Key Takeaways

  • A bargained-for exchange is the foundation of contract consideration: each party must give something of value in return for the other’s promise.
  • Ordinary gifts are not enforceable because they lack this mutual exchange.
  • Morality alone does not create legal obligations; courts look for actual consideration, not just moral duties.
  • Past consideration (something already given or done) cannot support a new contract unless exceptions apply, such as pre-existing debts.
  • A legal detriment exists when someone promises to do, or refrain from doing, something they are not otherwise obligated to do.
  • Courts distinguish between enforceable bargains and unenforceable promises by examining intent, reciprocity, and the presence of consideration.
  • Bargained-for exchange ensures fairness and reciprocity, preventing one-sided obligations.

Elements of an offer in contract law impact all parties involved. A performance is bargained for when the promisor seeks it in exchange for a promise that was already promised to him. The promisee will then give it, but only in exchange for the promise being fulfilled. The bargain requirement of this type of deal is used to distinguish between what are ordinary gifts and what are enforceable promises.

Can an Ordinary Gift Be Enforced?

When an ordinary gift is promised, it cannot be enforceable because it is not bargained for. Also, there are no legal ramifications if the promise is not fulfilled. For example, if John promises to buy Tom a car, and then does not hold true to this promise, there is no legal ramification involved. Now, if John promises to buy Tom a car in exchange for a promise on Tom's part, then legal ramification does exist, and the promise can be enforced.

It's important to note that a benefit is gained by the promisor when a performance of a bargain exists, which is what makes it a valid consideration. When performance of a precondition exists, however, this means there is no benefit for the promisor, and there is no consideration.

For example, Tom promises his sister that he will help raise her dog if she allows it to move in with him. After she pays for the expense of having the dog transported to Tom's house and remodels a bedroom in the home for the dog, Tom changes his mind. Tom is not legally bound to keep his promise. There was never any consideration given. The expenses incurred by his sister took place before Tom could even begin fulfilling his promise to raise the dog.

Why Bargained-for Exchange Matters in Contract Law

A bargained-for exchange is the linchpin that makes promises legally enforceable. For a contract to be valid, both parties must receive a benefit and incur a detriment—something that goes beyond mere generosity. Courts analyze whether the promisor sought something specific in return for their promise and whether the promisee gave it in reliance on that expectation.

For example, promising to pay a neighbor $100 if they mow the lawn represents a bargained-for exchange: the promisor receives the benefit of a service, while the promisee gains money. By contrast, simply promising $100 as a gift lacks mutual inducement and thus cannot be enforced.

Do Morals Impact Contract Enforcement?

Although one might think that morals play a large part in contract law, they do not. In fact, morals lead to no type of obligation and do not serve as legal consideration.

Sometimes there are agreements established between two parties which go something like "Sue promises to give Tom something of extreme value as long as he will give her $1.00." In the eyes of the court, this is often frowned upon because it proves that a gift is covering up some type of bargained-for exchange.

When a promisor is attempting to oppose enforcement of a contract, most courts will allow him or her to try and prove that the consideration outlined in the contract was not ever given. When a nonpayment of a consideration, that was recited in a contract, has been made, this can be used as evidence that a bargained-for exchange did not take place.

Court Interpretation of Bargained-for Exchange

Courts distinguish between true bargains and disguised gifts. A nominal payment, such as $1 for a luxury item, is often scrutinized to determine whether a genuine bargained-for exchange exists or if the consideration is merely a pretense. While courts usually do not question the adequacy of consideration, they will invalidate agreements where no real exchange of value occurs.

Additionally, courts look for reciprocal inducement—that is, each party’s promise must be motivated by the other’s. This ensures contracts are fair, not one-sided, and prevents enforcement of promises that amount to moral obligations rather than enforceable bargains.

What Is Past Consideration?

Past consideration is not a consideration. Basically, this means that a person cannot promise someone something in exchange for something that the promisor has already been given. For example, if Tom agrees to pay Sally $500 a week for 10 years worth of work after the work has been performed, then the benefit to the promisor has already been received. And the promise being promised is only going to take place after the benefit has already been received, meaning there wasn't a true exchange that took place.

There are some exceptions to the past-consideration-is-not-a-consideration rule:

  • Pre-existing debt: If someone promises to pay a pre-existing debt, and this debt has been excused because of a defense that is technical in nature, then the consideration is enforceable.
  • New promises for benefits received: This can be proved on the grounds of moral obligation and is often seen enforced as a means to prevent injustice.

Examples of Bargained-for Exchange in Practice

Bargained-for exchanges can take many forms, including:

  • Promises for services: A contractor promises to build a deck, and the homeowner promises to pay $5,000.
  • Promises for promises: An employer offers a promotion if the employee agrees to relocate.
  • Forbearance agreements: A creditor agrees not to pursue collection if the debtor provides partial payment.

What matters is that each side enters the agreement expecting to gain something and give up something in return. This reciprocity distinguishes enforceable contracts from mere moral or social commitments.

What Is a Legal Detriment?

There is another requirement that must be met in order for something to be considered as a valid consideration - it must in some way or another constitute a legal detriment to the person who it is being promised to. When legal detriment takes place, there has been a promise made that a person is not legally obligated to perform, this can mean that a person is promising to refrain from doing something that he or she has the legal right to do, such as smoking. The main point is that the promisor is promising to do something that he or she doesn't legally have to do.

Limits of the Bargained-for Exchange Doctrine

While the bargained-for exchange is central to contract law, there are limits. Courts may refuse to enforce agreements that involve:

  • Illusory promises, where one party’s promise is so indefinite it provides no real obligation.
  • Nominal consideration, where the exchange is a mere formality lacking true value.
  • Agreements against public policy, such as contracts to commit illegal acts.

These limitations ensure that only genuine, reciprocal agreements are recognized as enforceable contracts.

Frequently Asked Questions

1. What is a bargained-for exchange?

It is the mutual inducement of promises or performances where each party provides something of value in return for the other’s promise.

2. Why can’t ordinary gifts be enforced as contracts?

Gifts lack mutual exchange. Since no detriment or return benefit exists, courts do not treat them as enforceable contracts.

3. Can past consideration ever be valid?

Generally no, but exceptions include reaffirmation of debts or promises supported by moral obligation to prevent injustice.

4. Do courts care about the fairness of the exchange?

Courts rarely evaluate whether the exchange is equal in value, but they require that a genuine bargained-for exchange exists.

5. What are some limits on bargained-for exchange?

Illusory promises, nominal consideration, and agreements violating public policy cannot be enforced even if they appear to involve an exchange.

If you need help understanding elements of an offer in contract law, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.