Consideration Flashcards
Consideration - generally
Two elements: 11) a bargained for exchange between the parties and 2) legal value, meaning that which is bargained for must be considered of legal value (it must constitute a benefit to the promisor or a detriment to the promisee.
Consideration - “bargained-for exchange”
Bargained for exchange requires that the promise induce the detriment and the detriment induce the promise. There is no bargain involved when one party gives a gift to another.
Consideration - exceptions to past consideration
Where a past obligation is unenforceable because of a technical defense like 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.
Consideration - legal value - adequacy of consideration
In general, courts do not inquire into the adequacy or fairness of consideration. However, if something is entirely devoid a value, it is insufficient. Sham consideration, meaning insignificant sum recited in the contract, is also insufficient if not paid. However, if there is a possibility of value in a thing bargained for, consideration will be found, even if the value never comes into existence.
Consideration - legal value - benefit and detriment
Legal detriment results if the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do. A legal benefit is the reverse. It is forbearance or performance of an act that the promisor was not legally entitled to demand or expect.
Consideration - exceptions to the pre-existing duty rule
New or different consideration is promised
The promise is to ratify a voidable obligation, such as a promise to ratify a minor contract after reaching majority or a promise to go through with a contract despite the other parties fraud
The pre-existing duty is owed to a third-party rather than to the promisor
There is an honest dispute as to the duty
There are unforeseen circumstances sufficient to discharge a party, such as impractical ability, or under the modern view, if the modification is fair and equitable, in view of circumstance, is not anticipated when the contract was made.
UCC modifications
A good face agreement modifying a contract subject to the UCC needs no consideration to be binding.
Common law modifications of contracts
Under general contract law, a contract can’t be modified, unless the modification is supported by new consideration.
Under the modern view, modification is permitted without consideration if the modification is due to circumstances that were unanticipated by the parties when the contract was made, and it is fair and equitable.
Discharge of debts
A debt can be discharged through an accord and satisfaction. In general, an accord must be supported by consideration. Even if the consideration is of a lesser value than the originally bargained for in the prior contract, it is sufficient if the new consideration is of a different type, or if the claim is to be paid to a third-party. In addition, a Debtors offer to make a partial payment on an existing debt will suffice for an accord and satisfaction, if there is some bona fide dispute as to the underlying claim, or there is otherwise some alteration, even if slight, in the debtors consideration.
Forbearance to Sue
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 is valid.
Illusory promises
Consideration must exist on both sides of a contract. If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises, for example, a party must use their best efforts, to infer mutuality.
Examples that satisfy the mutuality requirement (so not illusory)
Requirements and output contracts
Conditional promises, unless the condition is entirely within the promisor’s control
Contracts where a party has the right to cancel, if that is somehow restricted, like a must give 60 days notice
Exclusivity agreements because the court will find an implied promise to use best efforts
Voidable promises made by a minor
Unilateral and option contracts
Gratuitous surityship promises made before or at the same time that consideration flows to the principal debtor
Right to choose alternative courses
A promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor. The promise will not be found illusory if: 1) at least one alternative involves legal detriment, and the power to choose rest with the promisor a third-party or 2) a valuable alternative, that is one involving legal detriment, is actually selected.
Promissory estoppel or detrimental reliance - consideration
Consideration is not necessary if the facts indicate that the promisor should be a stopped from not performing. A promise is enforceable if necessary to prevent injustice if: the promisor should reasonably expect to induce action or forbearance, and such action or forbearance is in fact induced.
If the elements for promissory estoppel are present, some jurisdictions will award expectation damages, but the second restatement provides that the remedy may be limited as justice requires. A court following the second statement might award, reliance damages, which usually is something less than expectation damages, but theoretically can exceed them.
Act or forbearance as consideration
An act or forbearance by the promisee is sufficient consideration to form a contract if it benefits the promisor. The benefit, however, need not be economic.
