Ch 13 Consideration Flashcards
What Is Consideration?
ALWAYS ALLOW CONSIDERATION IN YOUR CONTRACTS
☐ Offer☐ Acceptance☑ Consideration☐ Legality☐ Capacity☐Consent☐Writing
- Consideration: The inducement, price, or promise that causes a person to enter into a contract and forms the basis for the parties’ exchange
-Consideration is the inducement, price, or promise that causes a person to enter into a contract and forms the basis for the parties’ exchange.
There are two basic elements of consideration
1. Value. onsideration requires legal benefit to the promisor or legal detriment to the promisee.
2. Bargained-for-exchange. Consideration involves reciprocity. The parties must have bargained for whatever was exchanged and struck a deal: “If you do this, I’ll do that.” If you just decide to deliver a cake to your neighbor’s house without her knowing, that may be something of value, but since you two did not bargain for it, there is no contract and she does not owe you the price of the cake.
What Is Value?
(Act, Forbearance, Promise to Act or Forbear)
- Act: Any action that a party was not legally required to take in the first place
- Forbearance: Refraining from doing something that one has a legal right to do
- A promise to do (or not do) something in the future counts as consideration
What Is a Bargained-For Exchange?
The parties must bargain for the consideration.
- bargained for: When something is sought by the promisor and given by the promisee in exchange for their promises
-Courts do not analyze the economic terms of an exchange to determine whether consideration was adequate.
What Consideration Is Not
(Illusory Promises, Preexisting Duty, Past Consideration
Of course, exceptions are the spice of law, and these consideration rules provide us with a rackful.
courts have created three exceptions to the basic rule of consideration: illusory promises, preexisting duties, and past consideration.
- Illusory Promises
- An illusory promise is not consideration.
Exception: Requirements and Output Contracts under the UCC.
-requirements contract, the buyer agrees to purchase 100 percent of her goods from one seller.
-an output contract, the seller guarantees to sell 100 percent of its output to one buyer, and the buyer agrees to accept the entire quantity.
-Section 2-306 expressly allows output and requirements contracts in the sale of goods.
- Preexisting Duty
-If someone provides a service that she is already obligated to do, that act does not count as consideration.
Exception: Additional Work.
-When a party agrees to do something above and beyond what he is obligated to do, his promise is generally valid consideration.
Exception: Modification.
-Under the common law, additional consideration is necessary for a modification of contract terms because it is unfair for one party to get something more, while the other does not
.
-UCC §2-209 provides:
+An agreement modifying a contract within this Article needs no consideration to be binding.
+A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded.
-Rescind:To cancel
Exception: Unforeseen Cirumstacnes
(…Past Consideration)
A completed act cannot be the basis for consideration.
-Exception: Parties Agree in Advance.
Past consideration is valid consideration when the parties agree that it will be in advance.
-Exception: Promissory Estoppel.
promissory estoppel is a theory courts use to enforce promises that are not contracts. It applies when a defendant makes a promise, which the plaintiff reasonably relied on, and enforcing that promise is the only way to avoid injustice.
Special Consideration Cases
We have seen what consideration is and what it is not. Now we look at some special cases that involve two very familiar four-letter words: debt and work.
Settlement of Debt
(Liquidated Debt, Unliquidated Debt: Accord and Satisfaction)
[Liquidated debt:] A debt in which there is no dispute about the amount owed.
-In cases of liquidated debt, if the creditor agrees to take less than the full amount as full payment, her agreement is not binding.
* Exception: Different Performance.
-There is one important exception to this rule. If the debtor offers a different performance to settle the liquidated debt, and the creditor agrees to take it as full settlement, the agreement is binding
[Unliquidated Debt: Accord and Satisfaction]
- unliquidated: A debt that is disputed because the parties disagree over its existence or amount
A debt is unliquidated for either of two reasons:
1. The parties dispute whether any money is owed or
2. the parties agree that some money is owed but dispute how much.
Such a compromise will be enforced if:
-The debt is unliquidated,
-The parties agree that the creditor will accept as full payment a sum less than she has claimed, and
-The debtor pays the amount agreed upon.
- accord and satisfaction: A completed agreement to settle a debt for less than the sum claimed
- Accord and Satisfaction by Check.
Most accord and satisfaction agreements involve payment by check. UCC §3-311 governs these agreements, using the same common law rules described earlier
Agreements Not to Compete
In a non-compete agreement, an employee promises not to work for a competitor for some time after leaving the company.
Moral Consideration
Some promises should not be broken. No one wants to live in a society where donors to charity go back on their word or promises to widows and orphans are ignored.
