If there’s anything we’re supposed to take away from Contracts this semester, it’s that you cannot form a contract without a bargain for consideration.
When creating a contract, there must be a negotiation between the promisor and the promisee. If I were to give you a promissory note that says in two years, I’ll give you $10,000, and then in two years I change my mind, you have no cause of action to sue me because we never had a contract. We never negotiated or bargained for anything. All I did was impose a promise of a gift on you.
Think about how shitty that would be if the above example didn’t work in that way. We could run around imposing and binding people into trivial contracts just to frivolously sue them later. Chaos ensues. That’s why we have these formal and substantive polices that serve as the basis for contract creation. There must exist consideration.
So what is consideration?
The legal definition of consideration is as follows:
(1) Consideration for a promise is:
(a) an act other than a promise OR
(b) a forbearance OR
(c) the creation, modification, or destruction of a legal relation OR
(d) a return promise
bargained for or given in exchange for the promise
(2) Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Let’s break this down:
(a) an act other than a promise: “I will do x in exchange for y”
(b) a forbearance: “I will give up x in exchange for y”
(c) the creation, modification, or destruction of a legal relation : “We will end our partnership at x company in exchange for y”
(d) a return promise: “I promise to do x if you promise to do y”
(2) Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person: “My brother will give you x in exchange for y” OR “I will give your brother x in exchange for y”
Some notes about forbearance:
There are a few things you need to consider (ha) when deciding if forbearance is proper consideration for a contract. Forbearance occurs when you promise to give up a claim to which you had a legal right. For example, in the case of Hamer v. Sidway (the uncle who promised his nephew $5000 if he would refrain from the joys of life such as drinking and gambling until age 21), we must remember that back in the 1800s, when the case was tried, the nephew was already of legal drinking/smoking/gambling age when the uncle made his offer. This is important because the nephew actually follows through with the agreement; he forbears his legal right to participate in such activities in exchange for $5000. Hence, the nephew has a legitimate claim to his money.
However, The cases of Baehr v. Penn-O-Tex Oil Corp and Springstead v. Nees demonstrate examples of when forbearance is an invalid form of consideration. In Baehr, the plaintiff never explicitly states “I won’t sue you if get me my money by x date.” Rather, the plaintiff just simply refrains from suing and then later claims forbearance because they didn’t sue. The defendant (rightfully) states that the refrain to sue was never bargained for and therefore cannot be valid consideration (and therefore not a valid contract to be breached). The court agrees. In Springstead, the children state “We’ll give up our rights to the Sackett properties if you leave our Atlantic properties alone.” When George and Sophia go back on their word after the Sackett properties are sold, Anna (the third child) attempts to sue for breach of contract based on their forbearance. The problem here is that George and Sophia never had a right to give up their Sackett properties in the first place (because their father had transferred the deed to them and it’s not their right to give up); they did not have a “colorful” claim to begin with as the court said. The court rules in favor of the defense (George and Sophia).
The key takeaway is that you must BARGAIN for forbearance (and any other types of consideration) and you cannot forbear anything that you never had a right to forbear in the first place.
Another example to consider:
Page 69 of the Summers 7th edition illustrates:
“If A promises B to make him a gift, consideration may be lacking, though B has renounced other opportunities for betterment in the faith that the promise will be kept”
I tell you offhandedly that I can get you a job at Facebook. In hearing that, you go off and reject the six other job offers you’ve received in the bay area expecting to accept this job at Facebook I “promised” you. I flake out and you’re left with no job. Did we have valid consideration? Can you sue me for breach of contract? No. Just because you went off and rejected the job offers on your own doesn’t constitute valid consideration. Had I said, I have a job for you at Facebook starting on x day for y salary in exchange for your dismissal of all other job offers, and then you reject the offers and I flake, now you have a valid claim for breach of contract (we bargained for consideration and you held up your end).
Condition on a promise vs. price of a promise
If I give you my credit card and tell you that if you walk to Starbucks you can buy whatever you want: I just offered you a condition on a promise. The walk to Starbucks is not the price of the drink. You already have my credit card so you just have to go get the drink (you could even order it online instead and now no walk is required). You know that when you get to Starbucks, you 100% absolutely will get that drink (unless you get lost, hit by a bus on the way, Starbucks burns down, etc). A condition on a promise is not an enforceable contract.
However, in the case of Maughs v. Porter, the walk to the auction is the price of the promise of a car. If you want that car, you have to show up. There is no other way to get that car. That is an enforceable contract.
Determination of a legal binding contracts based on consideration is tricky. When presented with a hypo, I follow this algorithm:
1. Figure out who the parties are. Why are they here? What happened?
2. Was there a bargain? Did they go back and forth on of the four types of consideration until an agreement was made? Yes: go to step 3. No: end (no consideration, no valid contract).
3. Was there a breach? Yes: http://bit.ly/2vSrUVC No: …?