Consideration Flashcards
Consideration
To be enforceable, a promise must be supported by consideration. Consideration is
- a bargained-for exchange between parties
- in which each party incurs a legal detriment.
Pretense of Consideration
In general, courts are reluctant to assess the value of consideration. However, courts may deem consideration to be an invalid pretense of consideration in cases where the value of purported consideration is so small as be clearly nominal.
Pre-existing Duty Rule
At common law, a promise to perform a pre-existing legal duty does not qualify as consideration; because such a promise is of no legal detriment to the promisor.
However, most courts will find consideration where the promisor gives something in addition to the pre-existing duty or varies the duty in some way.
EXCEPTION:
(subcontractor>contractor>buyer)
There is an exception to the pre-existing duty rule when a third party offers a promise condingent upon performance of a contractual obligation by a party. Under the exception, the third party’s promise is sufficient consideration.
Example: Sub contracts with Contractor, who contracts with Homeowner. Contractor walks. H offers to pay S if S completes work he is obligated to perform by contract with C.
Past Consideration
At common law, something given in the past is typically not adequate consideration because it could not have been bargained-for.
However, there is a modern trend toward enforcing such promises when necessary to prevent injustice. In such cases, the promise is enforced only to the extent necessary to prevent injustice; typically restitution.
Modifications (CL vs UCC)
- At Common Law, modification of an existing contract must be supported by consideration UNLESS:
- the parties rescind the contract by some outward sign (tearing up) and form a new agreement; OR
- one party’s performance is rendered impracticable and the other agrees to compensate the burdened party; OR
- both parties incur new obligations.
- Under the UCC, modifications made in good faith are enforceable even if unsupported by consideration.
Accord and Satisfaction
An accord is an agreement by which one party to a contract agrees to accept different performance from the other party than what was promised in the existing contract. Generally, consideration is required for an accord to be valid. (Change in payment form or early payment qualify as consideration)
Once a valid accord is struck, the parties may not sue for breach of the original contract until and unless the acccord is breached.
A satisfaction is the performance of the accord agreement; it will discharge both the original contract and the accord contract. However, there is no satisfaction until performance of the accord is complete.
Illusory Promises,
Promisor-Controlled Conditions,
and
Satisfaction Contracts
An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding. (If I feel like it)
A promise based on a condition within the promisor’s control may be illusory, but courts will generally find that such promises are legally binding, and that the promisor also promises to make a good faith effort to bring about the condition. (Promise conditioned on obtaining financing)
A satisfaction contract is a contract contingent upon the buyer’s satisfaction with the service or goods involved. Such contracts are generally enforceable, but the buyer is required to act in good faith. Courts will use an objective standard to evaluate the satisfactory nature of the performance (widgets), unless the contract involves aesthetic taste (painting, tutoring).
Consideration: Promise not to Sue
Promises not to sue (settlement of a legal claim) constitute valid consideration if there is an honest belief in the validity of the claim and that belief is reasonable.
