Today, we're going to learn about the concept of consideration by exploring the classic chestnut of a case Hamer versus Sidway, which was decided by the New York Court of Appeals in 1891. The facts of this family dispute are memorable. William E. Story Senior promised to pay his nephew William E. Story the second, 5,000 dollars if the ladder would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became 21 years of age. The nephew agreed and performed his promise. On his 21st birthday, the nephew requested the 5,000 dollars and the uncle told them that he would have the money certain, but that it would be held from him until the uncle thought the nephew was capable of taking care of it. After the uncle's death, this suit was brought by the plaintiff and the president appellant Louisa Hamer. She was the assignee of the nephew after several mean assignments, looks like it's spelled mezzanine, but it's pronounced mean and it means intermediate assignments. So that's where the nephew would assign his interest in bringing this case to somebody else who ultimately assigned it to Louisa Hamer. The other party, Franklin Sidway was the executor of the uncle's estate and who is claiming that the state didn't have to pay the 5,000 dollars. The central issue in the case is this. Is forbearance from arguably harmful activity like drinking, sufficient consideration to support a contract? Sidway representing the uncle's estate argued that, the uncle's promise to pay wasn't enforceable because the agreement lacked the necessary consideration. We need to understand the concept of consideration because consideration is a traditional prerequisite to enforcing a contractual promise. Section 17 of the Second Restatement of contracts provides, "The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration." By the way, was there a manifestation of mutual assent in Hamer? You bet. The uncle made an offer and the case says, the nephew assented. From that moment on, both parties were bound to a contract, that is if there is sufficient consideration. Once the contractual bell rings, the nephew would have breached the contract created by the exchange of promises if he drunk at any point after promising. So in Hamer versus Sidway, it's included in most contract case book because it helps teach us what counts as consideration. So to begin, it's helpful to think of consideration as what's given in return for someone else's promise. It is the quid given for the quo in the phrase, quid pro quo. Sidway argued that, in return for the uncle's promise, the nephew hadn't given up enough because the nephew had only promised to forebear from doing things that would have harmed him. The court rejected Sidway's argument and found there was a sufficient consideration. "A valuable consideration, in the sense of the law, may consist either in some right, interests, profit, or benefit accruing to the one party, or some forbearance, loss, or responsibility given, suffered, or undertaken by the other." Under Hamer versus Sidway, "A return promise to be a sufficient consideration doesn't have to be an actual detriment, it is enough for it to be a legal detriment to the promisee." A legal detriment means promising to do anything that you didn't have to do, or promising to forebear from doing anything that you might have legally done. The case is interesting because the uncle didn't receive any obvious benefit. One might plausibly argue the nephew did not suffer an actual detriment from the performance of his promise. Thus, the court's conclusion that, a legal detriment for purposes of consideration can be very different from the common sense meaning of what an actual detriment is. The Hamer decision is the classic statement of the benefit detriment conception of consideration. Under this definition, either an actual benefit to the promisor, or a legal detriment to the promisee is a sufficient consideration. Because it's hard to factually establish whether the promisor, here the uncle, actually benefited from his nephews abstinence. The benefit detriment conception of consideration almost always looks to whether there was a legal detriment. One way of establishing a promisor's benefit would be to rely on the economic concept of revealed preference. The uncle must have benefited from the nephew's abstinence, or the uncle wouldn't have been willing to pay for it, but the revealed preference argument proves too much. The consideration requirement is meant to preclude legal enforcement of gratuitously promises, promises for which there is no return promise. But anyone who promises to give us 1,000 dollar gratuitously to another reveals a preference for that state of the world, the gratuitously promise doesn't reveal that the promisor gained anything from the promisor's return promise when there isn't one. The problem with the legal detriment conception of consideration is that, savvy contractors could manipulate their return promised to qualify as a legal detriment. For example, Jane offers to pay Joe 10,000 dollars if Joe promises to inhale sometimes in the next 60 seconds. Joe readily agrees and then loudly inhales. Jane then refuses to pay and when Joe sues for breach of contract, Jane has the audacity to argue that there was no consideration for her promise to pay 10,000 dollars. The question here is, under the benefit detriment conception of consideration, should Jane win? The answer to this quiz is no. Joe had a legal right to hold his breath for a minute, his promise to forebear from holding his breath is a legal detriment creating consideration for Jane's promise to pay 10,000 dollars. Even though court wanted to avoid having to assess the messy factual question of whether the promisor actually benefits from the promisee return promise, the Joe and Jane hypothetical show why the promisor benefit question is hard to avoid if we want to stop hold your breath types of sheltie shenanigans. The common law responded to this problem in cases decided after Hamer versus Sidway, by replacing the early conception of consideration as either a benefit to the promisor, or a detriment to the promisee with what is known as, the Bargained for Conception of Consideration. This bargain for or inducement conception of consideration can be seen in Section 71 of the Restatement Second of Contracts. To constitute consideration, a performance or a return promise must be bargained for. Then section 2 tells us that, a performance or return promise is bargain for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. In contrast to the benefit detriment conception of consideration which focuses on the welfare of the parties, the bargain for conception focuses on the parties reasons for entering into the transaction. Although the benefit detriment framework still exerts considerable influence in England and Commonwealth countries, the bargain for theory has largely won the day in the United States. That said because Contract Law as a product of judicial decisions, it has many authors and old rules die-hard. Although the bargain for theory is the dominant approach to consideration, the benefit, and detriment tests still figure into many courts holdings. Section 79 of the Second Restatement States that, "If the requirement of consideration is met, there's no additional requirement of a gain, advantage, or benefit to the promisor or of a loss, disadvantage, or detriment to the promisee. Common B to the same section observes that, some courts say a legal detriment is sufficient even though there is no economic detriment or other actual loss, but suggests that, it's more realistic to say simply that there is no requirement of detriment anymore. Another way of looking at the Hamer verses Sidway case is that, the court isn't really looking for a benefit or a legal detriment, but simply for a bargain for exchange. The uncle has offered to pay 5,000 dollars in exchange for the nephew's clean living. Isn't it fairly clear that the return promise was sought by the promisor in exchange for this return promise? After all, we don't think the uncle would have been willing to make his promise to pay unless than nephew had made his promise in return. Thus, the facts of the case if not the court's actual language, provides support for the Second Restatement bargained for rule that neither a benefit nor an actual detriment is essential. Finally, a close reading of the case reveals that the uncle in Hamer versus Sidway made two separate promises. One on March 20th at a wedding anniversary, and the second one in a letter of February 6, 1875. The Court's analysis of the case focuses entirely on whether the first promise was supported by consideration, but the suit is more accurately premised on the second promise. The nephew's consideration for the uncle second promise was different. The nephew's promise not to drink or smoke was the consideration for the first promise, and even if there was no consideration for that first promise, the second promise might well be supported by consideration. For the second promise, this nephew gave up a plausible lawsuit for breach of the first promise in exchange for the uncle's promise to pay 5,000 dollars plus interests. Giving up the right to sue was arguably a settlement of a claim and separately enforceable. So what have we learned? Consideration is a requirement for a contractual promise to be enforced. Under Hamer, consideration could be either a promissory benefit or more likely a legal detriment to the promises. Finally, because of the problems with the legal detriment test being manipulated, modern courts tend now to require that the promisor's return promise was bargain for, that the return promise actually induce the promisor to make his or her promise.
