Big Picture: A contract is a legally enforceable promise- a promise plus consideration. The definition of consideration has changed over time. In our current system, we have two theories under which a promise may be enforced:
Bargain Theory- idea of reciprocity, exchange between parties of two promises or a promise in exchange for an action.
Promissory Estoppel- idea of one party’s detrimental reliance on another’s promise.
Why have consideration concept? Why not just enforce all promises? Consideration serves:
deterrent function (deterring transactions of “doubtful utility”)
channeling function (distinguishing types of transactions and tentative expressions of intent)
Older theory of consideration, popular in 17th century, still comes up occasionally.
Consideration for a promise is a benefit to the promisor or a detriment to the promisee. (e.g. Hamer v. Sidway (NY 1891): Uncle promises nephew $ if he refrains from various vices until he turns 21. Enforceable because nephew incurred detriment by giving up freedom, forbearing from lawful actions.)
Bargain theory was dominant in 19th century, now part of the two-track system.
Holmes’s bargain: both parties must agree “that each was induced to promise or to act by the promise or the act of the other.”
Williston’s benevolent man & tramp: distinction between a condition of a gratuitous promise and consideration for bargain. Important that promisor be truly seeking something from promisee.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
“Peppercorn theory of consideration”: It used to be that anything, no matter how small, could serve as consideration for a promise. Now we have abandoned this formalistic/symbolic theory (e,g, Goulet v. Goulet, below, $1 is not consideration for giving up right to sue), but we don’t require equivalence in value, as long as the thing bargained for is truly sought after (Restatement §79).
Under strict bargain theory, gratuitous promises are not enforceable:
Kirksey v. Kirksey (Ala. 1845): Widow moves to brother-in-law’s land after he promises to give her place to raise her family; later he moves her & then kicks her off land. Promise unenforceable because lacked consideration.
Forward v. Armstead (Ala. 1847): Son moves & works land for father after father promises to will him the plantation. Promise unenforceable: “The test is, whether the thing is to be paid in consideration of the removal, instead of being given from motives of benevolence, kindness, or natural affection.”
Stilk v. Myrick (England 1809): Sailor agrees to wage of £5/month on voyage b/n London and Baltic. During voyage, two sailors desert, captain can’t find replacements, and so promises the remaining crew that they can divide the wages of the deserters. Captain’s promise is “void for want of consideration…for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed.” (pre-existing legal duty rule)
Transition cases between bargain theory and promissory estoppel:
Siegel v. Spear & Co. (NY 1923): Agreement to store and insure furniture without compensation; furniture burns. Court holds that combination of bailment relationship and part performance made promise to insure enforceable: “A mere agreement to undertake a trust, in futuro, without compensation, it is true, is not obligatory; but when once undertaken, and the trust actually entered upon, the bailee is bound to perform it…”. Wounds older case of Thorne v. Deas (NY xxxx), holding that there was no consideration for ship owner’s promise to his co-owner to insure their ship.
DeCicco v. Schweizer (NY 1917): Father promises future son-in-law/count he will pay daughter annuity after their marriage. Stops making payments 10 years later. Cardozo shoehorns case into bargain theory & gets around pre-existing legal duty rule by saying father promised the annuity to induce count & daughter not to mutually abandon their marriage commitment. Combines bargain & reliance language: Daughter and count were “free by common consent to terminate their engagement or to postpone their marriage. If they forbore from exercising that right and assumed the responsibilities of marriage in reliance on the defendant’s promise, he may not now retract it.” (Note: concurring judge views contract as marriage settlement, putting it into special category of cases in which no consideration necessary.)
Allegheny College v. National Chautauqua County Bank (NY 1927): Gift pledge of $5,000 to go to named scholarship. $1,000 paid, then pledge retracted; college sues for balance upon donor’s death. Cardozo straddles bargain theory & promissory estoppel reasoning in enforcing promise: Donor sought “posthumous remembrance” in exchange for gift (bargain). Or charitable subscription exception: “We have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions.”