The Basic Requirement of Consideration

AuthorFranklin G. Snyder, Mark Edwin Burge
Unit 7
Part One
The Basic Consideration Requirement
One earlyand for our purposes, analytically usefultheory 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.”
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,
[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.]
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
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
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
promisebecause 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.
[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.]

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