Contract Law: Consideration, Restitution, Fraud


Within the framework of contract law, consideration is the notion responsible for outlining the link between the benefit received by the promisor and a service or product that is given up by the promisee in return. There is an alleged certain price that one would have to pay in order to get what they wish for as soon as possible. Despite the visual simplicity of the concept, law-related situations involving considerations often turn out to be rather complex because goods or services, promised or delivered, can go beyond a specific legal detriment (McKendrick 145). For instance, one cannot legally regulate friendship or pride because these are not forbearances from the promisee. According to Knapp et al., there is no need for an actual detriment, as the only relevant condition is that the given conditions do not represent a viable loss for the promisee (109). From the point of view of consideration, a legal benefit for one party is a legal detriment to the other, with the only difference that the promisor should not expect any tangible benefits from the promisee.

Another important point that has to be made about consideration is that it does not have to be associated with economic or moral variables because the degree of a certain bargain is evaluated on the basis of legal conditions. In other words, authorized considerations do not represent a requisite variable because there may be situations where choices made by the promisor and the promisee will be aligned against events that are never going to happen (Knapp et al. 111). Irrespective of what one of the parties gives up as a result of the agreement, consideration only takes on the legal side of the question and omits any other additional variables that could be linked to the process of exchange between parties. Benefits or rights involved in the process of consideration do not have to be of equal monetary or socially-accepted value either. The idea is that both the promisor and the promisee should reach an agreement without exchanging too much or too little, depending on their individual interests.

There are two essential elements affecting the notion of consideration that has to be covered in this paper. The first is the existence of a legal detriment, also known as the “price” of the agreement. Some of the courts even see these conditions as sufficient for ruling out a certain verdict after gaining access to the information on the bargain (McKendrick 149). The second element that has to be addressed when discussing consideration is the presence of the bargaining process that would touch upon the pre-specified legal detriment. Therefore, the court has to answer the question of whether the promisor intended to provide something in return for the promise: for instance, a forbearance or an official act (Taylor and Taylor 72). Both of the elements described above have to be included in the discussion on the topic of consideration because otherwise, it would be most likely for the court to operate with an insufficient amount of information related to the case. Every small variable has a strong impact on the outcomes of consideration proceedings because promisors and promisees often overlook the importance of their interactions.

For example, if there is a pending offer where a relatively expensive product is expected to be exchanged for a cheap service, there are no tangible obstacles to claiming that this agreement is in line with adequate consideration. Both parties are giving up something in order to receive benefits from the other party, which is the utmost result of most interactions governed by the bargaining process (McKendrick 151). The economic adequacy of consideration should not be an obligatory condition for most courts, as they are mostly reaching verdicts depending on whether an agreement was present. It was specified by McKendrick that the presence of consideration could be assessed with the help of identifying the fact of a bargain, omitting any economic, social, or personal factors (159). A more in-depth evaluation of the bargain should only be available to the parties involved in the consideration case, as no other party would be able to assess the reasonability behind the terms specified in the contract.

Based on the information above, it may be claimed that the adequacy of consideration does not fall under the jurisdiction of court inquiries. One-sided deals do not happen too often, but the common nominal consideration is what has to be included in the contract in order to protect the parties involved from any unexpected consequences (Taylor and Taylor 75). An exchange of fair terms is a logical step that numerous organizations and individuals ignore due to the lack of legal experience, creating a loophole for more well-versed parties that might take advantage of such lopsidedness. Therefore, fair terms of the contract should be established by the parties themselves and not established as a result of the post-conflict court decision (Knapp et al. 117). The irrevocable nature of the said option might also be lifted if the agreement was not reached throughout an unreasonably long period of time, causing all parties involved in the agreement to get exposed to certain negative outcomes.

The nominal presence of consideration, in most cases, generates outcomes that cannot be perceived in any other way rather than a formality expected to be approved by both parties. It ultimately leads to most nominal considerations becoming false and giving the upper hand to one of the parties despite the fairness of the initial claim (Knapp et al. 115). At the end of the day, most courts would be lawfully pressed to enforce the contract because of the formal nature of the given recital and the absence of any specific objections to the proposed claim. Possible falsifications of oral testimony should be recurrently prevented with the help of written documents where all the sections and particularities of an agreement would be listed (Taylor and Taylor 73). Nevertheless, most US courts do not seem to be uniform on such claims and choose to deliver the consideration even if it is nominal so as to remain objective under the conditions of any given agreement.

Restitution and Unjust Enrichment

Within the framework of contract law, restitution claims are often perceived as tort and contract claims. The biggest difference between the three is that restitution claims are more of remedial actions rather than causes (Knapp et al. 308). There may be a multitude of reasons causing parties to seek similar remedies, with the most common of them being unjust enrichment. The latter has to be addressed by parties involved in the contract because it relates to the law of obligations. While being closely associated with tort and contract laws, restitution is not related to the law of property. As it is mentioned in Edelman and Bant’s book, restitution does not represent a popular proprietary remedy, but many parties still tend to resort to it (83). The alleged proprietary nature of restitution cases was negated recently in order for the courts to emphasize the personal element of restitution. In other words, a restitution claim is necessary in order to force the defendant into paying the required amount of money instead of protecting the plaintiff in the first place.

This particularity of restitution has to be addressed by judges for two essential reasons. The first is the possibility of a scenario where the defendant turns bankrupt during or even before the hearings, as it allows the claimant to assume a much firmer position (Blum and Bushaw 407). Yet, the latter would have to point to a specific asset and focus on recovering it instead of merely attempting to represent a monetary claim that would respond to the economic value of possible restitution. The second reason is that the scenario could go vice versa and provide the claimant with a similarly competitive advantage where they would assert a proprietary claim to protect themselves (Taylor and Taylor 252). Accordingly, this might become a lead to a less evident unjust enrichment case that has been covered by another party. For example, if embezzlement took place, the court would have to force the claimant to recover all the possible increases in value in addition to the initial claim.

Restitution is somewhat of a broad term that covers different circumstances and responds to different variables in a variety of ways. The most common condition for the advent of restitution is unjust enrichment because of transfers coupled with an unjust tactic that allowed one of the parties to take serious advantage of another (Poole et al. 46). With the claimant’s intentions being vitiated, the presence of unwarranted factors cannot be considered unexpected or irrational. Both these ideas have to be considered by judges because they are interchangeable and might easily cause confusion among all the parties involved in the legal proceedings. When looking into the concept of unjust enrichment, the court should make sure to find an objective premise to a straightforwardly recognizable case of enrichment (Knapp et al. 308). To put it in other words, the value of provided services or payments should be highlighted by the claimant, offering the court an extended outlook on the case. For instance, an objective enrichment could be an entrepreneur setting up their website’s payment system in a way where customers would have to pay for the same product twice.

However, even if the fact of payment becomes established, the recipient would have to exert an additional effort to ensure that the value provided by another party was unjustly smaller than it might have been expected from any other potential service solicitor. According to [], this may also be known as the case of subjective devaluation that can be witnessed across different cases involving quantum meruit (Taylor and Taylor 396). For instance, if there has been any extra work done by a consultant that had to analyze contracts and prepare a thorough report, the greater benefit for the recipient would not have to be covered monetarily in order to reimburse the consultant, as it were their error. In the presence of a statutory requirement, the case would become even easier because there would be listed the number of contracts ready for review. The obligations paving the way for unjust enrichment have to remain in line with certain factors that have to be pre-established if both parties expect to prevent the given issue.

Irrespective of the size of enrichment, it has to be unjust because otherwise, the court is not going to have any grounds for restitution. This is especially true in the case of specific deals where the asserted unfairness is not going to be enough to rule out a different decision in court (Edelman and Bant 89). There are pre-existing categories of claims, and the claimant should make sure that their appeal falls under the given conditions. One of the most popular categories is a mistake because accidental payments are rather conventional and do not represent something extraordinary or unexpected. Even if negligence is involved, restitution should still be reached. Another factor that has to be considered is duress, where one of the parties resorts to illegitimate pressure or direct threats (Blum and Bushaw 409). The ultimate element of discussion is the undue influence that is created owing to the defendant abusing their relationship with the claimant and making the existing trust disappear.

An exceptional element of unjust enrichment that has to be considered separately is the failure of consideration. If the benefits received by one of the parties cannot be validated by evidence and only rely on the claim and one’s intention, it will be reasonable to pay more attention to the defendant’s intentions and see if they were able to actually abuse their relationship with the claimant (Poole et al. 91). The failure of consideration forces the claimant to accept that it had been their mistake that led to the unjust enrichment, ultimately making it reasonable and lawful. This particular situation makes it crucial for all parties to analyze the relationship between the contract and the fact of one’s unjust enrichment. It should also be rightfully considered in court that contract vitiation often resembles instances of unjust factors or vice versa (Knapp et al. 310). There are no legal factors making it safe to say that contracts could be a viable alternative to restitutions. With contractual obligations in place and all the payments intact, at least one of the parties involved in the conflict would be able to refute the subjective claims.

Ultimately, restitution should be considered one of the most important concepts in contract law because it plays numerous roles and contributes to even the most complex cases in court. The so-called restitution for wrongs, for example, touches upon the process of the claimant gaining access to additional opportunities of protecting the gains that have already been enjoyed during a potential breach (Edelman and Bant 93). The claimant’s assertions, therefore, would revolve around issues similar to the ones reviewed in contract or tort laws, with the only difference being that the claimant is not going to seek the recovery of damage-related losses. This particular remedy is rather unusual, and it does not get utilized in courts often, but its exceptional nature should be remembered as one of the key predictors of restitution (Blum and Bushaw 409). The most common defense against a restitution claim is a contract-based exclusion of restitution options that forces both parties to agree on the terms of the bond and forget about the law of restitution.

Statute of Fraud

The concept of the statute of frauds is a specific requirement that has to be followed by all parties involved in the contract and executed in writing. The most common areas covered by the statute of fraud include the majority of agreements where certain goods are at stake, with land sales or contracts signed for more than one year getting the leading positions on the list of the most common causes of frauds (Knapp et al. 353). An important condition that has to be met in order for the contract and the statute of fraud to remain active in the overall worth of the offered goods not exceeding $500. At first, the statute of fraud was adopted as an extension within the common law, remaining an unwritten law for quite some time. The ultimate formalization of the legislation, nevertheless, created premises for many states changing their approach to the statute of frauds and the outcomes of written agreements (McKendrick 246). For example, breach of contract cases started involving the statute of frauds in the form of a valid defense but only when a tangible contract was there to prove every claim.

Affirmative statements released by the claimant would have to go through the impact of the burden of proof, causing the plaintiff to prove the existence of a contract and share its details with the judges. This is an important topic of discussion because it shows that legal binding may only be possible in the case of written contracts that are signed in accordance with all the directions mentioned in US law (Glynn et al. 107). One of the most famous examples of cases where a statute of fraud could be signed is marriage, as there are more than enough potential gifts that would inflict certain damage upon at least one of the parties in the case of a break-up. Another venue of research for contract law scholars is the existence of contracts that have to be signed for a prolonged period that evidently exceeds at least 365 days (McKendrick 247). One more idea worth mentioning is the relation between promises of payment and statutes of frauds where an estate’s debt payments coming from the estate funds cannot be subject to the statute of frauds.

A specific amount of money might also become a good reason for applying the statute of fraud, as there has to be a contract signed by all stakeholders involved in order to ensure that the debt is going to be paid by a specific individual or organization. There have to be special considerations introduced to overcome the situation where a simple written contract would not have enough power to avert one of the parties from exploiting their authority (Knapp et al. 355). The statute of fraud may also be aligned against several important exceptions that relate to the possibility of making oral agreements associated with financial outlays or hiring a person to perform specific duties. When a service has to be provided in several steps, the intended plaintiff is going to cover the claim at least partially, as they will also be responsible for the mistake and its consequences (McKendrick 249). A similar situation may occur in the case of improvements that have to be made on the basis of oral agreements revolving around one’s possessions and cancellation of the order.

When there is a problem with the contract that results in one of the parties remaining superior, it may be important for the court to see how the outcomes of the case would impact each of the actors involved in legal proceedings. Glynn et al. regarded this concept as promissory estoppel that has to be introduced in order to limit the number of situations where visual misunderstandings would cause a party to prevail without any specific objective background (107). The importance of fundamental fairness across the subject of contract law cannot be ignored because the latter has to cope with substantial injustice without putting another party at a disadvantage as a result as well. Partial performance, therefore, has to be perceived as one of the indicators of contract responsibilities not being followed. This would give a chance to one of the parties to prove that the contract existed and confirm their aspirations and needs to the court (Knapp et al. 354). If not addressed in a timely manner, this could become a rather damaging experience that would force one of the parties into an inescapable scenario where they lose their assets.

Even so, not all written documents are automatically protected by the statute of fraud and its derivatives. It should be noted that there have to be numerous attributes nurtured and respected for the claimant to consider themselves following the needs of the agreement and responding to the legal requirements as well (McKendrick 248). Statutes of frauds are not required to be written in a formal format either, leaving it up to the parties to decide how they want to paint the contract. The lack of formal language would not be a problem for the parties signing the contract, as it might even contain a list of essential bullet points and nothing else. The only essential condition that has to be respected by the responsible parties is to identify the subject of the contract and highlight it (Knapp et al. 354). Cryptic credentials have to be removed from the final draft in order to help parties reach an understanding in terms of the goals they pursue. Every essential point of the contract has to be spelled out in order to solidify the agreed price, service provision, or any other aspect of the contract.

In the case where one of the parties does not sign the contract, the statute of fraud leaves enough room in certain cases for another party to rely on contract requirements if the party that is being charged has signed the required document. As there are no restrictions associated with formal documents, it may be safe to say that material terms cannot be overlooked when it comes to the correspondence between parties and their relationship (Glynn et al. 108). For an enforceable contract, parties could also negotiate a unique price and ensure that the future exchange is going to satisfy all parties involved in the contract. An email from the party receiving the service would be enough for the court to check the actuality of the contract under review. In this case, a binding contract might be represented by an oral agreement that has been reached earlier and a work-related invoice available to both sides (Knapp et al. 351). The statute of frauds limits the most evident cases of authority exploitation with the help of written confirmations available to both sides of the given contract.

Remedies for Breach of Contract

Liquidated Damages

Commercial contracts are often paired with liquidated damage clauses in order to prevent any negative consequences of breach of contract. The key reason behind organizations turning to liquidated damage clauses is the presence of certain obligations that revolve around the preset sum of compensation for the legal requirements being either violated or respected, depending on the case (Blum and Bushaw 911). The amount of remuneration is always fixed and included in the contract in written form. There are crucial advantages inherent in liquidated damage clauses that can be exploited by both parties. Combined with the principle of the freedom of contract, this clause could significantly influence the commercial context and make it easier for parties to mediate risks and reach a viable agreement (Taylor and Taylor 314). However, there will always be respective penalties going hand in hand with the liquidated damages clause that is going to emerge as soon as a violation is going to be spotted.

It may also be considered a practical remedy because it goes beyond the specified sum of remuneration and offers at least one of the parties a set of additional advantages that can be accessed in real-time. The losses do not have to crystallize, as the injured party has the right to restore the damages at the expense of common law action (Taylor and Taylor 317). There are no specific obligations forcing any of the parties to mitigate damages as soon as the latter has been identified. The key issue for this type of clause in contract law is the presence of remote damages that cannot be evaluated on the spot. If at least one of the parties is under-compensated, it will also cause additional problems for stakeholders involved in the breach (Blum and Bushaw 914). There may be sensible provisions where the liquidated damages clause would cover most of the potential threats in a reasonable manner. Organizations that pick this type of clause tend to have no problem restoring their relationships with parties that have displayed poor performance in the past.

Stipulated Damages

The stipulated damages clause is a valuable part of contract law as well because it opens prospects for strict liability and allows parties to mitigate breach of contract during its earlier stages. The rationale behind launching the stipulated damages clause is to estimate damages in court and leave them superior to the expectancy damages (Glynn et al. 982). As the actual damage is reviewed by the judges, parties are willing to evaluate the possible outcomes of breach of contract and see how they could take advantage of the situation. The interests of the two parties are opposed in the case of stipulated damages because of the price of the contract and the presence of certain local knowledge that affects each of the parties differently. The potential process of mitigation relates to rewarding any stipulated damages to the party that has been able to prove its non-profitability and remain the one at whose expense all the damages had been mitigated (Cooter and Porat 99). Any competitive advantages should be linked to the contractual agreement, respectively.

The risks involved in the stipulated damages clause can be aligned against the expectancy damages because exceptionally strict liability is not what parties might expect from their actions. A heavily encouraged stipulation creates premises for additional mitigation efforts required to ensure that all the damages will be reimbursed to the interested parties (Cooter and Porat 100). Instead of litigating over mitigation, parties might agree on additional damage assessments and oppose themselves to the evaluations completed by another party. Not only this develops rivalry between parties, but it also creates scenarios where they have more opportunities to reach a peaceful agreement and gain access to stipulated reimbursements (Glynn et al. 984). Most of the incentive effects linked to the mitigation process and stipulated clauses are leading to innovative solutions that often appeal to both parties affected by a breach of contract. All the solutions are going to be unbundled to protect the opponents from giving more damage to each other during the process of mitigation and impairment stipulation.

Punitive Damages

The concept of punitive damages is also important for contract law because it protects parties from criminal sanctions, as most of the activity occurs under civil conditions. One of the most common ways to utilize punitive damages in contract law is to apply disciplinary action to the malicious (intended) actions performed by the defendant (Himma 59). Since contract law revolves around different types of compensation, the presence of punitive damages eventually removes the notion of punishment from the equation. The only point that has to be considered is the damages being rewarded in the case of the contract breach being a tort at the same time, as it uncovers the opportunities for recovering viable damages. Almost all of the states permit the application of punitive damages in the case of tort law when physical harm is caused, a person’s property is illegally taken, or one’s character is defamed with serious claims (Cooter and Porat 223). In some cases, contract breaches may also be tortuous and, therefore, allow for punitive damages to be introduced.

For instance, if there is collateral being sold despite a loan contract and the collateral itself is a security, it will be considered a breach of contract in court. Even if the intended purchaser was in good faith, the outcomes of such actions would be considered invalid by court officials at all times (Cooter and Porat 225). The tort of conversion creates enough room for punitive damages and their further awarding, but the behaviors of individuals and organizations in such cases are hardly predictable. There is a rather high chance of the court making a mistake when allocating punitive damages and trying to fix them by law. The problem with this type of damages is that the intended judge would always award them in accordance with their own discretion, leaving richer parties exposed to more expenses at the end of the day (Himma 62). This is why punitive damage rewards can be remitted in a reasonable manner by responsible judges in order to reach a more balanced verdict.

Works Cited

Blum, Brian, and Amy Bushaw. Contracts: Cases, Discussions, and Problems. 2017. Wolters Kluwer Law & Business.

Cooter, Robert D., and Ariel Porat. Getting Incentives Right: Improving Torts, Contracts, and Restitution. Princeton University Press, 2016.

Edelman, James, and Elise Bant. Unjust Enrichment. 2016. Bloomsbury Academic.

Glynn, Timothy et al. Employment Law: Private Ordering and Its Limitations. 2019. Wolters Kluwer Law & Business.

Himma, Kenneth. Coercion and the Nature of Law. 2020. Oxford University Press.

Knapp, Charles et al. Problems in Contract Law: Cases and Materials. 2019. Wolters Kluwer Law & Business.

McKendrick, Ewan. Contract Law: Text, Cases, and Materials. 2020. Oxford University Press.

Poole, Jill, et al. Contract Law Concentrate: Law Revision and Study Guide. 2017. Oxford University Press.

Taylor, Richard, and Damian Taylor. Contract Law Directions. 2019. Oxford University Press.

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LawBirdie. "Contract Law: Consideration, Restitution, Fraud." March 27, 2023.