Chapter 13: Consideration

Question 1

Consideration:

Answer 1

Something of value received or promised.

Question 2

2 requirements of consideration:

Answer 2

1. must be of legally sufficient value
2. “Bargained-for-exchange”

Question 3

To be of legally sufficient value

Answer 3

1. a promise to do something that one has no prior legal duty to do
2. The performance of an action that one is otherwise not obligated to undertake
3. Forbearance.

Question 4

To be a bargained-for-exchange:

Answer 4

1. Must provide basis for the bargain
2. Something of legal value must be exchanged between the parties
3. Promise must be either: Legally detrimental to the promisee or Legally beneficial to the promisor

Question 5

Adequacy of Consideration (or when a party enters into a bad deal)

Answer 5

the court typically will not question the fairness of the bargain if it is legally sufficient. The law does not protect a person from entering into an unwise contract.

Question 6

Agreements which lack consideration (3)

Answer 6

1. Preexisting Duty
2. Past Consideration
3. Illusory Promises

Question 7

Preexisting Duty

Answer 7

when a person already has a legal duty to perform an action, there is no legally sufficient consideration.

Question 8

For Rescission and a new contract, where does preexisting duty fall?

Answer 8

Two parties can mutually agree to cancel their contract to the extent it is executory and return to their pre-contract positions, or make a new contract. However, if a preexisting duty is found to exist, any new contract will be invalid for lack of consideration.

Question 9

why is Past Consideration considered no consideration?

Answer 9

when a person makes a promise in return for actions or events that have already taken place, there is no consideration. You can’t bargain for something that has already taken place.

Question 10

Examples of Past Consideration been deemed no consideration.

Answer 10

Covenant not to compete where an employee’s employment is not sufficient consideration for the agreement because the individual is already employed. However, if new consideration were to accompany the covenant not to compete, this new consideration could be considered sufficient.

Question 11

Requirements for a covenant not to compete to be enforceable.

Answer 11

1. Reasonable protection of employer’s business
2. Reasonable duration period
3. Reasonable geographic restrictions.

Question 12

Illusory Promise:

Answer 12

the promisor has not promised to do anything. When a person expresses contract terms with such uncertainty that the terms are not definite.

Question 13

Examples of an illusory promise:

Answer 13

Option-to-cancel clauses: when the promisor has the option to cancel the contract before performance has begun, then the promise is illusory, but they can reserve the right to terminate after performance has begun.
Requirements and Output Contracts: uncertain performance can cause issues with consideration.

Question 14

Requirements Contract:

Answer 14

parties agree that the buyer will purchase all designated goods that buyer needs from the seller.

Generally valid since there is consideration.

Question 15

Output Contract:

Answer 15

parties agree that the buyer will purchase from the seller all of the designated goods that the seller produces (the seller’s output)

Party must act in good faith and not overproduce simply because of the contract. If it is not in good faith, the court may determine it is invalid.

Question 16

Is Love and Affection in exchange for a promise sufficient?

Answer 16

No.

Question 17

Settlement of claims can be:

Answer 17

Accord and Satisfaction
a Release
or a Covenant not to Sue

Question 18

Accord

Answer 18

an agreement which debtor offers to pay a lesser amount than the creditor is owed.

Question 19

Satisfaction

Answer 19

when the accord is accepted by the creditor.

Question 20

Release

Answer 20

a form of settling a claim which bars any further recovery beyond the terms stated in the release.

They forfeit their right to pursue a legal claim against the other party.

Question 21

Release is binding if:

Answer 21

given in good faith

Stated in signed writing (might be required)

Accompanied by consideration.

Question 22

Covenant not to Sue:

Answer 22

similar to a release, but it does not bar recovery in other ways or for other, valid, claims.

Question 23

Promissory Estoppel

Answer 23

Detrimental Reliance: applies where there is no consideration.

Similar to a quasi contract, but in a quasi contract no promise was made at all.

You must first check to see whether a contract exists before arguing promissory estoppel. (aka whether consideration exists)

Question 24

In order for promissory estoppel to apply:

Answer 24

1. Must be a clear and definite promise
2. Promisor must have expected that the promisee would rely on the promise
3. Promisee reasonably relied on the promise
4. Promisee’s reliance was definite and resulted in a substantial detriment
5. Enforcement of the promise is necessary to avoid injustice.

Question 25

Is a Promise to repay debts barred by Statute of Limitations?

Answer 25

generally a creditor must sue within the specified period, but a debtor who promises to pay a previous debt makes an enforceable promise and in effect extends the statute of limitations.

The promise needs no consideration.

Question 26

Are charitable subscriptions or a pledge to contribute enforceable?

Answer 26

A pledge is traditionally unenforceable due to lack of consideration, but the courts may make an exception and invoke promissory estoppel.