Consideration

Question 1

Contract is

Answer 1

Mutual assent + consideration

Question 2

17 says

Answer 2

17 says that the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. RS71, in turn, says that to constitute consideration, a promise must be bargained for.

Question 3

71. Bargain Theory of Consideration

In order to legally enforce

Answer 3

1. A contract is an enforceable promise
2. With some exceptions, to be enforceable a promise must be supported by consideration
3. A promise is supported by a consideration if it is bargained for
4. A promise is bargained for “if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise”

Question 4

Dahl v. Hen Pharma

Promise for Promise

Answer 4

• Consideration? Yes – exchanged promises
• (1) Agreed to experiments and detriment of subjecting to schedule of experiments, effects of experiments in exchange for the year supply
• (2) Pharmaceutical company agrees to provide year supply in exchange for the benefit of having test subjects and being able to carry out the experiments

Question 5

Two basic aspects of consideration

Answer 5

(1) Promisee suffer a legal detriment, i.e. promises must give up something of value, or circumscribe his liberty in some way ( and maybe promisor gains a benefit); and
(2) Promise must be bargained for, i.e. promise was made to induce other’s performance (or legal detriment) suffered by the promisee. Both promises have to be given up to induce others.

Question 6

Policy of Consideration

Answer 6

(1) Evidentiary – existence of consideration provides objective evidence that the parties intended to be legally bound by the agreement they made
(2) 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
(3) Channeling – following traditions of formalities and the courts enforce it. It is for judicial efficiency

Question 7

policy consideration

Answer 7

1. Exchange transactions are enforced b/c society wants the reliability of commercial exchanges.
   a. In contrast, gifts are of little commercial utility
2. Courts can police unfair bargaining
3. UCC 2-205 – as long as there is a set time you don’t need consideration, 3 months is the longest time

Question 8

Distinguishing Bargains from Gratuitous Promises: Alternative to bargain for exchange is a gratuitous promise

Answer 8

1. Was the promise to do something made IN EXCHANGE for something else? Why are the parties making the promise?
2. Consideration is the difference between a bargain and a gratuitous gift.

Question 9

24. Proposal of contingent gift

Answer 9

proposal of a gift is not an offer within the present definition; there must be an element of exchange. It is not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him.

Question 10

Johnson v. U

Promise can be revoked

Answer 10

i. Holding: The school’s intent to establish a fund based on the donation is not consideration as not induced by Johnson’s note to donate upon death.
ii. Donation will be given if set up memorial scholarship – conditional gift
iii. Promise to pay money can be revoked at any time
iv. If yo make a promise for something you already have to do, there is no bargain. Nothing has changed.

Question 11

Kirksey v. Kirksey

Answer 11

Kirksey v. Kirksey – She gave up her own land and moved because of his promise, but P did not exchange a reciprocal promise with D that would give him consideration to secure the land and let her live there for a long period of time?

i. Gift that could be revoked – no consideration on D’s part, nothing from P to induce D to secure the land as hers
ii. May have suffered a detriment, but bargain is the decisive test

Question 12

Mutual Inducement

Answer 12

1. R2oC § 81: A promisor must induce a promise OR performance from the promisee. Promisee must use performance or promise to induce promisor to keep promise.

Question 13

Hamer v. Sidway

Inducement as consideration

Answer 13

Because the nephew (1)gave up a legal right to do as he pleased (smoke, drink, curse, etc.), and performed exactly what the (2) uncle induced him to do to receive the $5000, there was consideration and payment is due.

Question 14

Rule from gamer about consideration viewed as a sacrifice

Answer 14

1. But suffered no detriment as became a better person because of his restrictions - still sacrificed a right/freedom in an exchange for the payment
2. Rule: Consideration viewed as a sacrifice or detriment meant to induce promise to be carried out (mutual inducement) or to exchange benefits for both parties (bargain theory)
   • Benefit detriment is not the end all be all but helps identify if one was trying to give a gift or make a bargain

Question 15

MORAL AND PAST CONSIDERATION

Answer 15

Generally not binding but there are exceptions. If someone acknowledges a moral duty and makes a promise because of it, that is binding. Also goes the other way
• Moral consideration (a moral obligation) is only sufficient consideration where the promisor himself has received a material/substantial benefit (Webb v. McGowin); in such cases, promises made in recognition of previously-received benefit may be enforceable “to the extent necessary to prevent injustice” (RST §86)  fair amount of judicial discretion

Question 16

86. Promise for Benefit Received

Answer 16

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice
(2) A promise is not binding under subsection (1) if
(a) if the promisee conferred the benefit as a gift or, for other reasons the promisor has
not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit

Question 17

Moore v Elmer

Past Consideration

Answer 17

• Moore did predictions for Elmer, and Elmer sent a note after that said if she was right and he died before 1900, he would pay her mortgage.
• Rule: If the services were rendered ahead of time, you cant induce something that has already happened in the past. You cant bargain for something that has already been given to you.
• Cannot add consideration to a past favor with an additional “piece” as agreement already was carried out
• Court held that consideration didn’t exist (no bargain) and this was more like a wager or bet

Question 18

Mills v. Wyman

Moral Consideration

Answer 18

• Son is really sick. Good Samaritan takes care of him; paying for medicine and treatment. Dad promises to pay.
• Rule: There is no legal obligation for a father to take care of a grown son, and so it follows that the promise had no legally binding force, since there was no moral consideration.
• The dad did not receive a material benefit
• Father did not bargain for/know of the son’s care, nor did he have to since the son was not a minor – no exchange
• If son was a minor, there is a legal obligation for the father to make sure he is cared for – then moral consideration would suffice

Question 19

Webb v McGowin

86 applied

Answer 19

• Facts: Guy working maneuvers large object and saves a life but injures himself in the process. Guy whose life was saved promises to pay. Other guy sues to enforce that promise.
• Rule: McGowin recognized a moral obligation to help the man who suffered on his behalf because of the substantial benefit (his life/lack of injury) he received at Webb’s expense, so the agreement to pay for his care had sufficient consideration and is a valid agreement
Difference here is that in the first case the son dies and he’s just sad. He isn’t deprived on any material benefits. His position doesn’t change. In the second case, he receives a material benefit in that his life was material.

Question 20

Pre-exisiting duties are unenforceable

Answer 20

• A promise to do something the party is already under an obligation to do.
E.g., a police officer has a preexisting duty to use best efforts to recover stolen property.
• Such a promise is unenforceable because no new consideration has been given.
• Preexisting duty rule arises when one party to an existing contract seeks to change the terms of the contract during the course of its performance. Such midstream changes are unenforceable without additional consideration. The parties have a preexisting duty to perform according to the original terms of the contract.

Question 21

Unforseen Difficulties

Answer 21

• Sometimes a party to a contract runs into substantial unforeseen difficulties while performing his or her contractual duties.
o Outside normal risks of business. E.g., contractor finds substantial environmental contamination that must be remediated at great expense.
• The contract can be modified and enforced without new consideration being given.

Question 22

§89. Modification of Executory Contract

Answer 22

Allows modification, where fair and equitable, in view of unforeseen circumstances, or detriment in reliance
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made, or
(b) to the extent provided by the statute, or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise

Question 23

UCC 2-209 Modification

Answer 23

UCC 2-209 Modification, Rescission and Waiver

An agreement modifying a contract within this article needs no consideration to be binding

Question 24

Stilk v. Myrick

Coercion not Consideration

Answer 24

• Rule: Not giving up or adding any benefit beyond what they were already supposed to be doing (preexisting duty)
• The Court holds that there was no new consideration because there was no new duty; the original crew just simply fulfilled their preexisting duty.
• Captain coerced into accepting the contract to pay more – coercion is not an act of consideration, nor could the sailors alter a contract that had already begun execution w/o issuing new consideration

Question 25

Alaska Packers

Answer 25

• Rule: Inappropriate to act in an opportunistic way and seek to coerce further benefits for an already contracted duty/job (unjust enrichment)
• New consideration needed for new agreement if contracting for something outside of pre-existing duty/established contract
• The court held that there was no consideration and the plaintiff coerced the modification, so the agreement was not enforceable.
• Striking to receive higher wages on isolated fishing site, impossible to obtain new crew of fishermen so late in season)

Question 26

Brian Construction

89 Modification applied

Answer 26

• A subsequent agreement on a preexisting duty/contracted obligation is valid if an additional obligation or burden not previously conferred is now created and supported by consideration.
• The oral agreement conferred a new obligation – new task not previously conferred or even foreseen. (excavation)
• Rule: Restatement requires new consideration to a subsequent agreement in order to protect against coercion element, but if unforeseen/not coerced RS 89 applies
• P could have sought elsewhere for a new contractor, but instead bargained again with D
• UCC – Modifications must meet a good faith test

Question 27

Policy behind pre-existing duty contracts

Answer 27

E.g. if we allow for modification of contract for a preexisting duty, people can start stopping relying on the original contractual power -> no more reliance

Question 28

§79. Adequacy of Consideration; Mutuality of Obligation

Answer 28

the requirement of consideration is met, there is no additional requirement of

(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation”

Question 29

§364. Effect of Unfairness

Answer 29

Specific performance or an injunction will be refused if such relief would be unfair because…
(c) The exchange is grossly inadequate or the terms of the contract are otherwise unfair.

Question 30

If consideration is legally sufficient

Answer 30

Adequacy of consideration refers to the fairness of the bargain. In general, a court will not question the adequacy of consideration if the consideration is legally sufficient. Adequacy also becomes a problem if the consideration given is so small a value that it is obviously nominal, so that the promise looks like a gift. Ct wants to prevent sham bargains.

Question 31

rs 79

Answer 31

value does not need to be equivalent but needs to be something of value to the parties)

Question 32

Trinkets

Answer 32

o For instance, we may think a trinket is not adequate consideration – but one party may consider it priceless and so it is recognized as adequate because it is subjectively something of value

Question 33

illusory promise

Answer 33

o Illusory promise if no consideration or if consideration given actually retains choices for the party to “do or not do” something (I’ll pay you $10 or I won’t.)

Question 34

objective and subjective adequacy

Answer 34

• Objective – bargain must be reasonable

* Subjective – bargain must be in good faith

Question 35

Newman v Hunter

Answer 35

• Since the widow’s note was worthless, and the stock exchanged for it worthless as it was for an insolvent company, neither party gave anything of value to the exchange and the consideration was not adequate or binding.

Question 36

Dryer v National

Giving up ability to sue

Answer 36

Giving up the ability to sue is a sufficient forbearance to constitute consideration if there is a reasonable belief that the claim is valid and needs just enforcement. (Detriment suffered is lost ability to litigate)
Holding: Even if his claim seems ill founded, if there was a good faith belief on Dyer’s part that it was valid, his forbearance/agreement to not sue was a sufficient sacrifice on his part to constitute a valuable consideration.
RS 364 – Exchange grossly inadequate (consideration) or terms of contract are unfair, then unenforceable