Several plaintiff employees of a company brought suit against the company on the basis of a promise that they would be paid a salary for life, consisting of one half of their former salary at retirement. The only condition for receiving continued pay was to come and pick up a check. The arrangement, though without reference to duration, was made on paper as of the date of their retirement, and proceeded for some years before being unilaterally terminated. The general manager denied promising an unlimited duration, though all employees said otherwise.
Rules of law
To be contractually enforceable, a promise must be supported by consideration. The consideration must be an immediate or future benefit; past or executed consideration cannot be bargained for and is self-contradictory. A mere condition for acceptance of a gift does not constitute consideration.
Even on the interpretation of the facts most favorable to the plaintiffs, there was no valid consideration for the promise and therefore there was no contract. The court held “appreciation of past services or pleasure afforded the employer thereby is not a sufficient consideration.”
At a young age, the plaintiff had been given a promissory note for $3,000.00 by his aunt, who wished to help take care of him. At her death, the plaintiff sued her estate for the funds. The jury said that there was consideration and the trial judge set aside the verdict and dismissed. The appellate court reversed on the basis that the note was sufficient evidence of consideration.
Rules of law
To be contractually enforceable, a promise must be supported by a bargained-for consideration that is sought by the promisor in exchange for the promise.
The estate argued that there was no consideration and therefore no contract. The nephew claimed the note and accompanying recitations provided evidence of consideration. The estate argued that mere recitation does not produce consideration.
The court held that there was no contract and entered a judgment accordingly. The mere recitation of consideration does not alter the requirement for a bargained-for consideration, and the aunt in this case was merely conferring a bounty, not paying for anything of value.
Burger King brought suit against John Rudzewicz, a franchisee of the brand, under federal diversity jurisdiction for breach of contract. The suit was brought in a federal court in Florida, where Burger King’s corporate headquarters rested, but Rudzewicz and the franchise location were in Michigan. Rudzewicz challenged jurisdiction, and the district court applied Florida’s long-arm statute to permit. Rudzewicz appealed to the Federal Court of Appeals, which reversed on the fairness doctrine. Appealed to SCOTUS.
Questions of law
What is the appropriate doctrine for determining jurisdiction and the validity of long-arm statutes concerning the fulfillment of contractual obligations within a state? Does “fair warning” apply?
The court stated that the Due Process Clause could not be “wielded as a territorial shield” to “avoid interstate obligations that have been voluntarily assumed.” It stated that the minimum contacts and purposeful availment of a non-consenting party must be the result of action by that party.
Purposeful establishment of minimum contacts was described as a first step, after which the “fair play and substantial justice” test would be applied. It found broadly that holding Rudzewicz accountable in Florida did not offend the sense of fair play and substantial justice, as Rudzewicz had purposefully entered into a long-term contractual relationship with the Florida Burger King corporate office.
SCOTUS reversed the appellate decision but stated it shared the appellate court’s concern about talismanic jurisdictional formulas.
Pennsy, a subcontractor, was made aware that American Ash, a recycling company, offered Treated Ash Aggregate (AggRite) at no cost for use in paving work. After obtaining and using 11,000 tones of AggRite, Pennsy learned that the material developed extensive defects, and was ordered to replace it under a separate contract. Pennsy sued American Ash to recover the costs of removal and disposal of AggRite, which was hazardous waste. Dismissed by trial court, appealed.
Rules of law
In the formation of a contract, a detriment to a promisor must induce the promise, and the promise to the promisee must induce the detriment. Consideration must not be incidental, but bargained for as the exchange for the promise.
If the occurence of a named condition would benefit the promisor, the occurrence was requested as consideration.
American Ash argued that there was no contract because there was no consideration and they had offered the AggRite freely, with no exchange or bargain from Pennsy. They argued that the AggRite was merely a conditional gift.
Pennsy argued that the disposal of the hazardous waste was a benefit to American Ash and a detriment to them, and that American Ash was offering the product on the basis of that benefit.
The court concluded that American Ash was induced to offer the product at no cost by the advantage of not having to dispose of it, and therefore valid consideration existed. The court further concluded that although the avoidance of disposal costs was not discussed by the parties, this was not a requirement of the bargain theory of consideration; the promise and consideration merely needed to have a reciprocal nature.
A nephew and his uncle reached an agreement under which the nephew promised to abstain from the use of alcohol, tobacco, profanity, and gambling until reaching the age of 21, and under which the uncle promised to pay him the sum of $5,000.00. Following the nephew’s 21st birthday, the two exchanged letters in which the uncle affirmed the promise and stated he would hold the $5,000.00 at interest on behalf of the nephew. At the uncle’s death, the nephew sued the estate for recovery. Judgment for the plaintiff, reversed on appeal.
Rules of law
To be valid, a contract must include mutual agreement and consideration.
Consideration can be anything of value to the promisee or anything of detriment to the promisor.
“In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise.”
The executor argued that because the promise of abstaining from various vices held no detriment to the plaintiff, and was in fact a benefit to him, the requirement of consideration was not met.
The plaintiff argued that merely abstaining from something he had a legal right to do, at the request of the deceased, had been valid and sufficient consideration, and that the deceased had in fact satisfied the contract when he held the funds in trust for the plaintiff.
The court found for the plaintiff and pointed to numerous cases in which a promise of performing any act or abstaining from any legal right constituted valid consideration for the purposes of the formation of a contract, including specific cases in which the overall benefit to the promisor by abstinence from undesirable behavior was judged immaterial.
Plaintiff lessee and defendant lessor had a lease which included an option for renewal, but did not sufficiently specify a monthly rental amount. When the renewal came, the parties could not agree on a rental amount, and lessee sued lessor for a declaratory judgment affirming the extension of their mutual lease. The trial court found for the lessee and fixed a “reasonable” monthly rental amount.
Rules of law
A contract to create a contract, or an agreement to agree, is not enforceable. Any covenant to affirm a future agreement must leave no element undetermined unless it clearly specifies a mechanism for resolution. Rent is an essential element of a lease agreement.
Lessee argued that the intention of the parties had been to create an option for lease renewal, and this provision ought to be upheld. Lessee also argued that the agreement provided general guidelines by which the court could set the rental amount, and argued that the essential element of the contract was the renewal option, not necessarily any specific rental amount.
Lessor’s argument rejected the idea of an enforceable contract, as there was no agreement as to rent. There was no sufficiently-specific basis for agreeing on rent, and if the parties could not agree, there was no contract.
The court roundly rejected the lower court’s conclusion and attempt to enforce the lease renewal, stating that the lower court’s attempt to set a rental amount when the parties could have done so but failed was paternalistic. It also rejected any possibility that a lease could leave the rental amount unspecified, and if a primary lease without a specified rent was unenforceable, a renewal in like fashion was as well.
Defendant RJR launched and then canceled a merchandise reward program connected to its sale of Camel cigarettes. A group of plaintiffs who had collected reward certificates sued for breach of contract, promissory estoppel, and consumer protection laws.
The trial court dismissed for failure to state a claim.
Rules of law
“The determination of whether a particular communication constitutes an operative offer, rather than an inoperative step in the preliminary negotiation of a contract…is whether the person to whom the communication was made had reason to believe that it was intended as an offer.”
“If the statement…calls for the performance…of specific acts, action in accordance with such an interpretation will close a contract or make the offer irrevocable. There are many cases of an offer…for the redemption of coupons.”
“Advertisements have been held to constitute offers where they invite the performance of a specific act without further communication and leave nothing for negotiation.”
RJR argued that their advertisement was merely an invitation to offer, rather than an offer itself. They argued that they had reserved the right to cancel the program without notice, avoiding any mutuality of obligation, and they argued that any contract arising from any purported offer was too indefinite to be enforceable. They also challenged it on the question of untimeliness under the statute of limitations.
The plaintiffs argued that RJR’s incentive program constituted an offer for a unilateral contract because it guaranteed the opportunity to purchase merchandise for any person who collected the certificates. They argued that the contract thus created was definite in its guarantee of the opportunity to purchase, even if no specific merchandise was contemplated. They further argued that mutuality of obligation was no object, as this was a unilateral contract with no mutual obligation on both sides. They also pointed out that the reservation of right to cancel was not present in all advertisements, and that RJR had waived that right by noticing its customers with a definite end date.
The court found for the plaintiffs, determining that they had shown the prima facie claim and thus dismissal as to breach and promisory estoppel was improper. The court did not discuss whether the notice to customers was a waiver to reservation of right to cancel, but looked more closely to the inapplicability of mutuality of obligation. They found that because the advertisements were specific enough (and the steps taken by RJR over the course of the promotion were consistent enough) to be interpreted as an offer, it was in fact an offer for a unilateral contract and could be binding.