Anglo-American
Contract and Torts
Prof. Mark P. Gergen
17. Consideration--Legal Bases
for Enforcing Promises
Not all promises are enforceable as
contracts.
A promise to make a gift is not enforceable
as a contract absent special grounds.
The doctrine of consideration generally
defines what promises the law will enforce.
Additional bases for enforcing a promise
include reliance (US) and a witnessed deed
(England).
In England, the device of a witnessed deed
replaced the device of a seal.
So what is consideration?
• Bargain theory (US and Australia) Text 114
• Benefit given or detriment incurred in
return for promise (England) Text 113-114
In the US, consideration is equated with bargain. Other
bases for enforcing a promise (e.g., reliance) are
described as alternatives to consideration.
So what is a bargain?
Anything that is in someone’s legal power
to do or not do can be the subject of a
bargain . . . an act, a promise to act, a
forbearance, a promise to forbear, a
change in a legal relationship . . . See
Text 114, citing Restatement Second
Section 71.
But there must be a bargain . . .
Restatement Second, Contracts § 71 (Text 114)
(1) To constitute consideration, a performance or
return promise must be bargained for.
(2) A performance or return promise is bargained
for it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange
for that promise.
“reciprocal . . . inducement, each for the
other” (Holmes)
There is no bargain in these two cases, so the promise is not
enforceable:
1) A performs a service for B, asking nothing in
return. Grateful B promises A $.
2) B promises A $, asking nothing in return. Grateful
A performs a service for B.
Grandparent promises Grandchild $1,000 to buy a new
suit. Is this a bargain?
In the US, a gratuitous promise is not enforceable
even if B declares it to be a legal obligation. Nor
can it be made enforceable by falsely casting the
promise in the form of a bargain.
The device of a trust is used to retain control over
resources while committing them to another in the
future.
Performance of a pre-existing legal duty is not
consideration.
Foakes v. Beer (House of Lords 1884), Text 119
Beer agrees to forego the payment of interest on a £2019 judgment to
which she is entitled if Foakes pays £500 principal immediately so
long as the balance is paid in £150 half-yearly installments. Foakes
pays the £500.
This is a bargain. Beer promised to forego interest to
induce Foakes to pay. And Foakes was induced to pay by
her promise.
Held the promise is unenforceable. Payment of a preexisting debt is not consideration.
The outcome would have been different under English law
at the time if the agreement had been made under seal.
The outcome would have been different if the agreement
had been fully performed. Selbourne, LC, says there then
would have been an effective “accord and satisfaction.”
Text 119 bottom.
The issue of consideration arises only if a party seeks to
enforce an “executory” (unperformed) agreement.
The outcome would have been different if the debtor had
agreed to do more than his original obligation, thus giving
“new consideration.” Text 120 bottom.
The rule in Foakes v. Beer prevents mutual beneficial
adjustments of contracts when the adjustment is onesided.
Consideration exists if the adjustment is a settlement of
an honest dispute or if than debtor does more than
perform the existing obligation. See Text 121 top.
Other responses
• Abolish requirement of consideration for
contract modifications. UCC § 2-209(1), Text 119
(top)(applies only to sales of goods)
• Some states have statutes that give effect to
signed releases without consideration.
Combe v. Combe (KB 1951), Text 116
After divorce is finalized ex-husband promises to pay exwife £100 per year. Ex-wife promises nothing in return.*
Ex-husband doesn’t keep promise, apparently because exwife earned more. Seven years on ex-wife sues for the
money.
At Text 117-118 Denning addresses the possibility that exwife’s forbearance from applying for maintenance was
consideration for ex-husband’s promise. He concludes:
• It may not have been in ex-wife’s power to bind
herself in this way.
• And if it was, such a promise cannot be
implied.
Lower court held the promise was binding on the basis of
promissory estoppel. This was relying on Central London
Property Trust, Ltd. v. High Trees House, Ltd. (“High Trees”).
Landlord agrees to accept half rent in 1940 for an
unstated period. In June 1945 Landlord demands
full rent going forward. Held Landlord may
increase rent going forward but it may not demand
unpaid rent before June 1945.
In Combe, Lord Denning holds the lower court erred in
applying the doctrine. What was its error? What does he
mean by “the principle [of estoppel] never stands alone as
giving a cause of action in itself”? (Text 117, 2nd
paragraph).
Restatement Second, Contracts Section 90 (Text 115-116).
A promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or
a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for
breach may be limited as justice requires.
After divorce is finalized ex-husband promises to pay exwife £100 per year. Ex-wife promises nothing in return. Exhusband doesn’t keep promise, apparently because ex-wife
earned more. Seven years on ex-wife sues for the money.
What result in the US? Do you need more facts?
Grandparent promises Grandchild $1,000 to buy a new
suit.
Grandchild buys the suit in reliance on the promise.
Grandparent dies before she can pay. Does a Grandchild
have a contract (promissory estoppel) claim under US law?
What of English law?
If Grandparent pays the money to grandchild to reimburse
him for the cost of the suit, then can Grandparent sue to
get the money back on the ground there was no
consideration for the promise under English law?
Grandparent agrees to release Grandchild from a $1,000
debt to enable Grandchild to buy a suit. Grandchild buys
the suit. Is the agreement enforceable under English law?
Doctrine of consideration generally
defines what promises a court will
enforce. Consideration test is a surrogate
for a test of intent to be legally bound.
In US reliance/promissory estoppel is an alternative
basis for enforcing a promise. In England promissory estoppel can be used
negatively or defensively but not positively or
affirmatively.