Contracts Class Prep Notes: September 19, 2011 September 20, 2011

Consideration Doctrine:
Broad Outlines of Consideration Doctrine Consideration: Where there is no legal benefit to the promisor nor detriment to the promisee, there is no consideration. Does not act in isolation Is not sufficient to make a promise enforceable as a contract Is a requisite for the enforcement of a promise The requirement of consideration is not absolute In situations where either mutual assent or consideration does not obtain, other doctrines, such as promissory estoppel may step in and substitute for consideration Consideration for a promise: o Hamer speaks of benefit to the promisor or detriment to the promisee o Restatement refers to performance or return promise Modern consideration doctrine requires: o The benefit or detriment serving as consideration is given in exchange for the promise to be enforced. o Restatement Second says that the benefit or detriment be bargained for in exchange for the promise to be enforced.

I. Role of Consideration Over Time Early: In actions to enforce promises, the s had to state the considerations that supported enforcement of the alleged promises Over Time: Courts used considerations as a concept to distinguish problems that were: o Important from a societal pov and; o Capable of enforcement by the legal system of the times Became commercially focused: Concept of Exchange o Courts would see if promisor had received something in exchange for the promise. o Promises given in exchange for something were the norm o It was primarily commerce that courts sought to facilitate

Modern Elements of Consideration: Concept of Exchange at the Heart Consideration is ESSENTIAL component of contract. Restatement 17 says that consideration is ESSENTIAL component of contract RESTATEMENT 17: REQUIREMENT OF A BARGAIN 1. Formation of contract requires a bargain in which there is manifestation of mutual assent to the exchange and a consideration

Contracts Class Prep Notes: September 19, 2011 September 20, 2011

2. Whether or not there is a bargain, a contract may be formed under special rules applicable to formal contracts under the rules stated in 82-94 RESTATEMENT 71: REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE 1. To constitute consideration, a performance or a return promise must be bargained for. 2. A performance/return promise is bargained for if: a. It is sought by the promisor in exchange for his promise and, b. Is given by the promise in exchange for that promise. 3. Performance may consist of: a. An act other than a promise, or b. A forebearance, or c. Creation, modification, or destruction of a legal relation 4. Performance/return promise may be given to: a. The promisor or to some other person 5. Performance/return promise may be given by: a. Promisee or by some other person

II. Elements of Consideration A. Requirement of an exchange A. THE LAW OF GIFTS: i. If a donor promises to make a gift with no strings attached but does not follow through, the recipient cannot sue because the promise to make the gift is not supported by consideration. There is no return performance or return promise at all. ii. However, once a gift is made or delivered or executed in the legal sense, it is effective. iii. Still no executor promise for contract law to enforce. iv. Any controversy must be settled under the law of gifts. When reading cases about consideration ask these questions: 1) Why did the think promise might be enforceable? 2) What policies underlie the enforcement (or non-enforcement) of promises? 3) How does the requirement of consideration help to further these policies? CONGREGATION v. DeLEO The promise to the Congregation is entirely unsupported by consideration or reliance ON CONSIDERATION: no legal benefit to the promisor, nor detriment to the promisee, thus no consideration. ON RELIANCE: An expectation (of follow through) even though well founded, is not equivalent to either legal detriment or reliance. Public Policy Issues: To enforce an oral promise against an estate would be against public policy

Contracts Class Prep Notes: September 19, 2011 September 20, 2011

Where nothing is given or received in exchange for a promise, traditional contract doctrine refuses to enforce the promise, citing the lack of consideration as the culprit. The benefit or detriment test: 1875 Exchequer Chamber Court definition of consideration: Consists either of: a. Some right, interest, profit, or benefit accruing to one party, or, b. Some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. The Court in Hamer shattered the benefit detriment test, and created new precedent by restructuring the idea that unless a promisor was benefited, the contract was without consideration and could not be enforced. They said that such a rule could not be tolerated, and is without foundation of the law. The Courts decided to apply Pollocks Rule to the facts of the case. Pollock states, When a legal right is given up (and thus performed) on the inducement of a promise, that agreement has been fulfilled. Unlike the traditional definition of consideration above, the most important part is the second. If performance has been satisfied/assented by the promisee, It doesnt matter if the promisor benefited.

HAMER v. SIDWAY Consideration means: One party abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first Case Question: Did uncle become indebted to his nephew on his 21st birthday in the sum of $5K? Issue on Appeal: Did the judge err by not finding the contract invalid because it did not have consideration to support it? Applying Pollocks Rule creates special term to CONSIDERATION: Having fully performed the conditions imposed, it is no matter whether that performance actually proved a benefit to the promisor. The promise made induced the performance. Policy Issue: The contention that- unless the promisor was benefited, the contract was without consideration and thus unenforceable would leave open for controversy many cases in which the promisee did or omitted to do was of such benefit to the promisee as to leave no consideration to support the enforcement of the promisors agreement. The courts could not tolerate such a rule, as it is unfounded in the law. In other words, the way that consideration was previously written was much too narrow stating that, if there was any benefit for the promisee from executing his performance (as induced by what the promisor asked him to do to) then that meant the promisor did not benefit, and thus there was no true consideration to support the enforcement of the promise.

-Pollocks Rule of Consideration

Contracts Class Prep Notes: September 19, 2011 September 20, 2011

Modern Consideration doctrine: Requires that the benefit or detriment serving as consideration be given in exchange for the promise to be enforcedthat it be bargained for. B. The Requirement of a Bargain A. Consideration for a promise: i. Hamer speaks of benefit to the promisor or detriment to the promisee ii. Restatement refers to performance or return promise B. Modern consideration doctrine requires: i. The benefit or detriment serving as consideration is given in exchange for the promise to be enforced. ii. Restatement Second says that the benefit or detriment be bargained for in exchange for the promise to be enforced.

III. The Purpose of Consideration Doctrine A. Historical View: CD grew to allow enforcement of commercial promises while not overburdening the court system with personal ones. B. Fullers View: CD serves both formal and substantive functions. CD can only be understood as a reflection of these functions playing themselves out in particular contexts. 1. The formal and substantive functions of CD may be at odds with each other depending on facts of case. 2. Therefore, its unreasonable/inappropriate to expect consistency in judicial results. CD helps preserve a balance between the formal functions of contract law and the substantive purposes of contract law. A. Consideration Doctrine serves a Formal function a. Purpose of Formal Requirements: o To achieve policies beyond mere clarity and predictability o To assure that evidentiary, cautionary and channeling needs are met. b. Functions of Formal requirements: 1. The Evidentiary function of form a. Ensures the promise was truly and seriously expressed b. Helps testify to the fact the promise was actually made and what it was. 2. The Cautionary function of form a. Individual will Recognize seriousness and act accordingly. 3. The Channeling function of form

Contracts Class Prep Notes: September 19, 2011 September 20, 2011

a.

Allows a court to easily separate the enforceable promises from those that should be ignored.

c. When to use Formal Function: 1. When the promise is purely gratuitous, and inspired by emotion, impetuosity or influence. B. Consideration Doctrine serves a Substantive function a. Purpose of Substantive function: o To protect parties private autonomy o To protect a party who may have relied to his detriment on promise of another o To prevent unjust enrichment b. When to use Substantive Function: i. On purely commercial exchanges C. Theorists Views: a. Promise theory of Contracts i. Promise theorists argue: A promise intentionally made is worthy of judicial enforcement regardless of the presence or absence of consideration b. Consent theory of Contracts i. Consent theorists argue: The presence of consideration justifies a presumption that the parties manifested an intention to be bound. Presumption should not be conclusive. Element distinguishing enforceable promises from those not legally enforceable should be the manifestation of intention to be bound Whether the Party seeking enforcement of obligation was entitled to believe that the other party intended to be legally bound should be a factual inquiry The presence or absence of consideration is only one of many factors that may be relevant. D. Courts make Consideration Doctrine confusing: a. Courts have not felt free to recognize considerations limited role b. Sometimes they have: Stretched doctrine to enforce obligations where parties clearly manifested an intention to be bound even though one party may think consideration is not present Resisted enforcement where the requisite manifestation was missing, even though the technical requirements of consideration were met.