Case study methodology and applications

Heckler & Quiat's Argument

The letter of September 2008 was a binding bilateral contract. Its presentation was the offer and its acceptance was implied by the circumstances (and the absence of any refusal) just as implied contracts are routinely created anytime a restaurant patron asks for a sandwich or a driver enters a car wash without discussing the terms of the contractual relationship being created.

The obligation created by the contract on the part of Heckler & Quiat was to pay Jones if the firm terminated Jones without cause provided that Jones satisfied his obligation created by the contract. Jones' contractual obligation under the contract was to devote all of his working effort to client matters in the meantime. Jones breached his contractual obligation by spending extended periods of time out of the office for non-client matters during work hours. The language about how Jones was to spend his time was merely a reminder about an area of potential problem in Jones' recent performance. Heckler was a superior issuing instructions to a subordinate to give his work the effort required by the firm.

There is also a failure of consideration issue. At the time that Heckler & Quiat presented Jones with the letter, it conferred a new benefit of value (i.e. The right to $5,000) for continuing to do the job he was already obligated to do as a fulltime employee. The bilateral element of contract is not satisfied because only Heckler & Quiat gave up anything of value. The fact that they received nothing of value in return made the letter a gratuitous promise and not a contract. Unless Jones relied on that promise to his detriment, the gratuitous promise could be rescinded anytime without liability.

Jones' Argument

The consideration for the value of the $5,000 obligation was already completed in the past. Like many forms of bonuses and other awards, the severance package awarded to Jones was a recognition of his prior work. Where an otherwise gratuitous promise is supported by a moral obligation or past consideration, it is enforceable as a binding contract. The promise "to give you my car tomorrow because I like you so much" is an unenforceable gratuitous promise because there is no consideration for it. The promise "to give you my car tomorrow to thank you for all the help you gave me painting my house last month" is enforceable because there was past consideration for the promise (i.e. painting).