Consideration Flashcards
Definition of consideration
Consideration is a bargained-exchange which causes a detriment to the promisee.
(1) A performance or return 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. (Rest. 71)
(2) A detriment is doing that which one is not legally required to do or forbearing to do something which one has a legal right to do.
Resolution of a disputed claim
a) Forbearance to assert or the surrender of a claim or defense which proves to be valid is consideration.
b) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless the forbearing or surrendering party had an honest, good faith belief in the claim’s validity.
Past consideration
a) Generally, past consideration is not valid consideration because it is not bargained for nor given in exchange.
Moral obligations - definition
Generally, at common law, moral obligations arising out of a benefit previously received were not enforceable because it could not be said to have been given in exchange for the promise
Moral obligations - exceptions to the traditional CL rules
(1) Promise to pay debt no longer legally enforceable because the SOL has run.
(2) Promise by an adult reaffirming a promise made when the promisor was a minor and that could have avoided on that ground
(3) Promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.
Illusory promises
(1) A promise is not consideration if the promisor reserves a choice of alternative performances unless each of the alternative performances would have been consideration if it alone would have been bargained for. (Rest. 77)
(2) A promise where the promisor reserves a choice that effectively frees him from any obligation.
Satisfaction clauses - where the condition calls for satisfaction
(1) Where the condition calls for the satisfaction as to commercial value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously, and the standard of a reasonable person is used in determining whether satisfaction has been received.
Satisfaction clauses - where the question is one of judgement
(2) Where the question is one of judgment, the promisor’s determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract. The decisions necessarily imply that the promisor’s duty to exercise his judgment in good faith is an adequate consideration to support the contract.
Requirement/output contracts
(1) Sale of goods contracts where the quantity is measured by either the requirements of the buyer or the output of the seller.
(2) Early cases said these types of contracts were illusory, but modernly they are valid.
(3) Carry obligation of good faith (UCC 2-306(1))
Termination clauses
(1) If a termination clause is read as giving a party the power to terminate at any time at will, without more, that party’s promise will be held to be illusory.
(2) If, however, a termination clause is read as requiring that notice be given some period of time before the termination becomes effective, or be given in writing, or in some other way restricts the right of termination, the promise will not be held to be illusory.
Pre-existing duty rule - definition
a) A promise to perform a duty which the promisor is already legally obligated to perform is not consideration.
Pre-existing duty rule - exceptions
(1) Any change in performance will constitute consideration
(2) Promise to perform a voidable obligation
(3) Preexisting duty owed to 3rd party
(4) Honest dispute as to duty
(5) If a promise modifying a duty under a contract not fully performed on either side is binding if modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. (Rest. 89)
(6) Rescission and modification
(7) UCC contracts (UCC 2-209(1))
Reliance as a basis for enforcement (rest. 90)
a) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
b) This is not a substitute for consideration, although you may hear/read otherwise.
(1) Consideration creates a contract (along with offer and acceptance), but promissory estoppel does not.
c) Damages are limited to reliance damages, as opposed to contract damages.
