CONSIDERATION

A.     Introduction

                                                              i.      Often find that although the consideration doctrine is the basis of a decision, the court is really concerned with the legitimacy of the transaction in issue and is using consideration to achieve an appropriate result.

1.      A court may stretch to find consideration when the promise appears to be seriously intended and fairly obtained, or

2.      May apply the doctrine to invalidate a promise that appears to have resulted from advantage-taking or unfair dealing in an effort to police bargaining behavior. 

                                                            ii.      Consideration is an essential element of contract, and a promise is not recognized or enforced as contractual unless consideration has been given for it. 

(However, an obligation assumed without consideration may be enforceable under an alternative theory such as promissory estoppel, restitution, etc.)

B.     Elements of Consideration

                                                              i.      Restatement – In order for a promise to be supported by consideration, the parties must bargain for a performance of return promise.

C.     The Requirement of a Bargain

                                                              i.      A bargain is an exchange in which each party is promising to give up something concrete and real and views his promise or performance as the price of the other’s promise or performance.

                                                            ii.      The bargained-for-price may include not only promises and acts, but also promises to forbear and actual forbearance from performing acts one is legally entitled to perform.

1.      Equal Value Not Required

In most cases, the courts will not examine whether a bargained-for promise or performance is commensurate in value with the counter-promise or performance, so long as the contract is not “unconscionable.”

2.      Adequacy not considered

The court will not inquire into the “adequacy” of the consideration.  As long as the promisee suffers some detriment, no matter how small, the court will not find consideration  lacking merely because what the promisee gave up was of much less value than what he received.

a.       Example: D is desperate for funds during WWII, and promises to pay P $2,000 after the war in return for $25 now. Held, there is consideration for D’s promise, so P may collect.  Mere “inadequacy of consideration” is no defense. [Batsakis v. Demotsis]

                                                          iii.      Promises to make gifts:  A promise to make a gift is generally unenforceable, because it lacks the “bargain” element of consideration. 

1.      Example: A says to B, his daughter, “When you turn 21 in four years, I will give you a car worth $10,000.”  The four years pass, A refuses to perform, and B sues for breach of contract.  B will lose.

D.     Case Summaries

                                                              i.      Congregation v. DeLeo (MA Supreme Court, 1989)

Defendant suffered a prolonged illness, during which time he was visited by the Plaintiff, the Rabbi of his Congregation.  Defendant promised the Rabbi a $25,000 donation; Congregation planned to build a library named after the Defendant with the funds.  Defendant died intestate and survived by his wife.  Plaintiff brought suit for the $25,000.  Court ruled that this was an oral gratuitous pledge with nothing given by the Congregation in exchange for the promise.  Furthermore, the Congregation hadn’t begun work on the library – they weren’t relying on the promise. 

Rule: No consideration, no contract.  

                                                            ii.      Hamer v. Sidway (NY Court of Appeals, 1891)

Uncle Story promised nephew $5,000 if he refrained from drinking, smoking, carousing, etc. until his 21^st birthday.  Nephew agreed and upon turning 21 he wrote to his uncle asking for the money.  Uncle was happy for the Nephew but wanted to hang on to the money until Nephew was able to manage it responsibly.  Uncle Story died without having paid the $5,000, and Plaintiff brought suit to recover.  Court ruled for Plaintiff, stating that Nephew gave up things he had a legal write to do, in exchange for the $5,000 – valid unilateral contract of a promise for a performance with adequate consideration.

Rule: A valuable consideration may consist either of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

                                                          iii.      Patel v. American Board of Psychiatry (US Court of Appeals, 1992)

Defendant promised to accept Plaintiff’s out-of-country internship for his board certification.  Defendant later reneged on that promise.  Court found for the Defendant, stating that there was no contract b/c no consideration.  The two parties didn’t exchange anything, and the Defendant didn’t want anything from the Plaintiff.  Question as to if there was even a promise in this case.

                                                          iv.      Carlisle v. T&R Excavating (Ohio Court of Appeals, 1997)

Plaintiff had Defendant married and shortly after, Plaintiff began doing bookkeeping work for the Defendant.  She refused payment for her work.  Defendant said he would instead help with the construction of her business later.  Defendant began the work on Plaintiff’s school, but quite before the job was finished.  Couple separated during this time.  Plaintiff sued for damages.  Court ruled in favor of the Defendant, stating that there is no evidence that the parties exchanged services in a bargain – promise to perform work free of charge if reimbursed firm for cost of materials used was not supported by consideration, and thus was not enforceable contract.  Also, no showing was made that Plaintiff had reasonably relied to her detriment on promise, as required to allow recovery under theory of promissory estoppel.

Rule: Past consideration cannot support a contract.   

E.     PREEXISTING/ANTECEDENT DUTY RULE AND SETTLEMENTS

                                                              i.      A preexisting legal duty cannot serve as consideration for a contract.  Anything that is received in exchange for a promise to do what one is already obligated to do is a mere gratuity or a bribe.  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, he has not incurred a “detriment” for purposes of consideration.

1.      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.

a.       Restatement: The Second Restatement and most modern courts follow this general rule, but they make an exception where the modification is “fair and equitable in view of circumstances not anticipated by the parties when the contract was made.”

                                                            ii.      Case Summaries

1.      Fiege v. Boehm

Holding: Monetary support for bastard child.  Forbearance to sue for a lawful claim or demand is sufficient consideration for a promise to pay for the forbearance if the party forbearing had an honest intention to prosecute litigation which is not frivolous, vexatious, or unlawful, and which he believed to be well founded.  “…if she makes the charge in good faith.”  Court stated that in this case, there was no proof of fraud or unfairness.  Court stated that Boehm gave testimony which indicated that she made the charge against Fiege in good faith.

F.      MUTUALITY

                                                              i.      “Mutuality of Obligation”

1.      The idea that both parties to a contract must give something of legal value in order to get something in exchange.  If one of the parties has neither contributed nor promised to contribute anything that is meaningful in the eyes of the law, there cannot be said to be a contract. 

2.      An illusory promise is not supported by consideration, and is therefore not enforceable.  An illusory promise is a statement which appears to be promising something, but which in fact does not commit the promisor to do anything at all.

a.       Example: A says to B, “I’ll sell you as many widgets at $4 apiece, up to 1,000, as you choose to order in the next 4 weeks.”  B answers, “Fine, we’ve got a deal.”  B then gives A an order for 100 widgets, and A refuses to sell at the stated price because the market has gone up.  B’s promise is illusory, since she has not committed herself to do anything.  Therefore, A’s promise is not supported by consideration, and is not binding on him.

                                                                                                                                      i.      Right to terminate: If the contract allows one or both parties to terminate the agreement at his option, this right of termination might make the promise illusory and the contract therefore unenforceable.

3.      Situations in which a party’s obligation might seem illusory:

a.       A party simply performs but never obligates itself to do anything.

b.      A party promises to do something only if a future state of affairs comes to pass, and it doesn’t, so the party’s obligation never ripens into anything – conditional promise.

c.       One party’s performance is left to its own discretion.

                                                            ii.      Performance as Consideration

                                                          iii.      Conditional Promises as Consideration

1.      Unless the condition comes to pass, the promise does not become enforceable.  Where the outcome of the conditional event is uncertain or unknown, however, the promisor takes on some risk by making the promise.  The risk may be sufficient to serve as a “legal detriment.”  The promisor may never have to carry out the promise, but assumption of the risk of an obligation is enough.

                                                          iv.      Discretionary Promises as Consideration

1.      Courts sometimes stretch to find consideration where discretionary promises make commercial sense.  If the promise seems seriously and reasonably made, the modern trend is to enforce it.

2.      If, however, circumstances suggest that the promisor wasn’t acting seriously or didn’t intend a real obligation, courts are less likely to find that a contract has been formed.

3.      One frequently occurring example of a discretionary promise is one subject to a “satisfaction clause.”  Most courts say that such an agreement does not give the party complete discretion to claim dissatisfaction.  Rather, you must act reasonably, in good faith, or in accordance with some other standard supplied by the court (standards may differ by jurisdiction).

                                                            v.      Promises to Pay Past Debts

1.      General rule: Most states enforce a promise to pay a past debt, even though no consideration for the promise is given.  Thus promises to pay debts that have been discharged by bankruptcy, or that are no longer collectible because of the statute of limitations, are enforceable in most states.

a.       Writing required: Most states require a signed writing, at least where the promise is to pay a debt barred by the statute of limitations.

                                                          vi.      Promise to Pay for Benefits Received

1.      Generally: A promise to pay for benefits or services one has previously received will generally be enforceable even without consideration.  This is especially likely where the services were requested, or where the services were furnished without request in an emergency.