This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If A, a party to a contract which is executory on his side, does not receive what he was promised by B in consideration for his promise, the question is frequently presented whether A can use such facts as discharging him from liability upon his executory contract or whether he is still liable to B upon his covenants and his only remedy is an action against B for damages. This is a question of the effect of breach, and it has been discussed, from this standpoint, in the preceding sections.1 It is also discussed in many cases as failure of consideration.2 The term "failure of consideration" is perhaps not a good one to use in this connection, since it is likely to be confused with "want of consideration"; and the two ideas have nothing in common except a superficial resemblance. Consideration is an essential element of a simple contract;3 and if consideration is wanting, there never was any contract, and accordingly no legal obligation of a contractual nature rested upon either party by reason of such transaction. The term "failure of consideration," on the other hand, imports the original existence or supposed existence of a consideration which has failed to materialize in accordance with the terms of the contract, remaining a broken promise instead of turning into an actual performance. In cases of this sort, the contract was originally valid, as is shown by the fact that in case of failure of consideration the party who is not in default may, in many cases, treat such failure of consideration as discharging him from the covenants on his part to be performed,4 or as giving him a right to recover damages for the breach of such contract, which may greatly exceed the amount which he has actually expended in performance,5 or as giving him the right to recover the value of his performance.6 If no contract had ever existed, he might have had the right to recover the value of his performance on the theory of payment by mistake or payment through fraud,7 but he could not have recovered damages, and it would not have been necessary for him to invoke such failure of consideration as the ground for discharging him from further performance under the contract, since the contract would have had no legal effect from the outset. The existence of failure of consideration has been denied on the theory that if the party gets what he bargained for, the consideration can not be said to fail;8 while, if he does not receive what he bargained for, there is no consideration.9 As a criticism of the use of "failure of consideration" to indicate breach, this is correct enough, although it is not in accordance with the actual usage of terms, either by the courts or by text writers; and it probably does not mean to exclude the cases, of which there are many, in which the consideration consists of a promise which the promisor eventually fails to perform. Failure of consideration may assume either of two forms: (1) A may make his promise in consideration of an executory promise made to him by B, and B's failure to perform such executory promise may then constitute the failure of consideration; (2) A may make his promise in consideration of the transfer to him by B of certain property or other legal rights, which B agrees to be in existence and to possess certain qualities, and which prove not to exist or not to possess such qualities.
Kansas. Loveland v. Kibbey, 103 Kan. 292, 173 Pac. 976.
Kentucky. Big Run Coal Co. v. Employers' Indemnity Co., 163 Ky. 696, 174 S. W. 25.
Maine. Lombard Water-wheel Governor Co. v. Great Northern Paper Co.,
101 Me. 114, 6 L. R. A. (N.S.) 180, 63 Atl. 555.
Maryland. Havre De Grace Real Estate & Power Co. v. Havre De Grace,
102 Md. 33, 61 Atl. 002. Massachusetts. International Textbook Co. v. Martin, 221 Mass. 1, 108 N. E. 469.
New Jersey. Kinney v. Federal
Laundry Co., 75 N. J. L. 497, 68 Atl. 111.
New Mexico. Glaser v. Dannelley, 23 N. M. 593. 170 Pac. 63.
New York. Tracy v. Albany Exchange Co., 7 N. Y. 472.
Vermont. Tichnor v. Evans, 92 Vt. 278, L. R. A. 1918C, 1025, 102 Atl. 1031.
Washington. Crampton v. McLaughlin Realty Co., 51 Wash. 525, 21 L. R. A. (N.S.) 823, 90 Pac. 586.
Wisconsin. Bibelhausen v. Bibel-hausen, 159 Wis. 365, 150 N. W. 516.
1 See Sec. 2026 et seq.
2 See Sec. 2078 et seq.
3 See Sec. 512 et seq.
The doctrine of failure of consideration involves, in some cases, questions of fraud, misrepresentation or mistake.10 In other cases the question presented is primarily one of the power of equity to rescind contracts and conveyances.11
4See Sec. 2980 et seq.
5 See ch. LXXXV11.
6 See ch. LXXXV111. 7 See Sec. 1548 et seq.
8 See Sec. 2978.
9 Hurlburt v. Kephart, 50 Colo. 353, 115 Pac. 521.
10 See Sec. 216 et seq.
11 See ch. XC.