Contracts Lecture Ten Consideration: The Bargained-for Exchange of Legal Value

These sources collectively explain the fundamental concept of consideration in American contract law, defining it as a bargained-for exchange of legal value necessary for a promise to be enforceable. They differentiate it from illusory promises or gifts, which lack a genuine mutual obligation, and clarify that courts generally do not assess the adequacy of consideration as long as it exists and is not a sham, sometimes using the metaphor of a "peppercorn". The texts also highlight exceptions to the consideration requirement, notably promissory estoppel, which allows enforcement when one party reasonably relies on another's promise to their detriment, and address the pre-existing duty rule, detailing how modifications to existing contracts typically require new consideration or fall under specific exceptions like those found in the Uniform Commercial Code (UCC).

A gratuitous promise is a one-sided promise made without any expectation of a return promise or performance and is generally not legally enforceable. A contractual promise, however, is part of a bargained-for exchange, involving mutual consideration, and is therefore legally enforceable.

Consideration is a thing of legal value (money, property, an act, or forbearance) promised or exchanged between parties that binds them together in a contractual agreement. It serves as the mutual exchange that makes a promise enforceable by law.

Courts generally do not inquire into the adequacy or relative value of consideration, focusing instead on whether any legal value was genuinely bargained for. For instance, paying a "peppercorn" (a nominal amount) for something of much greater value can still be valid consideration if it was truly exchanged.

Past consideration is not valid because it refers to something given or performed before the contract is established; it was not bargained for or induced by the promisor's current promise. For consideration to be valid, it must be current or future and mutually agreed upon.

The pre-existing duty rule states that a promise to perform an act that one is already legally obligated to do cannot serve as consideration for a new promise. Its main purpose is to prevent coercion and ensure that any new agreement involves a genuine, new exchange of value.

An illusory promise is a commitment that appears to be a promise but does not actually bind the promisor to any specific action or obligation, often because they retain unfettered discretion. It fails to create a binding contract due to a lack of mutual obligation and real commitment.

The purpose of the doctrine of promissory estoppel is to allow for the enforcement of a promise, even without traditional consideration, when injustice can only be avoided by doing so. It protects parties who have reasonably relied on a promise to their detriment.

Three essential elements for promissory estoppel are: a clear and definite promise, reasonable reliance on that promise by the promisee, and a substantial detriment incurred by the promisee as a result of that reliance.

Under promissory estoppel, courts typically award reliance damages, which aim to restore the aggrieved party to the position they were in before the promise was made. Expectation damages, which would give the benefit of the bargain, are generally not available, as the doctrine focuses on preventing injustice due to reliance rather than enforcing the full promise.

The Uniform Commercial Code (UCC), particularly for sales of goods (UCC § 2-209), permits contract modifications without requiring new consideration, provided that the modifications are made in good faith. This offers a more flexible framework compared to traditional common law.