Alex M. Johnson, Jr.

Contracts and the Requirement of Consideration: Positing a Unified Normative Theory of Contracts, Inter Vivos and Testamentary Gift Transfers

PUBLISHER
North Dakota Law Review
DATE
2015
 

Abstract

This Article addresses a subject that has mystified generations of Contracts students: the normative basis for "consideration." Instead of attempting to define consideration, which can be largely tautological, the focus is on the normative basis for its use in deciding which contracts are enforceable. After examining the four major normative theories that have been put forth to date to explain the requirement of consideration: functional, realist, moral, and efficiency, the Article conclude that functional is the best normative theory mandating the use of consideration in enforceable contracts.

The Article compares enforceable contracts in which consideration is found with transactions in other legal areas, that is, valid inter vivos gifts and Wills (Property and Trusts and Estates), to determine what requirements are necessary to validate those transfers. With respect to both of these latter transfers, functional formalities are required that satisfy evidentiary, channeling, ritualistic, and protective functions-the same functions that are satisfied by the consideration doctrine in Contracts.

The Article then details why these formalities are so important and cut across these transactions in different areas of the law. By expanding the analysis to the adjudication phase of the legal process, the critical role these functions play ex post allows the court or other arbiter to make a determination regarding the enforceability of a transaction with low administrative costs and with little attendant error costs. In two of the three transactions, inter vivos gifts and testamentary (Will) transfers, inevitably one of the parties (the putative donor) to the transaction is deceased. In the third, arms-length contracts, the two parties to the putative contract have two different stories regarding the formation of that contract which, in the absence of the functional formalities, would be indeterminate. The functional formalities thus provide the arbiter with reliable and crucial information ex post to guide the decision-maker's resolution of the question of enforceability. 

Finally, the outlier transaction that has bedeviled Contract scholars for generations and which requires no consideration- promises enforced as a result of the use of the doctrine of promissory estoppel-is addressed and analyzed. It is theorized that these cases actually represent three different types of transactions-failed gift cases, promissory fraud cases, and precontractual promise cases (based on fact patterns similar to those employing the doctrine of culpa en contrahendo in Civil Law countries). Disaggregating these cases, it is demonstrated that only the latter, precontractual promise cases, are true contract cases calling for the imposition of the same normative basis as contract cases supported by consideration. Hence, the article concludes by demonstrating that the contract cases that are enforceable per the doctrine of estoppel or reliance supply the courts with the same functional formalities as consideration-based agreements. These enforceable reliance cases provide the courts with an efficient and effective way to make an adjudication with low error costs.

Citation

Alex M. Johnson Jr., Contracts and the Requirement of Consideration: Positing a Unified Normative Theory of Contracts, Inter Vivos and Testamentary Gift Transfers, 91 North Dakota Law Review 547-609 (2015).
 

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