Consideration

Module III opens with the question that has run under every contract since the first day: what makes a promise legally binding? The common law’s answer is consideration. Today we state the rule, watch it decide two cases, and learn the traps where it fails. The doctrine is the gatekeeper that separates an enforceable bargain from a promise the law leaves to conscience.

Consideration

R2d § 71. To constitute consideration, a performance or a return promise must be bargained for. A performance or return promise is bargained for if it is sought by the promisor in exchange for the promise and given by the promisee in exchange for that promise. Consideration serves three functions: it channels deliberate commitment (autonomy), supports productive exchange (efficiency), and screens out casual promises (gatekeeping). The older benefit/detriment test asks whether the promisor gained a benefit or the promisee suffered a detriment; the modern bargained-for-exchange test asks whether each side’s promise or performance induced the other. The two usually agree, because both turn on reciprocal inducement.

R2d § 79. Once consideration exists, courts do not inquire into the adequacy of the exchange. A bad bargain is still a bargain. But a purely nominal or sham recital, a peppercorn meant to disguise a gift, fails because it was never truly bargained for.

R2d § 73. Performance of a pre-existing legal duty is not consideration. Promising to do what you are already bound to do gives up nothing. R2d § 74. Forbearance to assert a claim is consideration only if the claim is doubtful or asserted in good faith; surrender of a claim known to be invalid buys nothing.

Cases

Hamer v. Sidway is the canon. An uncle promised his nephew $5,000 to refrain from drinking, smoking, swearing, and gambling until twenty-one. The nephew complied; the estate refused to pay for want of consideration. The New York Court of Appeals held that the nephew’s forbearance from a legal right was sufficient consideration even if it benefited him and conferred no economic gain on the uncle. The detriment was the surrender of a lawful liberty, undertaken on the faith of the promise. It matters because it shows consideration runs on the promisee’s side and turns on inducement, not measurable value.

Pennsy Supply v. American Ash Recycling Corp. tests the bargain on the promisor’s side. American Ash supplied “free” AggRite aggregate; when it failed, Pennsy sued and American Ash argued the material was a conditional gift, so there was no contract. The Pennsylvania Superior Court held there was consideration: by taking the material, Pennsy let American Ash escape the cost of disposing of a regulated waste, and that cost-avoidance was the price American Ash sought. Removing a burden is itself a benefit; the transaction was a bargain, not a gift.

What you should be able to do

State R2d § 71 and apply it to a promise conditioned on abstention, identifying the legal detriment as in Hamer. Distinguish an enforceable bargain from a conditional gift by asking whether the condition was sought in exchange (Williston’s tramp). Spot a peppercorn or sham recital and explain why R2d § 79 still refuses to inquire into adequacy. Class 13 carries this into the pre-existing-duty limit and opens the gap that bargain cannot reach, where reliance under R2d § 90 begins.