#11029 - Consideration - Contracts

1. R2d §71

(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.

2. Fuller’s Three Functions of Consideration

   1. evidentiary function – evidence that an agreement or promise exists when that existence is in dispute

   2. cautionary or deterrent function – helps ensure that a hasty, unreasonable promise, will not be enforced to the disadvantage of the promisor

   3. provides a legal framework to express intention

1. Gratuitous promises: promises to make gifts have no consideration, esp. intra-familial gift (no "bargain" element);

2. Existence of condition to receive gift: Even if the person promising to make a gift requires the promisee to meet certain conditions in order to receive the gift, there will still be no consideration if the meeting of the conditions is not really "bargained for" by the promisor. (I’ll give you this book if you come up to my office)

   1. Occurrence of condition is of benefit to promisor: But if the promisor imposes a condition, and the occurrence of this condition is of benefit to him, then the bargain element probably will be present.

3. Condition to use a donation in a certain way FORK

   1. No consideration: the promisee’s promise to use the fund is not a legal detriment because at the time of the promise, the donor has not handed over the money, and the promisee has no legal right to use the money yet. Therefore there is no forbearance at the time the promise is made.

   2. Consideration: committing the use of fund only for the express purpose required by the donor. Policy argument of public interest.

4. Altruistic pleasure not sufficient: the fact that one who promises to make a gift expects to derive altruistic pleasure, or love and affection, from making the gift is not sufficient to constitute a "bargain."

5. E.g. Aunt promises to help A pay music school. A is so excited that she says to aunt “when I am famous I’ll give you the front row seat of my conference.”

   1. Aunt’s promise is gratuitous gift.

   2. It’s not clear that A’s promise is serious promise at all. It could be just an expression of gratitude.

   3. Also it’s contingent upon a very uncertain future event, seems revocable at the will of A.

   4. Significant discrepancy between tuition and ticket.

   5. Besides, it is given after Aunt makes the promise, so it’s not bargained for.

1. "Adequacy" irrelevant: If the consideration is big enough to suggest that there was a bargain, the fact that it is "inadequate" is irrelevant.

2. R2d §79

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.”

3. Unfair bargain: But remember that extreme disparity in value between what the promisee gives up and receives may suggest that there is not in fact a "bargain," in which case there will be no consideration even though the detriment requirement is satisfied. There could be unconscionability.

4. Sham and nominal consideration: Even though a deal looks on its face as if it is supported by consideration, the court may conclude that the purported consideration is sham or nominal, and is thus not consideration at all.

   1. Sham: falsely reciting that promise gives consideration. E.g. payment not in fact made: If a non-trivial payment is recited, but the payment was not in fact made, most courts will take this as evidence that no bargain was present. Always, the question is whether there was in fact a bargain, and payment or non-payment is merely non-dispositive evidence of whether there was a bargain.

   2. Nominal: promisee suffers only nominal detriment. E.g. 1 dollar consideration

1. Promisee unaware: Generally, the promisee must be aware of the promise, for the act performed by him to be consideration for the promise. This means that if a reward is promised for a certain act, and the act is performed without the actor’s being aware of the reward, he cannot recover.

2. One can recover a reward, where his acts were performed with knowledge of the offer of a reward, but were motivated by other circumstances (Williams: beaten up by husband, motives were irrelevant).

1. "Past consideration" no good: If the promise is made in return for detriment previously suffered by the promisee, there is no bargain, and thus no consideration. Thus promises to pay a pre-existing debt, and promises to pay for services already received, usually lack the "bargain" element

2. Three exceptions:

   1. Promise to pay a debt that has been discharged in bankruptcy

   2. A debt for which the statute of limitations has run

   3. A debt incurred during infancy

1. R2d§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.

2. Examples:

   1. sales of creative ideas; literary work and informational services. In these instances, the seller is usually in the inferior bargaining position

   2. Doctor helping an unconscious person

1. R2d §81

(1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.

(2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.

2. Comment b: Even in the typical commercial bargain, the promisor may have more than one motive, and the person furnishing the consideration need not inquire into the promisor's motives. Unless both parties know that the purported consideration is mere pretense, it is immaterial that the promisor's desire for the consideration is incidental to other objectives and even that the other party knows this to be so.

1. If a party does or promises to do what he is already legally obligated to do, or if he forbears or promises to forbear from doing something which he is not legally entitled to do, there is no consideration.

2. R2d §73

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

1. E.g. If the nephew, due to disease, cannot drink or smoke, etc., is there forbearance? Probably not, because he forbears from doing something that he is originally not able to do. (counterargument: legal right to do it, he just cannot exercise it)

3. Modification: This general rule means that if parties to an existing contract agree to modify the contract for the sole benefit for one of them, the modification will usually be unenforceable at common law, for lack of consideration. Be on the lookout for this scenario especially in construction cases.

   1. R2d: an exception where the modification is "fair and equitable in view of circumstances not anticipated by the parties when the contract was made."

   2. UCC abolishes...