Consideration

Question 1

What are the 2 elements necessary to constitute consideration?

Answer 1

(1) A bargained-for exchange between the parties; and

2) Legal value (i.e., it must constitute a benefit to the promisor or a detriment to the promisee

Question 2

What is required for a bargained-for exchange to exist?

Answer 2

The promise must induce the detriment AND the detriment induce the promise (i.e., a promise for a promise, a promise for payment, etc.)

Question 3

When is an act or forbearance by the promisee (or a promise to act or forbear) sufficient consideration to form a contract?

Answer 3

If it benefits the promisor

Question 4

Must the benefit of an act or forbearance be economic?

Answer 4

No. For example, the gratification of influencing the mind of another is sufficient.

Question 5

True or false: A promise given in exchange for something already done satisfies the bargain requirement.

Answer 5

False. This is “past consideration,” but that is a misnomer—there is no consideration here.

Question 6

Name 2 exceptions to the general rule against past consideration.

Answer 6

(1) If a past obligation is unenforceable because of a technical defense (e.g., statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed.
(2) 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

True or false: Courts generally do not inquire into the adequacy or fairness of consideration.

Answer 7

True

Question 8

True or false: If something is entirely devoid of value, it is insufficient as consideration.

Answer 8

True

Question 9

When does legal detriment result?

Answer 9

If the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do

Question 10

When does legal benefit result?

Answer 10

If the promisor receives forbearance or performance of an act that the promisor was not already legally entitled to demand or expect

Question 11

What is the traditional rule regarding preexisting legal duties as consideration (i.e., modifications of an existing contract)? What are the exceptions?

Answer 11

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

EXCEPTIONS
There is consideration if:
(1) New or different consideration is promised;

(2) The promise is to ratify a voidable obligation (e.g., 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);
(3) The preexisting duty is owed to a third person rather than the promisor;
(4) There is an honest dispute as to the duty; OR
(5) There are unforeseen circumstances sufficient to discharge a party (e.g., 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 12

True or false: A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.

Answer 12

True

Question 13

When a debt is discharged through an accord and satisfaction supported by consideration, even if the consideration is of lesser value than the originally bargained-for consideration in the prior contract, it is sufficient if: (2 things)

Answer 13

(1) If the new consideration is of a different type OR

(2) If the claim is to be paid to a third party.

Question 14

A debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if:

Answer 14

(1) There is some “bona fide dispute” as to the underlying claim OR
(2) There is otherwise some alteration, even if slight, in the debtor’s consideration

Question 15

True or false: 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.

Answer 15

True (this is what settlement agreements are)

Question 16

What makes a promise illusory? What is the effect of an illusory promise?

Answer 16

If only one party is bound to perform, the promise is illusory and will not be enforced because there must be mutual consideration.

Courts often supply implied promises if there is lack of mutual consideration

Question 17

Common examples of contracts that satisfy the mutuality requirement include: (7 things)

Answer 17

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

Question 18

A promise to choose one of several alternative means of performance is illusory unless _______.

Answer 18

every alternative involves legal detriment to the promisor

Question 19

A promise to choose one of several alternatives will not be found illusory if: (2 things)

Answer 19

(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 (i.e., one involving legal detriment) is actually selected

Question 20

A promise lacking consideration may be enforceable if necessary to prevent injustice if:

Answer 20

(1) The promisor should reasonably expect to induce action or forbearance, AND
(2) Such action or forbearance is in fact induced

(PROMISSORY ESTOPPEL)

Question 21

If the elements for promissory estoppel are present, what damages may be awarded? (Jurisdiction split)

Answer 21

(1) Some jurisdictions will award expectation damages (i.e., what was promised under the contract).
(2) Courts following the Second Restatement (providing that the remedy “may be limited as justice requires”) might award reliance damages (i.e., whatever the promisee spent in reliance on the promise).