Unit 7, Lesson 1: Consideration in Contract Law

Introduction to Consideration

• Consideration is generally required for the formation and modification of contracts.
• Major exceptions to this requirement exist and will be covered later.
• Without consideration, there is no contract, even if there's an offer and acceptance.

The Concept of Consideration

• Based on an excerpt from Clark on Contracts (1904):
  • Natural Law vs. Contract Law:
    • Natural law implies a moral obligation to fulfill promises, but contract law enforces only those with consideration.
  • Nudum Pactum: A "naked promise" from which no legal action can arise.

Definition of Consideration me

• Clark's Definition:
  • It involves something moving from promisee to promisor, either as a benefit or a detriment.
  • Something of value must be exchanged.
• Forms of Consideration:
  • Forbearance (giving up a legal right).
  • Promises that change legal relations by creating, modifying, or destroying them.

Importance of Consideration

• Must be bargained for; cannot be a gratuitous gift.
• Definition from Restatement Second of Contracts, Section 71:
  • Bargained for exchange between promisee and promisor.
  • Includes acts, forbearance, or changing legal relationships.
  • Can involve third parties (e.g., life insurance policies).

Case Study: Ridge Runner Forestry v. Veneman (2002)

• Background:
  • Federal contracts case involving a fire protection service proposal.
  • Agreement was non-binding due to illusory promises.
• Illusory Promises: vader in pens
  • Promises that don't restrict the promisor's freedom.
  • Example agreement allowed both parties to opt-out freely.r

Comparative Case: Ace Federal Reporters

• Contract Terms:
  • Included requirement and termination clauses.
  • Breach occurred if government didn't use contractor without a waiver.
• Key Difference:
  • There were limitations on the government's freedom, thus constituting consideration.

Restatement (Second) of Contracts, Section 77

• Definition of Illusory Promises:
  • Promisor reserves a choice between non-valuable performances.
  • Exceptions when future events may eliminate non-consideration alternatives.

Illustrations

• Different scenarios illustrating the minimal requirement for consideration:
  • Illusory Promises: Complete choice reserved by one party.
  • Non-Illusory Promises: Minimal constraints like termination notice or shipment requirements.

Conclusion

• Key Takeaway: Consideration doesn't have to be much, but it must be something.
• This lesson introduces the foundational aspects of consideration and the concept of illusory promises as contrast.