Contract Law: Consideration

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CONSIDERATION: The majority of agreements that qualify as legally enforceable contract contain a bargained-for-exchange in legal position between the parties, i.e., valuable consideration.  While substitute doctrines may permit enforcement of an agreement, only the presence of valuable consideration on both sides of the bargain will make an executory bilateral contract fully enforceable from the moment of formation.  Consideration is the price for enforceability in the courts.

  • In Anglo-American law, the principal additional requirement for contractual obligation is the presence of consideration.
  • The revised Restatement displays the traditional form of consideration
  • The UCC took out the principal of consideration in a few commercially important instances, but kept it under Article 2 (The sale of Goods)
  • Evolved as a means of deciding which promises will be enforced and which will not be enforced.
  • Unilateral contract (promise in exchange for a performance or forbearance) and a bilateral contract (promise for a promise)

Elements of Consideration: Two elements are necessary to constitute consideration: (1) there must be a bargained for exchange between the parties; and (2) that which is bargained for must be considered of legal value or, it must constitute a benefit to the promisor OR a detriment to the promisee.  At present time, the detriment element is emphasized in determining whether an exchange contains legal value.

Ex: Elizabeth promises to sell her used handbag to Mary for $200 in exchange for Mary’s promise to pay $200.  Both elements of consideration are found in this example.  First, Elizabeth’s promise was bargained for.  Elizabeth’s promise induced a detriment in te promisee, Mary.  Mary’s detriment induced Elizabeth to make the promise.  Second, both girls suffered detriments.  The detriment to Elizabeth was the transfer of ownership of her handbag, and the detriment to Mary was the payment of $200 to Elizabeth.  

1. Bargained-for-exchange: Requires that the promise induce the detriment and the detriment induce the promise.  Unless both of these elements are present, the “bargained-for-exchange” element of consideration is not present.

a. Gift: If either of the parties intended to make a gift, he was not bargaining for consideration, and this requirement is not met.

i. Act or forbearance by promisee must be of benefit to the promisor: It is not enough that the promisee incurs detriment; the detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making the gift.  The test is whether the act or forbearance by the promisee would be of any benefit to the promisor.  If the promisor’s motive was to induce the detriment, it will be treated as consideration; if the motive was not more than to state a condition of a promise to make a girt, there is no consideration.

Ex: Come to my house and I will give you my old handbag.”  The promisee suffers a detriment by going to promisor’s house, as she did not have to go there at al.  However, the promise of the television was probably not made to induce the promisee to come to promisor’s house.  Hence, there is no consideration.

ii. Economic benefit not required: The benefit of the promisor need not have economic value.  Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act.

Ex: Aiden tells Carrie, “I’ll give you $100 if you stop smoking.”  Aiden’s emotional gratification from influencing Carrie’s health suffices as consideration.

b. “Past” or “Moral” Consideration

i. General rule-not sufficient consideration: If something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement.  The courts reason that is was not given in exchange for the promise when made.

Ex: A loose piece of molding fell from a building and was about to hit Mikey.  Jwags, seeing this, pushed Mikey out of the molding’s path and was himself stuck by it and seriously injured.  Mikey later promised Jwags that he would pay him $1000 a month for life.  There is no consideration because Jwags did not bargain for Mikey’s promise.