Consideration & Bargain

Question 1

Consideration

Answer 1

The general rule in American K law is that a promise is unenforceable unless it is supported by consideration.

Question 2

Bargained-for-Exchange

Answer 2

The exchange of promise for consideration.

Question 3

Insufficient Consideration

Answer 3

When a promisor defending against an attempt to enforce a gratuitous promise states that:

• the promise is not supported by consideration
• there is a want of consideration, or consideration is lacking; or
• there is legally insufficient consideration

Question 4

Failure of Consideration

Answer 4

A claim that the party has not performed in accordance with their promise.

Question 5

Preexisting Duty Rule

Answer 5

A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform (can’t be consideration because promisor is already bound).

Question 6

Determining if there is Consideration

Answer 6

• The majority of jurisdictions evaluate consideration based on the bargained-for exchange inquiry.
• A minority of jurisdictions use a benefit/detriment analysis instead (looks at whether there is a benefit to promisor or a detriment to promisee)
• Other jurisdictions use a hybrid method (promise in exhange for a detriment)

Question 7

What is a Detriment?: Legal Detriment Test

Answer 7

The promisee incurs a legal detriment if he is doing something he had a legal right not to do or is forgoing some activity in which he had a legal right to engage.

Question 8

Adequacy of Consideration

Answer 8

The modern rule is that courts do not look at adequacy of consideration (therefore, inadequate consideration is not a defense).

Question 9

Illusory Promises

Answer 9

A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won’t constitute consideration.

Question 10

Gratuitous Promises v. Gratuitous Transfers

Answer 10

Promise to make a gift, generally unenforceable due to insufficient consideration. However, gratuitous transfers are legally binding.

Question 11

Forbearance of a Claim or Defense

Answer 11

• Valid consideration exists when a party agrees to forbear a claim or defense in exchange for a promise or performance by the other party.
• This is so even if the claim or defense proves to be invalid if:
• the claim or defense is in fact doubtful because of uncertainty as to the facts or the law; or
• the forbearing party believes that the claim or defense may be fairly determined to be valid.

Question 12

Alternatives in the Absence of Consideration

Answer 12

Include:

• past or moral consideration
• promissory estoppel

Question 13

Past/Moral Consideration (Majority Rule)

Answer 13

As a general rule, a promise given in exchange for something already given or already performed will not satisfy the bargain requirement except for:

• a written promise to pay a debt barred by SOL
• a written promise to pay all or part of an indebtedness that has been discharged in bankruptcy

Question 14

Past/Moral Consideration (Minority Rule)

Answer 14

A promise made in exchange for a past benefit is enforceable if the benefit was material and was bestowed on the promisor rather than a third party.

Question 15

Promissory Estoppel

Answer 15

Has four requirements:

• a promise
• foreseeable reliance
• actual reliance
• injustice without enforcement

Question 16

Promissory Estoppel: Inducement

Answer 16

The actual reliance must be induced by the promise. The action or reliance cannot be taken on account of other factors.

Question 17

Promissory Estoppel: 5 Factors to Analyze “Injustice” Req.

Answer 17

Include:

• Strength of proof of the other three requirements
• Blameworthiness or willfulness of the breach;
• Relative position or equities of the parties
• Extent to which the reliance was detrimental; and
• Availability of alternatives short of enforcing the promise