Slides · Class 12

By the end of class, you can

Apply R2d § 71's bargained-for-exchange test to a promise conditioned on abstention (Hamer v. Sidway style) and identify the legal detriment.
Distinguish enforceable bargains from conditional gifts on a benefit-and-detriment fact pattern.
Identify a peppercorn or sham consideration on a hypothetical and explain why courts decline to inquire into adequacy.

Today

Floor. ~40 min: R2d § 71 + Hamer. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + Pennsy Supply + R2d § 73 + synthesis.

Why enforce some promises and not others?

Not every promise is a contract. The law enforces promises that are part of a bargained-for exchange and generally refuses to enforce bare gratuitous promises.

Consideration serves three functions:

Efficiency — it channels enforcement toward voluntary exchanges that move resources to higher-valued uses.
Autonomy — it ensures the promisor chose to commit in return for something, not merely spoke loosely.
Gatekeeping — it separates enforceable bargains from casual or social promises, giving courts an administrable marker.

"I promise to give you \$100 next week" is unenforceable. "I promise to give you \$100 if you mow my lawn" is enforceable. The mowing is the price.

R2d § 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.

R2d § 73: Performance of Legal Duty

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

R2d § 74: Settlement of Claims

(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless

(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or

(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.

(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

Two theories: benefit/detriment vs. bargained-for exchange

Consideration has been measured two ways:

Benefit/detriment (the older test). Did the promisor receive a benefit or the promisee suffer a detriment? Hamer is the classic application: the nephew's surrender of a legal liberty was a legal detriment, and that was enough.
Bargained-for exchange (the modern, R2d test). Was the performance or return promise sought by the promisor in exchange for the promise and given by the promisee in exchange for it? R2d § 71(2). The focus shifts from gain/loss to inducement.

The tests usually converge. Where they pull apart, the modern rule asks not "did someone gain or lose?" but "did each side's promise induce the other?"

R2d § 79: Adequacy of Consideration Not Required

If the requirement of consideration is met, there is no additional requirement of

(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or

(b) equivalence in the values exchanged; or

Hamer v. Sidway

124 N.Y. 538, 27 N.E. 256 (1891)
New York Court of Appeals

Rule. Forbearance from the exercise of a legal right is sufficient consideration, even if the promisor receives no economic benefit. Consideration looks to the promisee's detriment as much as to the promisor's gain.

Consideration decision map

Decision flowchart for the bargained-for-exchange test under R2d 71, branching through sought-in-exchange, given-in-exchange, pre-existing duty, and illusory-promise gates to a consideration-found leaf, with no-consideration leaves for conditional gift, past consideration, pre-existing duty, and illusory promise, and a bridge node to R2d 90 reliance. — Hamer takes the left path all the way to the bottom: abstention was sought, given, and real. Pennsy Supply does the same through cost-avoidance.

Pennsy Supply, Inc. v. American Ash Recycling Corp.

895 A.2d 595 (Pa. Super. Ct. 2006)
Pennsylvania Superior Court

Rule. A promisor's avoidance of a cost or burden can be consideration. When a promisee accepts a 'free' material at the promisor's invitation, and the promisor thereby escapes a disposal obligation, the transaction is a bargain, not a conditional gift.

Five ways consideration fails

A promise that looks binding can still lack consideration. The recurring traps:

Gratuitous promise. "I'll give you my old laptop next week." No exchange → no contract.
Conditional gift. "If you walk to my office, I'll give you a book." The walk is incidental, not the price sought.
Past consideration. "Since you helped me move last year, I'll pay you \$100." The act preceded — and so could not have been sought by — the promise.
Illusory promise. "I'll drive you to the airport if I feel like it." The promisor is not actually bound.
Nominal / sham consideration. "\$1 for my house." Courts will not weigh adequacy (R2d § 79), but they will see through a recital staged to disguise a gift.

Worked example: Problem 7.1, An Aunt's Promise

Dougherty, an eight-year-old boy, received from his aunt a promissory note for $3,000, payable at her death or before. Visiting her nephew, the aunt saw how well he was progressing in school and decided to take care of him because she loved him. The aunt's guardian-drafted note read:

"You have always done for me, and I have signed this note for you. Now, do not lose it. Someday it will be valuable."

After the aunt died, Dougherty sought to recover on the note.

Was there consideration to form an enforceable contract?

Stretch: Problem 7.3, Shifting Sands

Peter, lost in the Sahara, stumbled into a village near death from thirst. He begged Merzouga for water. Merzouga said: "If you promise to send me and my family $1,000 upon your return to America, then you may walk over that dune and drink from the stream as much as you like." Peter agreed and drank. Once safe in America, Peter decided $1,000 was too high a price and refused to pay.

Has Peter formed a contract with Merzouga? If so, what does Peter owe?

Stretch: practice problem

Stretch problems from the chapter.

Problem 7.1. An Aunt’s Promise. See casebook Chapter 7.

Problem 7.2. Betty and the Benefit. See casebook Chapter 7.

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d § 71 (bargained-for exchange), R2d § 73 (pre-existing duty), R2d § 74 (settlement), R2d § 79 (adequacy not policed).

Cases. Hamer v. Sidway · Pennsy Supply v. American Ash Recycling Corp..

Punchline. Consideration is reciprocal inducement: something sought by the promisor and given by the promisee in exchange. Detriment alone, benefit alone, or a condition on a gift is not enough.

Open question. R2d § 71 tells us when a promise is supported by bargained-for exchange. It is silent on what happens when a promise lacks consideration but the promisee has changed her position in reliance. R2d § 90 fills that gap. Class 13 picks up Ricketts v. Scothorn and the path to promissory estoppel.

Next time

Next class: Consideration cont. + Promissory Estoppel setup

_Consideration_ · Oct 8

Read the pre-existing-duty cases (Alaska Packers) and Ricketts v. Scothorn. One asks whether a promise to do what you are already bound to do is consideration. The other asks whether reliance can substitute for consideration. Come with a one-sentence answer for each.

Class 12: Consideration