Consideration

Rule

A promise is enforceable as a contract only if it is supported by consideration — a bargained-for exchange in which each party gives something of legal value. The promisor must manifest an intention to induce a performance or return promise, and must be induced by it.

Elements

1. A promise by the promisor
2. A bargained-for exchange — the promisor seeks the consideration in exchange for the promise, and the promisee gives it in exchange for the promise
3. Legal value — either a benefit to the promisor or a detriment to the promisee (doing something one is not legally obligated to do, or refraining from something one has a legal right to do)

Exceptions

• Adequacy: Courts do not inquire into adequacy of consideration — a peppercorn suffices so long as it is genuinely bargained for (Hardesty v. Smith)
• Psychic benefit: A purely sentimental or emotional benefit to the promisor is not sufficient consideration
• Past consideration: A prior act or benefit already received is not consideration for a new promise (Mills v. Wyman), unless a subsequent promise revives a prior enforceable obligation (Restatement 2d § 86; Webb v. McGowin)
• Moral obligation / material benefit rule (Rest. 2d § 86): A promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice, unless the benefit was conferred as a gift or the value is disproportionate
• Preexisting duty: Performance of, or a promise to perform, a legal duty already owed is not consideration (see Preexisting Duty Rule)
• Forbearance to sue: Valid consideration if the claim forborne is colorable (good faith, honest belief in validity); sham claims do not suffice

Policy

Consideration serves evidentiary, cautionary, and channeling functions (Fuller). It distinguishes enforceable bargains from gratuitous gift promises, which are typically made impulsively without deliberation and lack sufficient social and economic importance to warrant judicial enforcement.

Key Cases

• Hamer v. Sidway — uncle’s promise to pay nephew for refraining from lawful vices; detriment to promisee is sufficient
• Dougherty v. Salt — aunt’s promissory note to nephew held unenforceable gift promise lacking bargained-for exchange
• Wood v. Lucy, Lady Duff-Gordon — implied promise of reasonable efforts saved illusory-looking contract; mutuality satisfied
• Baehr v. Penn-o-Tex — forbearance to sue is valid consideration if there is economic benefit to promisor and it is bargained for
• Webb v. McGowin — subsequent promise binding where promisor received material benefit from prior humanitarian act

Covered In

• Contracts I