Chapter 9 - The Doctrine of Consideration

R. 71 - Requirement of Exchange; Types of Exchange

1. Consideration must be bargained for; 2. Must take place in exchange context 3. May consist of: a. An act or b. Forbearance, or; c. The creation, modification or destruction of a legal relation

R. 81 - Consideration as Motive for Inducing Cause

1. The thing bargained for doesn't have to bring about the making of the promise. This doesn't prevent it from being consideration though 2. Even though the promise doesn't directly bring about (induce) a performance or return promise doesn't make it so the performance or return promise is not consideration for the promise 3. Essentially, this rule states consideration doesn't have be the direct motive that induces the other party to act. They can have their own reasons. There just has to be an exchange bargained for.

R. 24 - Offer Defined

1. There must be an element of exchange to be an offer. 2. Not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him a. Essentially look at the circumstances to figure out if it is gratuitous or not (college example)

R. 89 - Modification of Contract

Can modify a contract as long as fair and based on circumstances that were not anticipated, also can be enforced by statute or proof of reliance.

Hammer v. Sidway

Consideration is either a benefit to the promisor or a detriment to the promisee. Willie's abstention from the stated activities were a sufficient detriment, because he abandoned his legal right to engage in them. The legal benefit to the uncle did not need to be economic. His benefit lay in having his expressed desire fulfilled.

UCC 2-209 - Modification

Modification needs no consideration to be binding, instead held to standard of good faith

Benefit/Detriment Theory

a contract must be either to the benefit of the promisor or to the detriment of the promisee to constitute consideration (though detriment to the promisee is the essential and invariable test of the existence of a consideration rather than it can be constituted by benefit to the promisor) 1. In an exchange both parties are promisors and promisees if both are promising something

Kirksey v. Kirksey

a. F: Widowed sister moves to brother in law's property and is subsequently kicked out. Had to originally pick up and leave her home to get there b. R: promise for free land is gratuitous. Detriment is not adequate for consideration when it is merely incidental and not bargained for c. H: Although having to move was big detriment, it wasn't bargained for by the brother-in-law and was merely incidental in order to get the gift. Must be element of exchange to have consideration, not just a gift.

Johnson v. Otterbein University

a. I: By promising to give money to the University to help liquidate its indebtedness and thereby retracting offer, did D breach a contract to P? b. R: No, since Univ. is not doing anything to benefit D or detriment itself, there was no bargain for consideration and therefore no contract

Preexisting Duty Rule and Contract Modification

a. Where the detriment has been suffered before the promise made, it is not bargained for and therefore it is not consideration b. If a detriment is the relinquishment of a right, it follows that one does not suffer a detriment by doing or promising to do something that one is already obliged to do or by forbearing to do something that is already forbidden. Therefore, the rule is often stated that the performance of, or promise to perform, a pre-existing duty is not consideration. c. Example Al owns a ski lodge. He entered into a contract with Buster under which he sold the lodge to Bust for $400,000. Before the sale closed, Al realized that he had underpriced the lodge, which is worth at least $450,000. He approached Buster and asked him to agree to change the price to $450,000. Bust believed that he did underpay and felt that the lodge was still a good buy at $450,000. Not wishing to take advantage of Al's mistake, he agreed to pay the extra amount, and the parties amended their written contract. i. This amendment is not a binding contract because Al gave Buster no consideration for his promise to pay $50,000 more. Al already had a duty to transfer the lodge under the original contract, and he neither gave nor promised anything new. It cannot be a legal detriment to promise what he is already obliged to do. As a result, Buster's second promise is not binding, and if he later regrets it, he can insist on transfer of the lodge for the original price of $400,000. ii. Pre-existing duty rule only applies if the performance of the promisee is completely encompassed by the pre-existing duty. Therefore, if Al had in any way added to his performance or obligation as an apparent incentive to Buster's agreement to pay more (for example, Al offered to include a snowplow in the sale), this new increase in his detriment would be sufficient to constitute consideration for Buster's promise of more money. Doesn't matter if snowplow was worth must less than $50,000 because economic equivalence is not normally required in the exchange.

Why Preexisting Duty Rule makes sense

d. The rule makes most sense when, after a contract has been made, one of the parties takes advantage of the other's dependence on his performance, by threatening to breach the contract unless the other promises to increase her payment or other return performance. When a modification of an existing contract has been coerced in this way, the court can employ the pre-existing duty rule to void the unfair modification. i. Example: Gus gets cab to hotel for $85. Halfway there in bad neighborhood cab driver stops and says he will dump Gus out unless he gives him $130 instead. Gust obviously agrees. When they get to hotel though Gus can refuse and only pay $85 because no additional consideration was given to increase the price because the cab driver has suffered no further detriment than originally contracted for.

Preexisting Duty Rule under the UCC

e. Pre-existing duty rule doesn't apply under UCC i. Although the pre-existing duty rule precludes enforcement for real property (ski lodge), result is different if contract involves a sale of goods. ii. Example: Al and Buster contracted for the sale of Al's skis to buster for $100, and the parties later agreed to increase the price to $150. 1. UCC 2.209(1) states that an agreement modifying a sale of goods needs no consideration to be binding. It just has to meet the test of good faith - so has to be fairly agreed to and justified by a legitimate business reason

Promises and alternative performances

i. A form of discretionary promise is one involving alternative performances. 1. Example: Al promises to sell his skis to Buster in exchange for Buster's promise, in his discretion, to pay $100 or to mow Al's lawn for two months. 2. Provided that each of the promises, on its own, would be consideration, there is nothing objectionable in permitting a party to select between alternative promises.

Past Consideration

if the promisee suffered the detriment before the promise was made, it cannot be said that the detriment was exchanged for the promise 1. This means that if a person makes a promise to compensate another for some prior performance, that prior detriment cannot be consideration for the promise. The promise is seen as gratuitous and nonbinding, even if it was seriously and freely made, and even if the prior detriment conferred a valuable benefit on the promisor 2. Example: Buster lends Al his car for a week gratuitously. A few months later Al gives up skiing and, remembering Buster's kindness, tells Buster that he will give his skis to him for letting him use his car. If Al decides to keep his skis, he can because his promise was gratuitous because Buster's car lending wasn't induced by the exchange/promise of lending skis. - This is called "past consideration".

Reasons courts don't judge on adequacy of consideration

i. be time-consuming ii. be expensive iii. introduce uncertainties into transactions iv. be difficult to prove when subjective value attached to item

Gratuitous promise

one that is not "paid for" in some way - cannot be enforced as a contract

R. 79 - Adequacy of Consideration; Mutuality of Obligation

i. if the requirement of consideration is met there is no additional requirement of: 1. (1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or 2. (2) equivalence in values exchanged, or; 3. (3) "mutuality of obligation"

Consideration and equivalency in number of promises

there does not have to be an equivalence in the number of promises or performances provided by each party. One party can exchange a single promise or performance for multiple promises and performances by the other. i. Example: Al could have given Buster the skis in exchange for Buster's payment of $100 plus his promise to stop smoking and his forbearance from asserting a claim that he has against Al. ii. Policy: The party who fairly agreed to take less than the value of his performance has no basis to complain after entering the contract

R. 364 - Effect of Unfairness

Where specific performance or injunction would be unfair because the exchange is grossly inadequate, court will deny SP or I. Permits court to refuse equitable relief on grounds of unfairness, even in situations where they would not necessarily refuse to award damages

Brian Construction

[Builder agrees to construct a building, then discovers additional debris that needs to be removed, contract for additional work] Court finds valid consideration. Why is this case different that Stily and AK? 1. Court says: the rubble wasn't included in the original contract so it was "additional work" - thus true consideration.

Stilk v. Myrick

[Seamen seek higher pay from captain while at sea because of desertion of crew members, captain has no choice but to agree] NO consideration - sailors were required to do the work anyway (extra work=implicit term re emergencies - different if employer caused extra). Cannot have a bargained for exchange for something you are already obligated to do. Giving up right to breach not seen as consideration.

Detriment to promisee

1. Detriment for purposes of consideration means giving up anything you have a legal right to do regardless of its moral or health implications 2. It could take the form of an immediate act (that is, doing or giving something), a forbearance (refraining from something), or the partial or complete abandonment of an intangible right 3. Consideration may be found either in the action of incurring the detriment or in the promise to perform (to act or forbear) in the future. 4. Example: Al's payment of $100 was an act constituting his detriment. It would equally have been a detriment if, instead of paying the money, Al had promised to pay $100 to Buster on delivery of the skis. As the act of payment is consideration, the promise to perform that act is also consideration. (Buster's detriment is, of course, the promise to deliver the skis. This is a standard bilateral contract, in which the promise by each party is exchanged for and induces the promise by the other.) 5. If instead of paying or promising to pay $100, Al had accepted the promise of the skis in settlement of a prior overdue claim of $100 that he had against Buster, Al's detriment would be the abandonment of his right to sue on the claim, or alternatively, his forbearance from exercising that right. So it is valid because he is giving up his right to say that there is no consideration because he is saying Buster doesn't have to pay him $100 anymore in place of Al's consideration. Both sides had detriment.

Policy Reasons for Consideration

1. Evidentiary - existence of consideration provides objective evidence that the parties intended to be legally bound by the agreement they made 2. Cautionary - requirement of consideration also affords parties the opportunity to consider the full implications of their actions before binding themselves because statements and promises made without the support of consideration are not binding and shouldn't be if received for free.

Difference between a detriment and a condition of a gift (example)

1. Example: Al Umnus promises to donate $10,000 to his alma mater and specifies that the gift is to be allocated to the college's scholarship program. The college accepts the promise and agrees to use the funds as specified by Al. The college has made a promise to Al in return for his promise of $10,000, but is this promise consideration? a. Argument that it isn't consideration because College doesn't give up a legal right. At time of promise, Al has not handed over the money to the college, and the college has no right to spend Al's money. Therefore when it makes the promise to use Al's prospective payment in a specified way, it does not forbear from any legal right that it has at the time that it makes the promise. On this reasoning, there is no contract. Al has simply made a gift to the college with a condition attached. b. It would be easier to find for consideration if there was some detriment on part of the college more than just direction of the funds - like saying he will be sponsored in the school magazine or something

Examples where theories don't overlap

1. For instance, a deal in which the promisee feels subjectively relieved, but has not actually gained any legal rights, might satisfy the bargain theory but not the benefit-detriment theory. 2. Alternatively, a deal in which an actor takes detrimental actions possibly in reaction to an offer, without having viewed the deal as a bargain, would not be viewed as a contract under the law.

Moore v. Elmer

1. I: Can clairvoyant request D to pay for services rendered during reading session? 2. R: No, no consideration since there was no bargain before he sat down for reading, he only promised to pay post reading. If there was a contract he didn't receive any benefit from it since service was rendered prior to making of contract. Past consideration not binding except in certain situations §86

Benefit to promisor

1. Restatement 79(a) states that a gain or advantage to the promisor is not a requirement for consideration 2. In example where Al agrees to give skis to Buster in exchange for Buster's agreement to quit smoking, it is hard to see what the benefit to Al is. a. The court will find benefit where the promisor gets what he intended to exchange for. b. Al's Detriment = loses skis. Al's benefit = he got what he bargained for c. Buster's Detriment = loss of $100. Buster's benefit = he gets Al's skis

Difference between bargained-for and incidental detriment

1. Some detriment is merely incidental and not sufficient for consideration 2. Example: Al says to Buster, "If you walk over to my car, I will give you the skis that I have on my rack." a. Under broad concept of legal detriment, Buster's act of walking to the car is a detriment: He gave up his legal right to remain where he was and undertook the perambulation across the parking lot. However, this detriment seems incidental to Al's promise 3. On other hand, other circumstances could make it seem like it was bargained for. a. Example: Buster is one of those sidewalk performers who strikes a pose and tries to stand dead-still like a statute. Al's offer of money may well be in exchange for the hand movement, because Buster could reasonably infer that Al is bargaining for the pleasure of seeing Buster abandon his art for filthy lure. We don't usually inquire whether that kind of please is worth $10 though. We only look for his apparent (objective) motive so it would probably be sufficient consideration in this case

Bargain Theory

The parties subjectively view the contract to be the product of an exchange or bargain. Promise must be bargained for, i.e. promise motivated by the legal detriment suffered by the promisee 1. Court use objective test to determine the contractual intent. "inducement" is gleaned from the manifestation of intent

Consideration and equal value

c. The consideration doctrine does not require that the performances or promises exchanged be of equal value. As long as a legal detriment has been suffered in exchange for the promise, consideration is present, and the court will not invalidate the contract (or make an adjustment to the contract terms) on the ground that the consideration given for a promise is inadequate in relation to the value of the promise

Consideration and conditional promises

i. A qualified or conditional promise is good consideration provided that the contingency is genuine. That is, it is an uncertain future event within the realm of possibility and outside the complete and discretionary control of the promisor. If these requirements are satisfied, the conditional promise is a commitment. 1. A legal detriment is suffered, even though the obligation to perform the promise only comes into effect upon fulfillment of the condition 2. Example: Al and Buster make an agreement under which Al promises to give his skis to Buster, and Buster promises to pay $100 for them on condition that he win this week's state lottery, in which he has already bought a ticket. If Buster does not win the lottery, the parties agree that he need not pay anything for the skis. a. Although Al's promise to give the skis to Buster is absolute, Buster's return promise is conditional. If he wins, he must pay. If not, he gets the skis free. b. The contingent nature of his promise does not prevent it from being consideration, because he suffers the detriment of binding himself to pay on the happening of an uncertain future event outside his control. This is a real contingency, and its occurrence is not within Buster's control

Moral Consideration

i. Essentially the exception to the past consideration view ii. There are instances in which courts will enforce without finding consideration based on moral obligation iii. Restatement 86: Promise for a benefit received (minority view) 1. (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. (2) a promise is not binding if: a. (a) the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; b. (b) to the extent that its value is disproportionate to the benefit.

Preexisting duty rule to third parties

i. Example: Al contracted to sell his ski lodge to buster for $400,000. Buster has promised Ava that when he takes over the ski lodge, he will grant her a concession to run the snack bar in the lodge. Ava is most anxious for the sale to go through, so to give Al an additional incentive to complete his contract with Buster, Ava promises Al that if he completes the sale to Buster, she will pay him $1,000. 1. Because Al has already contracted with Buster to transfer the lodge, he has a pre-existing legal duty to perform that promise. 2. It would therefore seem that the has not incurred any new legal detriment by making the same promise to Ava 3. This would work because concern about extorted contract modification is not present in a case like this, so this justification for the pre-existing duty rule is not applicable

Newman and Snell's State Bank v. Hunter

i. F: Diseased husband owed money, but left none to widow to pay. Widow gave separate promissory note to bank promising to pay ii. R: Something that doesn't have value cannot constitute consideration iii. H: Promissory note by widow wasn't backed by anything so had no value, so couldn't constitute consideration

Mutual and Illusory Promises

i. Mutuality means that when the consideration consists of the exchange of mutual promises, the undertakings on both sides must be real and meaningful. If the promise of one party has qualifications or limitations so strong that they negate it, it is really no commitment at all. Because it does not bind that party, this lack of consideration voids the apparent contract, so neither party is bound. 1. Example: Buster promise to buy Al's skis for $100, and Al promises to sell them to Buster unless Al changes his mind. 2. This qualification reserves such unlimited discretion to Al that he has really promised nothing. His apparent promise is said to be illusory and hence cannot be consideration 3. Due to mutuality, we could say that because Al is not bound, Buster is not bound either. a. Real problem though is that Al has suffered no detriment because he has neither given nor actually promised anything to Buster. Therefore, Buster's return promise is not supported by consideration and is not binding 4. Example: Blockbuster puts in its terms and conditions that the user agrees to arbitrate somewhere. But Blockbuster also says that it reserves the right to change its terms at will. This is illusory because the subscriber is bound to terms while Blockbuster is free to do what it wants. ii. A promise could also be illusory for other reasons. For example, it is also an illusion to promise something based on a condition that cannot occur - say that Al gives his skis to Buster in return for Buster's promise to pay $100 for them if, by the end of the week, Elvis is returned to earth by the aliens who stole him.

Exception to the Preexisting duty rule under Common Law and its rational

i. The requirement that a contract modification requires consideration is not applied where the modification was motivated by supervening difficulties that materially affect the basic assumption under which the contract was made 1. Rational: a modification to take account of an unexpected burden on the promisee is less likely to be coercive

Preexisting duty rule and debtors/debtees

i. Under the pre-existing duty rule, a party suffers no legal detriment by performing or promising to perform something that she already is legally obliged to do. Under this, a creditor who agrees to accept partial payment of a debt, or to extend the payment period of an undisputed debt, is not bound by the promise. This is because the debtor already owes the undisputed debt, and a new promise by the debtor to pay in part or after due date is nothing more than a promise to pay what is already owed. 1. Example: Borrow owes $20,000 to lender payable on August 1. Borrower fails to pay and lender sues him to recover the debt. Borrower contacts lender and explains he has severe financial difficulty and can't pay $20,000 in full. He offers to settle the lawsuit by paying lender $10,000 in cash within one week in full settlement of the claim. Lender accepts because she decides that it is better to receive $10,000 within one week than to struggle over tons of time to get $20,000. 2. Lender has clearly suffered a detriment by forgiving half of her claim and agreeing not to continue her suit. However, unless the borrower undertook some new detriment in addition to the promise to pay a portion of the debt, he is doing no more than what he was obliged to do under the original contract, so that his promise to pay is a pre-existing duty, rather than a legal detriment. The lender is therefore not bound by her promise to settle the claim for half its value. 3. This only works where debt is undisputed though because detriment can be found in both by settling on a price. Example is a tort suit where one party sues for $500K and the other settles with them for $10K. D gives up legal right to argue for no damages and P gives up legal right to argue for all. ii. If one side is lying though they can't claim consideration because they aren't giving up a legal right

Three types of problems that can occur in regards to adequacy of consideration

i. Want (or lack) of consideration - nothing whatsoever given in exchange for the promise ii. Failure of consideration - person did not get what they bargained for iii. Inadequate consideration - thing not worth as much as you thought, an inadequate consideration

two exceptions to adequacy of consideration

iii. Exception: Courts do examine the adequacy of consideration where the disparity in the exchange results from oppressive or underhanded bargaining or justifiable mistake. If they find it they can pull something or use a defense. iv. Exception: The rule that a court will not inquire into adequacy of consideration may not apply where it is clear that the purported consideration is so inadequate that it cannot be said that it really amounts to consideration at all. 1. Where the parties intend a promise to be gratuitous, they may seek to make the promise binding by creating an apparent consideration. They may do this by falsely reciting that the promisee did give consideration or may provide for the promisee to suffer some nominal detriment in apparent exchange

Dyer v. National By-Products

lost foot at work, life time employment nixed P.705 I: Was there consideration when P agreed not to litigate accident claim in exchange for lifetime employment? Does P have a right to sue now that he was laid off? H: Would seem like there's consideration but in actuality P had no valid claim for personal injury. However, ct thinks P's good faith belief that he did have a claim may constitute consideration. Good faith forbearance allows there to be consideration even if based on an invalid claim and contract is enforceable. R: forbearance is sufficient.

Mills v. Wyman

promise to pay for nurse's prior care of deceased son. 1. F: P found and cared for D's son, V, who returned from sea and fell ill. After 2 weeks V died. P wrote to D and asked for expenses. D wrote back after only 4 days, promised to pay, later reneged. 2. I: consideration? 3. R: No consideration, no benefits to D - no non-doctor Good Samaritan rule 4. H: no, D did not contract for the kindness and services of P, nor did he benefit from them. "It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity...." nothing more than moral obligation

Webb v. McGowan

sacrifice of self to save boss's life 1. F: P worked for D in a mill. P went over the edge with a huge pine block in order to stop the block from crushing D. P sustained serious injuries. D promised to care for P for the rest of P's life. D died, his estate stopped paying. 2. I: consideration even if no bargain? 3. H: yes, the material benefit rule applies if there is both a moral obligation and a subsequent promise to pay, even if there was no original duty or liability. No doubt that parties meant to be bound. (minority rule applied) 4. R: No benefit promise + moral obligation + material benefit = valid consideration 5. Note: Under §71, P may have lost since act was not induced by D's promise to pay

Difference between promise and performance based contracts in regards to consideration

vi. Consideration only applies to promises that have not been fulfilled yet. If it is performance based, like someone already donated money, the contract has been fulfilled and they can't get the money back based on no consideration received. 1. Example: Man promises to give skis to friend. Promise is not enforceable until he actually delivers the skis because there is no consideration, just a gratuitous promise 2. Example: On the other hand, if Buster sells skis to friend for $100 and Al promptly pays, then Al is obligated to deliver them based on consideration.