Chapter 14: Consideration

Question 1

Consideration

Answer 1

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

Question 2

Benefit-detriment approach

Answer 2

Way of analyzing a consideration

What benefit is received by the promisor/ detriment incurred by the promisee

Question 3

Benefit-detriment approach

Answer 3

Way of analyzing a consideration

What benefit is received by the promisor/ detriment incurred by the promisee

Question 4

Gifts as consideration

Answer 4

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No completed gift may be rescinded for lack of consideration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

Question 5

Charitable gifts as consideration

Answer 5

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)

Question 6

Williams v. Ormsby

Answer 6

• 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

Question 7

Adequacy of consideration

Answer 7

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

Question 8

Dohrmann v. Swaney

Answer 8

• 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”

Question 9

Forbearance as consideration

Answer 9

Forbearance from a legal right may be sufficient consideration for a contract

(Relinquishment of the right to sue for damages, forbearance from debt collection)

Question 10

Illusory promise

Answer 10

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

Question 11

Mutuality of obligation

Answer 11

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

Question 12

Cancellation provisions to a contract

Answer 12

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

Question 13

Cancellation provision

Answer 13

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

Question 14

Conditional promise

Answer 14

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

Question 15

Preexisting legal obligation

Answer 15

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

Question 16

Preexisting legal obligation and completing of contract

Answer 16

• 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

Question 17

Good faith adjustment (Preexisting legal obligation and completing of contract)

Answer 17

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

Question 18

Contract for sale of goods (Preexisting legal obligation and completing of contract)

Answer 18

Any modification make in good faith by the parties to the contract is binding without regard to existence of consideration for modifications

Question 19

Crookham & Vessles v Larry Moyer Trucking

Answer 19

• 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

Question 20

Angel v. Murray

Answer 20

• 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

Question 21

Compromise and release of claims

Answer 21

• 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

Question 22

Unliquidated debt

Answer 22

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

Question 23

Composition of creditors

Answer 23

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

Question 24

Past consideration

Answer 24

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

Question 25

Moral obligation

Answer 25

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

Question 26

Exceptions to consideration

Answer 26

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

Question 27

Promissory estoppel

Answer 27

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

Question 28

Chrysler Corp v. Chaplake holdings

Answer 28

• 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)