Contracts Unit 3 Review: Consideration and Promissory Estoppel

Key Concepts and Definitions

• Consideration represents the bargained-for exchange of value between parties in a contract
• Consists of a legal detriment or benefit that induces a party to enter into a contract
• Adequacy of consideration not typically questioned by courts as long as it has legal value
• Past consideration generally insufficient to support a contract since it has already occurred
• Illusory promises lack consideration because they do not obligate the promisor to do anything
• Gratuitous promises not supported by consideration are typically unenforceable
• Promissory estoppel serves as an equitable remedy when a contract lacks consideration but enforcing the promise is necessary to avoid injustice

Historical Context and Development

• Consideration doctrine emerged in English common law during the 16th century
• Initially required a "benefit to the promisor" or "detriment to the promisee" to enforce a contract
• Bargain theory of consideration developed in the 19th century focusing on the exchange of promises
• Restatement (Second) of Contracts adopted the bargain theory in the 20th century
• Promissory estoppel recognized as an alternative to consideration in the early 20th century (Ricketts v. Scothorn)
• Uniform Commercial Code (UCC) relaxed consideration requirements for contracts involving the sale of goods
• Modern contract law balances the consideration doctrine with equitable principles to achieve fairness

Elements of Consideration

• Bargained-for exchange between the parties
  • Each party must offer something of value to induce the other party's promise
• Legal detriment or benefit
  • Promisor must incur a legal detriment (giving up a legal right or taking on a legal obligation)
  • Promisee must receive a legal benefit (receiving something they had no prior legal right to)
• Mutuality of obligation
  • Both parties must be bound to perform their respective promises
• Consideration must be legally sufficient
  • Valuable in the eyes of the law (not necessarily economically valuable)
• Consideration must be present or future, not past
  • A promise to do something already done is not valid consideration

Types of Consideration

• Executory consideration involves promises to perform in the future by both parties
• Executed consideration occurs when one party has already performed their promise at the time of the contract
• Bilateral contracts involve executory consideration (mutual promises to perform)
• Unilateral contracts involve executed consideration (promise exchanged for performance)
• Forbearance (refraining from doing something one has a legal right to do) can serve as consideration
• Compromise and settlement of legal claims recognized as valid consideration
• Charitable subscriptions sometimes enforced without consideration based on public policy

Exceptions to the Consideration Rule

• Promises under seal (formal contracts) historically enforceable without consideration
• Moral obligation generally insufficient to replace consideration, with limited exceptions (minority rule)
• Promissory estoppel allows enforcement of promises without consideration to prevent injustice
  • Elements: promise, reliance, injustice
• Restatement (Second) of Contracts recognizes other exceptions:
  • Modifications to existing contracts
  • Firm offers in the sale of goods (UCC)
  • Promises to pay debts barred by the statute of limitations
• Some courts enforce charitable subscriptions without consideration based on public policy and reliance

Promissory Estoppel: An Alternative to Consideration

• Equitable doctrine that allows enforcement of promises without consideration in certain circumstances
• Elements of promissory estoppel:
  1. A clear and definite promise
  2. Reasonable and foreseeable reliance on the promise by the promisee
  3. Injustice can only be avoided by enforcing the promise
• Serves as a substitute for consideration when necessary to prevent injustice
• Commonly applied in cases involving charitable subscriptions, family promises, and employment
• Damages in promissory estoppel cases may be limited to reliance damages (as opposed to expectation damages)
• Restatement (Second) of Contracts § 90 codifies the promissory estoppel doctrine

Case Law and Landmark Decisions

• Hamer v. Sidway (1891): Forbearance from legal rights recognized as valid consideration
• Ricketts v. Scothorn (1898): Early recognition of promissory estoppel in the United States
• Allegheny College v. National Chautauqua County Bank (1927): Charitable subscriptions enforced based on promissory estoppel
• Wood v. Lucy, Lady Duff-Gordon (1917): Implied promises can satisfy the consideration requirement
• Batsakis v. Demotsis (1949): Adequacy of consideration not questioned if bargained for and legally sufficient
• Feinberg v. Pfeiffer Co. (1959): Promissory estoppel applied in the employment context
• Hoffman v. Red Owl Stores (1965): Promissory estoppel damages limited to reliance damages

Practical Applications and Examples

• Employment contracts: Continued employment can serve as consideration for non-compete agreements
• Real estate transactions: Earnest money deposits can serve as consideration for the sale of property
• Settlements: Compromising legal claims recognized as valid consideration for settlement agreements
• Charitable pledges: Promissory estoppel can enforce charitable pledges in the absence of consideration
• Family promises: Promissory estoppel may enforce promises made in a family context (caring for an elderly relative)
• Forbearance: Refraining from legal action (filing a lawsuit) can serve as consideration for a promise
• Modifications: Consideration may not be required for certain contract modifications (UCC)