Contract Consideration

Bargained-for exchange

A contract generally requires a promise supported by consideration. The promise or performance must be sought by the promisor in exchange for the return promise or performance, and given by the promisee in exchange for the first. Courts generally do not measure whether the exchange was economically equal. The question is whether the parties bargained for legal value, not whether the deal was wise.

A legal detriment can be doing something one had no legal duty to do, refraining from exercising a legal right, or making a promise to do either. A person who promises not to file a lawful claim may provide consideration if the claim is asserted in good faith or there is a reasonable basis for it. A sham claim known to be baseless presents a different case.

What is not consideration

A gift promise is ordinarily unenforceable because the promisor receives no bargained-for return. Saying ‘I will give you my bicycle next month’ does not become a contract merely because the recipient is pleased. A condition attached to a gift, such as traveling to the promisor's home to collect it, is not necessarily consideration if the travel was not sought as the price of the promise.

Past consideration is not bargained for in exchange for a later promise. If a neighbor voluntarily repairs a fence and the owner later promises payment, the earlier repair generally does not support the later promise. A narrow material-benefit rule may apply when a promise recognizes a prior benefit and injustice can be avoided only through enforcement, but it is not a general rule that gratitude creates a contract.

A preexisting duty also does not usually count as new consideration. A police officer's promise to perform an existing public duty in exchange for a reward from a citizen ordinarily adds nothing legally new. Contract modification has separate rules, especially under the UCC for a sale of goods, so identify the governing law before applying the duty rule.

Illusory and conditional promises

A promise is illusory if the speaker retains unlimited discretion whether to perform. ‘I will buy as much as I want, if I want any’ may leave no commitment. Requirements and output contracts can be enforceable because good faith limits the quantity demanded or produced. Satisfaction clauses and termination rights also may be bounded by good faith or an objective standard, making the commitment real.

A condition does not necessarily make a promise illusory. ‘I will pay if you finish the specified repairs by Friday’ commits the promisor once the condition is met. Ask whether the condition regulates performance or leaves the promisor free to choose whether to be bound at all.

Promissory estoppel

Even without consideration, a promise may be enforced when the promisor should reasonably expect it to induce action or forbearance, it does induce that reliance, and enforcement is necessary to avoid injustice. The remedy may be limited as justice requires. Promissory estoppel is not simply another name for consideration; identify the promise, foreseeable reliance, actual reliance and resulting injustice.

For example, an employer promises a signing payment, knowing a candidate will relocate. The candidate moves and incurs substantial expense. If no contract formed, reliance may support a claim depending on the facts and governing rule. Mere hope or an uncommunicated assumption is not enough.

Modification under common law and the UCC

At common law, a modification generally needs new consideration, subject to exceptions such as unanticipated circumstances and fair modification not imposed by coercion. A party's promise to do exactly what an existing contract already requires is ordinarily not new value. Under UCC Article 2, a good-faith modification of a contract for goods can be binding without new consideration, though statute-of-frauds requirements may apply.

Classify the contract first. A promise to pay more for unexpected, severe performance conditions may be enforceable under an exception if made voluntarily and fairly. A threat to breach unless the other party pays more can indicate economic duress, which may defeat the modification.

Options and settlement

An option contract is a separate promise to keep an offer open, supported by consideration. Under the UCC, a merchant's signed written assurance to hold an offer open may be firm for the stated period or a reasonable time, subject to the statutory limit, without separate consideration. A settlement promise may be supported by forbearance from a claim when the claim has a reasonable basis or is asserted in good faith.

MBE analysis

1. Identify each promise and the return act or promise said to support it.
2. Ask whether the return item was bargained for and legally sufficient.
3. Check for past consideration, a gift, a preexisting duty or unlimited discretion.
4. Determine whether common law or Article 2 governs a modification.
5. If consideration fails, test promissory estoppel separately rather than quietly treating reliance as exchange.

Consideration doctrine rewards clear commitments, not equal bargains. On an MBE question, a modest exchange can be sufficient, while a generous promise can fail if the promised act was never requested as its price. Explain the exchange or the separate reliance theory directly.

Bargained-for exchange and the legal value of a promise

Consideration requires a bargained-for exchange: each side gives or promises something sought by the other as the price of the promise. The thing exchanged need not be economically equal. A court ordinarily does not compare whether the parties made a good bargain; it asks whether the promise induced the return performance or promise and whether that return induced the promise.

A homeowner promises to pay a neighbor $500 if the neighbor refrains from operating a loud generator for one month. The neighbor's forbearance is consideration if the neighbor had a legal right to operate it and the homeowner sought that restraint. If a city ordinance already forbids generator use at those hours, promising not to violate the ordinance supplies no new legal detriment. The facts about the neighbor's legal freedom, not the dollar amount, decide the issue.

A gift promise is different. “I will give you my bicycle next month” ordinarily lacks consideration because the promisee has not undertaken something in exchange. A condition that merely identifies how to receive a gift does not necessarily create a bargain. If the promisor asks the promisee to travel across town specifically as the price of receiving the bicycle, the requested travel may be bargained-for detriment even if the bicycle is worth more.

Past consideration and moral obligation

An act completed before a promise is made generally cannot be consideration for that promise because it was not performed in exchange for it. A tenant repairs a landlord's fence without being asked; the landlord's later promise to pay may be gratuitous. A different result may follow if the tenant acted at the landlord's request with an understanding that payment would follow, because the promise can memorialize an earlier bargain rather than reward a past favor.

A moral obligation alone ordinarily does not create an enforceable contract. If a person saves a stranger from danger and the stranger later promises a reward, the rescue was not induced by that promise. Common-law exceptions are narrow and may address a later promise to pay for a material benefit previously received, subject to limits such as unjust enrichment, disproportion and prior gift intent. On an exam, do not assume gratitude itself equals consideration.

Preexisting duty and modification

A promise to do what one already legally must do ordinarily is not new consideration. A police officer's promise to arrest a person in exchange for payment is not supported by a new detriment because the officer already has a public duty. Under the common law, a modification generally requires new consideration, although unforeseen circumstances and fair adjustments may affect enforcement. Under the UCC, a good-faith modification of a sale-of-goods contract can be binding without new consideration.

Keep the governing contract law straight. A caterer agrees to provide 100 meals for a fixed price, then demands more money solely because the event is approaching. That looks like a common-law preexisting-duty problem if the requested change is not supported by a new promise or circumstance. A merchant selling a machine who renegotiates delivery terms in good faith may fall under Article 2's different modification rule. A change in price is not automatically invalid; good faith and the applicable law matter.

Illusory promises and exclusive arrangements

A promise is illusory if the promisor retains an unrestricted choice whether to perform, leaving no commitment. “I will buy as many units as I want, if any” may be illusory. Output and requirements contracts are different: the buyer or seller commits to take or supply actual good-faith requirements or output, subject to limits against quantities unreasonably disproportionate to stated estimates or prior output.

An exclusive-dealing agreement can also contain implied best efforts obligations. A distributor given an exclusive territory may have to use reasonable efforts to sell, while the manufacturer may have to use reasonable efforts to supply. These implied commitments can provide mutuality even when exact quantities are not fixed. Identify the commercial structure before labeling a promise illusory.

When analyzing an MBE fact pattern, write the alleged exchange in both directions. Name the promisor's requested return and what the promisee gave or promised. Then ask whether it was legally sufficient, bargained for, and not merely past, preexisting or discretionary. This compact comparison usually resolves consideration questions more reliably than asking whether the outcome feels fair.