Consideration Flashcards
Benefit-Detriment Test
Is there a benefit received or detriment incurred by either party? (don’t need both)–>Hamer v. Sidway; Lakeland
Hamer v. Sidway
Promises supported by consideration vs. gift promises. Uncle promises nephew $$ on 21st birthday if he doesn’t drink/smoke/etc.
(1) Consideration required so that courts aren’t stuck enforcing gratuitous promises. We are looking for an exchange of promises.
(2) This seems like a gift case. Gifts require: Intent, Delivery, and Acceptance. Problem: no delivery here.
(3) Unilateral Contract
(4) From a consideration perspective: Uncle “bought” his nephew’s good conduct.
Gift (requirements)
Intent, Delivery, and Acceptance
Lake Land
Lake Land Employment Group of Akron, LLC v. Columber
Forbearance as consideration
(1) At-will employee is fired after signing a non-compete.
(2) Consideration was continued employment at Lake Land’s after signing the non-compete –> Enforceable promise.
(3) Pre-existing duty is not consideration
(4) There was no bargain here, so this theory would not find consideration
(5) Despite finding adequate consideration, the reasonableness of the non-competition agreement must be assessed without violating the longstanding rule against testing the adequacy of consideration.
Bargain Theory
Was there a bargained-for exchange for the promise? Did the promissee give something to the promisor to induce the promise made? A contract is incomplete until promisee gives something to the promisor to induce that promise.–>Harrington v. Taylor
Restatement, Section 71
Bargained-for performance or return promise. Performance may consist of act, forbearance, or creation/modification/destruction of a legal relationship.
Harrington v. Taylor
Wife beater saved by plaintiff as axe is coming down; P badly injured by wife. Wife beater made a moral promise.
(1) Promise came after the action, so this wasn’t bargained for
(2) Moral/gratuitous promises aren’t enforced.
Modern Law and Economics Approach
Did the parties want and expect the promise to be enforced at the time that they made it?
Consideration can always be manipulated. Law and Economics tries to remedy this by allowing flexibility or looking at the parties’ INTENT!
If there is consideration, the court will allow for ____ damages?
Expectation Damages: put the parties into their position as-if the contract had been executed properly.
Normative theories for consideration
a) Functional: helps people know what they are promising/being promised
b) Moral: Requires people to enforce good promises. Don’t want to regulate familial relationships
i) Gifts (redistributive, they just transfer wealth)
ii) Commercial transactions (make society better off, create wealth)
c) Realistic: consideration is a tautology—doesn’t mean anything. The court manipulates this doctrine in order to decide contract for some other reason.
d) Efficiency: we should enforce promises that individuals want enforced. (Law and economics approach). UCC 2-205 reflects this idea—firm offers.
Options contracts
a) An option contract has two parts:
(1) an offer to do something or refrain from doing something and
(2) an agreement to leave the offer open for a certain period of time or for a reasonable period of time.
Require consideration. Section 87 of restatement
Hamilton Bancshares
Hamilton Bancshares, Inc. v. Leroy
(Option Contract)
Promise to keep an offer open must be supported by consideration, regardless of whether that option was exercised. Optionors said they were terminating the option. Optionees exercised the option.
i) Consideration was $1 and was only purported, never delivered. BUT The payment of earnest money ($5 K) constituted sufficient consideration for the option contracts It serves as evidence of intent.
b) Section 87 of Restatement allows purported consideration because we are just trying to determine whether or not parties wanted to enforce the contract.
(Employment Agreements)
Fisher v. Jackson
Rule- An agreement for permanent employment, that does not include a definite term as to time, is deemed a hiring for an indefinite term that either party may terminate at will, unless the parties provide special consideration in addition to what is necessary for the employment.
Man wants to leave job as baker and become a reporter. He is hired “for life,” with no definite term of time but was quickly fired. Man leaving job did not give any consideration anyways. Reduced payment and leaving baker job are just a conditions for a new job; he was not required to quit his previous job.
Gift vs. Consideration-based promise?
Could the offeree have reasonably believed that the intent of the Offeror was to induce the action? If so, there is consideration.
a) General rule: a promise to make a gift in the future is unenforceable
b) Courts rarely enforce donative promises in a family setting
c) Bailey v. West: Horse care case.
(Adequacy of Consideration)
Subjective Value
Economic value does not matter. If the item/promise/etc. is desired, it’s consideration. General rule-we don’t care about adequacy. Nominal is okay.
(Adequacy of Consideration)
Pre-existing duty rule
No consideration when a promise is to perform a previously existing duty
(Adequacy of Consideration)
Modification
i) Common Law—modification by consideration required. Unless: there is a rescission of the contract and a new contract formed, unforeseen difficulties, new obligations on both sides (consideration).
ii) UCC—modification for the sale of goods does not need consideration. Governed by good faith.
(Adequacy of Consideration)
Illusory promise
Essentially pledges nothing
(Adequacy of Consideration)
Requirements contracts
Buyer agrees to buy all it will require from the other party. Outputs contracts: seller agrees to sell all that it manufactures to a buyer. These are supported by consideration
Kendrick Oil
Petroleum Refractionating Corp. v. Kendrick Oil Co.
Kendrick promises to buy oil from PRC. PRC promises to sell oil, unless it stops making that grade. Kendrick argued that PRC’s promise was illusory because they could cancel and thus didn’t give anything up. But they did—they could only cancel if they gave up their right to make that grade of oil. Forbearance
(1) This would satisfy Bargained-For and Benefit/Detriment
Moral Obligations and Past Consideration
a) General rule: A person who performs unrequested or voluntary services for someone else does not thereby acquire a right to compensation.
i) Exceptions: Doctors performing emergency services, volunteering to pay debt that expired under the Statute of Limitations
Benefit-Received Doctrine
Moral obligations plus a material benefit received can add up to valid consideration –> Restitution Damages
i) Restatement Section 86: strictly restitutionary—a promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice, unless the benefit was conferred as a gift or for other reasons the promisor has not been unjustly enriched.
