#10993 - Consideration - Contracts

Consideration

A. Generally

1. Section 71 of the Restatement states that 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, or

c. the creation, modification, or destruction of a legal relation.

4. Purpose of consideration: Consideration serves to distinguish those promises that merit legal enforcement from those that don’t.

Three Functions of consideration (p. 135)

Evidentiary – Provides court with evidence that an agreement exists.

Deterrent – Discourages rash actions because parties know that hasty, unreasonable promises won’t be enforced.

Channeling -

5. Bilateral Contract – A promise is exchanged for a promise. “I’ll promise to do this if you’ll promise to do that in return.

6. Unilateral Contract – A promise is exchanged for immediate performance. “I’ll promise to do this if you do that right now.”

Note: Consideration requirement may operate too narrowly to always promote fair outcomes, so alternative bases of enforcement of promises may, at times, need to be adopted.

B. Consideration as it Applies to Promises

1. Gratuitous promises (promises made in exchange for nothing) generally aren’t enforceable, but there are ways to structure a promise such that the consideration requirement can be met.

2. In the past, courts made use of a benefit-detriment test to determine if the promisor actually benefited from the promise made when deciding whether or not to enforce it, but this was replaced in favor of the consideration test.

Consideration: Hamer v. Sidway (1891) –Uncle promised his nephew $5,000 in exchange for him refraining from a whole host of (legal) vices until he turned 21. The uncle’s estate refused to keep the promise on the basis of there being no consideration, but the court held that there was consideration because the nephew refraining from vice was an act sought by the uncle in exchange for the $5,000. It didn’t matter that this activity in no way benefited the uncle materially.

Consideration (unilateral contract):St. Peter v. Pioneer Theatre Corp.(1940) – Pioneer Theatre Corp. refused to pay St. Peter, claiming that simply entering a contest to win a prize did not constitute consideration. The court disagreed, holding that the theatre set certain requirements that had to be met to claim the prize, and the plaintiff complied with these requirements. Unilateral contract—promise made in exchange for performance.

NO consideration: Kirksey v. Kirksey (1845) – Widow accepted brother-in-law’s invitation to move herself and her kids onto his property. In not too much time, he forced her and her kids off of the property. The court held that there was no consideration because no acts or promises were given in exchange for his promise. The act of moving onto his property was regarded as the only way to accept the promise, not something offered in exchange or a condition of the promise.

C. Substantive vs. Formal Legal Instruments

1. Consideration actually has to be a bargained for promise or act to be considered consideration. Simply stating that a contract has consideration or including a symbol (a seal, for example) that’s generally used to imply consideration does not mean consideration actually exists.

2. The promises/acts that the two...