Consideration

Consideration means mutual inducement, bargained-for exchange.

It is NOT the benefit-detriment test.
Gifts are not consideration.
Dougherty v. Salt- New York, 1919
Important Facts/Procedural History
P received a note from his aunt (of whose will D is the executor) promising $3,000 ($44,492.08
today) at the time of the aunt’s death. At the aunt’s insistence, P’s ward made out the note.
The note says the money is for “value received”, but not clear what value P gave to the aunt.
Takeaways
In order for something to qualify as consideration, both parties must understand it as such and be
induced by one another’s promise
Gifts do not have consideration
Reasoning
At the admission of P’s ward, there was no owed money. It was a gift.
Because the promise was voluntary and had no return promise, it was not consideration.
Comments
Writing “value received” is basically saying “There was consideration. Trust me and ask no
further questions”. Courts don’t like this.

Hamer v. Sidway- New York, 1891

Important Facts/Procedural History
P was promised $5,000 plus interest ($141,075.24 today) if he refrained from drinking, smoking,
swearing, and gambling until he turned 21 by his uncle.
P successfully did this and has it confirmed by his uncle in a series of letters where he agrees to
let his uncle hold on to the money until he is mature enough to handle it.
The letter suggested that D had the money in the bank even before P turned 21.
The uncle died.
D is the executor of the uncle’s estate.
Takeaways
THE BENEFIT DETRIMENT TEST THAT ISN’T WHAT WE USE- Consideration simply
requires both parties to either gain a benefit or a detriment (one can gain a benefit and the other
can gain a detriment, for instance).
Reasoning
The court does not have to ask if the uncle benefitted from P’s successful completion of his task,
only if P had a detriment by doing it.
There is nothing to suggest that the uncle didn’t benefit from P following through.
Comments
The fact that the uncle had the money in the bank before he turned 21 makes it sound like it
could be a gift, which is still permissible under the benefit-detriment test. This case probably
wouldn’t hold up under bargained-for-exchange
Maughs v. Porter- Virginia, 1931
Important Facts/Procedural History
D held a raffle for anyone who came to an auction. They didn’t have to bid on anything to
participate, merely show up. The winner would receive a car.
P won the raffle.
D refused to give P the car, arguing that the car was a conditional promise rather than a
contracted promise with consideration.
Takeaways
If the actions taken to receive a promise are motivated by the return promise then there is
bargained-for consideration.
Reasoning
P was motivated by the promise of the chance to win the car.
D was motivated by P’s return promise to come to the auction because D wants the auction to go
well. If P comes, P might bid on something. The more bidders, the more likely someone makes a
dumb decision.
Comments
Note the racism in this case

Restatements
Restatement (First) of Contracts § 75 (1932)
(1) Consideration for a promise is
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification or destruction of a legal relation, or
(d) a return promise, bargained for and given in exchange for the promise.
(2) Consideration may be given to the promisor or to some other person. It may be given by the
promisee or by some other person.

Restatement (Second) of Contracts § 79 (1981)

If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”

Restatement (Second) of Contracts § 81 (1981)

(1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being consideration for the promise.
(2) The fact that a promise does not of itself induce a performance or return promise does not
prevent the performance or return promise from being consideration for the promise.

Comment:
a. “Bargained for.” Consideration requires that a performance or return promise be “bargained
for” in exchange for a promise; this means that the promisor must manifest an intention to induce
the performance or return promise and to be induced by it, and that the promisee must manifest
an intention to induce the making of the promise and to be induced by it. See § 71 and
Comment b. In most commercial bargains the consideration is the object of the promisor's desire
and that desire is a material motive or cause inducing the making of the promise, and the
reciprocal desire of the promisee for the making of the promise similarly induces the furnishing
of the consideration.
b. Immateriality of motive or cause. This Section makes explicit a limitation on the requirement
that consideration be bargained for. Even in the typical commercial bargain, the promisor may
have more than one motive, and the person furnishing the consideration need not inquire into the
promisor's motives. Unless both parties know that the purported consideration is mere pretense,
it is immaterial that the promisor's desire for the consideration is incidental to other objectives
and even that the other party knows this to be so. Compare § 79 and Illustrations. Subsection (2)
states a similar rule with respect to the motives of the promisee.

UCC Provisions
Here

Policy Considerations
The benefit-detriment test provides a less clear line for what is considered a gift.
Gifts are not consideration.

The court should be concerned about inserting contract law into family dynamics. Gifts should
stay as gifts.

Consideration as a legal formality has function as an evidence, cautionary measure, and

channeling instrument