Although there is a lot of variability, a consideration is most commonly defined as an “exchange” of the items promised. Most of the time, the requirement to have a consideration is met in a contract, but there are times when it is not. The cases below will address this principle.
Hamer v. Sidway
New York Court of Appeals 124 N.Y. 538, 27 N.E. 256 (1891).
The plaintiff sued, and won. Then the defendant appealed and won at the Supreme Court. This case is no an appeal from the new trial resulting from the appeal.
Question
Was there a consideration?
Rule
A consideration occurs if there is a benefit to the party after a period of detriment?
Holding
Although the party benefited from abstaining from alcohol use, he independently made that sacrifice. Thus, there is consideration and the special trial court is reversed.
Facts
William Story had a nephew named William Story 2nd. The uncle made a promise to his nephew that if he would not drink, smoke, chew tobacco, or gamble until his 21st birthday, then he would receive $5,000. The nephew did so, requested the money from his uncle, who promised it to him with interest (set up a trust). However, the uncle passed before any of the money could be collected and William Story the 2nd sued to collect.
The defense claims that there was no consideration made because the sacrifice of William actually benefited him. Therefore, he could not make a consideration because there was no detriment.
Analysis
The plaintiff here did have a consideration because there was a detriment. Here, the courts do not care if the lack of alcohol and other substances benefited him. The fact that he had to make a sacrifice was enough to show that there was a consideration. Having performed, he is right to collect.
Takeaway
Old style consideration has this “benefit/detriment” style. Although I believe this use is still valid, consideration has transformed over time to be interpreted as “exchanges”.
Additional Notes
A consideration is something where it is hard to define, but it’s one of those things where we say “we know it when we see it”. A consideration is a beneficial thing.
When the restatement says “bargained-for-exchange” that does not mean negotiations.
“Any damage, or suspension, or forbearance of a right will be sufficient to sustain a promise.” This is a consideration according to the court.
Pennsy Supply Inc. v. American Ash Recycling Corp. of Pennsylvania
Pennsylvania Superior Court 895 A.2d 595 (2006).
Pennsy filed the complaint. American Ash responded with demurrers which were granted and the case was dismissed. Pennsy appealed.
Question
“Whether Penney’s relief of American Ash’s legal obligation to dispose of a material classified as a hazardous waste, such that American Ash avoided the costs of disposal thereof at a hazardous waste site, is sufficient consideration to ground contract and warranty claims.”
In other words, was American Ash’s legal obligation sufficient consideration?
Rule
There needs to be an exchange between the parties.
Holding
This was sufficient consideration, the demurrers are overruled, and the dismissal is reversed.
Facts
Pennsy was a subcontractor hired to work pave. Pennsy offers bid to take ash from American Ash. Later, they received Ash from American Ash and used the material in the pavement. When there were several flaws in the work (due to the ash) including large cracks. So, Pennsy dug it all up and requested American Ash to reimburse them for the costs. When they refused to do so, Pennsy sued.
To summarize, Pennsy thought they were getting free material, ended up having to pay for it when there were damages, and want to be reimbursed.
Pennsy says that this is a consideration. American Ash counters saying that there was no consideration because this was a gift.
Analysis
Here there was a consideration. The court discusses how the benefit/detriment theory is not enough and adopts an exchange theory. In this case, the court says that there was an exchange and the reasons to dismiss are overturned. More to come from lecture, I’m still a little unsure about this.
Additional Notes
Even though there was no bargaining in this case, it can still be considered as consideration.
A breach of contract requires
- Existence of a contract (I take this, you don’t need to deal with it)
- Breach of contractual duty (Implied that it should not have cracked)
- Damages (cracks)
There needs to be a bargain (an agreement between the parties). Pennsy didn’t know all the facts, but they knew enough to bargain.
Holmes “the promise must induce the detriment and the detriment must induce the promise.”
- In other words, there needs to be a connection between the promise and the detriment.
This was not a gift, but an exchange of values. Therefore, there is consideration.
Takeaway
Consideration has moved from this “detriment/benefit” standard to “exchanges”.
Do not get too caught up in the sequence of events. Simply consider if the exchange is in the contemplation of the parties. Is there value? If there is value, then it is consideration.
Main takeaway from this case is that the sequence of events does not matter when there is a consideration. If there is value to the parties, it is a consideration.
Doughtery v. Salt
New York Court of Appeals 227 N.Y. 200, 125 N.E. 94 (1919)
The plaintiff was given a favorable verdict by the jury which the judge set aside and dismissed. Upon appeal the plaintiff won on grounds that there was consideration.
Question
Was there consideration here?
Rule
A executory gift is not a consideration.
Holding
There was no consideration here because the note was an executory gift.
Facts
A young man was with his guardian who visited his aunt. The aunt was pleased with the boy and wrote a note for $3,000 to be redeemed “at her death or beforehand”. The note was made voluntarily and as a gift.
The plaintiff says that it was consideration and the defense says it is not.
Analysis
This cannot be a consideration because there was no exchange here. The boy did not need to perform to receive the note. Therefore, there was no detriment. Instead, the note was given as a gift to be redeemed at some future time. Thus, there was no consideration and the note does not constitute a promise.
Takeaway
A promissory note is not enough to establish consideration. Instead, the aunt should have put the money in a will or set up a trust. Those are the best ways that the plaintiff here would have received his money, regardless of consideration.
Additional Notes
The boy had done nothing to receive consideration.
“For value received” can show consideration in a promissory note. However, this varies from jurisdiction to jurisdiction.
The takeaway here is that you should not promise money in a note. It can work, but more safe ways are to go through cash, trusts, or wills.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
