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1 George Mason School of Law Contracts I IX.Consideration F.H. Buckley

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1 1 George Mason School of Law Contracts I IX.Consideration F.H. Buckley

2 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.The Past Consideration rule 5.The Relevance of Motive 6.Mutuality of Obligation 2

3 The need for a consideration Restatement § 17(1) The formation of a contract requires a bargain in which there is … a consideration 3

4 The need for a consideration Restatement § 17(1) The formation of a contract requires a bargain in which there is … a consideration Why doesnt it say: The parties may invoke binding contractual sanctions whenever they want? 4

5 The need for a consideration Restatement § 17(1) The formation of a contract requires a bargain in which there is … a consideration Why doesnt it say: The parties may invoke binding contractual sanctions whenever they want? 5

6 The need for a consideration Restatement § 17(1) The formation of a contract requires a bargain in which there is … a consideration Why doesnt it say: The parties may invoke binding contractual sanctions whenever they want? Or does it say that? 6

7 Defining consideration Hamer v. Sidway at 43 7

8 8 The nephew was going to the dogs…

9 Hamer v. Sidway at 43 9 What is the benefit-detriment standard?

10 Hamer v. Sidway at What is the benefit-detriment standard? Benefit to promisor Detriment to promisee

11 Hamer v. Sidway at 43 Restatement 71(3)(b). The performance may consist of … a forbearance 11

12 Hamer v. Sidway at What is the benefit-detriment standard? Do we have to ask whether it was a costly detriment? Or whether it was a real benefit to the uncle?

13 Hamer v. Sidway at What is the benefit-detriment standard? Can you suggest why the uncle might have intended that the promise be legally enforceable?

14 Kirksey at 132 Why did Isaac invite Antillico to Talladega county? 14

15 Kirksey p. 132 Why did Isaac invite Antillico to Talladega? 15 It wasnt to see the speedway…

16 Kirksey at 132 Why did Isaac invite Antillico to Talladega county? Willistons tramp at 134? A Benefit to Isaac? 16

17 Kirksey at 132 Why did Isaac invite Antillico to Talladega county? A detriment to Antillico? 17

18 Kirksey at 132 Do you think Isaac intended legal liability? And is that determinative? 18

19 19 George Mason School of Law Contracts I IX.Consideration F.H. Buckley

20 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.The Past Consideration rule 5.The Relevance of Motive 6.Mutuality of Obligation 20

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

22 Kirksey at 132 Why did Isaac invite Antillico to Talladega county? 22

23 The need for a consideration Restatement § 17(1) The formation of a contract requires a bargain in which there is … a consideration 23

24 How to define consideration? Benefit-detriment Bargain theory Intention to create legal relations 24

25 Benefit-Detriment Do the cases up to now all fit under the benefit-detriment standard? Hamer v. Sidway (consideration) St. Peter (consideration) Kirksey (no consideration) 25

26 St. Peter v. Pioneer at 45 Why didnt the theatre restrict bank night to paying patrons? 26

27 St. Peter v. Pioneer What were Pioneers arguments? 27

28 St. Peter v. Pioneer How was the Π to accept? 28

29 St. Peter v. Pioneer How was the Π to accept? Unilateral and Bilateral contracts 29

30 St. Peter v. Pioneer Can you articulate why the theatre might have wanted the promise to be binding? 30

31 St. Peter v. Pioneer Can you articulate why the theatre might have wanted the promise to be binding? Recall Lefkowitz 31

32 St. Peter v. Pioneer Can you articulate why the theatre might have wanted the promise to be binding? Willistons tramp at 134? A Benefit to Pioneer? 32

33 St. Peter v. Pioneer The requested acts were bargained for Restatement § 72: Any promise which is bargained for is consideration 33

34 The Bargain Theory How would you define bargains? 34

35 The Bargain Theory How would you define bargains? The promisor must seek the consideration in exchange for his promise 35

36 The Bargain Theory How would you define bargains? Is it broader or narrower than the benefit/detriment theory? 36

37 The Bargain Theory How would you define it? You and I want to set a date for lunch but quarrel over the date. Is this bargaining? 37

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

39 What is the role of intention to create legal relations? 39 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.

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

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

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

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

44 Gratuitous Promises and Contracts under seal 44

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

46 The decay of formality 46

47 Abolition of seals 47 UCC Abolition in half the states

48 Adequacy Would courts ever look at an imbalance in the value of the respective considerations? Not in contracts under seal Elsewhere? 48

49 Adequacy Restatement § 79. ADEQUACY OF CONSIDERATION. If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged 49

50 Wolford v. Powers 145 What was the consideration from the Wolfords? 50

51 Be it ever so small Sturlyn v. Albany at 142 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) 51

52 52 We saw subjective value before… Mary Bess A B C D E F G 52

53 Re Greene at 135 What did the agreement specify as the consideration? 53

54 Re Greene at 135 for one dollar and other good and valuable consideration Why didnt that work? 54

55 Re Greene at 135 for one dollar and other good and valuable consideration Why didnt that work? What if they had added the receipt and adequacy thereof is hereby acknowledged And provided a cheque for that amount? 55

56 Re Greene at 135 What about the fact that the contract was under seal? 56

57 Re Greene at 135 What do you think was going on here? 57

58 Schnell v. Nell at 146 What was the consideration? 58

59 Schnell v. Nell at 146 A promise of $600 to honor wifes promise in will consideration of: Promise in will one cent love and affection for deceased wife 59

60 Schnell v. Nell at 146 A promise of $600 to honor wifes promise in will consideration of: Promise in will one cent love and affection for deceased wife What about the moral obligation to honor his wifes wishes? Causa vs. consideration 60

61 Schnell v. Nell at 146 A promise of $600 to honor wifes promise in will consideration of: Promise in will one cent love and affection for deceased wife Do you think the promisor intended to be legally bound? 61

62 Schnell v. Nell at 146 So we dont worry about inadequate consideration, but do worry aboutnominal consideration (?!?) 62

63 Batsakis at 139 Why did they structure the contract as a loan of $2,000 at 8 per cent? 63

64 Batsakis at 139 Why did they structure the contract as a loan of $2,000 at 8 per cent? 64 Athens, April

65 Batsakis 139 Why did they structure the contract as a loan of $2,000 at 8 per cent? Is there really a problem of adequacy here? 65

66 If its not about adequacy, what is the point of consideration? Lon Fuller at

67 Lon Fuller on Consideration 140 The evidentiary function Evidence of what? 67

68 Lon Fuller on Consideration The evidentiary function The deterrent function a check against rash promises 68

69 Lon Fuller on Consideration The evidentiary function The deterrent function The channeling function channels for the legally effective expression of intention 69

70 Formalism: Whats the point of… Seals Consideration Writing and signatures 70

71 Lon Fuller on Consideration Does all this simply come down to the intention to be legally bound? 71 Is that all there is?

72 The relevance of an intention to be legally bound? 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 72

73 Promises of a Reward A reward is offered for apprehension of a thief, and an ordinary citizen catches the thief Is there a consideration? 73

74 Performance of Prior Legal Obligation A reward is offered for apprehension of a thief. In performance of his duties, a policeman catches the thief Is there a consideration? 74

75 Performance of Prior Legal Obligation 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. 75

76 Performance of Prior Legal Obligation Why is this a sensible policy? 76

77 Whats wrong with a public official charging for services? 77 I dont get it…

78 What about the proviso? 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. 78

79 Performance of Prior Legal Obligation The past consideration doctrine 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? 79

80 Past Consideration Rule 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. (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 80

81 Past Consideration Rule Restatement 82(1): A promise to pay all or part of an antecedent contractual … indebtedness is binding if the indebtedness is still enforceable 81

82 Past Consideration Rule 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 82

83 Past Consideration Rule 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 83

84 Does the promisees motive matter? Williams v. Carwardine at 151 Why did she identify the murderer? 84

85 Does the promisees motive matter? Williams v. Carwardine Timor mortis conturbat me The status of dying declarations 85

86 Why does Restatement 81 make sense? 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. 86

87 Mutuality of Obligation Either both are bound or neither is bound 87

88 Mutuality of Obligation Either both are bound or neither is bound Bilateral contracts, sed qu. unilateral contracts like Carlill 88

89 Mutuality of Obligation See Restatement § 79: If the requirement of consideration is met, there is no additional requirement of (c) "mutuality of obligation." 89


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