What the law takes in exchange: the bargain

March, eighteen sixty nine. An uncle in New York makes a promise to his nephew, who is fifteen. If the boy will refrain from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he turns twenty one, the uncle will pay him five thousand dollars. The nephew agrees. And then, for six years, he does it. No liquor, no tobacco, no swearing, no cards for money.
On his twenty first birthday the nephew writes to his uncle. Dear Uncle, I am now twenty one years old today, and I am now my own boss, and I believe, according to agreement, that there is due me five thousand dollars. I have lived up to the contract to the letter in every sense of the word.
The uncle writes back within the week. You shall have five thousand dollars as I promised you. I had the money in the bank the day you was twenty one years old that I intended for you, and you shall have the money certain. And then a postscript. You can consider this money on interest. The uncle keeps the money. Years pass. The uncle dies. The estate refuses to pay.
So here is the question. The uncle promised. The nephew did exactly what was asked. Is there a contract, or is this a gift the uncle never got round to making? Think about it before I go on, and notice that the estate has a clever argument. Giving up liquor and tobacco was good for the boy. He was better off. The uncle got nothing. So where, the estate asks, is the consideration?
Two weeks ago I asked why the law enforces some promises and not others, and the widow in Alabama got nothing because the brother in law's promise was a mere gratuity. Today is the other half of that lecture. The name in the law is consideration, and I want to give you the test, then the case, then three variations that will show you where the edges are.
And now the question I keep asking. What exactly did these people promise each other? The uncle promised five thousand dollars. The nephew promised to give up four things he was legally free to do. Each promise was the price of the other. Hold on to that word, price, because it is the whole idea.
Here is the first line for the board. Consideration is what the promisor asks for and gets in exchange for the promise. A return promise, or a performance, or a forbearance, giving up something one was free to do. The law calls this a bargain. Not a fair bargain, not a wise one, just an exchange, each side's promise or act given for the other's.
Second line. Benefit to the promisor is not required. It is enough that the promisee gave something up, or took something on, because the promisor asked for it. The lawyers' word is detriment, and it misleads people, because it sounds like harm. It is not harm. It is giving up a legal freedom, even one you would have been better off giving up anyway.
Third line, and this one is about the words on the paper. A recital of consideration is not consideration. Writing for value received on a note, or in consideration of one dollar in a deed, does not make an exchange where none happened. Courts look at what actually passed between the parties, and a form of words that both sides knew was empty stays empty.
Now the case. Hamer against Sidway, decided by the New York Court of Appeals in eighteen ninety one. Hamer had bought the nephew's claim, and Sidway was the executor of the uncle's estate. The trial court found the agreement of March eighteen sixty nine as a fact, and found that the nephew in all things fully performed his part of said agreement. The only question was whether the uncle's promise had consideration.
The estate's argument was the one I gave you. The promisee by refraining from the use of liquor and tobacco was not harmed but benefited. What he did was best for him to do anyway. Unless the promisor was benefited, there was no consideration. The court answered in one sentence. Such a rule could not be tolerated, and is without foundation in the law.
Then the court gave the definition, borrowed from an English court. A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Read the second half again. Forbearance, given by the other party. That is our nephew.
And then the sentence that decides the case. The nephew used tobacco and occasionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years upon the strength of the promise. It is sufficient, the court said, that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement. Whether the performance actually benefited the uncle, the court will not inquire into it.
The case went on to a second question, whether the uncle's letter made him a trustee of the money rather than a debtor, which mattered because of the statute of limitations. We leave that for another course. For us, the case stands for one thing. Forbearance from a lawful act, given because it was asked for, is consideration, benefit to the promisor or not.
Now put the widow beside the nephew. She gave up her home and moved sixty miles. He gave up tobacco and cards. Both suffered a detriment in the lawyers' sense. Why does he win and she lose? Because his abstinence was the price the uncle asked for, and her move was not the price of anything. The brother in law was not buying her relocation. He was setting a condition on a gift. Same detriment, different structure.
One more case, short, because it shows the third line on the board. Dougherty against Salt, New York, nineteen nineteen. A boy of eight, Charley, is visited by his aunt. She says she is going to take care of that child, that she loves him very much. She has the boy's guardian fill in a printed promissory note for three thousand dollars, payable at her death or before, and the printed form contains the words value received.
She hands it to the boy and says, you have always done for me, and I have signed this note for you. Now, do not lose it. Some day it will be valuable. She dies. Charley sues her estate on the note. The note says value received. Is there consideration?
Judge Cardozo, for the Court of Appeals, said no, and the reason is the point. The note was the voluntary and unenforcible promise of an executory gift. This child of eight was not a creditor, nor dealt with as one. The aunt was not paying a debt. She was conferring a bounty. And then the rule. Nothing is consideration that is not regarded as such by both parties. The printed words could not overcome the conceded facts.
Now let's change one fact. The uncle says to the nephew, I hear you have given up drinking, and I am so pleased that I will give you five thousand dollars when you are twenty one. The nephew had already stopped, on his doctor's orders, before the uncle spoke. He stays stopped. Is there consideration? Choose an answer before I go on.
Most people say yes, because the nephew did refrain and the uncle did promise. But look at the structure. The uncle did not ask for the abstinence as the price of his promise. He was pleased about something that had already happened and was going to happen anyway. Nothing was given in exchange. This is the widow's case, not the nephew's. A promise prompted by something is not a promise made in exchange for it.
Change one fact again. Suppose the nephew was under the lawful drinking age for the whole six years, so that he had no legal right to drink at all. Does the bargain fail? Choose.
This one has a good answer and a better one. The good answer is that giving up what you have no right to do is no legal detriment, so the drinking drops out. The better answer notices that the uncle asked for four things, and tobacco, swearing, and cards for money were all lawful. The nephew gave up three lawful freedoms because the uncle asked. The bargain survives on those. You do not need every item to be consideration. You need one.
Change one fact a third time. The aunt writes on Charley's note, in exchange for your promise to visit me every Sunday afternoon, and the boy promises, and he visits, every Sunday, until she dies. Consideration? Choose.
Most people hesitate, because a Sunday visit from a boy of eight seems too small to buy three thousand dollars. But small is not the test. The question is whether something was asked for and given in exchange, and here it was. The aunt wanted the visits and set them as the price. Charley gave them. That is a bargain. The size of the price is the parties' business, and we will spend the next lecture on exactly that point.
Here is what people get wrong here, and why it is tempting. The first mistake is hunting for a benefit to the promisor. The uncle got nothing, and it did not matter. Look for what the promisee gave up or took on.
The second mistake is the opposite one, treating any detriment as consideration. The widow's move was a detriment and it was not consideration, because it was not the price of the promise. Ask both questions. Was something given up, and was it given up because it was asked for in exchange?
The third mistake is trusting the paper. Value received, one dollar in hand paid, in consideration of. Those words do not create an exchange. Judge Cardozo looked past the printed form to what the aunt and the guardian actually said, and found a gift. When you read a recital, ask what actually passed between the parties.
Here is the rule, in one breath. A promise is supported by consideration when the promisor asks for something in exchange, a promise, a performance, or a forbearance, and the promisee gives it because it was asked for, whether or not the promisor benefits and however small the thing given, and a promise that was not the price of anything is a gift, whatever the paper recites. Now, five questions.