Consideration Flashcards
Elements of Consideration (2)
Basically, two elements are necessary to constitute consideration:
i) there must be a BARGAINED FOR EXCHANGE between the parties; AND
ii) that which is bargained for must be considered of LEGAL VALUE or, as is traditionally stated, it must constitute a benefit to the promisor OR a detriment to the promisee.
Elements of Consideration - Bargained for Exchange
This element of consideration requires that the promise induce the detriment AND the detriment induce the promise. There is no bargain involved (i.e. no consideration) when one party gives a GIFT to another.
Elements of Consideration - Bargained for Exchange - Act or Forebearance by Promisee Must Be of Benefit to Promisor
An act or forbearance by the promisee ( or a promise to act or forbear) is sufficient consideration to form a contract if it benefits the promisor. The benefit, however, need not be economic (e.g. the gratification of influencing the mind of another is sufficient).
Elements of Consideration - Bargained for Exchange - “Past” of “Moral” Consideration
A promise given in exchange for something already done does not satisfy the bargain requirement.
Elements of Consideration - Bargained for Exchange - “Past” of “Moral” Consideration - Exceptions
Where 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.
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.
Elements of Consideration - Legal Value Element - Adequacy of Consideration
In general, courts do NOT inquire into the adequacy or fairness of consideration.
However, if something is entirely devoid of value (token consideration), it is insufficient. Sham consideration (insignificant sum recited in the contract) is also insufficient if not paid. But note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.
Elements of Consideration - Legal Value Element - Legal Benefit and Legal Detriment
Legal detriment results if the promisee does something he is not legally obligated to do or refrains from doing something he has 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.
Elements of Consideration - Legal Value Element - Preexisting Legal Duty Not Consideration
Traditionally, performing or promising to perform an existing legal duty is INSUFFICIENT consideration.
Elements of Consideration - Legal Value Element - Preexisting Legal Duty Not Consideration - Exceptions (5)
The preexisting legal duty rule is riddled with exceptions; there is consideration if:
1) NEW or DIFFERENT consideration is promised;
2) The promise is to RATIFY A VOIDABLE OBLIGATION (e.g. a promis to ratify a minor’s contract after reaching majoroty, a promise to go through with a contract despite the other party’s fault.)
3) The Preexisting duty is OWED TO A THIRD PERSON rather than to 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.
Also, a GOOD FAITH agreement modifying a contract subject to the UCC needs NO CONSIDERATION to be binding.
Elements of Consideration - Legal Value Element - Forbearance to Sue
A promise to refrain from suing on a claim may constitute consideration if the claim is valid or the claimant IN GOOD FAITH believed the claim was valid.
Mutual and Illusory Promises - Requirement of Mutuality
Consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties). If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises to infer mutuality. (e.g. a party must use her best efforts).
Mutual and Illusory Promises - Requirement of Mutuality - 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:
(i) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, OR
(ii) a valuable alternative (i.e. one involving legal detriment) is actually selected.
Promissory Estoppel or Detrimental Reliance (2)
CONSIDERATION IS NOT NECESSARY if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if:
i) The promisor should reasonably EXPECT TO INDUCE ACTION OR FORBEARANCE; and
ii) SUCH ACTION OR FOREBEARANCE IS IN FACT INDUCED.
If the elements of promissory estoppel are present, some jurisdictions will award expectation damages, but the Second Restatement provides that the remedy is reliance damages.
