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George Mason School of Law Contracts I H. Consideration F. H. Buckley fbuckley@gmu. edu George Mason School of Law Contracts I H. Consideration F. H. Buckley [email protected] edu 1

The need for a consideration o Restatement § 17(1) n The formation of a The need for a consideration o Restatement § 17(1) n The formation of a contract requires a bargain in which there is … a consideration 2

The need for a consideration o Restatement § 17(1) n The formation of a The need for a consideration o Restatement § 17(1) n The formation of a contract requires a bargain in which there is … a consideration n Why doesn’t it say: The parties may invoke binding contractual sanctions whenever they so intend? 3

The need for a consideration o Restatement § 17(1) n The formation of a The need for a consideration o Restatement § 17(1) n The formation of a contract requires a bargain in which there is … a consideration n Why doesn’t it say: The parties may invoke binding contractual sanctions whenever they so intend? n Or does it say that? 4

Six Questions 1. Defining Consideration: Benefit. Detriment and Bargain Tests 2. The Effect of Six Questions 1. Defining Consideration: Benefit. Detriment and Bargain Tests 2. The Effect of a Seal 3. The Adequacy of Consideration and Nominal Consideration 4. Performance of Legal Obligations 5. The Past Consideration rule 6. The Relevance of Motive 7. “Mutuality of Obligation” 5

How to define consideration? o Benefit-detriment o Bargain theory 6 How to define consideration? o Benefit-detriment o Bargain theory 6

Defining consideration o Hamer v. Sidway at 43 7 Defining consideration o Hamer v. Sidway at 43 7

Hamer v. Sidway at 43 8 The nephew was going to the dogs… Hamer v. Sidway at 43 8 The nephew was going to the dogs…

Hamer v. Sidway at 43 o Do you think the uncle intended to be Hamer v. Sidway at 43 o Do you think the uncle intended to be legally bound? 9

Hamer v. Sidway at 43 o What is the benefit-detriment standard? 10 Hamer v. Sidway at 43 o What is the benefit-detriment standard? 10

Hamer v. Sidway at 43 o What is the benefit-detriment standard? o The promisor Hamer v. Sidway at 43 o What is the benefit-detriment standard? o The promisor can satisfy this with either a n Benefit to promisor or a third party n Detriment to promisee 11

Hamer v. Sidway at 43 o What kind of a detriment is needed? 12 Hamer v. Sidway at 43 o What kind of a detriment is needed? 12

Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … a forbearance n Need this be costly? 13

Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … a forbearance n “Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or the third party, or is of any substantial value to anyone” Currie v. Misa, L. R. 10 Ex. 153 (1875) 14

Hamer v. Sidway at 43 o Can you suggest why the uncle might have Hamer v. Sidway at 43 o Can you suggest why the uncle might have intended that the promise be legally enforceable? 15

Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? 16 Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? 16

Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n A Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n A benefit to Isaac? 17

Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n A Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n A detriment to Antillico? 18

Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n Williston’s Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n Williston’s tramp at 134? 19

Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n Williston’s Kirksey at 132 o Why did Isaac invite Antillico to Talladega county? n Williston’s tramp at 134? o Condition vs. Consideration 20

Kirksey at 132 o Do you think Isaac intended legal liability? n Why might Kirksey at 132 o Do you think Isaac intended legal liability? n Why might he not? 21

George Mason School of Law Contracts I H. Consideration F. H. Buckley fbuckley@gmu. edu George Mason School of Law Contracts I H. Consideration F. H. Buckley [email protected] edu 22

I said that there are no great paintings with cats in them 23 I said that there are no great paintings with cats in them 23

But I was SO wrong! 24 But I was SO wrong! 24

Botticelli’s Birth of Puddy-Tat 25 Botticelli’s Birth of Puddy-Tat 25

B. Kliban 26 B. Kliban 26

Six Questions 1. Defining Consideration: Benefit. Detriment and Bargain Tests 2. The Effect of Six Questions 1. Defining Consideration: Benefit. Detriment and Bargain Tests 2. The Effect of a Seal 3. The Adequacy of Consideration and Nominal Consideration 4. Performance of Legal Obligations 5. The Past Consideration rule 6. The Relevance of Motive 7. “Mutuality of Obligation” 27

Now: Consideration as a bargain 28 Now: Consideration as a bargain 28

St. Peter v. Pioneer at 45 29 St. Peter v. Pioneer at 45 29

St. Peter v. Pioneer o Why didn’t Pioneer’s restrict bank night to paying customers? St. Peter v. Pioneer o Why didn’t Pioneer’s restrict bank night to paying customers? 30

St. Peter v. Pioneer o How was the Π to accept? 31 St. Peter v. Pioneer o How was the Π to accept? 31

St. Peter v. Pioneer o How was the Π to accept? n Unilateral and St. Peter v. Pioneer o How was the Π to accept? n Unilateral and Bilateral contracts 32

St. Peter v. Pioneer o Can you articulate why theatre might have wanted the St. Peter v. Pioneer o Can you articulate why theatre might have wanted the promise to be binding? 33

St. Peter v. Pioneer o “The requested acts were bargained for” n Restatement § St. Peter v. Pioneer o “The requested acts were bargained for” n Restatement § 72: “Any promise which is bargained for is consideration” 34

The Bargain Theory o How would you define bargains? 35 The Bargain Theory o How would you define bargains? 35

The Bargain Theory o How would you define bargains? o The promisor must seek The Bargain Theory o How would you define bargains? o The promisor must seek the consideration in exchange for his promise 36

The Bargain Theory o How would you define bargains? n Is it broader or The Bargain Theory o How would you define bargains? n Is it broader or narrower than the benefit/detriment theory? 37

The Bargain Theory o Do the cases up to now all fit under the The Bargain Theory o Do the cases up to now all fit under the bargain standard? n n 38 Hamer v. Sidway (consideration) St. Peter (consideration) Carlill (consideration) Kirksey (no consideration)

What is the role of intention to create legal relations? o Restatement § 21: What is the role of intention to create legal relations? o Restatement § 21: Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. 39

What if there’s no bargain: Gratuitous Promises o Uncle Ebenezer might want to bind What if there’s no bargain: Gratuitous Promises o Uncle Ebenezer might want to bind himself? So how does he do so? 40

What if there’s no bargain: Gratuitous Promises o Uncle Ebenezer might want to bind What if there’s no bargain: Gratuitous Promises o Uncle Ebenezer might want to bind himself? So how does he do so? 41

What if there’s no bargain: Gratuitous Promises o Actual gifts (as opposed to promises) What if there’s no bargain: Gratuitous Promises o Actual gifts (as opposed to promises) are effective if: o Donative intent (animus donandi), and o Delivery by donor, and o Acceptance by donee 42

What if there’s no bargain: Gratuitous Promises o What constitutes delivery by donor? o What if there’s no bargain: Gratuitous Promises o What constitutes delivery by donor? o Actual delivery of gift o Constructive delivery (e. g. key to car or house) o Deed of gift 43

Gratuitous Promises and Contracts under seal 44 Gratuitous Promises and Contracts under seal 44

The seal o Definition: Restatement § 96: “a manifestation in tangible and conventional form” The seal o Definition: Restatement § 96: “a manifestation in tangible and conventional form” o Effect of seal: Restatement § 95(1)(a): “binding without consideration if it is in writing and sealed” 45

The decay of formality 46 The decay of formality 46

Abolition of seals o UCC 2 -203 o Abolition in half the states 47 Abolition of seals o UCC 2 -203 o Abolition in half the states 47

Adequacy o Would courts ever look at an imbalance in the value of the Adequacy o Would courts ever look at an imbalance in the value of the respective considerations? 48

Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … Hamer v. Sidway at 43 o Restatement 71(3)(b). The performance may consist of … a forbearance n “Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or the third party, or is of any substantial value to anyone” Currie v. Misa, L. R. 10 Ex. 153 (1875) 49

Adequacy o Restatement § 79. ADEQUACY OF CONSIDERATION. If the requirement of consideration is Adequacy o Restatement § 79. ADEQUACY OF CONSIDERATION. If the requirement of consideration is met, there is no additional requirement of n (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or n (b) equivalence in the values exchanged 50

Wolford v. Powers 145 o What was the consideration from the Wolfords? 51 Wolford v. Powers 145 o What was the consideration from the Wolfords? 51

“Be it ever so small” Sturlyn v. Albany at 146 o Peppercorn theory: “Be “Be it ever so small” Sturlyn v. Albany at 146 o Peppercorn theory: “Be it ever so small” 52

“Be it ever so small” Sturlyn v. Albany at 146 o Peppercorn theory: “The “Be it ever so small” Sturlyn v. Albany at 146 o Peppercorn theory: “The value of all things contracted for is measured by the appetite of the contractors, and therefore the just value is that which they contracted to give” Pollock (quoting Hobbes) 53

We saw subjective value before… Bess A E F D B G C Mary We saw subjective value before… Bess A E F D B G C Mary 54 54

Re Greene at 135 o What did the agreement specify as the consideration? 55 Re Greene at 135 o What did the agreement specify as the consideration? 55

Re Greene at 135 o “for one dollar and other good and valuable consideration” Re Greene at 135 o “for one dollar and other good and valuable consideration” n Why didn’t that work? 56

Re Greene at 135 o “for one dollar and other good and valuable consideration” Re Greene at 135 o “for one dollar and other good and valuable consideration” n Why didn’t that work? n What if they had added “the receipt and adequacy thereof is hereby acknowledged” n And provided a cheque for that amount? 57

Re Greene at 135 o What about the fact that the contract was under Re Greene at 135 o What about the fact that the contract was under seal? 58

Re Greene at 135 o What do you think was going on here? 59 Re Greene at 135 o What do you think was going on here? 59

Schnell v. Nell at 151 o What was the consideration? 60 Schnell v. Nell at 151 o What was the consideration? 60

Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise in will consideration of: n Promise in will n $0. 01 n love and affection for deceased wife 61

Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise in will consideration of: n Promise in will n one cent n love and affection for deceased wife o What about the moral obligation to honor his wife’s wishes? n Causa vs. consideration 62

Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise Schnell v. Nell at 146 o A promise of $600 to honor wife’s promise in will consideration of: n Promise in will n one cent n love and affection for deceased wife o Do you think the promisor intended to be legally bound? 63

Schnell v. Nell at 146 o So we don’t worry about inadequate consideration, but Schnell v. Nell at 146 o So we don’t worry about inadequate consideration, but do worry about “nominal” consideration (? !? ) 64

Batsakis at 143 o Why did they structure the contract as a loan of Batsakis at 143 o Why did they structure the contract as a loan of $2, 000 at 8 per cent? 65

Batsakis at 143 o 25 days later Athens, April 27 1942 66 Batsakis at 143 o 25 days later Athens, April 27 1942 66

Batsakis 139 o Why did they structure the contract as a loan of $2, Batsakis 139 o Why did they structure the contract as a loan of $2, 000 at 8 per cent? n Is there really a problem of adequacy here? 67

If it’s not about adequacy, what is the point of consideration? o Lon Fuller If it’s not about adequacy, what is the point of consideration? o Lon Fuller at 140 68

Lon Fuller on Consideration 140 o The evidentiary function o Evidence of what? 69 Lon Fuller on Consideration 140 o The evidentiary function o Evidence of what? 69

Lon Fuller on Consideration o The evidentiary function o The deterrent function n a Lon Fuller on Consideration o The evidentiary function o The deterrent function n a check against rash promises 70

Lon Fuller on Consideration o The evidentiary function o The deterrent function o The Lon Fuller on Consideration o The evidentiary function o The deterrent function o The channeling function n “channels for the legally effective expression of intention” n Formalism 71

Formalism: What’s the point of… o Seals o Consideration o Writing and signatures 72 Formalism: What’s the point of… o Seals o Consideration o Writing and signatures 72

Lon Fuller on Consideration o Does all this simply come down to the intention Lon Fuller on Consideration o Does all this simply come down to the intention to be legally bound? Is that all there is? 73

The relevance of an intention to be legally bound? o Restatement § 21. INTENTION The relevance of an intention to be legally bound? o Restatement § 21. INTENTION TO BE LEGALLY BOUND. Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract 74

Promises of a Reward o A reward is offered for apprehension of a thief, Promises of a Reward o A reward is offered for apprehension of a thief, and an ordinary citizen catches the thief n Is there a consideration? 75

Performance of Prior Legal Obligation o A reward is offered for apprehension of a Performance of Prior Legal Obligation o A reward is offered for apprehension of a thief. In performance of his duties, a policeman catches the thief n Is there a consideration? 76

Performance of Prior Legal Obligation o Restatement § 73. PERFORMANCE OF LEGAL DUTY. Performance Performance of Prior Legal Obligation o Restatement § 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. 77

Performance of Prior Legal Obligation o Why is this a sensible policy? 78 Performance of Prior Legal Obligation o Why is this a sensible policy? 78

What’s wrong with a public official charging for services? I don’t get it… Ex-Gov. What’s wrong with a public official charging for services? I don’t get it… Ex-Gov. Rod Blagojevich D-IL 79

What about the proviso? o Restatement § 73. PERFORMANCE OF LEGAL DUTY. Performance of What about the proviso? o Restatement § 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. 80

The past consideration doctrine o I volunteer to do some work for you, without The past consideration doctrine o I volunteer to do some work for you, without pay. Subsequently you promise to make a gift to me. Can my prior work for you satisfy the consideration requirement? 81

Past Consideration Doctrine o Restatement 86(1)(1) A promise made in recognition of a benefit Past Consideration Doctrine o Restatement 86(1)(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. o (2) A promise is not binding under Subsection (1): (a)if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or (b) to the extent that its value is disproportionate to the benefit. 82

Past Consideration Doctrine o Restatement 82(1): A promise to pay all or part of Past Consideration Doctrine o Restatement 82(1): A promise to pay all or part of an antecedent contractual … indebtedness is binding if the indebtedness is still enforceable 83

Past Consideration Doctrine o Restatement 82(1): A promise to pay all or part of Past Consideration Doctrine o Restatement 82(1): A promise to pay all or part of an antecedent contractual … indebtedness is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations 84

Past Consideration Doctrine o Restatement 83: An express promise to pay all or part Past Consideration Doctrine o Restatement 83: An express promise to pay all or part of an indebtedness of the promisor discharged or dischargeable in bankruptcy proceedings brought before the promise is made, is binding 85

Does the promisee’s motive matter? o Williams v. Carwardine at 151 n Why did Does the promisee’s motive matter? o Williams v. Carwardine at 151 n Why did she identify the murderer? 86

Does the promisee’s motive matter? o Parke J. : The jury will probably find Does the promisee’s motive matter? o Parke J. : The jury will probably find that the £ 20 was not the motive. We may, I think, assume that it was not. The motive was the state of her own feelings. My opinion is, that the motive is not material. 87

Does the promisee’s motive matter? o Timor mortis conturbat me n The status of Does the promisee’s motive matter? o Timor mortis conturbat me n The status of dying declarations 88

Why does Restatement 81 make sense? o Restatement § 81(1). Consideration as Motive or Why does Restatement 81 make sense? o Restatement § 81(1). Consideration as Motive or Inducing Cause. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. 89

Mutuality of Obligation o Either both are bound or neither is bound 90 Mutuality of Obligation o Either both are bound or neither is bound 90

Mutuality of Obligation o Either both are bound or neither is bound n Bilateral Mutuality of Obligation o Either both are bound or neither is bound n Bilateral contracts, sed qu. unilateral contracts like Carlill 91

Mutuality of Obligation o See Restatement § 79: If the requirement of consideration is Mutuality of Obligation o See Restatement § 79: If the requirement of consideration is met, there is no additional requirement of (c) "mutuality of obligation. " 92