Legal Glossary
There is always a lot of ambiguity when it comes to arguably contract law’s most important doctrine. I mean of course consideration. What is it? Why is it so important? Why is is so hard to understand?
Here’s the deal: consideration is complicated first of all because the term “consideration” is so unhelpful. The best one sentence explanation I’ve heard about consideration came in a discussion of a gift, and why giving a gift is not consideration for contract formation. Why not?
A gift is giving something away with out consideration. Unhelpful? How about this: When giving there is no consideration for what you get back. If you give, you give freely, without consideration for getting any thing in return. Does this mean that you don’t consider what you are giving? No. If you decide to give your grandma a trip on a cruise to the Bahamas it doesnt mean that you didn’t consider getting her a trip to Russia or getting her maybe just a bunch of yarn and a diagram of how to knit a sweater. You thought about all of that, you considered that. You just didn’t consider what she’d do for you if you gave her a ticket to the bahamas.
Why is this so goddman important?
It comes to this. Contract law is concerned obviously with contracts. Contracts are promises. But some promises are enforceable while others are unenforceable.
An example of an enforceable contract: I promise to buy your car for $100 and you promise to sell your bike to me for $500. We sign a paper and then you on to deliver the bike. That’s enforceable.I paid you the $100, you owe me a bike.
An example of an unenforceable contract: I promise to take you to dinner at a nice restaurant and buy you wine that will cost $100. I change my mind.
What is the difference? Here is the magic: Consideration. In the first case, you were to give me the bike for a consideration of $100. In the second case you gave me nothing for the promised dinner so its just a gift and NOT A CONTRACT.
There are some great cases that are important to the doctrine of consideration:
1. Johnson v Otterbein University– a promise to give a university a charitable donation. Court found that there was consideration, because plaintiff was to get posthumous fame and therefore a valid contract.
2. Hamer v Sidway — an Uncle who promised his nephew $5000 if he refrained from drinking and smoking and gambling till the age of 21. Court found not a gift because there was consideration: the forebearance of smoking and drinking and therefore a contract.
3. Dahl v Hem Pharmaceuticals Corp – test subjects for chronic fatigue syndrome were getting a free treatment (or placebo). After the end of the trial Hem Pharma refused to honor a deal “providing one year’s worth of treatment.” Hem argues that they were participating freely and could withdraw there was no deal. Court finds that this was a unilateral contract and that by subjecting themselves to the pill the participants had provided consideration. Court sides for test subjects, valid contract.
4. Moore v Elmer — Mme Sesemore (Moore), a clairvoyant predicted Moors’s death by 1900. Moore said he would not die and if he did he would pay off Moore’s mortgage. He writes this down. Elmer dies a couple of months before 1900 and Moore sues for payment. Justice Holmes says this is just a wager, no consideration, no contract.
5. Mills v Wyman — Mills took care of Wyman when he landed in his inn deathly sick after a long voyage and nursed him back to health, providing shelter, paying doctors bills etc. Wyman was broke but promised his dad would pay. Mills wrote to papa Wyman and received instructions to do everything to care for the boy and he could be relied upon to pay. Well, boy got well and no pay was forthcoming. Mills sued presenting a letter from Mills. Court found that there was no consideration. A father has an interest in his son’s well being, but a number of things went badly for Mills here. By the time he got the letter, the biy was already well, and the letter was for future care not past care the court decided. Father gained nothing. Case is used to discuss the difference between a moral obligation and a legal obligation. Papa Wyman had a moral obligation to pay, but moral obligation does not confer consideration. no contract.
6. Webb v McGowin — Webb worked for a lumber company. In the course of his work he had to toss heavy logs. As he was tossing down a log McGowin walked beneath and in order to deflect this log hitting and probably killing McGowin Webb was hurt and permanently disabled, McGowin recognized this and offered to compensate Webb $15/week for the rest of his life– kind of a workman’s comp thing, though private. All went well until McGowin died and his decedents didnt want to pay. Said there was no consideration and therefore no contract. Court disagreed. Consideration was the saving of the man’s life. McGowin had moral obligation but that alone didnt persuade the court. court stated that McGowin had a “material benefit” and that this was the consideration. McGowin agreed to pay for service rendered. Good contract.
7. Stilk v Myrick — interesting maritime case about the pay of sailors who contracted with a Ship’s captain in the remote port of Cronstadt to get in addition to their own wages to split the wages of two sailors who deserted. The captain resorted to this devise because he was unable to secure any other sailors to join. When the ship got safely back to London, the company refused to pay. And the court upheld that decision because there was no consideration. Sailors were contracting for work they already agreed to do. Cannot hold an enterprise hostage by holding out for more dough. no consideration no contract.
8. Alaska Packers Assn v Domenico — Similar to Stilk v Myrick, only here its about fisherman who contract in San Francisco to get paid $50 in wages plus 2 cents per fish. When they get to Alaska they go on strike because the nets are bad and work out a deal with the company representative in Alaska for $100 in wages because they realize they just can’t catch fish with broken nets. Court decides the same thing. Can’t renegotiate deal, when this is already been promised. Consideration of labor was given in San Francisco. No new consideration No new contract.
9. Brian Construction v Brighenti– complicated case involving a contractor and a subcontractor respectively. the two found additional unexpected work when excavating to build a post office. subcontractor agreed to do additional work then reneged alleging that there was no valid agreement for the additional work. Court disagreed. Said that this modification of a contract (unlike Stilk and Alaska Pacjers) was legitimate because there was a material change in the job. New job. new consideration. New contract.
10. Newman & Snell’s State Bank v Hunter –
11. Dyer v National By-Products Inc—
Where do all these cases lead to? What is the upshot regarding consideration? Is it just a pile of rules and individual stories or is there something here that brings this all together?
One point is that the determination of consideration is pretty sensitive to story. In the two maritime cases (where contract was denied) it could have been shown that there was really consideration. In Stilk the sailors could have argued that it was not the same job, that they had to take additional risks or work harder or sleep less without the two sailors who deserted. presumably a company doesnt overemploy sailors so this should have been argued. In the Alaska packers case the court argued that the company and the fisherman had the same interests and that the nets must have been serviceable. more recent research suggests that the company may also have needed labor to load and unload. the cannery got a lot of fish from local Indian tribes and maybe didn’t want these stevedores to catch too many fish. that would have meant new consideration for a new contract.
the rest just seem to be ordinary cases that provide slightly different examples of consideration.
Terms Used: Alaska Packers Assn v Domenico, Brian Construction v Brighenti, Dahl v Hem, Dyer v National By-Products Inc, forebearance, hamer v sidway, Hohnson v otterbein, Mills v Wyman, Moore v Elmer, Newman & Snell's State Bank v Hunter, Stilk v Myrick, unilateral contract, Webb v McGowin,