“Consideration and the Death of Contract Theory”

An analysis of Section 86 of the Restatement (Second) of Contracts, and American Case law

Essay paper prepared by Rami M. Olwan

Abstract

it is argued that the traditional rule of past consideration is vague, unclear and uncertain without

any real explanation and solid justification, and that is evidenced by the fact that courts, drafters of the

Restatement (Second) of Contracts, and legal scholars have all struggled with the notion of that rule

trying to find whether and in what circumstances it should be applied. Furthermore, the author agrees to a

certain extent with the conclusion reached by professor Gilmore in relation to the doctrine of

consideration that it has been reabsorbed into other branches of law, and that is evidenced by section 86

of the Restatement Second of Contracts. The author disagrees with professor Gilmore’s overall

conclusion of the erosion of the doctrine of consideration, and the death of contracts, the fact that

contracts are still flourishing and prospering everyday means that the conclusions reached are incorrect

and they need reinvestigating.

Introduction

The latin maxim “pacta sunt servanda” (agreement must be kept) reflects a long standing moral

dimension of contract law that there is an ethical as well as legal obligation to keep one’s contractual

promise1. The moral theory has certainly had an important impact on the development of the contract law,

and courts in different situations have taken it into consideration, but the question that needs to be asked

is what is the relationship between the law and morality, when must the law enforce moral obligations and

to what extent? ? Is there a specific rule of law that can determine when we should enforce and when we

should not? This research paper will try to answer those questions when it deals with the doctrine of

consideration, and particularly when it concentrates on rule of past consideration.

The paper proceeds in three parts. In part I, I will give a broad overview of the past consideration

rule. In part II, I will examine the American law perspective on the law of past consideration in case law,

1
BRIAN A. BLUM, CONTRACTS EXAMPLES AND EXPLANATION 11 (2d ed. 2001).

2
and in section 86 of the Restatement (Second) of Contracts. In part III I will provide my own argument

and thinking of what has been discussed in the previous parts.

I. Overview of the Rule of Past Consideration

No legal system enforces all agreements; the existence of consideration is what distinguishes

enforceable agreements from unenforceable ones2.

Scholars have a conflicting view on the doctrine of consideration3, and are still debating its meaning,

rules, purpose, origin4, importance, applicability and enforceability. So what is the rule of past

consideration?

One of the axiom of contract law is that consideration must be present, as opposed to past, in

order to make a promise binding consideration is supposed to motivate the promise, and there must be

some contemporaneous connection between the consideration and the promise, if there is not the court

often presume that the subsequent promise is gratuitous5.

The rule of past consideration has been traced to Lord Manfield who was the Chief Justice of the King’s

Bench in England from 1756 to 17886.The initial reforms of the past consideration rule were instigated in

the latter part of the seventeenth century by Chief Justice Holt. Holt created the long-standing exceptions

to the past consideration rule in cases involving the special defenses of infancy and statute of limitations7.

An example on past consideration is as follows, if Al had fallen into a crevice while skiing, and Buster,

risking horrebdous peril saved him. After being extracted from the crevice, Al gabsed to Buster, “In

consideration for saving my life, I promise to give you my skis”.8.

Before we end up this section it is important to include the theory of professor Gilmore in his

provocative book “The Death of Contract”, he argued that the bargain theory was wrongly conceived

2
EDWARD ERANTE , THE ANGLO AMERICAN LAW OF CONTRACTS 62 (2d ed. 2001).
3
Consideration is defined as “a valuable consideration in the sense that the law may consist either in some right, interest, profit, or benefit,
accruing to one party, or some forbearance, determinate, loss, or responsibility given, suffered, or under taken by the other”, WILLIAM
HERBERT, THE LAW OF CONTRACT 841 (1st ed. 1920).
4
See the development of the doctrine of consideration, BRIAN, supra note 1, at 227
5
HOWARD O. HUNTER, MODERN LAW OF CONTRACT 511- 512 (1st ed. 2003).
6
JOHN EDWARD MURRAY, MURRAY ON CONTRACTS, 97 (2d. ed.1974).
7
Kevin M. Teeven, The Advent of Recovery on Market Transaction in the Absence of a Bargain, 39 Am. Bus. L.J. 289 (2002).
8
BRIAN, supra note 1 at 162

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narrowly elaborated, and improperly extended9.He traced the decline and fall of consideration, concluding

that the bargain theory is no longer the exclusive basis for promissory liability and its stronghold on the

life cycle of a contract has been broken10. He further argued that the bargain theory of consideration is

dead and that the contract is being reabsorbed into the mainstream of a more expensive theory of tort

liability11. I will examine the theory of death of contract and connect it with past consideration in the final

part of the paper.

II . American Law Perspective:

I will discuss below the American perspective in section A and B and that as follows:

A. American Case Law

We will examine under this heading the position of American case law on moral obligation or

past consideration, the main question that we want to answer, what is the position of American courts on

past consideration? When do courts recognize moral obligation?

In Webb vs. McGowin12, the plaintiff saved the life of the defendant in an accident which caused the

plaintiff serious injuries, crippled him for life and rendered him unable to do physical or mental labor.

The defendant promised the plaintiff to pay a pension for the remainder of his life, which was paid for

many years until the death of the defendant, and then the executors refused to make the payment. Plaintiff

brought suit to recover the unpaid installments accruing up to the time of the bringing of the suit. The

court held that a moral obligation is sufficient consideration to support a subsequent promise to pay where

the promisor has received a material benefit, although there was no general duty or liability resting on the

promisor13.

In Mills vs. Wyman14 , the plaintiff took care of the defendant’s son, Levi Wyman who became ill and

died afterward15. The plaintiff housed Levi for two weeks and paid hefty expenses for doing so, and as

9
GILMORE, THE DEATH OF CONTRACT, 23, 47 (2d ed.1995), See also Richard E. Speidal, An Essay on the Reported Death and Continued
Vitality of Contract, 27 STANF.L.REV. 1161, 1162 (1975) (Book Review).
10
Richard E. Speidal, supra note 9 at 1161
11
GILMORE, Supra note 9 at 95- 98 ,ROBERT E.SCOTT & DOUGLAS L LESLIE, CONTRACT LAW & THOERY, 135 (1st ed. 1988),
ROBERT A. HILLMAN, THE RITCHNESS OF CONTRACT LAW, 19 ( 1st ed. 1997).
12
Webb v. McGowin, 232 Ala. 374, 168 So. 199, 1936 Ala. LEXIS 239 (1936)
13
BARNETT, CONTRACTS CASENOTE LEGAL BREIFS 30 (1st ed. 2003)
14
Mills v. Wyman, 20 Mass. 207, 3 Pick. 207, 1825 Mass. LEXIS 44 (1826)

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result the defendant promised in writing to compensate the plaintiff for his time and trouble, but later the

defendant reneged on the promise, and plaintiff sued for breach.

The court concluded that the defendant was morally, but not legally bound to compensate the plaintiff

since the defendant did not promise of present exchange for the benefit received. The obvious question

from the above two cases, why the court did not provide recovery for the Good Samaritan Mills in the

second case while it did so for Webb in the first? What is the rationale and reasoning behind all of that?

We can say that according to the American case law there is a major rule and minor one, the

major rule is in the case of Mills where the court will not enforce moral obligation while the minority rule

is in the case of Web 16where the court will enforce moral obligation in the situation where there is a

material benefit to party. The above two cases while they are landmark cases on moral obligations, they

still do not give us a whole picture of the American position on moral obligation, and so what is the

position?

According to American case law moral obligation per se does not constitute valid consideration

for a contract, but there are many situations when the moral obligation is recognized such as when the

moral obligation arises from a preexisting legal liability and is acknowledged by a new promise, when

one party has obtained a benefit or suffered a legal detriment, or when the courts have refused to rescind

agreements supported by moral consideration where the contracts had been wholly or partially executed17.

We will examine below the position of the Restatement (Second) of Contracts.

B. Section 86 of the Restatement (Second) of Contracts

According to section 86, to enforce or recognize a promise based on a benefit previously received, the

following requirement must be met:

1) the promisor has been unjustly enriched by a benefit previously received from the promisee,

2) the benefit was not given as a gift,

15
For an interesting account of the facts of the case and suggestions that many of the facts that has been provided by the courts were not totally
true such as the death of the plaintiff’s son, see Geoffrey R. Watson, In the Tribunal of Conscience: Mills v. Wyaman reconsidered, 71 Tul. L.
Rev. 1749 (1997).
16
BARNETT, Supra note 13 at 31.
17
98. American Law Reports 5th 353 (2002).

5
 3) the promisor subsequently makes a promise in recognition of the benefit necessary to prevent

injustice.

If these requirements are satisfied, the promise is binding to the extent necessary.

The question that we should ask what is the position of the Restatement (Second) of Contracts on the

material benefit rule? And whether it corresponds with the American case law discussed in the previous

section?

I believe that the Restatment Second fall short of the postion of the Anglo- American case law in

regonizing a broader range of sitatutions enforcing moral obligation and as one commentator has abserved

that “the Restatement Second has broken away from the classical moral theory in contract law, and has

adopted a new principle in determining when promises are enforceable” 18.

III. Evaluation of Doctrine of Past Consideration

I have many conflicting ideas on the position of the Anglo- American law on moral obligation, and

particularly that relate to the rule of past consideration. I provide my argument and support below.

A. Meaning of Moral Obligation

The rule of past consideration relates particularly to moral obligation , and before discussing the

rule, it is important to determine the meaning of moral obligation since there must be a clear idea of what

constitute moral obligation, so what does we mean by moral obligation?

Judges rarely discuss the meaning of moral obligation, and even the Restaters were confused about the

term when they said “There seem to be no consensus as to what constitute a “ moral obligation”19 but it is

clear that not all promises are clear”. Of course not all promises are enforceable, but what is moral

obligation anyway?

I believe that the courts do not get involved in determining the meaning of moral obligation since it is a

daunting task, and prefer to leave this matter to every judge to decide what is considered moral obligation

and what is not considered. That will result in lack of consensus on the meaning of "moral obligation.

18
LON L FULLER & MELVIN ARON EISENBERG 180 (1st ed. 1996).
19
SCOTT & LESLIE, supra note 11 at 188

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B. Exceptions to the Doctrine of Consideration

They say that for every rule there are exceptions, so what are the exceptions to the doctrine of

considerations and is there an agreement on them ?

The Common law has developed exceptions to doctrine of consideration, and these include the following:

subsequent promises to pay antecedent debt20, subsequent promises in consideration of some act

previously done by the promise at the request of the promisor21, and subsequent promises where past

action has created a moral obligation on the part of the promisor to perform the promise22.

Some of the exceptions outlined above are not real exceptions especially those that are provided by

statute23, furthermore courts have divergent views on these exceptions and there is no clarity of what are

the real exceptions and when they should be applied24.

C. Analysis of Section 86 of the Restatement (Second) of Contracts

From reading Section 86, we can say the theory of promissory restituation25 is endosed by the

Restatment (Second) of Contracts, but does this thoery solve the problem in realtion to past consideration

in determining when promises must be enforced? I believe that section 86 is vaguely worded and

controversial to a very large extent and this is evidence by the wording of that section “unjustly enriched”,

but what we mean by that?

Let us examine what has been said in the American Law Institute, 42d Annual Proceeding 273- 74 (1965)

when they started drafting section 86.

“We stand quite a lot to phrase this as precisely as we could. I think you cannot make it more precise-

certainly not very much precise - than we have it in the black letter”26.

20
Ford v. Sweet, 224 Va. 374, 297 S.E.2d 657, 1982 Va. LEXIS 306 (1982)
21
Shindler v. Marr & Associates, 695 S.W.2d 699, 1985 Tex. App. LEXIS 6760 (Tex. App. Houston 1st Dist. 1985)
22
SAMUEL WILLISTON , A TREATISE ON THE LAW OF CONTRACT 211 (4th ed. 1992).
23
Very few states have dealt with the problem of past consideration and tried to have provisions for it, see N.Y. Gen. Obligation L S.5-1105, and
California. Civ. Code s 1606. See also E. ALLAN FARNSWORTH, CONTRACTS 60, (3d ed 1999).
24
I have reviewed American case law that deals with the exceptions to the doctrine of consideration , and found that there is no agreement on all
of them while some judges apply them others do not, I have not included the case law due to the limited number of pages we are allowed.
25
Restitution is an “equitable remedy that restore a person to the position they would have been in if not for the improper action of another”,
available at http://www.lectlaw.com/def2/q044.htm, (last visited on October 14, 2006).
26
SCOTT and LESLIE, supra note 11 at 188

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I found this quote from the drafters’ evidence that there is no clarity in their minds about moral obligation

and past consideration. it is argued that it is very difficult to codify the American case law on past

consideration as it vary with the opinion of each judge , and this will be evident by the cases that I will

discuss in the next section.

In conclusion, I agree with professor Fransworth when he said that the boundary between enforceability

and unforceability is likely to remain uncertain, as suggested by the Restatement (Second) qualification “

to the extent necessary to prevent injustice” and he further added that “ in view of the negligible impact of

the moral obligations cases on commercial life, however, this uncertainty is likely to cause concern in the

market place”27. But what does he mean that it will cause uncertainty in the market place? Why especially

the commercial life?

Let us see that from the case law that can provide the best evidence to the practical life.

D. American Case Law

I provide below some conflicting cases on moral obligation in general when their application

yield undesirable conflicting results, and introduces considerable incoherence into the law.

In the case of Dementas v. Estate of Tallas28, the plaintiff was a good friend of the deceased Tallasand he

did many favors to him. The deceased left a memo in Greek for the plaintiff to pay him a $ 50,000.

Plaintiff translated it into English and notarized it with his own seal, and gave to the deceased, but

unfortunately he died before approving the English version.

The plaintiff filed a claim against the estate of the deceased to recover the amount; the appeal court

affirmed the decision of district court finding that there was no sufficient consideration to show that the

diseased promise is enforceable. The decision of the court is highly questionable, although the court

found that there was a promise and the circumstances were fair, justified to merit its execution, it did not

enforce it.

27
FRANSWORTH , Supra note 21 at 62
28
De Mentas v. Estate of Tallas, 764 P.2d 628 (Utah Ct. App. 1988).

8
In Estate of Wessels29, a written promise was made by a father of a daughter to pay not only for the

service made to his daughter, but also for the ten years preceding the execution of the document. The

court enforced the promise on the ground that the father and daughter had an oral agreement and the

recitation of the services and the manner and timing of compensation all were sufficient30.

There are many decisions with similar facts and circumstances, but different results, the discussion of

which is out of the scope of this paper31.

E. Scholary Views
If there are matters in law that legal scholars do not agree on so much that is for sure the main

theme of the paper, the rule of past consideration. I argue below that scholars have a divergent views on

the theoretical structure basis of moral obligation and the past consideration rule.

According to one scholar, the restitution is the basis justification of enforcing moral obligation and the

recovery based on promises for benefit received is superfluous32. Another scholar argues that the promise

theory is the justification for enforcing moral obligation33.Professor Geoffrey Waston argues that a

reformed restitution doctrine might be the plausible basis for recovery in moral obligation cases34.

Les us get back to Gilmore argument, and see its relevance to our discussion of consideration in general

and the past consideration rule.

Professor Gilmore had no plans to mourn the death of consideration or the classical theory of

which is a part, he was apparently content to illustrate the waning of the requirement35. This is because it

is easy to say that the consideration doctrine is not working well rather than saying that the doctrine of

consideration should be abolished all together.

The evidence submitted above show us that the courts have struggled with the idea of consideration, and

particularly with moral obligation, and how the drafter of the Restatement (Second) of Contracts have

tried to determine when courts have to enforce the material benefit rule. This in truth proves Gilmore‘s

29
In re Estate of Wessels, 203 Ill. App. 3d 1080 (Ill. App. Ct. 1990)
30
Mark B. Wessman, Should We Fire the Gatekeepers? An Examination of the Doctrine of Consideration, 105 U. Miami L. Rev. 45 (1993)
31
For example the decisions of the courts in connection with the employment and the promises to pay extra compensation to employees. See for
example, Kelsoe v. International Wood Products, Inc., 588 So. 2d 877 (Ala. 1991).
32
Jean Fleming Powers, Rethinking Moral Obligation, 54 Me.L. Rev. 1 (2002).
33
Steve Thel and Edward Yorio, THE PROMISSORY BASIS OF PAST COSIDERATION, 78 Va. L.Rev. 1045 (1992).
34
Watson, supra note 15 at 1801.
35
Wessman, supra note 28 at 48.

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argument that the requirement of consideration is waning and it has been absorbed into the other branches

of law.

As for the general idea of the professor Gilmore that the death of contract, I do not agree at all with him,

the fact that contracts are flourishing each day proves that he was wrong in his conclusion about contracts

in general, but he was right in directing our attention to the problems consideration face.

Conclusion

The tension between the law on the one hand and morality on the other is evidenced in this paper and that

tension has been there for very long time and still there. But did courts or legal scholars over those years

of legal thinking provide us with a clear principle or rule of when we should enforce moral obligations

and we should not?

The result and conclusion of this paper is not compelling as it restates the position that the rule of past

consideration is undefined and unclear and that further investigating into the matter proves that the notion

of moral obligation and past consideration is yet to be determined by scholars, courts and lawyers.

Professor Gilmore was right when he pointed out that contract law is being absorbed into other fields of

law, when we have examined and analyzed section 86 of the Restatement (Second) of Contracts, we

found that that argument is true to a certain extent since the Restatement (Second) of contracts turn to

restitution to determine when a promise must be enforced based on past consideration.

10