Contracts Outline

Consideration

I. Consideration
a. General
i. Restatement (2d) Contracts §71
1. To constitute consideration a performance or return promise must be bargained for.
2. Bargain
a. there is a bargain if a performance or promise is sought by the promisor in exchange for a promise and is given by the promisee in exchange for that promise.
3. Performance
a. An act other than a promise
b. A forbearance
c. The creation, modification, or destruction of a legal relation
ii. See Hamer v. Sidway where uncle’s promise to give his nephew $5,000 if the latter refrained from smoking, drinking or gambling, was held to be legally enforceable on the grounds that the nephew’s forbearance was adequate consideration.
iii. But see Kirksey v. Kirksey where brother in law’s promise to provide sister-in-law with land to raise her children if she moved to his farm was held to be a non-binding gratuitous promise with no consideration.
iv. Hamer v. Sidway and Kirksey v. Kirksey
1. Consideration in Hamer because there was a bargain. No real bargain in Kirksey (one way to harmonize cases)
b. Purpose
i. Fuller—importance of legal formalities
1. evidentiary function
2. cautionary function
3. channeling function
a. allows legally effective expression of intention.
ii. Consideration’s primary purpose is to distinguish between promises that are legally enforceable and those that are not (gratuitous promises).
1. Purpose/Rationale/Policy Goals
a. Could say not valuable and hence don’t want to encourage them with legal sanction
b. Could be worried that making these promises enforceable would stop people from making gratuitous promises
c. Want to give priority to those promises that have received consideration (ranks obligations).
d. Failure to enforce does not leave the promisee any worse off.
e. Existence of consideration for long period of time necessitates its continued existence—people rely on it when they make promises.
f. Polices unfair bargaining
g. See, generally, economic perspective below.
c. The Bargain element
i. Probability of benefit as bargain
1. See St. Peter v. Pioneer Theater Corp where a “bank night” in which individuals signed the register of a theater and were entered into a drawing for a prize was held to create a binding contract even if the consideration was simply the act of signing the register and there was no guarantee of a prize.
ii. Adequacy of consideration—generally, courts will not look into the adequacy of consideration. The assumption is that the value of the items being bargained can and should be set by the people making the contract.
1. See Batsakis v. Demotsis where promise to provide the equivalent of $25 in the midst of World War II in return for a promise to return $2,000 after the war was held to be a contract with valid consideration.
2. See Wolford v. Powers where promise to name son after elderly man was held to be valid consideration for promise that man’s promise to pay for child’s welfare.
3. Restatement (2d) Contracts §79
a. If the requirement of consideration is met, there is no additional requirement of
i. A benefit to the promisor or a detriment to the promisee
ii. Equivalence in values exchanged or
iii. Mutuality of obligation.
1. Where there is no other consideration for a contract, mutual promises must be binding on both parties.
4. Rationale/ Policy Goals
a. Contracts as a tool of markets: individuals should be free to assign their own value to the objects of their desire.
i. Individuals are better able to evaluate the circumstances of a transaction.
5. Exception: “sham “or nominal consideration
a. courts may rule that there was no contract if it is obvious that the exchange is merely nominal (as evidenced by huge disparity in things being exchanged).
i. See In Re Greene where adu