The Basic Requirement of Consideration

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 117-134

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UNIT 7: THE BASIC REQUIREMENT OF CONSIDERATION 117

Unit 7

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CONSIDERATION

Part One

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The Basic Consideration Requirement

FOCUS OF THIS UNIT

One early—and for our purposes, analytically useful—theory of the origin of

consideration came from the idea that an exchange enforceable at law should

ultimately consist of quid pro quo (literally, “this for that”). If A gives B $5,000 in

exchange for B’s old car, each gets a benefit and each suffers a detriment. A, in this

example, “benefits” from getting the car, but suffers a “detriment” in having to give

up $5,000. Over the years the requirement of consideration has evolved far beyond a

simple quid pro quo, as we will see in this section. Without consideration, classical

contract considered such promises to be nudum pactum ex quo non oritur actio.”

1

Unenforceable Gift Promises. Promises to make gifts are outside the quid pro

quo paradigm and, in most cases, not legally enforceable based on lack of

consideration. If Snyder plans to give you a bottle of Scotch for Christmas and you

plan to give Snyder a necktie, then the two of you are exchanging gifts. Snyder would

get to keep the necktie even if he forgot to get you anything, just as you would be free

to keep the Scotch even if you were ungrateful enough not to get Snyder a gift. No

contract arises between the parties to a gift. Gifts are, in legal parlance, “gratuitous

transfers.” If a person promises to give you a gift, the promise is not usually

enforceable. Once a gift has been given to you (or “delivered”) the gift is complete. The

giver has no legal right to take the gift back.

The existence of a gift (rather than a quid pro quo exchange) has important

implications in contract law. Suppose, again, that you promised to give Snyder a tie,

you bought the tie, and you wrapped up the tie. At this point, you are not legally

obliged to give Snyder the tie. Your promise was gratuitous and is not enforceable,

1

[Translated, the Latin phrase means, “a naked promise from which no action can arise.” The

quotation is from the House of Lords opinion in Rann v. Hughes, 101 Eng. Rep. 1014 (1778). The

principle dates back to Roman law, in which a pactum was an agreement that was enforceable if it fell

into a specified class. If not, it was nudum or “bare.” In such situations, if the promisor had performed

he could not get the performance back, but he could not be compelled to perform. – Eds.]

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118 CHAPTER III: CONSIDERATION

and you are free to change your mind up until the moment of delivery. Snyder is

equally free to keep the bottle of Scotch.

Bargained-for Exchange. But what if we change the facts slightly? Suppose

this time that you and Snyder agree that he will trade you a bottle of Scotch for a

necktie. At that point, rather than a gift, the two of you have a “bargained-for

exchange.”

2

The Scotch and the necktie, both being things of value exchanged for each

other, are each “consideration” for each other. You and Snyder now have a contract,

and legal liability occurs at the time the promise is made. No actual delivery is

required.

Distinguishing gifts from contracts is usually not difficult. An employee

typically does not offer her services free to her employer; the grocery store is not

usually giving away its food; and your internet service provider usually is not

providing you broadband access out of the goodness of its heart. In the ordinary

commercial world most transactions occur through trade, not by gift. In some

situations, however, telling whether one party is giving someone a gift or is

bargaining for something in return can be challenging. The key question is whether

the thing or the promise is offered to get something in return. Since one always expects

to get gratitude for a gift, that “something” must be more than just a warm feeling.

It must be something that has “value in the eyes of the law.” Exactly what that means

is a matter of some complexity.

A Three-Part Analysis. As you read the cases and materials below, keep in

mind three distinct questions. First, is there a promise? The definition of a promise

is a pledge to do (or not do) some particular thing. Thus, a statement like, “I will take

out the trash this afternoon if I decide to,” is not a promise—merely the illusion of a

promise—because there is no actual statement that the promisor is going to do

anything. Second, is it a promise to do something that the promisor is not already

obligated to do? You can’t “bargain” for something that the other party is already

obligated to do, such as not committing murder, refraining from snorting cocaine, or

obeying traffic laws. Third, is the promise part of a bargain that involves an

exchange? A simple promise to take out the trash is gratuitous. But if it is given in

exchange for the promisee’s promise to unload the dishwasher, it is a bargain.

You might find it useful to review sections 71-77 of the Restatement (Second)

of Contracts as you work your way through this unit.

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2

[Be careful with this word “bargain.” In common usage, it has at least three meanings: (1) an

agreement between parties under which each will do something for the other; (2) the process of

negotiating a deal (“bargaining” over the terms); and (3) a particularly good deal (“it’s a real bargain”).

The first meaning is the one we use in contract law. We tend to use the words “negotiate” or (in older

materials) “dicker” to mean the second sense. And whether the deal is go od or bad is irrelevant to the

question whether it is a “bargain” in our sense. – Eds.]