ILLUSORY PROMISE
Legal Principle: An illusory promise is not consideration.
PAST CONSIDERATION
For a court to enforce a promise, both sides must offer consideration. Imagine you graduate from college and get a great job. After five years, your boss says to you, “Because you have done such a great job the last five years, I am going to give you 5 percent of the company stock.” Six months later, you still have not received the stock. May you sue your boss to enforce the promise? The answer is no. For a promise to be enforceable, there must be bargaining and an exchange. Because your work has already been performed, you have given nothing in exchange, and the court will not enforce the promise. A promise cannot be based on consideration provided before the promise was made. You are at the mercy of your boss’s goodwill.
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| Deeds in England
England has the same requirement for consideration as the United States and even shares the exception of promissory estoppel. However, England has an additional exception: specialty contracts or deeds. In England, a deed creates a binding obligation between parties without consideration when certain formalities are honored. These formalities include a written document signed by the person making it, a witness to the maker’s signature, and delivery of the document to the other party with a statement or an accompanying act indicating the maker’s intention to be bound by the deed. Deeds are used in England to create enforceable promises of gifts to charity. This exception to the requirement for consideration also exists in Canadian law. |
Legal Principle: Past consideration is no consideration at all.
As you have probably guessed by now, there is an exception to this rule. Under the Restatement (Second) of Contracts (a persuasive, though not binding, authority), promises based on past consideration may be enforceable “to the extent necessary to avoid injustice.” In some cases, if past consideration was given with expectation of future payment, the court may enforce the promise.
PREEXISTING DUTY
There are two parts to the preexisting dutyA promise to do something that one is already obligated to do. It is not considered valid consideration. rule. Performance of a duty you are obligated to do under the law is not good consideration. Part of a police officer’s sworn public duty is catching suspected criminals. If someone offers a reward for the capture of a suspect, the police officer may not collect it, as he or she was already obligated to apprehend the suspect. Moreover, performance of an existing contractual duty is not good consideration. Gene decides to have a pool built in his backyard. Under the existing contract, the pool is to be completed by June 1, just in time for summer. The pool contractor then explains that due to a shortage of workers, the completion date cannot be met; however, if Gene were to pay an extra $5,000, additional workers could be hired and the pool completed on time. Gene tells the contractor he will pay the $5,000. On June 1, the pool is completed and the contractor asks for the additional payment. Is Gene legally obligated to pay? The answer is no. The pool contractor had a preexisting contractual duty to complete the pool by June 1. Gene is under no obligation to pay the additional money.
Legal Principle: A promise to do something that you are already obligated to do is not valid consideration.
Exceptions to the Preexisting Duty Rule. There are exceptions to the preexisting duty rule: unforeseen circumstances, additional work, and UCC Article 2 (sale of goods).
If unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration. Suppose the pool contractor has been building pools in Gene’s neighborhood for the last 20 years and has never had any problem with rocks—until now. While bulldozing the hole for the pool in Gene’s backyard, the pool contractor hits solid rock. It will cost an additional $5,000 to clear the rock with jackhammers, possibly even dynamite. The contractor says unless Gene agrees to pay the additional money, he will not be able to finish the pool. Gene agrees to pay. When the pool is completed, the contractor asks for the additional $5,000. Will a court enforce Gene’s promise? The answer is yes. Even though the contractor is completing only what he was obligated to do under the contract, neither party knew of the solid rock. The contractor has given additional consideration (removal of the rock) and Gene will be held to his promise to pay the additional money.
