What is the point of requiring consideration in a contract?

Question

If a contract where Bob gives Alice a peppercorn and she gives him an airplane will be enforced by a court if one of them tries to back out, what's the point of not enforcing a contract where Alice promises Bob the plane with no consideration from Bob?

Answer 1

Lon Fuller, in a classic article titled "Consideration and Form" posited three purposes of consideration:

• an evidentiary function,
• a cautionary function, and
• a channelling function.

He quotes from Austin to say, consideration can be "evidence of the existence and purport of the contract, in case of controversy".

The requirement for consideration can also just slow down the transaction, give the party time to consider their actions more carefully before committing to obligations. Other formal requirements can have a similar effect (requirement for a contract to be in writing, in certain domains, for example).

He argues that the requirement for consideration provides a useful "channelling" function, in that it assists in carving out as a class those promises which people will be held to be bound to. Most of the article is devoted to explaining the ways in which this channelling function produces a worthwhile categorization.

As for your specific question about peppercorn or "nominal" consideration, Fuller writes:

The proper ground for upholding these decisions would seem to be that the desiderata underlying the use of formalities are here satisfied by the fact that the parties have taken the trouble to cast their transaction in the form of an exchange. The promise supported by nominal consideration then becomes enforceable for reasons similar to those which justify the enforcement of the promise under seal.

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In your example though, I actually don't see the contract issue. You ask, "what's the point of not enforcing a contract where Alice gives Bob the plane with no consideration from Bob?" But Alice can absolutely choose to gift an airplane to Bob. For a gift, there merely needs to be transfer, donative intent, and acceptance. That does not involve a contract law issue. The transfer would be complete and there would be no further obligation either side could be in breach of. If you rephrase your question to "what's the point of not enforcing a contract where Alice promises to give Bob the plane with no consideration from Bob?" then the contract issue appears: does Alice now have an obligation to give Bob the airplane or otherwise be in breach?

Answer 2

The consideration doctrine has become more and more lenient over time giving rise to the "peppercorn theory" that courts will not second guess the amount of consideration in a transaction, except under the separate legal doctrine of unconscionability.

Historically it was more rigorous (essentially for the purpose of denying one sided and unfair agreements legal effect, see also here), but close cases argued for enforceability of voluntarily entered into agreements and promises, and so the doctrine eroded. But the consideration doctrine has never been eliminated in entirely in most common law jurisdictions.

Now the doctrine effectively means that executory promises to make gifts will not be enforced unless reliance compels their enforcement under the doctrine of promissory estoppel.

Legal systems other than the common law legal system often do not require consideration or reliance at all for a contract to be enforceable.

For example, the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG), which is a codification of contract law in the case of certain international transactions, for example, dispenses with this element of common law contract formation entirely a requires merely an offer and acceptance to form a contract. See Part II of the Treaty. As Article 23 of the Treaty explains:

A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.

This rule is the norm in civil law countries.

Answer 3

If Alice gives property to Bob (whether an airplane or a paperback book or a stick of gum), title passes and Alice cannot simply undo the transaction.

It is where Alice promises to give Bob something in the future, or makes some other promise of future action or inaction, that the promise is not a binding contract in the absence of any consideration from Bob.

For instance if Alice gives Bob a car and promises to pay the insurance and gas bill for the next two years, with no consideration, the promised payments are not enforceable in the absence of consideration.

However, in some cases, if Alice has led Bob to reasonably rely on the promise, it may be possible for Bob to enforce compliance under a theoryn of promissory estoppel. When this will apply varies from one jurisdiction to another.