CONTRACTS OUTLINE
CONSIDERATION
A. Consideration- The Basic Doctrine
1. Intro to Consideration Doctrine
* Ct.s sought to facilitate commercial exchange, so the requirement of consideration would point to that goal of requiring bargains
RESTATEMENT, SECOND §17. REQUIREMENT OF A BARGAIN
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in ss 82-94.
*in order for a promise to be supported by consideration, the parties must bargain for a performance or a return promise
RESTATEMENT, SECOND §71. REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE
(1) 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
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
* Basically, in order for a promise to be consideration, the parties must bargain for a performance or return promise.
– Restatement essentially outlines the benefit/detriment test.
2. The Elements of Consideration
a. The Requirement of an Exchange
– any promise to give a gift is not predicated on an exchange, and therefore there is no consideration or return promise or performance to make the promise of the gift binding on the promisor
– an executed gift cannot be revoked
– promise to give a gift may be enforceable if it causes detrimental reliance under promissory estoppel
Congregation Kadimah Toras-Moshe v. DeLeo (1989)
Facts: Member of synagogue gave dying promise to leave them $25,000.
Rule: No contract because no consideration.
Reasons and Policies: Ct. said that there was no reliance, because, even though the synagogue included the money in its planned budget, it did not take any steps or spend anything because it was anticipated.
Hamer v. Sidway(1891)
Facts: Uncle promises nephew $5,000 to stay on the straight and narrow until 21. Nephew does it, but uncle dies before paying him the money.
Rule: giving up your legal right is good consideration.
Reasons and Policies: Kid not smoking or gambling was bargained-for, uncle wanted it, he should be able to contract for it.
– if there is no legal benefit to the promisor and no legal detriment to the promisee, then there is no consideration. Detriment could be giving up of a legal right, the benefit could be anything the promisor wants and bargains for. (Upright nephew)
b. The Requirement of a Bargain
– Bargain Theory of Consideration- (Holmes) The benefit to the promisor may not be a benefit in monetary terms, but must at the very least be something that the promisor bargains for. The consideration must induce the promise, there should be a reciprocal inducement relationship between the promise and the consideration.
Patel v. American Board of Psychiatry & Neurology, Inc. (1992)
Facts: Board of Psychiatry promised to accept Patel’s Indian internship for its residency requirement. Later said no, Patel had to do another year.
Rule: Because the board received no benefit from Patel doing the internship, the detriment to him was un-bargained for.
Reasons and Policies: The promisee’s detriment must be the promisor’s benefit, s
in and Plf.s had no right to sell them.
Rule: Does not matter if the idea was novel or not, still good consideration. Not the Ct’s job to judge the adequacy of consideration.
Reasons and Policies: The bank thought it was valuable enough to pay for, and for a time had the concept before others did.
Batsakis v. Demotsis
Facts: While stuck in Greece during WWII, D borrowed $25 and promised to pay Plf. $2,000 when back in US.
Rule: Ct. will not inquire into the adequacy of consideration
Reasons and Policies: D got exactly what she contracted for, if she didn’t need the money, she would not have signed the contract.
– Issues in these two cases was the adequacy of the exchange, Ct. will not void a contract for inadequacy of consideration, except in extreme circumstances, where the consideration is so “grossly inadequate” as to shock the conscience, or when there is evidence of fraud, duress, or unconscionability.
– One exception is sham or nominal consideration, which the party trying to make the promise into a contract will do to make it legal, Ct. usually will not find that sham consideration is worth anything, except for option contracts. (This may be because sham consideration cannot be said to have been bargained for)
2. Pre existing Duties
– In order for a detriment to be good consideration, it must be a new legal detriment, not an obligation that the party was already legally supposed to perform
– most often, taking money to perform a pre-existing duty is just a bribe
