BAR FLASHCARDS - C3 Consideration

Question 1

CONSIDERATION

Answer 1

Courts will enforce a promise as a contract only if it is supported by consideration or a substitute for consideration.

Question 2

ELEMENTS OF CONSIDERATION

Answer 2

Basically, two elements are necessary to constitute consideration:
(1) a bargained-for exchange between the parties; and
(2) legal value, meaning that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.

Question 3

Bargained-For Exchange

Answer 3

This element of consideration requires that the promise induce the detriment and the detriment induce the promise. There is no bargain involved (meaning, no consideration) when one party gives a gift to another.

Question 4

Bargained-For Exchange: Act or Forbearance by Promisee Must Be of Benefit to Promisor

Answer 4

An act or forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form a contract if it benefits the promisor.
The benefit, however, need not be economic (for example, the gratification of influencing the mind of another is sufficient).

Question 5

Bargained-For Exchange: “Past” or “Moral” Consideration

Answer 5

Past consideration is NOT consideration.
A promise given in exchange for something already done does not satisfy the bargain requirement.

Beware of questions that use the word “consideration” to refer to something already done, as in “In consideration of your having done X, I promise you $1,000.” Under the
general rule, this promise is not enforceable because the promise is given in exchange for past acts.

Question 6

Bargained-For Exchange: “Past” or “Moral” Consideration - Exceptions

Answer 6

Where a past obligation is unenforceable because of a technical defense (for example, the statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, under the modern trend, if a past act benefited the promisor and was performed by the promisee at the promisor’s request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.

Question 7

Promises for promises

Answer 7

This is consideration

Question 8

Promise for performance

Answer 8

This is consideration

Question 9

Promise for forbearance

Answer 9

This is consideration

Question 10

Adequacy of Consideration

Answer 10

In general, courts do not inquire into the adequacy or fairness of consideration. Even a MERE peppercorn will suffice.
However, if something is entirely devoid of value (token consideration), it is insufficient.
Sham consideration (insig- nificant sum recited in the contract) is also insufficient if not paid.
But note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.

Question 11

Legal Benefit and Legal Detriment

Answer 11

Legal detriment results if the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do. A legal benefit is the reverse. It is forbearance or performance of an act that the promisor was not legally entitled to demand or expect.

Question 12

Preexisting Legal Duty Not Consideration

Answer 12

Traditionally, performing or promising to perform an existing legal duty is insufficient consideration.

Question 13

Contract modifications: Consideration

Answer 13

Under common law, any contract modification needs some consideration. This is the Pre-existing legal duty rule.

Question 14

Pre-existing legal duty rule.

Answer 14

Need new consideration to modify common law contract. SOmeone asking for more money to do the exact same thing they already agreed to do for less money.

Question 15

Pre-existing legal duty rule: EXCEPTIONS

Answer 15

The preexisting legal duty rule is riddled with exceptions. There is consideration if:
— New or different consideration is promised;
— The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
— The preexisting duty is owed to a third person rather than to the promisor;
— There is an honest dispute as to the duty; OR
— There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.

Question 16

There is consideration for a modification to the contract if (pre-existing legal duty rule exceptions):

Answer 16

— New or different consideration is promised;
— The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
— The preexisting duty is owed to a third person rather than to the promisor;
— There is an honest dispute as to the duty; OR
— There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.

Question 17

Consideration needed to modify sales of goods contracts

Answer 17

NO consideration is neeed to modify sales of goods contract.
A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.

Question 18

payment of a smaller sum than due on an existing debt

Answer 18

No consideration generally for the release of the debt, so invalid.
Although payment of a smaller sum than due on an existing debt is generally not sufficient consideration for a promise by the creditor to discharge the debt, courts will attempt to avoid this result by applying the above exceptions.
Thus, you should check the facts for new or different consideration given (for example, payment earlier than required or payment in stock instead of cash); this change in performance could make the payment of a smaller amount sufficient consideration.

Question 19

Modification of Contracts

Answer 19

Under general contract law, a contract can’t be modified unless the modification is supported by new consideration.
The modern view, however, permits modification without consideration if:
(1) the modifi- cation is due to circumstances that were unanticipated by the parties when the contract was made and
(2) it is fair and equitable.

Question 20

UCC modification of contracts

Answer 20

Under the UCC, consideration isn’t necessary to modify; all the parties need are good faith promises of new and different terms.
But watch out for good faith - a seller trying to grub more money isnt good faith.

Question 21

Discharge of Debts

Answer 21

A debt can be discharged through an accord and satisfaction (see discussion in Module 6). In general, an accord must be supported by consideration. Even if the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it is suffi- cient if the new consideration is of a different type or if the claim is to be paid to a third party. In addition, a debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfac- tion if there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration.

Question 22

Forbearance to Sue

Answer 22

A promise to refrain from suing on a claim constitutes consideration if the claim is valid or the claimant in good faith believed the claim was valid.

Question 23

Exception to consideration: Promissory estoppel

Answer 23

Promisorry estoppel = PROMISE + PERFORMANCE

Question 24

MUTUAL AND ILLUSORY PROMISES—REQUIREMENT OF MUTUALITY

Answer 24

Consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties). If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises (for example, a party must use their best efforts) to infer mutuality.

Question 25

common examples of contracts that satisfy the mutuality requirement:

Answer 25

a. Requirements and output contracts
b. Conditional promises, unless the condition is entirely within the promisor’s control
c. Contracts where a party has the right to cancel, if that right is somehow restricted (for example, a party must give 60 days’ notice)
d. Exclusivity agreements (for example, exclusive marketing agree- ments) because the court will find an implied promise to use best efforts
e. Voidable promises (for example, one made by an infant)
f. Unilateral and option contracts, and
g. Gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor

Question 26

A valid requirements or output contract term will say, ___ or ___ but a term such as ___ or ___ is illusory.

Answer 26

A valid requirements or output contract term will say, “all the widgets I require” or “all that you produce,” but a term such as “all the widgets I want” or “all you want to sell me” is illusory.

Question 27

Right to Choose Alternative Courses

Answer 27

A promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor.
The promise will not be found illusory if:
(1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or
(2) a valuable alternative (that is, one involving legal detriment) is actually selected.

Question 28

PROMISSORY ESTOPPEL OR DETRIMENTAL RELIANCE

Answer 28

Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.
A promise is enforceable if necessary to prevent injustice if:
a. The promisor should reasonably expect to induce action or forbearance, and
b. Such action or forbearance is in fact induced.

Question 29

Promissory estoppel =

Answer 29

PROMISE + PERFORMANCE. Foreseeable detrimental reliance in the form of some sort of performance can make the promissor’s promise enforceable even if it lacks consideration at the outset.

Question 30

Promissory estoppel ELEMENTS

Answer 30

Promissory estoppel
- Promise made
- (reasonable foreseeable detrimental reliance)
- Justice requires enforcement of the promise.

Question 31

Promissory estoppel equals….

Answer 31

Promissory estoppel equals promise plus performance.

Question 32

If the elements for promissory estoppel are present, some jurisdictions will award…

Answer 32

If the elements for promissory estoppel are present, some jurisdic- tions will award expectation damages (that is, what was promised under the contract), but the Second Restatement provides that the remedy “may be limited as justice requires.” Thus, a court following the Second Restatement might award reliance damages (that is, whatever the promisee spent in reliance on the promise), which usually is something less than expectation damages, but theoretically can exceed them.

Question 33

Promissoryt estoppel is ONLY the right answer if…

Answer 33

There is NO CONSIDERATION.