Contracts Outline

Consideration

Consideration. What promises should the law enforce?

§ 1. Contract defined.
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. [A legally-enforceable promise.] § 2. Promise defined.
A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. [Removes the possibility of changing one’s mind. Otherwise, it is merely a statement of present intent, reserving one’s right to change one’s mind.]

Considerationis simply a collective term for the whole set of elements that make promises legally enforceable. (Examples include bargain and reliance.) As social norms change, what constitutes consideration shifts. Doesn’t necessarily mean detriment.

Historically, consideration meant “reflection” or “contemplation,” but it grew to mean something more than a serious and deliberate intent to be bound. It demanded, in addition, that some quid pro quo be given for the promise by the promisee (benefit to the promisee and detriment to the promisor).

Mostly, courts are concerned with the legitimacy of the transaction. A court may stretch to find consideration when the promise appears to be seriously intended and fairly obtained, but may more readily apply the doctrine to invalidate a promise that appears to have resulted from advantage-taking or unfair dealing.

Note: Consideration is only an issue when there is an outstanding promise to be enforced, and it does not affect the validity of an executed performance.

Purposes of Consideration
a) Legitimacy (an expression of intent which provides an objective basis for courts to determine whether promise is contractual)
b) Evidentiary (provide evidence of existence of contract and its terms)
c) Cautionary (parties realize they have made a legal commitment)
d) Means to refuse a promise that was extracted by unfair means

Types of Consideration
a) Relinquishing a claim
b) Relinquishing a legal right (doesn’t have to be detrimental, e.g. Hamer v. Sidway)
c) Performance

What does NOT Qualify as Consideration
a) Pre-existing duty
b) Past performance
c) Nominal consideration

Inadequacy of Consideration
Once a court finds that consideration exists, it will not inquire into the adequacy of that consideration. Courts will not generally question the adequacy of consideration unless there is a gross difference that shocks the conscience (R2d § 79, comment e).

Courts will not check for adequacy of consideration except
§ In cases of like for like (e.g., dollars for dollars)
§ In cases of obvious sham (i.e., that the bargain is a pretense; considered to be a gift)
§ When the disparity of the exchange results from oppressive or underhand bargaining or justifiable mistake. (Doctrines such as fraud, duress, unconscionability, or mistake allow the court to analyze the disparity and overturn the transaction.)
A check for adequacy is most likely to succeed when
§ There is a clear, gross disparity of value (meaning value can be objectively measured), and
§ There were “procedural defects” that suggest the absence of a fully informed or voluntary consent, such as
Strongest: Party seeking to enforce K was responsible for the defect, because that shows that the bargain was not fair, which it is assumed to be.
Weakest: Party seeking to enforce K was not responsible for the defect, but just took advantage of the other party’s dire straits. (This way is harder to justify because it invites courts to read just the natural bargaining power of the parties.)

Why not check for inadequate consideration?
a) Fair value is subjective to the parties (no objective way to measure, courts not in the best position to make a value judgment)
b) Even if value is measurable, parties should be held to a bad bargain because:
§ It’s their own fault (value of autonomy)
§ Administrative costs in deciding lots of inadequacy cases
§ Social costs in making exchanges less secure

Batsakis v. Demotsis
Hancock Bank v. Shell Oil

Actually gave up something of value

Did not actually give up something of value

Believed you were giving up something of value

CONSIDERATION

CONSIDERATION (has to count for any settlement of a suit to be valid)

Did not believe you were giving up something of value

CONSIDERATION (you gave up something valuable even if you didn’t know it)

NO CONSIDERATION

(unenforceable)

Simple Donative Promises

Promises made for affective reasons (friendship/love/etc). Donative promises are generally NOT enforceable, for lack of consideration.

Why not enforce?

Issue of proof – no corroborating evidence to determine whether it is legitimate
Deliberativeness – emotional ties call deliberation into question
Promisee is not hurt much (merely disappointed)
Promisor is not enriched in the end
Promisor may have acted rashly, influenced by emotion and close ties
Gifts are sterile transactions, merely move about wealth and do not add anything to society

Executed promises:
Executed gifts are not revocable once given (usually defined by delivery) because

Recognized as a valid and binding legal transaction
Reflection: actor deliberated on the decision (less likely to be rash)

Conditional Exchange/Bargain Promises v. Conditional Donative Promises
Bargain: performance of the condition is the price of the promise
Gift: performance of the condition is the necessary means to make the gift (thus, not enforceable)

Hypotheticals
Example of benevolent man offering an overcoat to a