Paid on Both Sides: Quid Pro Quo Exchange and the Doctrine of Consideration.

• Author: Lewinsohn, Jed

ARTICLE CONTENTS INTRODUCTION 693 I. LANGDELL'S FOLLY 704 II. QUID PRO QUO EXCHANGE: A PHILOSOPHICAL ACCOUNT 715 A. The Motivational Theory of Exchange: A Critique 720 B. Remuneration Theory of Exchange: A Defense 724 III. TWO DOCTRINES OF CONSIDERATION 739 A. The Remuneration Theory of Consideration 739 B. Testing the Theories 741 1. Conditional Gif Promises 741 2. Contract Modifications 744 3. The Rationale of the Consideration Requirement 752 CONCLUSION 768 INTRODUCTION

Under the common law, contractual liability attaches to commitments made to others. Unlike the law of property, which lays down not only the legal consequences of the various forms of ownership but also the conditions of ownership itself, the common law of contract piggybacks on an independent social practice that it does not purport to create or define--namely, the practice of committing to courses of conduct by making promises or entering into agreements. (1) Since interpersonal commitments are pervasive features of social life--they are made in all contexts in which humans interact cooperatively and in every medium in which they communicate--the most basic task confronting this body of law is to demarcate the sphere of legally enforceable commitments and thereby to determine the domain of the contractual. In the common-law tradition, the broadest and most visible line separating enforceable and unenforceable commitments is drawn by the doctrine of consideration, a fact that explains the doctrine's enduring position in the law-school curriculum. Like the doctrines of first possession in property, assault in tort, and nondelegation in administrative law, consideration's prominence is due not to the frequency with which it arises in litigation but to the fundamental position it purports to occupy in the structure of a major area of law.

Notwithstanding these pretensions, it cannot be said that the doctrine of consideration, in its modern form, has performed this basic demarcating function in a consistent or principled manner. At least since the late nineteenth century, and quite likely since its origins in the sixteenth, the doctrine of consideration in contract law has been understood to rest on a distinction between exchange transactions (i.e., bargains) and gratuitous transactions, and to limit the legal enforcement of promises and agreements, unless under seal, to those belonging to the former category. (2) This general conception of consideration--what is known as the bargain theory of consideration--has been reduced in modern times to a more specific rule, which can be traced to Christopher Columbus Langdell's textbook definition of consideration as "the thing given or done by the promisee in exchange for the promise." (3) This modern consideration rule, requiring as a condition of contractual validity that the promisor receive something in exchange for her promise, has been handed down to at least four generations of students together with a number of well-known problems that continue to hamper the doctrine, both in theory and in practice. (4) These problems include certain undesirable or counterintuitive applications of the rule (in areas such as conditional gift promises, contract modifications, option contracts, guarantee agreements, and social and domestic agreements) as well as a failure to identify a plausible rationale that can be used to make sense of it. As a result of these problems, many have called for the wholesale eradication of the bargain requirement. (5) The principal aim of this Article is to open up space between the general conception and the specific rule and to show that many of the familiar difficulties with consideration result from the specific rule rather than from the general conception. My purpose is not so much to defend the bargain requirement as it is to render it intelligible; only then will we be able to ask whether consideration is a doctrine worth keeping and what, if anything, might take its place.

By claiming that the modern rule badly implements the bargain requirement, I mean more than that the rule emphasizes the wrong aspects of a bargain, or takes too narrow a view of the range of objects whose exchange would satisfy the requirement. Rather, my claim is that the modern rule implicitly relies on a seductive but altogether mistaken conception of what a bargain or exchange is. While this conception was implicit in Langdell's definition, it was rendered explicit the following year by Oliver Wendell Holmes, Jr., and later codified (and slightly modified) in the Second Restatement of Contracts. (6) Thus, in its boldest formulation, my claim is that two giants of the common law, Langdell and Holmes, mangled a central doctrine of contract law by severing the link between the doctrine of consideration and the proper conception of a bargain. This error, in my view, spawned confusion that has impeded contract law to this day. Given a better understanding of the notion of bargain or exchange and a doctrine of consideration refashioned so as to make contact with it, many of the problems associated with the modern rule can be resolved. (7)

Quite apart from consideration, there is ample independent reason to want an adequate account of quid pro quo exchange, and it is another central aim of this Article to use the doctrine of consideration to develop and anchor such an account. Quid pro quo exchange is one of the basic modes of giving and receiving benefits, and it is both broader and narrower than is sometimes supposed. On the one hand, the category includes more than narrowly economic activity (such as the sale and barter of the marketplace or wage labor arrangements in the workplace), and embraces transactions as varied as plea bargains, prisoner exchanges, and bribes. On the other hand, while quid pro quo is a species of reciprocity (that is, of "returning kindness with kindness"), it should not be conflated with the more general category. There are many ways in which two individuals can confer benefits upon one another without carrying out a quid pro quo. For example, when, without any discussion of reward, an individual in distress receives help from a sympathetic passerby, the recipient may later be moved to send a gift (for instance, chocolate or wine) to the helper in a gesture of gratitude. Although each person has given something to the other, in the form of goods or services, no quid pro quo has occurred, and it would be incorrect (and not merely cynical) to say that the help was given in exchange for the gift, and vice versa. (8)

The theoretical challenge, then, is to identify the species of reciprocity that constitutes an exchange. This is a task well worth pursuing, as it is difficult to overstate the practical and theoretical significance of the exchange form. In the law alone, quid pro quo figures prominently in a wide range of legal contexts--civil as well as criminal, public as well as private--and lies at the heart of a variety of raging legal controversies concerning official corruption, insider trading, and other matters. Although quid pro quo is a transsubstantive concept in the law, we find the law's most developed and influential account of it in the context of the doctrine of consideration. Indeed, one finds in the legal literature surrounding this doctrine two fundamentally different conceptions of quid pro quo. Developing these accounts and subjecting them to critical scrutiny will allow us to produce an adequate theory that captures the essential elements of the exchange form.

In keeping with the norms of the law-review genre, the remainder of the introduction summarizes, in broad outline, the arguments that follow. As we have seen, Langdell's definition of consideration insists on an exchange relation between the consideration and the promisor's promise (rather than the promised performance). But this exclusive focus on the commitment itself as the object of exchange places it in tension with the traditional common-law conception of bargain or exchange, according to which the objects of an exchange are given in payment, or remuneration, for each other. For, on the one hand, the modern consideration rule is satisfied only if the parties' acts of assent themselves stand in an exchange relation to one another. (9) And yet, on the other hand, there are many valid contracts--for example, ordinary sales contracts contemplating the transfer of goods for money--where neither the parties themselves nor outside observers would regard the parties' acts of assent (in contrast with their ensuing performances) as constituting payment or remuneration for anything. The modern consideration rule thus required the development of a new conception of exchange, which was rendered explicit first by Holmes and then in the Second Restatement. According to this account, classifying two performances as a quid pro quo is a way of characterizing the apparent motives of the parties rendering those performances. Specifically, to subsume two acts (promissory or otherwise) under the exchange concept is to describe each one as rendered with the apparent aim of inducing the other. (10) Combining Langdell's definition with this account of exchange, which I will call the reciprocal-inducement account, allows us to reformulate the modern consideration rule: for an agreement to satisfy the rule, the offer must be made with the apparent aim of inducing the acceptance (whether counterpromise or performance) and the acceptance must be extended with the apparent aim of binding the offeror to her terms. (11)

Although there is evidently some connection between doing A in exchange for B and doing A in order to get B, this motivational account of exchange is both overinclusive and underinclusive. Counterexamples to the theory will be discussed in Part II, but we may observe at the outset that its conditions are frequently satisfied by plans to coordinate activities between friends and family members...