Restatement (Second) of Contracts
§ 71 Requirement of Exchange; Types of Exchange
Summary
Section 71 defines consideration as requiring a bargained-for exchange. To constitute consideration, a performance or return promise must be bargained for, meaning it is sought by the promisor in exchange for the promise and given by the promisee in exchange for that promise.
The section identifies three types of performance that can serve as consideration: an act other than a promise, a forbearance (refraining from doing something one has a legal right to do), or the creation, modification, or destruction of a legal relation. This broad definition reflects the law’s flexibility in recognizing various forms of value exchange.
Critically, § 71(2) emphasizes the bargain element: the performance or return promise must be bargained for. A gift conditioned on some action by the donee is not consideration because the action is not bargained for but merely a condition of the gift.
Key Elements
- 1Performance or return promise must be bargained for
- 2Bargained for means sought by the promisor in exchange for the promise
- 3Consideration can be an act, forbearance, or change in legal relations
- 4The performance must be given by the promisee in exchange for the promise
- 5Conditional gifts do not constitute consideration
Practical Application
Courts apply § 71 in every case where consideration is disputed. Common scenarios include employment disputes where employers argue that continued at-will employment constitutes consideration for a non-compete agreement, settlement agreements where one party claims the other’s promise to forbear from suit was illusory, and family arrangements where a promise is conditioned on the promisee’s action.
Exam Relevance
Section 71 is heavily tested. Look for fact patterns involving promises conditioned on action (is it a bargain or a conditional gift?), past consideration (not valid because it was not sought in exchange), and illusory promises (where one party retains unlimited discretion). The key question is always: was the performance or return promise bargained for?