Consideration Flashcards
elements of consideration
(1) bargained-for exchange between the parties
—the promise has to INDUCE the detriment and the detriment has to INDUCE the promise [no gifts, no past or moral consideration]
(2) legal value / constitutes a benefit to the promisor or detriment to the promisee
— must have some value or at least possibility of value [even if value never comes into existence]
exception to the “no past consideration” rule
Where a past obligation is unenforceable because of a technical defense (for example, the statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, under the modern trend, 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.
when can an act of forbearance be consideration
the act of forbearance by promisee can be sufficient consideration if it benefits the promisor – need not been an economic benefit, may be the gratification of influencing someone else
Preexisting duty rule
RULE: Traditionally, performing or promising to perform an existing legal duty is insufficient consideration.
EXCEPTIONS - there IS consideration IF:
a) New or different consideration is promised;
b) The promise is to ratify a voidable obligation (for example, 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);
c) The preexisting duty is owed to a third person rather than to the promisor;
d) There is an honest dispute as to the duty;
OR
e)
There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
when do you need / not need consideration for modification
COMMON LAW:
Traditionally, you need new consideration to modify a K, but under the modern view, you can modify without new consideration IF:
(1) the modification is due to circumstances that were unanticipated by the parties when the contract was made
AND
(2) it is fair and equitable.
UCC:
consideration isn’t necessary to modify — you just need good faith promises of new and different terms.
Consideration requirements w/r to discharging debts
— accord
agreement to accept alternative performance to discharge a pre-existing duty between them/new agreement between parties already under K with each other
—-satisfaction
performance of the accord (performance of the new agreement)
RULE
The accord SUSPENDS the debtor’s obligations under the original contract until the buyer satisfies the accord (in which debt is discharged) or fails to satisfy the accord (in which creditor may use under the original contract or the accord)
-
CONSIDERATIONS RULES
An accord must be supported by consideration, and it’s fine if the new consideration is of a lesser value than original bargained-for consideration of the prior K as long as the new consideration is of a different type or value or the claim is to be paid to a third party [the bar sometimes calls this “alternate method of payment”]
Debtor’s offer to make partial payment on existing debt will suffice for an accord and satisfaction ONLY WHEN there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration
[even when the creditor is the one offering you to just pay partial debt instead of full debt]
You owe MasterCard $3,000. You and MasterCard orally agree that if you pay $2,000, MasterCard will forgive the rest of the debt. If you pay $2,000, can MasterCard recover the $1,000 balance? yes
ANOTHER WAY OF PUTTING THIS: ]
when the amount due is undisputed, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. neither a legal detriment nor a benefit would be present.
HOWEVER, if the consideration is in any way new or different, such as payment before maturity ro to someone other than the creditor, or in a different medium, then sufficient consideration may be found
-
to what extent is a promise to refrain from suing on a claim valid consideration?
constitutes consideration if the claim itself is valid or the claimant in good faith believed the claim itself was valid.
examples of contracts that satisfy the mutuality requirement to have consideration and MUTUAL PERFORMANCE on BOTH sides
a Requirements and output contracts
b. Conditional promises, unless the condition is entirely within the promisor’s control
c. Contracts where a party has the right to cancel, if that right is somehow restricted (for example, a party must give 60 days’ notice)
d. Exclusivity agreements (for example, exclusive marketing agree- ments) because the court will find an implied promise to use best efforts
e. Voidable promises (for example, one made by an infant)
f. Unilateral and option contracts, and
g. Gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
right to choose alternative courses – extent to which it is illusory/not mutual?
a promise to choose one of several alternative courses of performance is illusory UNLESS every alternative involves legal detriment to the promisor
will not be illusory IF:
(1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party
(2) a valuable alternative that involves legal detriment is actually selected
what is promissory estoppel, when does it apply, and what are the remedies
Promissory estoppel is a mechanism for recovery when there is no consideration and it is necessary to enforce the promise to prevent injustice [i.e. there is no valid K b/c no consideration]
.
.
A promise is enforceable if necessary to prevent injustice if:
(1) The promisor should reasonably expect to induce action or forbearance,
AND
(2) Such action or forbearance is in fact induced
.
.
REMEDIES - split
(1) some jurisdictions –> expectation damages (that is, what was promised under the contract),
(2) second restatement –> the remedy “may be limited as justice requires.
if you see a person performa an act at the request of the promisor up front, the modern trend is what
the promise can be enforced
[not a past consideration issue]
but VA says no!
adequacy of consideration – courts do what
courts do not inquire into adequacy of consideration unless it is entirely devoid of value or is “sham” consideration [insignficant sum recited in the K] that is not paid
partial payment of debt rule
partial payment of debt is not consideration for accord and satisfaction of existing debt
you still have to pay full debt
are promises to make gifts in the future enforceable?
NO
