Bargain or Gift?

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?