Consideration and Consideration Subs

Question 1

To form a traditional, enforceable contract, the agreement must be supported by consideration. Consideration involves

Answer 1

a transfer of legal value in a bargained-for exchange.

Question 2

Consideration is present if:

Answer 2

The promisee incurs a legal detriment OR the promisor receives a legal benefit (most courts only focus on whether the promisee incurred a legal detriment irrespective of whether the promisor received a benefit);

AND

The promise induces the detriment AND the detriment induces the promise
(i.e., a “bargained-for exchange”).

Question 3

A legal detriment generally consists of:

Answer 3

Promising to do something the party has no prior legal duty to do;

Performing an action that the party is not otherwise obligated to undertake;

OR

Refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled to exercise.

Question 4

Promising not to sue (settlement of a legal claim) will constitute a legal detriment so long as

Answer 4

the party promising not to sue has an honest and good faith belief in the validity of the claim.

Question 5

Gift promises are

Answer 5

NOT consideration

(e.g., A promises to give B his truck for free. Here, B incurs no legal detriment and A’s promise to give B his truck is not induced by any action or forbearance from B. This is a gift promise, not bargained-for consideration.).

Question 6

Conditional gift promises are

Answer 6

NOT consideration

(e.g., A promises to give B his truck if B will drive 30 minutes away to pick the truck up from A’s house. Here, A’s promise to give B his truck is not induced by B coming to pick the truck up. Thus, A is not bargaining for B to come. This is a conditional gift, not bargained-for consideration.).

Question 7

Preexisting legal duties are

Answer 7

NOT consideration (e.g., A promises to pay B $100 if B refrains from smoking crack-cocaine for 6 months. Here, B already has a preexisting legal duty imposed by law to refrain from smoking crack-cocaine. Thus, B incurs no legal detriment, which means consideration is not present.).

Question 8

Past consideration is

Answer 8

NOT consideration (e.g., A’s truck catches fire as A is demonstrating the truck’s safety features to B. After the fire erupts, B rushes over and extinguishes the flames saving A’s life. Grateful, A promises to pay B $100 for the rescue. Here, B’s detriment (saving A’s life) was not induced by A’s promise. This is past consideration, not bargained-for consideration.).

Question 9

A pretense of consideration is

Answer 9

NOT consideration (e.g., A and B are cousins. A wishes to give B his truck that is valued at $10,000 as a gift for B’s birthday. Attempting to form an enforceable contract, A “sells” B his truck for $1 solely to meet the consideration requirement. Here, A is not induced to give B his truck for the $1. This is merely a pretense of consideration, not bargained-for consideration.).

Question 10

An illusory promise is

Answer 10

NOT consideration (e.g., A promises to buy B’s truck if “he feels like it.” Here, A is not committing to the deal. This is an illusory promise, not bargained- for consideration.).

Question 11

Under the common law, contract modifications MUST

Answer 11

be supported by consideration.

The common law follows the preexisting duty rule, which means that a promise to do something that a party is already legally obligated to do (by contract or otherwise) is NOT consideration.

Question 12

Watch out for this Bar Exam trick: Alex rents an apartment from Slumlord for one year at a rent of $1,500 per month. Later that year, Alex (running short on cash) and Slumlord both agree to modify the rent to $1,000 per month.

Answer 12

Here, under the common law, Slumlord can sue Alex at the end of the month for the extra $500, because there was no consideration for the modification of the contract (Alex had a preexisting legal duty to pay the full $1,500).

Question 13

the UCC and K modifications

Answer 13

Under the UCC, there is no consideration requirement. A contract modification is valid if it is made in good faith (i.e., the UCC does NOT apply the preexisting duty rule).

Question 14

Promissory Estoppel

Answer 14

Promises that lack consideration may still be enforced under the doctrine of promissory estoppel if:

The promisor should reasonably expect the promise to induce action or forbearance from the promisee;

The promise does induce such action or forbearance to the promisee’s
detriment;

AND

Injustice can be avoided only by enforcement of the promise.

Question 15

Under the restatement approach, the remedy granted for promissory estoppel

Answer 15

may be limited as justice requires. Courts that follow the restatement approach usually limit the plaintiff’s recovery to the monetary value of the losses incurred in reliance on the promisor’s promise (i.e., reliance damages).

Question 16

Promissory estoppel often arises

Answer 16

in fact patterns where gift promises that lack consideration are made to charity organizations. Under the second restatement, a charitable subscription (i.e., a written promise) or a marriage settlement is binding without proof that the promise induced action or forbearance

Question 17

Contracts that lack consideration (“quasi-contracts”) may be enforced to avoid unfair
results if:

Answer 17

The plaintiff confers a measurable benefit on the defendant;

The plaintiff reasonably expected to get paid;

AND

It would be unfair to let the defendant keep the benefit without paying.

Question 18

Under a quasi-contract theory, the plaintiff’s recovery is limited to

Answer 18

restitution (i.e., an amount equal to the economic benefit that the plaintiff conferred on the defendant).

Question 19

Moral Obligation + subsequent promise

Answer 19

A few jurisdictions have some case law suggesting that a moral obligation plus a subsequent promise can be binding. Normally, this type of promise would be past consideration and thus nonbinding (e.g., Tom’s truck catches fire. Brady rushes over and extinguishes the flames saving Tom’s life. Grateful, Tom promises to pay Brady
$100 for the rescue. Here, this is NOT bargained-for-consideration. However, Brady could argue that the promise should be enforced due to the strong moral obligation involved.).