Consideration

Question 1

Bates rundown on Consideration

Answer 1

1. For a contract to be enforceable, the promise must be supported by consideration.
2. A promise is supported by consideration when it is “bargained-for.”
3. A promise is bargained for when it is sought by the promisor in exchange for his promise, and is given in exchange for that promise (mutual inducement)
4. Consideration turns on the relationship between the promises

Question 2

Consideration has two chief functions:

Answer 2

Evidentiary – existence of consideration provides objective evidence that the parties intended to be legally bound by the agreement they made

Cautionary – requirement of consideration also affords parties the opportunity to consider the full implications of their actions before binding themselves because statements and promises made without the support of consideration are not binding

Question 3

3 types of problems with consideration

Answer 3

1. Want (or lack) of consideration – nothing whatsoever given in exchange for the promise
2. Failure of consideration – person did not get what they bargained for
3. Inadequate consideration – thing not worth as much as you thought, an inadequate consideration

Question 4

Bates’ Consideration Analysis

Answer 4

Step 1: What is the promise we are trying to enforce?
Step 2: **What consideration was proffered in support of? **In other words, what does the promisee assert as consideration? Either return promise OR performance
Step 3: Was consideration bargained for?

Part 1 - Did promisor make promise in order to receive return promise/performance?
Part 2 - Did promisee make return promise/performance in order to get promisor’s promise?
If the answer to either question is no, then the promise was not bargained for so it is not supported by consideration.

Question 5

Consideration is something that _______.

Answer 5

Consideration is something that motivates an act

Question 6

2 basic aspects of consideration:

Answer 6

1. Promisee must suffer a legal detriment, i.e. promises must give up something of value, or circumscribe his liberty in some way;
2. Promise must be bargained for, i.e. promise motivated by the legal detriment suffered by the promisee

Question 7

A gratuitous promise or a gift =

Answer 7

• Not a bargained for agreement, so it is not supported by consideration
• Gift is revocable up to time of delivery.
• Only becomes effective upon actual delivery of the thing that was promised.

Question 8

Benefit to one party/Detriment to the other

Answer 8

Benefit to one party/Detriment to the other party is **not the key to a bargain, but it can certainly be evidence of a bargain/consideration. **

Question 9

Detriment (for purposes of consideration) means

Answer 9

Detriment (for purposes of consideration) means giving up anything you have a legal right to do regardless of its moral or health implications

• anytime someone suspends his or her legal right, it is pretty solid evidence of inducement.

Question 10

Hamer v. Sidway

uncle’s reward for nephew’s purging of vices

Answer 10

F: P received from his uncle a promise for $5,000 if he gave up smoking and drinking, which he did. U wrote a promise to pay, but died before paying.

I: was there consideration even if U received nothing tangible?

R: forbearance of legal right to vice is consideration.

H: yes, “it is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him.”

Detriment/Benefit need not be economic

Question 11

In the context of consideration, the performance at issue may be:

Answer 11

In the context of consideration, the performance at issue may be:

• An act other than a promise
• A forbearance
• The creation, modification, or destruction of a legal right.

Question 12

Mills v. Wyman

promise to pay for nurse’s prior care of deceased son.

Answer 12

F: P found and cared for D’s son, V, who returned from sea and fell ill. After 2 weeks V died. P wrote to D and asked for expenses. D wrote back after only 4 days, promised to pay, later reneged.

I: consideration?

R: No consideration, no benefits to D – no non-doctor Good Samaritan rule

H: no, D did not contract for the kindness and services of P, nor did he benefit from them. “It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity….” nothing more than moral obligation

Question 13

Webb v McGowan

sacrifice of self to save boss’s life

Answer 13

F: P worked for D in a mill. P went over the edge with a huge pine block in order to stop the block from crushing D. P sustained serious injuries. D promised to care for P for the rest of P’s life. D died, his estate stopped paying.

I: consideration even if no bargain?

H: yes, the material benefit rule applies if there is both a moral obligation and a subsequent promise to pay, even if there was no original duty or liability. No doubt that parties meant to be bound. (minority rule applied)

R: No benefit promise + moral obligation + material benefit = valid consideration

Note: Under §71, P may have lost since act was not induced by D’s promise to pay

Question 14

Rule: Past consideration cannot ___________.

Answer 14

Past consideration cannot constitute consideration.​

• Promise in the past could not have been induced by the future promise.
• Where the detriment has been suffered before the promise is made, it is not bargained for and therefore it is not consideration
• There are instances in which courts will enforce without finding consideration based on a moral obligation
• There are exceptions to the notion that past consideration is no consideration at all when a benefit has been conferred in the past
• Other exceptions to the notion that past consideration is no consideration are in cases of statute limitations, infancy, or bankruptcy

Question 15

Moore v. Elmer

clairvoyant

Answer 15

F: clairvoyant, promise to pay her mortgage if prediction is true

I: Can clairvoyant request D to pay for services rendered during reading session?

R: No, no consideration because those readings were not induced by the promise to pay if the prediction came true and the promise to pay was not made to induce the readings.

If there was a contract he didn’t receive any benefit from it since service was rendered prior to making of contract. Past consideration not binding except in certain situations §86

Question 16

Rule: Moral obligation alone is not sufficient consideration, unless _______.

Answer 16

it is a moral obligation founded upon an antecedent valuable consideration.

Question 17

Antecedent Valuable Consideration

Answer 17

Some pre-existing legal obligation that had been made inoperative by positive law, like a debt that was determined unenforceable because the person filed for bankruptcy.

• If this is the case (a person owed money that was declared uncollectible because of bankruptcy), and a person voluntarily revives the obligation that previously existed, that may be valid consideration.

Question 19

EX: A father promises to pay the debts of his son because of his moral obligation to provide for his children.

Consideration?

Answer 19

A father promises to pay the debts of his son because of his moral obligation to provide for his children cannot be sufficient consideration because there was never a legal duty on the father to pay.

Question 20

Courts will not enforce consideration when _______.

Answer 20

Court will not enforce agreement where consideration is unlawful, like a promise based on meretricious sexual services (but couple simply living together does not fit that category (Marvin).)

Question 22

Rule: Pre-existing legal duty

Answer 22

Rule: A pre-existing duty can’t constitute further consideration to modify a contract

• if you want to modify a contract, the modification must be supported by further consideration.
• Stilk v. Myrick: Sailors already had duty to sail the boat back under the contract…so they can’t claim those services were sufficient consideration for a promise to pay them more.
• Rationale: Prevents extortion.

Question 23

Pre-existing legal duty rule exeption

Answer 23

Exception: Rule of Unforeseen Circumstances
Courts will allow a pre-existing duty to be sufficient consideration for a further promise if:

• There are unforeseen circumstances
• That are burdensome
• And the additional burden was not contemplated in the original contract.

Brian Construction: Defendant agreed to do excavation work on building site and discovered considerable debris under the surface that neither party anticipated.

Question 24

UCC Rule: Contract modification must simply be made _________.

Answer 24

UCC Rule: Contract modification must simply be made in good faith, regardless of further consideration

• good faith in this context is a legitimate business reason, like a change in the market price

Question 25

Adequacy of Consideration

General Rule

Answer 25

General Rule: Courts are not concerned with whether consideration is adequate…as long as there is mutual inducement, it does not matter if the trade is “even.”

• However, inadequacy of consideration can be evidence that there really was no bargain…that the consideration was merely a sham or pretense
• Newman where the bank gave the wife her dead husband’s worthless note in exchange for her promise to pay his debt…not really a bargain.

Question 26

§18: Manifestation of mutual assent

Answer 26

Manifestation of mutual assent means that each party either makes a promise or renders a performance

Question 27

§71: Requirement of exchange;

types of exchange

Answer 27

(1) Consideration must be bargained for;
(2) Must take place in exchange context;
(3) May consist of:
(a) an act or
(b) forbearance, or;
(c) the creation, modification or destruction of a legal relation.

Question 28

Johnson v. Otterbein University

promise to donate $ to Univ to liquidate indebtedness

Answer 28

I: By promising to give money to the University to help liquidate its indebtedness and thereby retracting offer, did D breach a contract to P?

R: No, since Univ is not doing anything to benefit D or detriment itself, there was no bargain for consideration and therefore no contract

Question 29

Stilk v. Myrick

due to desertion, captain promises to increase wages of existing crew

Answer 29

F: captain entered an agreement with remaining crew to split the wages of the two deserters amongst them if he could not procure two other people to help

I: Is captain’s agreement with crew enforceable? I.e. can crew members collect extra wages?

H: No, the cannot. There was no additional consideration in the alteration of the contract, the crew members did the work they were expected to do in the first place and there was no additional benefit to the D. Before Ps set sail they had undertaken to do all that they could under all the emergencies of the voyage.

R: generally, a contract may not be altered or modified without additional consideration.

Question 30

Alaska Packers Ass’n v. Domenico,

Answer 30

F: Ps went as employees of D from San Fran to Alaska as crew/fishermen. When they got to Alaska they had a labor strike for higher wages, no other available work force, supervisor gave in to demands but subsequently refuses to pay increase.

I: does the replacement contract stand even if D’s rep stated he had no authority to contract and even if D had no alternative but face losses and failure?

H: no, according to preexisting duty rule, P’s offered as consideration only what they had already contracted to do. No new consideration in modification of contract.

R: for good faith, the validity of contract modification is going to come down to whether it is a change necessitated by a change in circumstances or if it is one party exploiting another

Question 31

Brian Construction v. Brighenti

excavation underestimate, recontracted

Answer 31

F: subcontractor hired to excavate discovers excavation and discovered considerable debris under the surface that neither party anticipated. It is more work than thought. SC and GC recontract for increase pay, SC works for awhile and quits leaving GC to finish job at high cost.

I: Whether parties’ agreement constituted a legally enforceable contract obligating D to remove unexpected rubble

R: Exception to preexisting duty rule – the subsequent agreement imposes upon the one seeking greater compensation an additional obligation, therefore there is new consideration – binding.

R: Then a contract must be performed under unforeseen burdensome conditions, and the parties renegotiate a fair new contract, then the new contract has consideration. Separate valid contract

H: since no assumption of risks and unforeseen circumstances, modified contract is valid.

Question 32

Nominal considerations are binding with respect to ____________.

Answer 32

Nominal considerations are binding with respect to options contracts (§ 87), but are not recognized in attempts to make gifts enforceable (§71)

Question 33

Schnell v. Nell

attempt to make gift enforceable with consideration of one cent

Answer 33

F: 3 considerations found:

• love and affection for wife (not relevant, moral consideration)
• wife made promise (not relevant, past consideration)
• promise of Ps to pay one cent (not relevant, nominal consideration)

I: Will contract be enforced when there appears only to be nominal consideration in the bargain?

R: bargain deemed unconscionable, nominal consideration for gifts are not sufficient

R: Must ask question – Pretense of a bargain or a real bargain? Here, not real bargain.

Question 34

Smith v. Wheeler

$1 to reserve right to bid on property at later date

Answer 34

F: Option contract for sale of property with a recital of $1. D attempted to sell to third party.

I: Can an option contract be enforceable by a nominal recital of consideration?

R: yes, recital of $1 was a promise to pay at a later date. Recital is evidence that consideration given in an option contract, §87.

Question 35

Nominal consideration may be valid for ________.

Answer 35

Nominal consideration may be valid for an option contract if it is in writing and signed by the offeror,

• recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.
• In these cases, the party is paying $1 (what would normally be nominal consideration) for the offer to remain irrevocable, rather than consideration for the thing purchased (Smith v. Wheeler)
• Value of the offer being irrevocable is intangible, so the court allows this type of exchange.
• Majority of courts require that the dollar actually be paid, even though the court in Smith did not.

Question 36

§87, Option contract

(i.e., bilateral promise)

An offer is binding as an option contract if it:

2. 3.

Answer 36

§87, Option contract (i.e., bilateral promise)

An offer is binding as an option contract if it:

1. is in writing and is signed;
2. recites the purported consideration, and
3. proposes an exchange on fair terms within a reasonable time;

(2) an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeror before acceptance and which does induce such action or forbearance is binding as an option contract tot he extent necessary to avoid injustice.

Question 37

Written Expression of the Intent to Be Legally Bound: Uniform Written Obligations Act

(Only adopted in PA)

Answer 37

Rule: Consideration is not required if the party expresses an intention in the writing to be legally bound.

• Express statement must be clear and unambiguous; courts won’t infer additional expression of intent to be bound.
• Words of obligation in the contract (“I promise to pay”) can’t be that additional expression
• General Rule: Even if a person makes a promise and also explicitly states in writing that they intend to be legally bound, courts will not enforce the promise if it is not supported by some sort of valid consideration.

Question 38

Rule (RST § 21):

Disclaimer of an intent to be legally bound

Answer 38

Party may disclaim intention to be legally bound, as long as the disclaimer is:

1. Clear terms, AND 2. _Conspicuous placemen_t.

Disclaimer will then be effective unless the conduct of the disclaiming party suggests something different

Question 39

Ferrera

Employee handbook disclaiming intent to be legally bound

Answer 39

Employee handbook may sometimes be the basis from breach of contract…but in this case, the company expressly said it was not a contract: it was clear and conspicuous, so the disclaimer was valid.

However, if the company had treated the handbook like a contract and always followed the procedures in it to discharge employees, the court might find the disclaimer was not effective.