>> This module will cover
the basic requirements for a contract.
Not all promises are legally enforceable.
Implicitly, Restatement section 1 tells us this
when it defines a contract
as an enforceable promise or set of promises.
If all promises were enforceable,
we could just define a contract
as a promise or a set of promises.
Common sense also tells us
that not all promises are enforceable.
Otherwise, if you promised to call someone on Tuesday
and you forgot, they could sue you for breach of contract.
To distinguish a legally enforceable promise--
a contract-- from what is called
a "social" or "donative promise,"
meaning an effective promise to make a gift,
we begin with section 17.
The general rule is found in subsection 1.
Note that this section includes two separate concepts--
manifestation of mutual assent,
often shortened to just "mutual assent,"
and consideration.
We're going to look at each of these concepts individually
and then consider how they work together to form a contract.
Manifestation of mutual assent.
Section 18 defines manifestation of mutual assent.
Frankly, this definition doesn't really help us all that much.
In Unit 3, we're going to explore the concept
of mutual assent in more depth.
But for now, keep this in mind--
the requirement is for a manifestation of mutual assent.
That is, a visible sign of assent.
For example, a handshake is often a visible sign
that two people have come to mutual assent.
Another common way to manifest assent
is for two people to put their signatures
on a written contract.
Their signatures are the visible sign
that each is assenting to the promises
made in the written contract.
However, shaking hands or signing on the dotted line
are not the only ways to manifest assent.
The question of whether both sides
have manifested assent to the agreement
ordinarily only become important
when a dispute arises at an early stage
in the parties' relationship.
A typical situation raising the issue
is where one party believes that both sides have agreed
to the contract, while the other party believes
that the two sides are still in negotiations.
Consideration.
There's an old joke that says,
"Law is a foreign language
"that uses ordinary English words in extraordinary ways."
"Consideration" is a perfect example of this.
A lay person would hear that word
and think of a respectful way to be treating others.
But consideration is also a term of art in the law.
In the language of law, "consideration"
refers to that which distinguishes
a legally enforceable promise
from one which is merely social or donative.
Section 71 introduces us to this concept of consideration.
In subsection 1, it states...
Subsection 2 elaborates on this.
So, section 17 tells us that in order
for there to be a promise which is legally enforceable--
that is, a contract-- we have to have consideration.
And section 71, subsection 1,
tells us that consideration is a return promise
or performance that is bargained for.
And finally, section 71, subsection 2,
tells us that something is bargained for
when it is what is sought in exchange.
So, let's give an example of how this works.
Think of a seller who wants to sell a widget.
A widget is a thingamajig
and it's often used in contract hypotheticals.
The seller's willing to sell a widget
if someone promises to pay $500.
The seller and a buyer enter into negotiations.
The seller promises to sell the buyer the widget
if the buyer promises to pay $500.
And the buyer so promises.
Is there consideration for the seller's promise to sell?
Well, is there a return promise?
Yes.
The buyer has promised to pay $500.
Was that return promise bargained for?
Yes.
The seller wanted the promise of $500
in exchange for his promise to sell.
Note that there is also consideration
for the buyer's promise to pay $500.
The buyer is willing to promise to pay $500
in exchange for the seller's promise to sell a widget.
When something is bargained for,
it is often referred to as the "quid pro quo."
This Latin phrase translates as, "this for that."
Another way to think about it
is that the price of the seller's promise to sell
is the buyer's promise to pay,
and the price of the buyer's promise to buy
is the seller's promise to sell.
We could visualize the concept this way.
Think of a table with you and me sitting on opposite sides.
On the table, in front of each of us, is a box.
I say to you, "I'll give you my box if you give me yours."
And you say, "Okay."
Each of us is willing to give up our box
in exchange for the other's box.
So, my box is the consideration for your promise
and your box is the consideration for my promise.
This concept of "bargain for"
is distinct from the concept of dickering.
Sometimes, students have looked at the widget hypothetical
and concluded erroneously that the promise to pay $500
was not bargained for because there was no bargaining
in the sense of dickering over the price.
The seller said, "I'll sell you the widget for $500."
And the buyer said, "Okay."
There may not have been any dickering in this exchange
but the reciprocal promises to sell
and to pay were bargained for.
That is, each promise was made
in exchange for the reciprocal promise.
The concept of "bargain for" is important to understanding
the concept of consideration.
Because it distinguishes contracts--
that is, legally enforceable promises--
from social or donative or gift promises.
For example, at Christmas or Hanukkah,
you may give me a gift and I may give one in return.
But that exchange of gifts is not bargained for.
That is, you did not offer me a gift
in order to get a gift in return from me.
In other words, I did not bargain for a gift from you.
Now, you may have expected a return gift from me
and there may be social consequences,
such as shaming or shunning,
if I fail to give you a gift in return.
But we did not agree that you would give me a gift
if and only if I gave you a return gift.
We did not bargain for the exchange of gifts.
To sum this up, remember that a gift
can never be consideration.
The two are mutually exclusive.
The sale of the widget is a simple transaction
between two parties exchanging two promises.
Sophisticated commercial transactions
can involve multiple parties exchanging multiple promises.
Contract lawyers often diagram commercial transactions
to help them understand the exchanges.
So here's an example of such a diagram
for this simple transaction.
To summarize, in order to find a contract--
that is, a legally enforceable promise or set of promises--
we must find that the parties have agreed--
that is, manifested their mutual assent--
to a bargained for exchange of promises
or a promise for a performance.
That is an exchange of consideration.