Consideration Doctrine
What is the Consideration Doctrine?
Consideration is the bargained-for exchange of legal value that makes a promise enforceable. Without it, a promise is generally a mere gift and unenforceable at law.
Definition
Consideration is the foundational requirement for the formation of an enforceable contract under common law. It requires that each party to a contract provide something of legal value—an act, a forbearance, or a return promise—that is bargained for and given in exchange for the other party's promise. The doctrine stems from centuries of common law development and is codified in the Restatement (Second) of Contracts sections 71-81.
For consideration to be valid, it must be bargained for, meaning the promisor must seek it in exchange for the promise and the promisee must give it in exchange for that promise. Past consideration—something already done before the promise was made—generally does not count. Additionally, courts apply the preexisting duty rule, which holds that performing or promising to perform a duty one is already legally obligated to do does not constitute valid consideration for a new promise.
The doctrine matters because it distinguishes enforceable contracts from gratuitous promises. Courts generally do not inquire into the adequacy of consideration—a peppercorn can suffice—but they do require that consideration be real and not illusory. An illusory promise, where one party retains unfettered discretion to perform or not, fails for lack of consideration. Understanding consideration is essential for analyzing contract formation, modification, and enforceability on any contracts exam.
Key Elements
- 1A bargained-for exchange between the parties
- 2Legal value given by each party (act, forbearance, or return promise)
- 3The consideration must not be past consideration
- 4The promise must not be illusory
- 5The preexisting duty rule must not bar enforcement
Landmark Cases
Hamer v. Sidway
124 N.Y. 538 (1891)
Established that forbearance from a legal right constitutes valid consideration, even if the promisor receives no tangible benefit.
Dougherty v. Salt
227 N.Y. 200 (1919)
Held that a promissory note given as a gift without bargained-for exchange lacked consideration and was unenforceable.
Alaska Packers' Ass'n v. Domenico
117 F. 99 (9th Cir. 1902)
Applied the preexisting duty rule to hold that a promise to pay more for work already contracted to be performed lacked consideration.
Wood v. Lucy, Lady Duff-Gordon
222 N.Y. 88 (1917)
Cardozo implied a promise of best efforts to save an exclusive dealing contract from being illusory for lack of consideration.
Exam Tips
- Always check whether consideration is bargained for—gifts and conditional gifts are not consideration even if something is given.
- Watch for the preexisting duty rule in modification scenarios; under common law, new consideration is required to modify an existing contract.
- Distinguish between adequacy and sufficiency: courts do not weigh adequacy, but the consideration must be legally sufficient.
- If consideration fails, check whether promissory estoppel might serve as a substitute basis for enforcement.
Common Mistakes to Avoid
- Confusing a condition on a gift with bargained-for consideration—'I will give you $1,000 if you come to my office' is a conditional gift, not a contract.
- Forgetting the preexisting duty rule when analyzing contract modifications under common law (note: the UCC eliminates this requirement under section 2-209).
- Assuming that moral obligation or past consideration constitutes valid consideration—it generally does not.
Memory Aid
BAR-LEG: Bargained-for exchange of Legal value. No bar, no leg to stand on.