Session 11 - Moral Obligation, Consideration, and Promissory Estoppel

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I. Moral Obligations and Consideration

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A. General Rule - Orthodox View

• Moral obligations are generally insufficient consideration (minority rule)
• A promise to pay for benefits already received is typically unenforceable
• Must overcome presumption of gift in family/gratuitous service contexts

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B. Sheldon v. Blackmon (1925)

Facts: Julia Sheldon lived with and cared for her uncle Henry Wilkinson and his wife for 34 years at uncle’s request, with understanding she would receive his property at death. In 1919, uncle executed a promissory note promising to pay $30,000 for past services plus reasonable value of future services. Will was later lost or destroyed. After Wilkinson’s death, Sheldon filed claim in probate court. Issue: Where one party’s intent to pay another for services rendered is clear, may the court rely on evidence of intended payment amount to determine appropriate award? Holding: Yes. Court awarded $30,000 plus approximately $6,000 for services after note’s date. Key Points:

• Services were requested, not merely gratuitous
• Plaintiff gave up her dressmaking business (detriment)
• Presumption of gift existed because she was “treated as family member”
• Presumption was overcome by:
  • Request for services
  • Intent to compensate
  • Discussion/understanding about payment
• Court found enforcement necessary to avoid unjust enrichment

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C. Restatement (Second) of Contracts § 86 - Promise for Benefit Received

Modern Trend: Promise made in recognition of benefit previously received is binding to extent necessary to prevent injustice § 86(1): A promise in recognition of a benefit previously received is binding to extent necessary to prevent injustice § 86(2) - Exceptions (promise NOT binding if):

• (a) Promisee conferred benefit as gift, OR promisor has not been unjustly enriched
• (b) Value is disproportionate to benefit received

Note: Some courts (like Sheldon) don’t require proportionality - only that benefit was requested and conferred with intent to be compensated

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II. Statute of Limitations and Revival of Debt

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A. Banco do Brasil v. State of Antigua (2000) - New York Appellate Division

Facts: In 1981, plaintiff bank loaned $3 million to defendant with promissory notes. State failed to pay within time period. In 1989, ministry wrote letter confirming obligation but requesting rescheduling due to hurricane. In 1997, second letter from financial secretary confirmed balance of over $1 million. Despite demands, defendant refused payment. Defendant moved to dismiss under 6-year statute of limitations. Issue: Whether defendant’s 1997 letter constituted acknowledgement or promise under General Obligations Law 17-101 sufficient to revive plaintiff’s time-barred claim? Holding: Yes. Letter was written acknowledgement containing:

• Plain admission of debt
• Clear intent to repay loan
• No inconsistency with intention to pay
• Therefore, revived statute of limitations

Practical Application:

• Strategy: Obtain new writing (email, text, letter) stating debtor will pay
• Even partial payment can revive statute of limitations
• Creates new breach date, restarting limitations period
• Much harder to dismiss on statute of limitations grounds

Key Statute of Limitations Periods (California):

• Oral contract: 2 years
• Written contract: 4 years
• Negligence: 2 years (previously 1 year)
• Professional malpractice (lawyer/doctor): typically 1 year
• Property damage: 3 years
• Government claims: 6 months
• Different periods for fraud, unfair business practices, etc.

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III. Moral Obligation - Minority View (Material Benefit)

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A. Harrington v. Taylor (North Carolina)

Facts: Harrington intervened when Taylor’s wife attacked Taylor with an axe, severely injuring his hand. Taylor promised to pay for damages but only made small payment then stopped. Issue: Whether heroic act of stopping attack supports consideration for promise to pay? Holding: No. Under orthodox view, promise to pay for voluntarily rendered services is unenforceable. Key Distinctions:

• Service was not requested
• Harrington intervened voluntarily on his own
• No material benefit conferral at party’s request

Alternative Theories (not applied here):

• Unjust enrichment: Quasi-contractual remedy where:
  • Defendant received benefit
  • Defendant had reasonable opportunity to object but didn’t
  • Plaintiff suffered loss
  • Unjust to allow defendant to keep benefit without compensation
  • Recovery limited to restitution (out-of-pocket expenses), not contract damages

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B. Webb v. McGowan (Alabama 1935)

Facts: Webb, while clearing mill’s upper floor, saw his boss McGowan standing below where 75-pound pine block would fall. To prevent death/serious injury, Webb held onto block and fell with it, diverting it but sustaining permanent injuries (broken leg, crippled for life). McGowan promised to pay $15 every two weeks for life “in consideration for saving his life.” McGowan paid for over 8 years until death. Estate stopped payments. Webb sued. Issue: Is promise to compensate for voluntarily saving promisor’s life supported by sufficient consideration? Rule: In minority of jurisdictions, moral obligation is sufficient consideration if promisor received material benefit from promisee’s prior act. Application:

• Webb conferred substantial material benefit (saving life, preventing bodily harm)
• Benefit had pecuniary value - life and safety have measurable worth
• McGowan acknowledged benefit by promising payment
• Performed promise for 8+ years, demonstrating mutual understanding and reliance
• Saving life more material than saving property

Holding: Promise enforceable. Court reversed, Webb entitled to recover promised payments from estate. Key Point: Minority jurisdictions recognize material benefit + moral obligation as sufficient consideration for subsequent promise

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IV. Unjust Enrichment vs. Promissory Estoppel

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A. Unjust Enrichment Elements

1. Defendant received benefit
2. Defendant had reasonable opportunity to object but did not
3. Plaintiff suffered loss
4. Unjust for defendant to keep benefit without just compensation

Example: Painter mistakenly paints wrong house. Homeowner watches entire painting without objecting, then refuses payment.

• Homeowner had opportunity to object
• Court would find unjust enrichment
• Recovery: Restitution only (out-of-pocket expenses, not contract damages)
• No punitive damages

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B. Promissory Estoppel Elements (Distinguished)

1. Clear promise made
2. Promisor knew promisee would reasonably rely
3. Promisee reasonably relied on promise
4. Promisee suffered detriment from reliance

Key Difference: Promissory estoppel requires promise; unjust enrichment does not

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V. Problem Analysis - Consideration vs. Moral Obligation

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Problem 1: Stepfather’s Promissory Note

Facts: Mrs. V owed $13,500 to each of two adult sons. She died without paying. Mr. B (stepfather) gave each stepson promissory note for $13,500. He died without payment. Analysis:

• No consideration - stepfather received no benefit (neither material nor otherwise)
• Under orthodox view: moral obligation insufficient
• Under Restatement (Second) § 86: no evidence Mr. B received material benefit
• Result: Unenforceable (Estate of Boyd, 1981)

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Problem 2: Mistaken House Repair

Facts: A hired by B to repair vacant house. By mistake, A repairs house next door belonging to C. C subsequently promises to pay value of repairs. Classic View: No quasi-contractual recovery because party conferring benefit without request not entitled to recovery. Promise unenforceable. Restatement (Second) Approach: Material benefit conferred on C makes subsequent promise enforceable.

• Recovery: Restitutionary damages (not contract damages)
• C must pay value of repairs received

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Problem 3: Father-Son Business Contract

Facts: Father’s coal company near bankruptcy owing $18,000. Son contracted with father to enter business and assume all prior debts. Two years later, father gave son written irrevocable option to purchase all stock upon death in recognition of son saving company. Father died. Analysis - Multiple Theories: Primary: Breach of Contract

• Valid contract existed - both parties gave consideration
• Son: took on debt + performed work
• Father: business saved from bankruptcy
• Both gained something (bargained-for exchange)
• Result: Enforceable contract

Alternative Arguments (if contract fails):

• Promissory Estoppel: Father made promise, son relied to detriment
• Unjust Enrichment: Son saved failing business, unjust for estate to keep benefit without compensation
• Gratuitous Promise Defense: Estate might argue family relationship = gift presumption

Exam Strategy: Address all theories to cover all bases, starting with strongest (contract)

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VI. Promissory Estoppel - Detailed Analysis

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A. Feinberg v. Pfeiffer Co. (Missouri Court of Appeals 1959)

Facts: In 1947 board of directors meeting, plaintiff employee was given resolution that she could retire anytime and receive $200/month for life in recognition of long service. Same day, salary increased from $350 to $400. She retired in 1949. Initially received $200/month. After executive change, company claimed payments were gifts. Later reduced to $100/month. Plaintiff declined reduced amount. Plaintiff later discovered she had cancer and became unemployable. Defendant’s Arguments:

1. Payments gratuitous, not contractual obligation
2. Insufficient evidence plaintiff quit in reliance on promise

Analysis:

• Years of long service = past consideration (insufficient)
• Continuation of employment not consideration (not bargained for)
• However, plaintiff relied on promise to her detriment by retiring

Holding: Promise enforceable under promissory estoppel. Judgment affirmed. Important Note - Accord and Satisfaction:

• Company sent $100 check (instead of $200)
• Plaintiff refused to cash check
• If she had cashed: Could be accord and satisfaction (modification)
• Since refused: No accord and satisfaction issue
• Exam tip: Only discuss accord and satisfaction if check was cashed

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B. Goldfarb v. Solomon (New Jersey 2021)

Facts: Goldfarb (pharmacist) offered job by Solomon to manage family investment portfolio with base salary and percentage of profits. No written agreement provided. Goldfarb quit job at current employer and declined another job offer, relying on Solomon’s assurance. Before start, Solomon hired someone else after failing to obtain favorable references. Goldfarb sued for lost wages. Trial court dismissed. Appellate Division affirmed. Solomon appealed, arguing claim invalid without writing per NJ securities law. Issue: Are breach of contract and promissory estoppel different legal actions? Holding: Yes, they are different causes of action. Breach of Contract Elements (4):

1. Contract was made
2. Contract was broken
3. Plaintiff suffered damages
4. Causation

Promissory Estoppel Elements (4):

1. Clear and definite promise
2. Made with expectation that promisee will rely
3. Reasonable reliance by promisee
4. Definite and substantial detriment

Key Holdings:

• Promissory estoppel is departure from classic doctrine of consideration
• Not a contract remedy - promise and consideration need not be motive for each other
• Securities law requiring written agreement did NOT bar promissory estoppel claim
• Promissory estoppel creates implied contract in law (not in fact)

Damages Comparison: Application: Group Health knew Goldfarb would resign from current employment. Unjust not to hold Group Health to promise. Relief limited to reliance damages.

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C. Salisbury v. Northwestern Bell Telephone Co. (Iowa 1974)

Facts: Salisbury raised money for Charles City College. Asked Northwestern Bell to donate $15,000 over 3 years. Company agreed in letter without conditions. Later refused to pay. Salisbury sued. Issue: Can promise to give money to charity be enforced without consideration or reliance? Holding: Yes. Promise to charitable organization enforceable without consideration or reliance. Rule: Charitable promises enforceable based on public policy - helps charities depend on donations Authority: Restatement (Second) of Contracts states such promises should be binding Policy Rationale:

• Charitable organizations rely on promises to expand operations
• Public interest in supporting charitable work
• Encourages charitable giving

Exception to General Rule: Though gift promises generally unenforceable, charitable subscriptions are exception Strategy: Charities often begin performance immediately upon pledge to create reliance and make promise irrevocable

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D. Grouse v. Group Health Plan Inc. (Minnesota Supreme Court)

Facts: Grouse (pharmacist) offered job by Group Health. Resigned from current position at Richter Drug based on offer. Declined another job offer. Before start date, Group Health hired someone else after failing to obtain favorable references for Grouse. Grouse sued for lost wages. Procedural History: Trial court dismissed for failure to state claim. Grouse appealed. Issue: Can plaintiff recover lost wages under promissory estoppel when he resigned from job in reliance on employment offer? Holding: Yes. Grouse entitled to lost wages. Analysis:

• Grouse accepted the offer
• Group Health knew Grouse would have to resign from current employment
• Group Health should have anticipated this reliance
• Injustice to not enforce promise

Key Language (page 310):

• “Group Health knew that to accept its offer, Grouse would have to resign his employment”
• “Under these circumstances, it would be unjust not to hold Group Health to its promise”
• “When promise enforced pursuant to § 90, remedy may be limited as justice requires”
• “Relief may be limited to damages measured by promisee’s reliance”

Damages: Reliance damages only (not expectation/contract damages) Important Clarification: Court uses metaphor - “imply contract in law where none exists in fact”

• Not literally creating contract
• Using contract language to enforce promise
• Neither party has actual contract rights against other
• Cannot sue for breach of contract

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VII. Subcontractor Bids and Promissory Estoppel

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A. Drennan v. Star Paving Co. (California Supreme Court 1958)

Facts: Star Paving (subcontractor) submitted $7,131 telephone bid for paving school project (lowest bid). Drennan (general contractor) relied on this bid in his overall bid for school job. Drennan’s bid accepted. Next day, Star Paving revoked bid claiming calculation error and refused to perform. Drennan hired another subcontractor for $10,948. Drennan sued for breach. Trial court awarded damages for cost difference. Star Paving appealed. Issue: Can subcontractor’s bid be enforced under promissory estoppel when general contractor relies on it in submitting own bid? Holding: Yes, subcontractor’s bid enforceable under promissory estoppel. Rule: Under promissory estoppel, bid (similar to promise) is binding if:

• Injustice can be avoided only by enforcement
• Promisor reasonably expected reliance
• Substantial reliance occurred

Analysis - No Bilateral Contract:

• Drennan’s use of bid was not acceptance
• No bilateral contract formed
• Star Paving had power of revocation normally

But Promissory Estoppel Applied:

• Star Paving’s bid was promise to perform on specified terms
• Star Paving reasonably expected Drennan’s reliance in bidding
• Drennan’s reliance was definite and substantial
• Revocation caused injustice - Drennan could not retract his bid

Comparison to UCC and Options:

• Court treated bid as irrevocable for reasonable time
• Similar to option contracts
• Similar to UCC § 2-205 merchant firm offers

Policy:

• Protects general contractors from bid shopping
• Holds subcontractors accountable
• Balances construction industry practices

Authority: Restatement (Second) § 87(2) adopted this approach Critical Asymmetry:

• Subcontractor IS bound to general contractor (via promissory estoppel)
• General contractor NOT bound to subcontractor
• General contractor not bound until acceptance
• General contractor may rely on bid to submit own bid
• Industry practice requires this asymmetry - general must compile bids from multiple subs

Analogy: Car dealership stating price. Buyer not bound until acceptance, but dealer bound to quoted price.

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VIII. Problem Analysis - Promissory Estoppel Application

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Problem 1: Grouse Court’s “Implied Contract in Law”

Question: What does court mean by “imply contract in law where none exists in fact”? Could Group Health have sued Grouse for breach if he failed to show up? Answer:

• Court uses metaphor, not literal contract creation
• “Assume” contract exists in law to enforce promise
• Avoid letting promisor escape promise consequences
• Neither party has contract rights against the other
• Group Health cannot sue Grouse for breach
• No actual contract exists - only promissory estoppel remedy

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Problem 3: Coors Distributorship Application

Facts: Coors Brewing decided to market in Missouri. Publicly solicited applicants for distributorships, dividing state into districts. Plaintiff one of 35 applicants for District 10. Only applicant selected for in-house interview. Coors determined none satisfactory and took over distribution through subsidiary. Year later, awarded distributorship to company not among original 35 applicants. Plaintiff seeks to prove heavy reliance costs. Issue: Has plaintiff stated case for promissory estoppel? Holding: No. Analysis:

• Coors issued invitation to offer (not offer, not promise)
• Merely invitation to apply
• No promise to select any applicant
• No promise to select from original 35
• Plaintiff’s reliance, though costly, was unreasonable
• Coors said “come for interview” - decided none qualified
• No cause of action

Distinction from Drennan:

• Similar to general contractor not being bound to subcontractor
• Coors made no promise - only invited applications
• No reasonable expectation created that any applicant would be selected

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IX. Exam Strategy and Takeaways

Hierarchy of Arguments:

1. Contract (offer, acceptance, consideration)
2. Promissory Estoppel (if contract fails)
3. Unjust Enrichment (if both above fail)

Key Distinctions: Remember:

• Always start with strongest theory (usually contract)
• Cover alternative theories for comprehensive analysis
• Distinguish between facts (e.g., cashing vs. not cashing check)
• Don’t discuss non-issues (only address facts given)
• Moral obligation generally insufficient except in minority jurisdictions with material benefit
• Charitable promises are exception to general gift promise rule
• Subcontractor bids create asymmetric obligations in construction context