Consideration

Question 1

What is consideration?

Answer 1

Valuable consideration is evidenced by a bargained-for change in the legal position between the parties.

Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.

Question 2

What are examples of appropriate consideration?

Answer 2

1) A return promise to do something;
2) A return promise to refrain from doing something legally permitted;
3) The actual performance of some act; or
4) Refraining from doing some act

Question 3

Are gifts appropriate consideration? Are there any tests to determine this?

Answer 3

A promise to make a gift does not involve bargained-for consideration and is therefore unenforceable.

The test to distinguish a gift from valid consideration is whether the offeree could have reasonably believed that the intent of the offeror was to induce the action. If yes, there is consideration, and the promise is enforceable.

Question 4

When are gifts enforceable under the doctrine of promissory estoppel?

Answer 4

A party’s promise to make a gift is enforceable under the doctrine of promissory estoppel if the promisor/donor knows that the promise will induce substantial reliance by the promisee, and the failure to enforce the promise will cause substantial injustice.

Question 5

What is the general rule for adequacy of consideration?

Answer 5

The basic concept of legal detriment is that there must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced.

In general, a party cannot challenge a contract on the grounds that the consideration is inadequate.

Question 6

How do courts view consideration with no economic value?

Answer 6

The benefit to the promisor does not need to have an economic value. Regardless of the objective value of an item, if the promisor wants it, the giving of it will constitute adequate consideration.

Question 7

What is the pre-existing duty rule under CL?

Answer 7

A promise to perform a preexisting legal duty does not qualify as consideration because the promisor is already bound to perform (i.e., there is no legal detriment).

Note that if the promisor gives something in addition to what is already owed (however small) or varies the preexisting duty in some way (however slight), most courts find that consideration exists.

Question 8

True or False: third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform is adequate consideration.

Answer 8

True. There is an exception to the preexisting-duty rule when a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform. Under the exception, the party’s promise to the third party is sufficient consideration.

Ex: C contracts with P for P to install plumbing in a house being built by C for H. C subsequently becomes insolvent and walks away from the project. H contracts with P and promises to pay P the same amount P would have received from C if P installs the plumbing. P’s completion of the job constitutes consideration for the promise by H, even though P was already contractually obligated to C to do the work.

Question 9

Is past consideration adequate consideration under CL?

Answer 9

NO. Under the common law, something given in the past is typically not adequate consideration because it could not have been bargained for, nor could it have been done in reliance upon a promise.

Ex: Example: A is drowning, and B dives in and saves A. Grateful to have been saved, A promises B $500. Under the common-law approach, there is no consideration, and the promise is therefore unenforceable. It is based on a mere moral obligation arising out of past conduct.

Question 10

True or false: CL contract modifications do not require additional consideration.

Answer 10

False. At common law, modification of an existing contract must be supported by consideration.

Question 11

True or false: illusory promises are inadequate consideration

Answer 11

True. An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding.

Ex: “I would like to buy your car when I have more money” is not enough

Question 12

True or false: Satisfaction contracts are illusory promises.

Answer 12

False. A promise to purchase goods upon the promisor’s satisfaction with the goods is not illusory because the promisor is required to act in good

Ex: I promise to pay Mickey $500 if she paints a portrait of my family that meets my satisfaction. She says OK. Is there bargained-for consideration? YES

Question 13

True or false: output contracts are not illusory promises

Answer 13

True, because there is a way for a party to breach:
1) By requiring the product and purchasing from others OR
2) By making the product and selling to others.

Question 14

What is the difference between output and requirement contracts?

Answer 14

Requirements contract = buyer agrees to buy all that he will require of a product from the other party (buyer focused)

Output contract = seller agrees to sell all that she manufactures of a product to the buyer (Seller focused)

Question 15

True or false: Consideration is required to modify contracts under both UCC and CL.

Answer 15

False. Under CL, consideration is required to modify contracts (with some minor exceptions. UCC does not require consideration to modify but does require good faith and fair dealing, both for merchants and non-merchants.

Question 16

What are the CL three exceptions where additional consideration is not needed to modify a contract

Answer 16

1) A change in material terms/obligations
2) A third party promising to pay; or
3) Unforeseen difficulties that would excuse performance

The modification must rest in circumstances not anticipated as part of the context in which the contract was made but need not have been completely unforeseeable.

When such a reason is present, the relative financial strength of the parties, the formality with which the modification is made, the extent to which it is performed or relied on and other circumstances may be relevant.

Question 17

What are the three elements required for promissory estoppel?

Answer 17

1) The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person;

2) The promise does induce such action or forbearance; and

3) Injustice can be avoided only by enforcement of the promise.

in general, the promisee must actually rely on the promise, and such reliance must have been reasonably foreseeable to the promisor.

Question 18

What is the charitable exception for promissory estoppel?

Answer 18

A charitable subscription (i.e., a written promise) is enforceable under the doctrine of promissory estoppel without proof that the charity relied on the promise.

Question 19

Can subcontractor offers be enforceable under promissory estoppel?

Answer 19

An agreement not to revoke a sub-bid offer can be enforceable under the theory of promissory estoppel.

Question 20

What is a quasi contract?

Answer 20

Quasi/Implied Contract: Arises when you would have made a contract if you could have, but you could not, or when one party conferred a benefit on another party, and it would be fair to pay for that benefit

• Look for an opportunity to decline or a good reason why there was no opportunity to decline.

Question 21

What are the elements to an implied/quasi contract?

Answer 21

1) The plaintiff confers a measurable benefit on defendant;
2) The plaintiff reasonably expected to get paid; and
3) It would be unfair to let the defendant keep the benefit without payment

Question 22

Who lacks the incapacity to contract?

Answer 22

1) Minors (under the age of 18);
2) People who are mentally ill;
3) People who are intoxicated; and
4) People whose property is under guardianship by reason of adjudication.

Question 23

What is the material benefit rule?

Answer 23

When a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration.