Chapter 14: Consideration Flashcards
Consideration
Promise or performance (something of value) that the promisor demands as the price of the promise
The bargained-for exchange between two parties in the contract
Without this bargained for exchange might have an agreement, but not a contract
Benefit-detriment approach
Way of analyzing a consideration
What benefit is received by the promisor/ detriment incurred by the promisee
Benefit-detriment approach
Way of analyzing a consideration
What benefit is received by the promisor/ detriment incurred by the promisee
Gifts as consideration
Promises to make a gift are not enforceable under law of contracts. (No bargained for exchange)
No completed gift may be rescinded for lack of consideration
Gifts of property for consideration of “love and affection” do not constitute a contract
Charitable gifts as consideration
Promises to finance building projects for charitable purposes are binding to the extent that the donor should reasonably realize that the charity was relying on the promise to pay for the undertaking. (Some states require proof that promise was relied upon)
Williams v. Ormsby
- couple living together in house owned by ormsby
- after separation Williams refused to move back in unless Ormsby granted her 1/2 interest in the property (document was then signed granting this)
- when she ended the relationship she sought specific performance of the contract.
- judgement for Ormsby, the only consideration she offered was “love and affection” and that is insufficient consideration for a contract
Adequacy of consideration
Generally equity/friends of consideration not considered by the court. Parties can make whatever bargain they choose
Except if consideration “so grossly inadequate as to shock the conscience of the court”
Disappointment does not effect binding nature of a contract
Dohrmann v. Swaney
- Dohrmann agreed to incorporate the name Rogers into the names of his children in exchange for his neighbor’s condo (with contents and $4m)
- only added the names after the kids middle names
- while not up to court to consider relative values of consideration this didn’t (per agreement) perpetuate the Rogers’ name and was considered “so grossly inadequate as to shock the conscience of the court”
Forbearance as consideration
Forbearance from a legal right may be sufficient consideration for a contract
(Relinquishment of the right to sue for damages, forbearance from debt collection)
Illusory promise
A promise that in fact does not impose any obligation on the promisor
Because the one party is not actually bound creates a situation where the the other party isn’t bound either
Mutuality of obligation
Wherein both parties to a contract have created obligations to the other with their respective promises
Required for a bilateral contract to to be enforceable
Cancellation provisions to a contract
Contracts made include provisions to cancel the agreement by giving appropriate notice by a specified date.
Does not create illusory promise unless it creates a free way out of the contract without limitations
Cancellation provision
Crossing out of a part of an instrument or a destruction of all legal effect of an instrument, whether by act of party, upon breach by other party, or pursuant to agreement or decree of court
Conditional promise
Promise that depends on the occurrence of a specified condition in order for the promise to be binding
Creates enforceable contract on the existence of condition
Preexisting legal obligation
A promise to do something one is already under legal obligation to do is not consideration
Not is a promise to refrain from doing something one has no right to do in the first place
Preexisting legal obligation and completing of contract
- if completion of contract was already in the original contract then any additional consideration demanded in order for contract to be completed is not generally binding
- if completion includes a promise to do something not within original contract promise for additional consideration for completion is binding
Exceptions for good faith adjustment and contract for sale of goods
Good faith adjustment (Preexisting legal obligation and completing of contract)
Current trend that courts enforce second promise to pay a higher amount for original contract when there are extraordinary circumstances causes by unforeseeable difficulties and then additional amount is reasonable to the circumstances
Contract for sale of goods (Preexisting legal obligation and completing of contract)
Any modification make in good faith by the parties to the contract is binding without regard to existence of consideration for modifications
Crookham & Vessles v Larry Moyer Trucking
- C&V contracted Moyer to dig drainage ditches for railroad extension
- ditch walls collapsed and had to be re dug
- Moyer wouldn’t re-dig unless promised extra money. C&V promised but after digging refused to pay
- judgement against Moyer. Contract already provided for finishing ditches, no obligation to pay additional money just because work was harder than anticipated
Angel v. Murray
- Murray (as director of finance for city) hired Moyer to remove trash
- on addition of 400 dwellings to city Moyer requested pay increase, city council approved
- Angel + other citizens sues saying contract obligated Murray to perform work at previous rate
- original decision for plaintiffs. City + Murray appealed and appeals court decided for city + Murray
- because modification was made due to unanticipated circumstances BEFORE contract was fully performed on either side modification was fair & equitable- a good faith adjustment that is enforceable
Compromise and release of claims
- partial payment made in satisfaction of admitted (liquidated) debt is not consideration for a promise to discharge the balance due to preexisting legal duty to pay debt
- payment before debt is due IS consideration (as creditor was not yet entitled) as is an addition made to a partial payment
Unliquidated debt
Debtor and creditor have bona fide dispute over amount owed/ existence of debt
Payment by the debtor if less than the amount claimed by creditor is consideration for an agreement to release or settle claim
In case if good faith dispute over amount of debt If creditor accepts and cashes a check for less than the amount they assert is owed but that states “paid in full” and references the disputed transaction, cashing check = discharging entire debt
Composition of creditors
Agreement among creditors that each shall accept a part payment as full payment in consideration of other creditors doing the same
Consideration between creditors
Also goes for extension of due dates - forbearance is consideration for forbearance
Past consideration
Something that has been performed in the past which, therefore, cannot be a consideration for a promise made in the present
Presence of a bargained for exchange is not present when a promise is made in exchange for a past benefit
Moral obligation
In most states promises made to another based on “moral obligation” lack consideration and are not enforceable. Considered gratuitous promises
Services performed by one family member on behalf of another family member are presumed to have been rendered in obedience to a moral obligation without expectation of compensation
Exceptions to consideration
Traditional consideration is not required in:
- charitable subscriptions: pledging to finance construction for charitable purposes, reliance of chatting on pledge is deemed substitute for consideration
- uniform commercial code: abolishes requirement for consideration in certain situations
- promisory estoppel
Promissory estoppel
Doctrine that a promise will be enforced although it is not supported by consideration when the promisor should have reasonably expected that the promise would induce action or forbearance of a definite and substantial character on the part of the promised and injustice can be avoided only by enforcement of promise
- promisor makes promise that lacks consideration
- promisor intends/should reasonably expect that promisee will rely on the promise
- promisee relies on the promise in definite & substantial manner
- enforcement of the promise is the only way to avoid injustice
Damages to the amount to restore promisee to position they would be in if had not relied on promise
Aka doctrine of detrimental reliance
Chrysler Corp v. Chaplake holdings
- chaplake owned Portman Lamborghini, exclusive distributer of lambos in UK
- when Lambo sold to Chrysler, production was expanded and Portman/Chaplake were told that they only way to keep their exclusive distribution contract was to expand, so they expanded
- then economic downturn = Lambo not expanding as expected, led to erosion of Portman’s profits. Portman brought suite on promissory estoppel theory
- judgement for Portman/Chaplake
- promise was made by Chrysler that Portman would only retain exclusivity if expanded
- Chrysler should reasonably have suspects Portman would rely on promise
- Portman was given consistent messaging from all Chrysler top execs. So their reliance was not unreasonable
- promissory estoppel would prevent injustice
- damages awarded Portman and Chaplake to cover cost of expansion (not lost profits)
