Unit 7: Consideration in Contract Law

Introduction to Consideration

• Consideration is generally required for the formation and modification of contracts.
• Exceptions to this requirement exist and will be discussed later.
• Offer and Acceptance without consideration does not form a contract.

Historical Perspective

• Reference to Clark on Contracts (1904):
  • Moral Obligation vs. Legal Obligation: Morality may require fulfilling promises, but contract law requires consideration for enforceability.
  • Nudum Pactum: A naked promise with no legal action possible.

Definition and Importance

• Consideration: Something of value moving from promisee to promisor, requested by the latter.
  • Can be a benefit, forbearance, detriment, or responsibility.
  • Forbearance: Giving up a legal right.
• Formation of a Contract: Requires offer, acceptance, and consideration (e.g., exchange of money for goods).

Difference Between Gift and Consideration

• Gifts are not enforceable as they lack consideration.
• Restatement Second of Contracts, Section 71:
  • Consideration requires a bargained-for performance or return promise.

Types of Consideration

• Performance or Return Promise:
  • Must be bargained and sought by promisor.
  • Can include acts, forbearance, or changes in legal relationships.
  • Involves third-party beneficiaries, like life insurance.

Illusory Promises

• Definition: Promises that appear binding but allow parties to exit freely without obligation.
• Case Study: Ridge Runner Forestry v. Veneman (2002)
  • Tender agreements with no obligation for government spending or contractor commitment.
  • Illusory Promise: Words that do not limit promisor's future actions.
• Comparison: Ace Federal Reporters case had actual limitations creating a contract.

Legal Framework

• Restatement Section 77: Addresses illusory and alternative promises.
  • A promise is non-illusory if alternative performances have value or circumstances might eliminate non-consideration alternatives.
• Illustrations:
  • Choices without obligation (e.g., B's power to terminate without consequence) are illusory.
  • Promises with minimal obligation (e.g., 30-day notice termination) are enforceable.

Conclusion

• Minimum Requirement: Consideration doesn't need to be substantial, but must exist.
• Lesson Focus: Understanding consideration and identifying illusory promises in contract law.