Consideration

MBEMax wiki article — paired with the Contracts question set on mbemax.com.

One-line summary

Consideration is bargained-for legal detriment — something of value that the parties exchange to create an enforceable promise; gratuitous promises are not enforceable at common law unless substitutes like promissory estoppel apply.

Mnemonic

B-L-D — Bargained-for Legal Detriment.

Plus the substitutes: P-P-C-S — Promissory estoppel, Past consideration (restated), Charity pledge, Sealed instrument (rare).

The rule (plain-language)

A promise is supported by consideration when the promisor seeks in exchange a performance or return promise that is sought by the promisor and given by the promisee in exchange — i.e., bargained-for exchange + legal detriment (doing something one is not obligated to do, or refraining from something one has a right to do).

Elements

1. Bargained-for exchange. Not a gift. Each party must give something in exchange for what the other gives.
2. Legal detriment (or value). Modern courts use the "benefit-detriment" test or the simpler "bargained-for exchange" (Restatement Second § 71). A promise or performance that induces the other party counts.

Not consideration (the big no's)

• Past consideration — acts already done before the promise. Exception: modern rule enforces if promise is for services previously requested (material benefit rule) and the material benefit is not excessive.
• Moral obligation — generally not consideration. Exceptions: debts barred by SOL, discharged in bankruptcy, or minority (can revive).
• Preexisting duty — doing what you're already legally obligated to do isn't consideration. UCC § 2-209(1): modification of sales contract enforceable without new consideration, if good faith.
• Illusory promises — where promisor retains unfettered discretion not to perform (modern requirement of implied good faith often saves).
• Nominal consideration — $1 recital alone often rejected by modern courts (though it may show sealed-contract intent in some states).
• Gift promises — enforceable only via reliance or delivery.

Substitutes for consideration

• Promissory estoppel (Restatement Second § 90) — promise + foreseeable + actual reliance + injustice only by enforcement. Enforceable to the extent necessary to prevent injustice (damages may be limited).
• Material benefit rule — promisor received material benefit; promise is enforceable to prevent injustice (minority rule).
• Statutory substitutes — firm offers (UCC § 2-205), merchant's written modification.

Modification and consideration

• Common law — modification requires new consideration (preexisting duty rule).
  • Exception: unforeseen circumstances making performance significantly more burdensome (Angel v. Murray). Some jurisdictions use "mutual rescission" analysis.
• UCC § 2-209 — no new consideration required; good-faith standard; may require writing if statute of frauds triggered.

NCBE loves to test

• Preexisting duty rule. Police officer performing duty — no consideration. Contract modification promise with no new concession — unenforceable at common law.
• Bargained-for exchange. Gift with conditions = gift, not consideration. Uncle's promise to pay nephew $5,000 if he refrains from drinking was bargained-for (Hamer v. Sidway).
• Adequacy — not required. Courts don't weigh adequacy; any legally sufficient detriment suffices.
• Illusory promises — savings doctrines. Output/requirements contracts saved by good-faith obligation. Satisfaction clauses saved by implied-reasonable-person standard.
• Promissory estoppel damages. Often limited to reliance rather than expectancy.
• UCC modification. No consideration needed; good-faith; writing requirement if statute-of-frauds-triggered.
• Past consideration exceptions. Material-benefit rule allows enforcement of promise made after benefit conferred if restitutionary concerns exist.

Fast hypos

Hypo 1. Uncle promises nephew $5,000 if nephew refrains from drinking, smoking, swearing until 21. Nephew complies. Consideration — bargained-for legal detriment (Hamer v. Sidway).

Hypo 2. Employer promises pension after employee has already retired. Past consideration — no bargain. Exception if employee relies in material way or modern material-benefit rule applies.

Hypo 3. Builder mid-project demands extra $10,000 because of "unforeseen costs" (but they were foreseen). Owner agrees. Preexisting duty — no consideration for promise of extra. Owner's promise unenforceable under common law.

Hypo 4. Merchants agree to modify sale price of goods upward. No new consideration. UCC § 2-209 — enforceable if in good faith.

Hypo 5. Charity pledge for $5,000. Charity relies by beginning construction. Promissory estoppel — enforceable to prevent injustice.

Hypo 6. A says "I promise to give you my old car next week." Gift promise — no consideration. Unenforceable unless reliance + estoppel.

Case anchors

• Hamer v. Sidway, 27 N.E. 256 (N.Y. 1891) — legal detriment as consideration.
• Kirksey v. Kirksey, 8 Ala. 131 (1845) — gratuitous promise despite reliance.
• Ricketts v. Scothorn, 77 N.W. 365 (Neb. 1898) — promissory estoppel.
• Hoffman v. Red Owl Stores, 133 N.W.2d 267 (Wis. 1965) — promissory estoppel in pre-contractual negotiations.
• Alaska Packers' Ass'n v. Domenico, 117 F. 99 (9th Cir. 1902) — preexisting duty rule classic.
• Angel v. Murray, 322 A.2d 630 (R.I. 1974) — modification without consideration acceptable when unforeseen.

See also

• Offer and Acceptance
• Modification
• Statute of Frauds
• Parol Evidence

Sources

Restatement (Second) of Contracts §§ 71, 73, 79, 81, 86, 89, 90; UCC § 2-209; Hamer v. Sidway, 27 N.E. 256 (N.Y. 1891); Ricketts v. Scothorn, 77 N.W. 365 (Neb. 1898); Hoffman v. Red Owl Stores, 133 N.W.2d 267 (Wis. 1965); Alaska Packers' Ass'n v. Domenico, 117 F. 99 (9th Cir. 1902); Angel v. Murray, 322 A.2d 630 (R.I. 1974).