(B)(2) Adequacy of Consideration - subjective value, preexisting duty rule, past consideration, executive contract, & modification

Question 1

adequacy of consideration in general

Answer 1

the basic concept of legal detriment is that there must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced

Question 2

challenging contract on the grounds of inadequate consideration

Answer 2

in general, a party cannot challenge a contract on the grounds that the consideration is inadequate

Question 3

is a different in economic value between the items exchanged grounds for finding that a contract did not exist due to inadequate consideration?

Answer 3

no

Question 4

adequacy of consideration - subjective value

Answer 4

the benefit to the promisor does not need to have an economic value—regardless of the objective value of an item, if the promisor wants it, the giving of it will constitute adequate consideration

Question 5

preexisting-duty rule - common law

Answer 5

at common law, a promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform (i.e., there is no legal detriment)

Question 6

preexisting-duty rule - common law: giving something in addition to what is already owed

Answer 6

if the promisor gives something in addition to what is already owed (however small) or varies the preexisting duty in some way (however slight), most courts find that consideration exists

Question 7

preexisting-duty rule example #1: a borrower knows that he owes a lender $1,000 today. the borrower promises to repay the loan if the lender promises to lend the borrower an additional $100—is there consideration?

Answer 7

no - the borrower has not provided consideration for the lender’s promise

Question 8

preexisting-duty rule example #2: a borrower knows that he owes a lender $1,000. the borrower offers to pay the lender $900 today if the lender agrees to forego the additional $100. the lender accepts the offer—is there consideration?

Answer 8

yes - the borrower has provided the lender with consideration for the lender’s promise

Question 9

preexisting-duty rule - exception for a third party

Answer 9

there is an exception to the preexisting-duty rule when a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform—under the exception, the party’s promise to the third pary is sufficient consideration

Question 10

preexisting-duty rule exception for a third party example: C contracts with P for P to install plumbing in a house built by C for H. C subsequently becomes insolvent and walks away from the project. H contracts with P and P promises to pay P the same amount P would have received from C if P installs the plumbing—does P’s completion of the job constitute consideration?

Answer 10

P’s completion of the job constitutes consideration for the promise by H, even though P was already contractually obligated to C to do the work

Question 11

past consideration

Answer 11

under the common law, something given in the past is typically not adequate consideration because it could not have been bargained for, nor could it have been done in reliance upon a promise

Question 12

past consideration example: A is drowning, and B dives in and saves A. grateful to have been saved, A promises B $500—is this enforceable?

Answer 12

under the common-law approach, there is no consideration, and the promise is therefore unenforceable—it is based on a mere moral obligation arising out of past conduct

Question 13

past consideration modern trend

Answer 13

there is a modern trend (adopted by the Second Restatement), however, toward enforcing some such promises under material benefit rule

Question 14

executory contract

Answer 14

an executory contract is a contract whose terms are to be performed by both parties at a later date or in an ongoing manner

Question 15

executory contract example

Answer 15

a rental agreement that calls for monthly payments over a period of time cannot be performed all at once; the renter is required to make monthly payments while the owner is required to allow possession each month; similarly, a construction contract that requires payments upon reaching specified milestones cannot be performed all at once and is therefore considered “executory”

Question 16

executory contracts - adequate consideration

Answer 16

in executory contracts, the exchange of promises is adequate consideration

Question 17

does an obligation to make a one-time payment in the constitute an executory contract?

Answer 17

typically no - an obligation to make a one-time payment in the future typically does not make a contract executory

Question 18

modification general rule (common law)

Answer 18

at common law, modification of an existing contract must be supported by consideration

Question 19

enforceability of agreements to modify contracts (common law) (3)

Answer 19

agreements to modify a contract may still be enforced if:
(i) there is a rescission of the existing contract by tearing it up or by some other outward sign, and then entering into a new contract whereby one of the parties must perform more than she was to perform under the original contract;
(ii) there are unanticipated difficulties, and one of the parties agrees to compensate the other when the difficulties arise if the modification is fair and equitable in light of those difficulties; or
(iii) there are new obligations on both sides

Question 20

modification standard of review (common law)

Answer 20

the modification must rest in circumstance not anticipated as part of the context in which the contract was made but need not have been completely unforeseeable

Question 21

modification standard of review factors (common law)

Answer 21

when such a reason is present…
- the relevant financial strength of the parties,
- the formality wit which the modification is made,
- the extent to which it is performed or relied on,
- and other circumstances
may be relevant

Question 22

modification (UCC)

Answer 22

under Article 2, no consideration is necessary to modify a contract; however, good faith is required—thus, if one party is attempting to extort a modification, it will be ineffective under the UCC

Question 23

good faith

Answer 23

requires honesty in fact and fair dealing in accordance with reasonable commercial standards

Question 24

who does good faith and the fair dealing prong apply to? (UCC)

Answer 24

the definition of “good faith” no longer limits the fair dealing prong of the rule to merchants—the same definition of good faith applies to all parties, both merchants and nonmerchants alike

Question 25

modification under UCC example: if a party demands an increase in price because the other party has no choice but to agree - will the courts enforce the modification?

Answer 25

the courts will invalidate such a bad-faith modification

Question 26

modification - installment contracts (UCC)

Answer 26

in installment contracts, the waiver may be retracted by providing the other party with reasonable notice that strict performance is required

Question 27

party benefitting to modification - consideration (UCC)

Answer 27

generally, a party benefited by a condition under a contract may orally waive that condition without new consideration

Question 28

modification - installment contracts retraction (UCC)

Answer 28

the retraction is allowed unless it would be unjust because of a material change of position by the other party in reliance on the waiver