous promise, is thereby increased.

Stanley Henderson, Promissory Estoppel and the Traditional Contract Doctrine, 78 Yale L.J. 343, 345-50 (1969). Another scholar explained why an aggressive promissory estoppel doctrine might impede business negotiations.

Certainly some freedom to change one’s mind is necessary for free intercourse between those who lack omniscience. For this reason we cannot accept Dean Pound’s theory that all promises in the course of business should be enforced…. [B]usiness men as a whole do not wish the law to enforce every promise. Many business transactions, such as those on a stock or produce exchange, could not be carried on unless we could rely on a mere [oral] agreement or hasty memorandum. But other transactions, like those of real estate, are more complicated and would become too risky if we were bound by every chance promise that escapes us. Negotiations would be checked by such fear. In such cases, men do not want to be bound until the final stage, when some formality like the signing of papers gives one the feeling of security, of having taken the proper precautions.

Felix Cohen, The Basis of Contract, 46 Harv. L. Rev. 553, 572-74 (1933).

Finally, we might wonder how § 90 came to be part of the Restatement (Second). Professor Grant Gilmore offers the following colorful narrative:

[Consider] the [first] Restatement’s definition of consideration [which was then] (§ 75) taken in connection with its most celebrated section, § 90, captioned “Promise Reasonably Inducing Definite and Substantial Action.” First § 75:

(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.

(2) Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

This is, of course, pure Holmes. The venerable Justice took no part in the Restatement project. It is unlikely that he ever looked at the Restatement of Contracts. If, however, § 75 was ever drawn to his attention, it is not hard to imagine him chuckling at the thought of how his revolutionary teaching of the 1880s had become the orthodoxy of a half-century later. Now § 90:

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.

And what is that all about? We have become accustomed to the idea, without in the least understanding it, that the universe includes both matter and anti-matter. Perhaps what we have here is Restatement and anti-Restatement or Contract and anti-Contract. We can be sure that Holmes, who relished a good paradox, would have laughed aloud at the sequence of § 75 and § 90. The one thing that is clear is that these two contradictory propositions cannot live comfortably together: in the end one must swallow the other up.

A good many years ago Professor Corbin gave me his version of how this unlikely combination came about. When the Restaters and their advisors came to the definition of consideration, Williston proposed in substance what became § 75. Corbin submitted a quite different proposal. To understand what the Corbin proposal was about, it is necessary to backtrack somewhat. Even after the Holmesian or bargain theory of consideration had won all but universal acceptance, the New York Court of Appeals had, during the Cardozo period, pursued a line of its own. There is a long series of Cardozo contract opinions, scattered over his long tenure on that court. Taken all in all, they express what might be called an expansive theory of contract. Courts should make contracts wherever possible, rather than the other wayaround. Missing terms can be supplied. If an express promise is lacking, an implied promise can easily be found. In particular Cardozo delighted in weaving gossamer spider webs of consideration. There was consideration for a father’s promise to pay his engaged daughter an annuity after marriage in the fact that the engaged couple, instead of breaking off the engagement, had in fact married. There was consideration for a pledge to a college endowment campaign (which the donor had later sought to revoke) in the fact that the college, by accepting the pledge, had come under an implied duty to memorialize the donor’s name: “The longing for posthumous remembrance is an emotion not so weak as to justify us in saying that its gratification is a negligible good.”
Evidently a judge who could find “consideration” in DeCicco v. Schweizer
or in the Allegheny College case could, when he was so inclined, find consideration anywhere: the term had been so broadened as to have become meaningless. We may now return to the Restatement debate on the consideration definition. Corbin, who had been deeply influenced by Cardozo, proposed to the Restaters what might be called a Cardozoean definition of consideration—broad, vague and, essentially, meaningless—a common law equivalent of causa, or cause. In the debate Corbin and the Cardozoeans lost out to Williston and the Holmesians. In Williston’s view, that should have been the end of the matter.

Instead, Corbin returned to the attack. At the next meeting of the Restatement group, he addressed them more or less in the following manner: Gentlemen, you are engaged in restating the common law of contracts. You have recently adopted a definition of consideration. I now submit to you a list of cases—hundreds, perhaps or thousands?—in which courts have imposed contractual liability under circumstances in which, according to your definition, there would be no consideration and therefore no liability. Gentlemen, what do you intend to do about these cases?

To understand Corbin’s point we must backtrack and digress again. I have made the point that Holmesian consideration theory had, as Holmes perfectly well knew, not so much as a leg to stand on if the matter is taken historically. Going back into the past, there was an indefinite number of cases which had imposed liability, in the name of consideration, where nothing like Holmes’s “reciprocal conventional inducement” was anywhere in sight. Holmes’s point was that these were bad cases and that the range of contractual liability should be confined within narrower limits. By the turn of the century, except in New York, the strict bargain theory of consideration had won general acceptance. But, unlike Holmes, many judges, it appeared, were not prepared to look with stony-eyed indifference on the plight of a plaintiff who had, to his detriment, relied on a defendant’s assurances without the protection of a formal contract. However, the new doctrine precluded the judges of the 1900 crop from saying, as their predecessors would have said a half-century earlier, that the “detriment” itself was “consideration.” They had to find a new solution, or, at least, a new terminology. In such a situation the word that comes instinctively to the mind of any judge is, of course, “estoppel”—which is simply a way of saying that, for reasons which the court does not care to discuss, there must be judgment for plaintiff. And in the contract cases after 1900 the word “estoppel,” modulating into such phrases as “equitable estoppel” and “promissory estoppel,” began to appear with increasing frequency. Thus Corbin, in his submission to the Restaters, was plentifully supplied with new, as well as with old, case material.

The Restaters, honorable men, evidently found Corbin’s argument unanswerable. However, instead of reopening the debate on the consideration definition, they elected to stand by § 75 but to add a new section—§ 90—incorporating the estoppel idea although without using the word “estoppel.” The extent to which the new section § 90 was to be allowed to undercut the underlying principle of § 75 was left entirely unresolved. The format of the Restatement included analytical, discursive, often lengthy comments, interspersed with illustrations—that is, hypothetical cases, the facts of which were frequently drawn from real cases. Section 90 is almost the only section of the Restatement of Contracts which has no Comment at all. Four hypothetical cases, none of them, so far as I know, based on a real case, are offered as “illustrations,” presumably to indicate the range which the section was meant to have. An attentive study of the four illustrations will lead any analyst to the despairing conclusion, which is of course reinforced by the mysterious text of § 90 itself, that no one had any idea what the damn thing meant.

Grant Gilmore, The Death of Contract 60-65 (1974).


4.1 Principal Case – Feinberg v. Pfeiffer Co.

In this first of two employment cases, the court uses promissory estoppel doctrine to enforce a company’s promise of retirement benefits to a longtime and highly valued employee.

Feinberg v. Pfeiffer Co.

St. Louis Court of Appeals, Missouri

322 S.W.2d 163 (1959)

Doerner, Commissioner.

[1]    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.

[2]    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.

[3]    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:

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, 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.

[4]    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.

[5]    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.

[6]    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 R.S. Mo. 1949, V.A.M.S., and to render such judgment as the court below ought 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.

[7]    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:

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?


Q. What was the reason that you left?

Well, I thought almost forty years, it was a long time and I thought I would take a little rest.

Q. Yes.

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

Q. Did you rely upon this pension?

We certainly did.

Q. Being paid?

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?


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?

No, I wouldn’t.

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

(interrupting): No.

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

No, sir.

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

Yes, I think so.

Q. Was your health good?

My health was good.

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

[9]    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 contractual obligation to pay her $200 per month for life.”

[10]    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.

[11]    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.

[12]    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.

[13]    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:

(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.

[14]    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.

[15]    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 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:

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.

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

[16]    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.”

[17]    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: “There is a variance between the doctrine underlying this section and the theoretical justifications that have been advanced for the Missouri decisions.”

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

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 § 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.

[19]    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 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.

[20]    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:

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.

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


4.1.1 Discussion of Feinberg v. Pfeiffer Co.

Despite the distinguished Justice Hand’s contrary assertion in ¶ 16, promissory estoppel is emphatically not a “recognized species of consideration.” Instead, the Restatement (Second) refers to the possibility of enforcing certain promises “without consideration,” and reserves consideration doctrine for situations involving a bargain. Compare
Restatement (Second) §§ 71 and 90.

Under this understanding of the doctrine, was there consideration for Pfeiffer Company’s promise to Feinberg? What about her many years of loyal and faithful service?

Compare to Feinberg the following examples of different types of promises:

(a) “If you agree to continue working for me, I’ll give you a fair share of the profits at the end of the year.”

(b) “If you will voluntarily retire, I will give you a pension of $200 per month for life.”

Is there consideration in these cases?

Did Feinberg win because the promise was in writing? If not, then why?


4.2 Principal Case – Hayes v. Plantations Steel Co.

In this second employment case, the court rejects Hayes’s claim to enforce his former employer’s promise of pension benefits. As you read the court’s opinion, consider how Hayes’s circumstances differ from Feinberg’s.

Hayes v. Plantations Steel Co.

Supreme Court of Rhode Island

438 A.2d 1091 (1982)

Shea, Justice.

[1]    The defendant employer, Plantations Steel Company (Plantations), appeals from a Superior Court judgment for the plaintiff employee, Edward J. Hayes (Hayes). The trial justice, sitting without a jury, found that Plantations was obligated to Hayes on the basis of an implied-in-fact contract to pay him a yearly pension of $5,000. The award covered three years in which payment had not been made. The trial justice ruled, also, that Hayes had made a sufficient showing of detrimental reliance upon Plantations’s promise to pay to give rise to its obligation based on the theory of promissory estoppel. The trial justice, however, found in part for Plantations in ruling that the payments to Hayes were not governed by the Employee Retirement Income Security Act, 29 U.S.C.A. §§ 1001-1461 (West 1975), and consequently he was not entitled to attorney’s fees under § 1132(g) of that act. Both parties have appealed.

[2]    We reverse the findings of the trial justice regarding Plantations’s contractual obligation to pay Hayes a pension. Consequently we need not deal with the cross-appeal concerning the award of attorney’s fees under the federal statute.

[3]    Plantations is a closely held Rhode Island corporation engaged in the manufacture of steel reinforcing rods for use in concrete construction. The company was founded by Hugo R. Mainelli, Sr., and Alexander A. DiMartino. A dispute between their two families in 1976 and 1977 left the DiMartinos in full control of the corporation. Hayes was an employee of the corporation from 1947 until his retirement in 1972 at age of sixty-five. He began with Plantations as an “estimator and draftsman” and ended his career as general manager, a position of considerable responsibility. Starting in January 1973 and continuing until January 1976, Hayes received the annual sum of $5,000 from Plantations. Hayes instituted this action in December 1977, after the then company management refused to make any further payments.

[4]    Hayes testified that in January 1972 he announced his intention to retire the following July, after twenty-five years of continuous service. He decided to retire because he had worked continuously for fifty-one years. He stated, however, that he would not have retired had he not expected to receive a pension. After he stopped working for Plantations, he sought no other employment.

[5]    Approximately one week before his actual retirement Hayes spoke with Hugo R. Mainelli, Jr., who was then an officer and a stockholder of Plantations. This conversation was the first and only one concerning payments of a pension to Hayes during retirement. Mainelli said that the company “would take care” of him. There was no mention of a sum of money or a percentage of salary that Hayes would receive. There was no formal authorization for payments by Plantations’s shareholders and/or board of directors. Indeed, there was never any formal provision for a pension plan for any employee other than for unionized employees, who benefit from an arrangement through their union. The plaintiff was not a union member.

[6]    Mr. Mainelli, Jr., testified that his father, Hugo R. Mainelli, Sr., had authorized the first payment “as a token of appreciation for the many years of (Hayes’s) service.” Furthermore, “it was implied that that check would continue on an annual basis.” Mainelli also testified that it was his “personal intention” that the payments would continue for “as long as I was around.”

[7]    Mainelli testified that after Hayes’s retirement, he would visit the premises each year to say hello and renew old acquaintances. During the course of his visits, Hayes would thank Mainelli for the previous check and ask how long it would continue so that he could plan an orderly retirement.

[8]    The payments were discontinued after 1976. At that time a succession of several poor business years plus the stockholders’ dispute, resulting in the takeover by the DiMartino family, contributed to the decision to stop the payments.

[9]    The trial justice ruled that Plantations owed Hayes his annual sum of $5,000 for the years 1977 through 1979. The ruling implied that barring bankruptcy or the cessation of business for any other reason, Hayes had a right to expect continued annual payments.

[10]    The trial justice found that Hugo Mainelli, Jr.’s statement that Hayes would be taken care of after his retirement was a promise. Although no sum of money was mentioned in 1972, the four annual payments of $5,000 established that otherwise unspecified term of the contract. The trial justice also found that Hayes supplied consideration for the promise by voluntarily retiring, because he was under no obligation to do so. From the words and conduct of the parties and from the surrounding circumstances, the trial justice concluded that there existed an implied contract obligating the company to pay a pension to Hayes for life. The trial justice made a further finding that even if Hayes had not truly bargained for a pension by voluntarily retiring, he had nevertheless incurred the detriment of foregoing other employment in reliance upon the company’s promise. He specifically held that Hayes’s retirement was in response to the promise and held also that Hayes refrained from seeking other employment in further reliance thereon.

[11]    The findings of fact of a trial justice sitting without a jury are entitled to great weight when reviewed by this court. His findings will not be disturbed unless it can be shown that they are clearly wrong or that the trial justice misconceived or overlooked material evidence. Lisi v. Marra, R.I., 424 A.2d 1052 (1981); Raheb v. Lemenski, 115 R.I. 576, 350 A.2d 397 (1976). After careful review of the record, however, we conclude that the trial justice’s findings and conclusions must be reversed.

[12]    Assuming for the purpose of this discussion that Plantations in legal effect made a promise to Hayes, we must ask whether Hayes did supply the required consideration that would make the promise binding? And, if Hayes did not supply consideration, was his alleged reliance sufficiently induced by the promise to estop defendant from denying its obligation to him? We answer both questions in the negative.

[13]    We turn first to the problem of consideration. The facts at bar do not present the case of an express contract. As the trial justice stated, the existence of a contract in this case must be determined from all the circumstances of the parties’ conduct and words. Although words were expressed initially in the remark that Hayes “would be taken care of,” any contract in this case would be more in the nature of an implied contract. Certainly the statement of Hugo Mainelli, Jr., standing alone is not an expression of a direct and definite promise to pay Hayes a pension. Though we are analyzing an implied contract, nevertheless we must address the question of consideration.

[14]    Contracts implied in fact require the element of consideration to support them as is required in express contracts. The only difference between the two is the manner in which the parties manifest their assent. J. Koury Steel Erectors, Inc. v. San-Vel Concrete Corp., 387 A.2d 694 (R.I. 1978); Bailey v. West, 249 A.2d 414 (R.I. 1969). In this jurisdiction, consideration consists either in some right, interest, or benefit accruing to one party or some forbearance, detriment, or responsibility given, suffered, or undertaken by the other. See Dockery v. Greenfield, 136 A.2d 682 (R.I. 1957); Darcey v. Darcey, 71 A. 595 (R.I. 1909). Valid consideration furthermore must be bargained for. It must induce the return act or promise. To be valid, therefore, the purported consideration must not have been delivered before a promise is executed, that is, given without reference to the promise. Plowman v. Indian Refining Co., 20 F. Supp. 1 (E.D.Ill.1937). Consideration is therefore a test of the enforceability of executory promises, Angel v. Murray, 322 A.2d 630 (R.I. 1974), and has no legal effect when rendered in the past and apart from an alleged exchange in the present. Zanturjian v. Boornazian, 55 A. 199 (R.I. 1903).

[15]    In the case before us, Plantations’s promise to pay Hayes a pension is quite clearly not supported by any consideration supplied by Hayes. Hayes had announced his intent to retire well in advance of any promise, and therefore the intention to retire was arrived at without regard to any promise by Plantations. Although Hayes may have had in mind the receipt of a pension when he first informed Plantations, his expectation was not based on any statement made to him or on any conduct of the company officer relative to him in January 1972. In deciding to retire, Hayes acted on his own initiative. Hayes’s long years of dedicated service also is legally insufficient because his service too was rendered without being induced by Plantations’s promise. See Plowman v. Indian Refining Co., supra.

[16]    Clearly then this is not a case in which Plantations’s promise was meant to induce Hayes to refrain from retiring when he could have chosen to do so in return for further service. 1 Williston on Contracts § 130B (3d ed., Jaeger 1957). Nor was the promise made to encourage long service from the start of his employment. Weesner v. Electric Power Board of Chattanooga, 344 S.W.2d 766 (Tenn. App. 1961). Instead, the testimony establishes that Plantations’s promise was intended “as a token of appreciation for (Hayes’s) many years of service.” As such it was in the nature of a gratuity paid to Hayes for as long as the company chose. In Spickelmier Industries, Inc. v. Passander, 359 N.E.2d 563 (Ind. App. 1977), an employer’s promise to an employee to pay him a year-end bonus was unenforceable because it was made after the employee had performed his contractual responsibilities for that year.

[17]    The plaintiff’s most relevant citations are still inapposite to the present case. Bredemann v. Vaughan Mfg. Co., 188 N.E.2d 746 (Ill. App. 1963), presents similar yet distinguishable facts. There, the appellate court reversed a summary judgment granted to the defendant employer, stating that a genuine issue of material fact existed regarding whether the plaintiff’s retirement was in consideration of her employer’s promise to pay her a lifetime pension. As in the present case, the employer made the promise one week prior to the employee’s retirement, and in almost the same words. However, Bredemann is distinguishable because the court characterized that promise as a concrete offer to pay if she would retire immediately. In fact, the defendant wanted her to retire. Id. 188 N.E.2d at 749. On the contrary, Plantations in this case did not actively seek Hayes’s retirement. DiMartino, one of Plantations’s founders, testified that he did not want Hayes to retire. Unlike Bredemann, here Hayes announced his unsolicited intent to retire.

[18]    Hayes also argues that the work he performed during the week between the promise and the date of his retirement constituted sufficient consideration to support the promise. He relies on Ulmann v. Sunset-McKee Co., 221 F.2d 128 (9th Cir. 1955), in which the court ruled that work performed during the one-week period of the employee’s notice of impending retirement constituted consideration for the employer’s offer of a pension that the employee had solicited some months previously. But there the court stated that its prime reason for upholding the agreement was that sufficient consideration existed in the employee’s consent not to compete with his employer. These circumstances do not appear in our case. Hayes left his employment because he no longer desired to work. He was not contemplating other job offers or considering going into competition with Plantations. Although Plantations did not want Hayes to leave, it did not try to deter him, nor did it seek to prevent Hayes from engaging in other activity.

[19]    Hayes argues in the alternative that even if Plantations’s promise was not the product of an exchange, its duty is grounded properly in the theory of promissory estoppel. This court adopted the theory of promissory estoppel in East Providence Credit Union v. Geremia, 239 A.2d 725, 727 (R.I. 1968) (quoting 1 Restatement Contracts § 90 at 110 (1932)) stating:

“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 its promise.”

[20]    In East Providence Credit Union this court said that the doctrine of promissory estoppel is invoked “as a substitute for a consideration, rendering a gratuitous promise enforceable as a contract.” Id. To restate the matter differently, “the acts of reliance by the promisee to his detriment (provide) a substitute for consideration.” Id.

[21]    Hayes urges that in the absence of a bargained-for promise the facts require application of the doctrine of promissory estoppel. He stresses that he retired voluntarily while expecting to receive a pension. He would not have otherwise retired. Nor did he seek other employment.

[22]    We disagree with this contention largely for the reasons already stated. One of the essential elements of the doctrine of promissory estoppel is that the promise must induce the promisee’s action or forbearance. The particular act in this regard is plaintiff’s decision whether or not to retire. As we stated earlier, the record indicates that he made the decision on his own initiative. In other words, the conversation between Hayes and Mainelli which occurred a week before Hayes left his employment cannot be said to have induced his decision to leave. He had reached that decision long before.

[23]    An example taken from the Restatement provides a meaningful contrast:

2. A promises B to pay him an annuity during B’s life. B thereupon resigns 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.

1 Restatement of Contracts § 90 at 111 (1932).

[24]    In Feinberg v. Pfeiffer Co., 322 S.W.2d 163 (Mo. App.1959), the plaintiff-employee had worked for her employer for nearly forty years. The defendant corporation’s board of directors resolved, in view of her long years of service, to obligate itself to pay “retirement privileges” to her. The resolution did not require the plaintiff to retire. Instead, the decision whether and when to retire remained entirely her own. The board then informed her of its resolution. The plaintiff worked for eighteen months more before retiring. She sued the corporation when it reduced her monthly checks seven years later. The court held that a pension contract existed between the parties. Although continued employment was not a consideration to her receipt of retirement benefits, the court found sufficient reliance on the part of the plaintiff to support her claim. The court based its decision upon the above restatement example, that is, the defendant informed the plaintiff of its plan, and the plaintiff in reliance thereon, retired. Feinberg presents factors that also appear in the case at bar. There, the plaintiff had worked many years and desired to retire; she would not have left had she not been able to rely on a pension; and once retired, she sought no other employment.

[25]    However, the important distinction between Feinberg and the case before us is that in Feinberg the employer’s decision definitely shaped the thinking of the plaintiff. In this case the promise did not. It is not reasonable to infer from the facts that Hugo R. Mainelli, Jr., expected retirement to result from his conversation with Hayes. Hayes had given notice of his intention seven months previously. Here there was thus no inducement to retire which would satisfy the demands of § 90 of the Restatement. Nor can it be said that Hayes’s refraining from other employment was “action or forbearance of a definite and substantial character.” The underlying assumption of Hayes’s initial decision to retire was that upon leaving the defendant’s employ, he would no longer work. It is impossible to say that he changed his position any more so because of what Mainelli had told him in light of his own initial decision. These circumstances do not lead to a conclusion that injustice can be avoided only by enforcement of Plantations’s promise. Hayes received $20,000 over the course of four years. He inquired each year about whether he could expect a check for the following year. Obviously, there was no absolute certainty on his part that the pension would continue. Furthermore, in the face of his uncertainty, the mere fact that payment for several years did occur is insufficient by itself to meet the requirements of reliance under the doctrine of promissory estoppel.

[26]    For the foregoing reasons, the defendant’s appeal is sustained and the judgment of the Superior Court is reversed. The papers of the case are remanded to the Superior Court.


4.2.1 Discussion of Hayes v. Plantation Steel Co.

Was there consideration for Plantations Steel’s promise to Hayes?

How does the court respond to Hayes’s effort to invoke promissory estoppel doctrine?

What facts distinguish Hayes’s situation from Feinberg’s?

Thinking more broadly about the enforcement decision in these cases, what circumstances appear to influence courts and make enforcement more or less likely?

5. The Material Benefit Rule

Another alternative basis for enforcement of promises in the absence of consideration is the so-called material benefit rule. In a mere handful of cases, courts have chosen to enforce promises made in recognition of prior benefits received. The Restatement (Second) expresses this doctrinal principle in the following terms:

§ 86. Promise for Benefit Received

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

(2) A promise is not binding under Subsection (1)

(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

(b) to the extent that its value is disproportionate to the benefit.

Both before and after the adoption of this Restatement (Second) section in 1981, courts have used the material benefit rule sparingly. In Webb v. McGowin, 168 So. 196 (Ala. App. 1935), for example, a mill worker throwing chunks of wood from the second floor of a mill held onto one heavy block as it fell in order to prevent it from landing on his boss. The worker sustained serious injuries and the mill owner promised to give him a small pension for life. When the owner died eight years later, his estate refused to continue the payments, and the court held that this promise for prior benefits should be enforced. However, courts quite frequently decline to invoke the doctrine to enforce promises recognizing past benefits.

In the following excerpt, Professor Grant Gilmore offers a characteristically witty account of the halting development of the case law.

The hesitant and cautious text of the new section no doubt reflects the uncertainties of the Reporter and his advisers… . [W]hat Subsection (1) giveth, Subsection (2) largely taketh away: the promise … will be “binding” only within narrow limits. Furthermore, the use which is made in the Commentary of two of our best known Good Samaritan cases contributes a perhaps desirable confusion:

A gives emergency care to B’s adult son while the son is sick and without funds far from home. B subsequently promises to reimburse A for his expenses. The promise is not binding under this section. [Illustration 1, based on Mills v. Wyman, 20 Mass. 207 (1825).]

A saves B’s life in an emergency and is totally and permanently disabled in so doing. One month later B promises to pay A $15 every two weeks for the rest of A’s life, and B makes the payments for eight years until he dies. The promise is binding. [Illustration 7, based on Webb v. McGowin].

The idea that § [86] has succeeded in “codifying” both the nineteenth century Massachusetts case and the twentieth century Alabama case is already sufficiently surprising but we are not yet finished.

A finds B’s escaped bull and feeds and cares for it. B’s subsequent promise to pay reasonable compensation to A is binding. [Illustration 6, based on Boothe v. Fitzpatrick, 36 Vt. 681 (1864).]

Are we to believe that my promise to pay the stranger who takes care of my bull is binding but that my promise to pay the stranger who takes care of my dying son is not? Or that “adult sons” are supposed to be able to take care of themselves while “escaped bulls” are not? Or that, as in maritime salvage law, saving property is to be rewarded but saving life is not?

Enough has been said to make the point that Restatement (Second), at least in § [86], is characterized by the same “schizophrenic quality” for which Restatement (First) was so notable. This may well be all to the good. A wise draftsman, when he is dealing with novel issues in course of uncertain development, will deliberately retreat into ambiguity. The principal thing is that Restatement (Second) gives overt recognition to an important principle whose existence Restatement (First) ignored and, by implication denied. By the time we get to Restatement (Third) it may well be that § [86] will have flowered like Jack’s bean-stalk….

Grant Gilmore, The Death of Contract 74-76 (1974).


These teaching materials are a work-in-progress. Our reading assignments this semester will include all of the elements that make up a conventional casebook. You will read judicial opinions, statutory provisions, academic essays, and hypotheticals. You will puzzle over common law doctrines and carefully parse statutes. We will try to develop theories that can predict and justify the patterns of judicial decisions we observe.
Unlike a conventional casebook, however, I have selected each element of the readings myself. We will start at the beginning of these materials, read each assignment in order, and finish at the end. All of the reading assignments are also self-contained. When I ask you to read a statutory section or a portion of the Restatement, it will appear in the text at the point where you should read it. In addition, we will cover the entire set of materials. You will not spend the semester hauling around hundreds of extra pages that we have no time to read or discuss. At the end of each section, you will find discussion questions that track very closely the questions that I will ask during our class time together. Finally, the pages themselves are formatted to make reading easier and to give you plenty of space to take notes and mark up the text.
Our class also will use an online collaboration site to enrich and extend class discussions. This site will provide links to additional legal sources as well as questions for class discussion, practice problems, explanatory notes, and a discussion forum. The site will develop and evolve in response to your needs and interests. If you have any suggestions for changes or additions to these materials, I invite you to talk with me or post your ideas to our collaboration site.
Why study contract law?
The first semester of law school is mostly about learning to speak a new legal language (but emphatically not “legalese”), to formulate and evaluate legal arguments, to become comfortable with the distinctive style of legal analysis. We could teach these skills using almost any legal topic. But we begin the first-year curriculum with subjects that pervade the entire field of law. Contract principles have a long history and they form a significant part of the way that lawyers think about many legal problems. As you will discover when you study insurance law, employment law, family law, and dozens of other practice areas, your knowledge of contract doctrine and theory will be invaluable.
Why collaborative teaching materials?
The ultimate goal of this project is to involve many professors in producing a library of materials for teaching contracts (and other subjects). For the moment, I will be solely responsible for collecting public domain content and generating problems and explanatory essays. These embryonic reading materials will grow and evolve as I use and expand them and as other professors join in producing additional content. I gratefully acknowledge the extraordinary work of my talented research assistants who have been instrumental in helping me to put these materials together. Thanks to Sarah Bryan, Mario Lorello, Elizabeth Young, Vishal Phalgoo, Valerie Barker and Jim Sherwood.
I believe that it is equally important to involve students in the ongoing process of refining and improving how we teach legal subjects. Our collaboration site will provide a platform for student-generated content and lively dialogue. With your enthusiastic engagement, we will finish the semester with an excellent understanding of contracts and a useful collection of reference materials. I invite each of you to join us for what will be a challenging, sometimes frustrating, but ultimately rewarding, intellectual journey.

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