Case Name: Armstrong v. Francis Corp.
Plaintiff: Armstrongs and Klemps
Defendant: Francis Corp. (Homebuilder)
Citation: 120 A.2d 4 (N.J. 1956)
Key Facts: The defendant, Francis Corp., built 186 small homes and 14 houses on a tract of land. Francis Corp. constructed the drainage system which emptied into an iron pipe which was below the level of the natural stream bed. The natural drainage of the plaintiffs’ property was affected by this and ruined their percolating stream. The water became discolored, evil smelling, and no longer had any fish in it. The stream built up silt and muck and started to erode the banks of the plaintiffs land.
Procedural History: The lower court stated that the plaintiffs were entitled to relief and that the only sensible and permanent solution is to pipe the rest of the brook at the defendant’s expense.
Issue: Whether the damage suffered by the plaintiffs is privileged and incidental by the improvement of the defendant’s land and thereby the plaintiffs are not entitled to relief.
Rule: Whether the harm caused by the defendant’s improvement is reasonable can be determined by consideration all of the relevant circumstances such as the amount of harm caused, the foreseeability of the harm, the purpose or motive of the defendant.
Case Name: Kirksey v. Kirksey (1845)
Citation: 8 Ala. 131 (1845)
Issue: Whether the defendant’s promise lacked consideration and was therefore unenforceable when he told the plaintiff, the widow of his deceased brother, to sell everything she had and come live with him and he would provide a place for her and her children.
Key Facts: The plaintiff was the wife of the defendant’s brother, who is now deceased. The defendant wrote her a letter and told her that she should sell everything and come to him and he would provide a place for her and her children to live. Within a month, the plaintiff abandoned her property and removed her family sixty miles to the defendant’s property. The defendant put her in a comfortable house and gave her land to cultivate. Subsequently, he notified her to move to an uncomfortable house in the woods and then required her to leave.
Procedural History: Verdict for the plaintiff for $200.
Holding: Reversed; however, the decision was written by the judge who did not agree with it.
Reasoning: There was no consideration. Although the plaintiff moved a distance of sixty miles, which she contends is sufficient consideration to support the promise, the majority believed that this was a condition to a conditional gift. However, the judge writing the opinion stated that the moving to the defendant’s (60 miles) was enough to constitute consideration to support the promise.
Compare this to Greiner v. Greiner in which the court enforced a similar promise without consideration through promissory estoppel.
Case Name: Greiner v. Greiner
Plaintiff: Maggie Greiner
Defendant: Frank Greiner (son of Maggie)
Citation: 131 Kan. 760, 293 P. 759 (1930)
Issue: Whether the plaintiff’s promise can be enforced when it lacked consideration.
Key Facts: The plaintiff (a widow) told her son, the defendant, that if he moved back to her county she would give him land for a home. She later gave him possession of an 80-acre tract of land which he moved his family to. The mother then commenced an action of forcible detention against the defendant. The mother contends that there was no consideration.
However, the son contends that there was reliance on his mother’s promise. The defendant gave up his homestead in another county, moved, established himself and his family, made some lasting and valuable improvements and other expenditures.
Procedural History: The district court ordered the plaintiff to execute a deed conveying the 80-acre tract to defendant. Plaintiff appealed.
Judgment: The plaintiff should execute a deed to the defendant.
Reasoning: Although there was no consideration, in 1930 the concept of promissory estoppel had been established and can be used to enforce the promise.
See also Kirksey v. Kirksey
Issue: Was the contract invalid due to lack of consideration?
Facts: The parties entered into a contract when they were residents of Greece. Through the contract the plaintiff lent the defendant $25 (in drachmae) and the defendant was to repay the plaintiff $2,000 plus interest. The plaintiff sued the defendant to recover amount. The defendant said there was no consideration because the deal was unfair and she could only receive the money if she would sign that she would pay him $2,000 American money.
Holding: Consideration existed in the form of the drachmae (plaintiff won).
Reasoning: For consideration we do not care about the adequacy or the disparity in differences.
Case Name: Pennsy Supply, Inc. v. American Ash Recycling Corp. of Pennsylvania
Citation: Pennsylvania Superior Court; 895 A.2d 595 (2006)
Plaintiff/Appellant: Pennsy Supply, Inc.
Defendant/Appellee: American Ash Recycling Corp. of Pennsylvania
Issue: Whether consideration existed in the contract between the plaintiff and defendant when defendant allegedly avoided disposal costs by supplying plaintiff materials at no cost.
Key Facts: The plaintiff had secured a subcontractor job for the paving of driveways and parking lots. The project specifications included a notice of availability of a material known as AggRite that could be used for base aggregates and was available at no cost from the defendant. The plaintiff contacted the defendant, informed them on the amount it needed, picked it up, and used it for the paving work. Two months after the paving work was completed, there were substantial defects in the pavement and the plaintiff had to perform remedial work which cost the plaintiff $250,000. Furthermore, it incurred an additional $133,000 to dispose of the AggRite it had received from the defendant. The plaintiff filed a five-count complaint alleging (1) breach of contract, (2) breach of implied warranty of merchantability, (3) breach of express warranty of merchantability, (4) breach of warranty of fitness for a particular purpose, (5) promissory estoppel.
Procedural History: The defendant filed demurrers to all five counts and the trial court sustained the demurrers and dismissed the complaint. The trial court believed the defendant only made a conditional gift to the plaintiff and therefore the contract did not have consideration. They stated that the disposal costs were a mere condition of the defendant’s gift.
Holding: The trial court erred in its dismissal because if the alleged facts are proven, it would show consideration because the promise induced the detriment of incurring disposal costs and the detriment of those disposal costs induced the promise from the defendant.
Reasoning: If the complaint is true that the defendant “actively promotes the use of AggRite as a building material” to be used for purposes the plaintiff was engaging in, then by the defendant providing the materials free of charge, they are seeking others to dispose of the material in order to avoid incurring the disposal costs itself. The material provided by the defendant saved the defendant thousands of dollars in disposal costs it otherwise would have incurred.
The Superior Court also examined whether consideration is lacking because the plaintiff did not allege (or understand) the defendant’s avoidance of disposal costs during the bargaining process between the parties. The court did not believe this was necessary because for consideration to exist “the promise and the consideration be in “the relation of reciprocal conventional inducement, each for the other”” (O. Holmes).
Judgment: The Superior Court reversed the trial court’s decision of dismissing the Complaint and remanded it back to the trial court for further proceedings.
Consideration is a crucial concept in understanding Contract Law. The making of a promise (offer and acceptance) is insufficient by itself to result in the formation of a contract.* The additional requirement is the presence of “consideration.”
The concept of consideration has developed over the years. In 1875 consideration was defined as:
“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.”
Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first. The idea behind consideration is determining the types of contracts we want to enforce. The main type of contract we don’t want to enforce is a gift.
The court now explains that consideration requires a benefit to the promisor or a detriment to the promise that is bargained for. In other words, benefit or detriment are insufficient to constitute consideration. However, according to Pennsy Supply the requirement that consideration be bargained for does not require actual bargaining between the parties.
The court uses the Homlesian test of “reciprocal conventional inducement, each for the other.” (Bargaining theory of consideration). “The promise must induce the detriment and the detriment must induce the promise.” Oliver Wendell Holmes, Jr.
The Restatement adopts the bargain theory of consideration and rejects any additional requirement of benefit or detriment.
*Note: International contract law recognizes that a contract can be formed without the additional requirement of consideration.