Consideration [IN PROGRESS] Flashcards
Consideration is
a contract requirement in which there must be a bargained for exchange
A promise is supported by consideration if:
- It induces a legal detriment to the promisee, and the promisee’s detriment induces the promise.
- The reciprocal nature of detriment for promise gives rise to a bargained for exchange
A conditional gift ______ supported by consideration
is not
Kirksey v. Kirksey
Promises to make gifts are generally not enforceable because they lack consideration, even if they have conditions attached to
them.
there was no consideration where someone was permitted to live on land if they moved. Although they suffered a detriment by leaving their home to move, the promise was not induced by the detriment. Therefore, it was merely a condition to a gift, not consideration
Hamer v. Sidway
If the promise to make a gift is induced by the detriment, then there will be a
contract.
forbearing from smoking and drinking is valid consideration
DAHL V. HEM
PHARMACEUTICALS
If one party makes a promise in exchange for another party’s act or performance, and the other party completes that act or performance, there is a binding contract between the parties.
Consideration does not exist where it is only
nominal or is merely a sham.
Newman v. Hunter (worthless stock)
2. Restatement of Contracts §71
Consideration for detriment previously suffered does not arise to consideration because
the promise did not induce that
detriment. BUT, a court may still enforce past consideration.
What past consideration may still be enforceable without consideration
Agreements to pay discharged debt or moral obligations
For there to be consideration, the promisee must suffer
a legal detriment, a requirement to act or refrain from acting, that is induced by the promise.
If a party does or promises something that they are legally already obligated to do
they have not incurred a legal detriment that will amount to consideration
(ex: minor agreeing not to drink alcohol is not a valid contract because they already have a pre-existing duty to refrain from drinking alcohol.)
When might the court find that there was no bargained for exchange?
Where there is an extreme disparity in value
Restatement of Contracts §89
Modification will be allowed if is fair and
equitable; or By statute; or To the extent that justice requires in view of a material change in position in reliance on the promise.
Does it matter if the consideration is inadequate in light of the agreement?
No, it only matters that the parties have incurred a bargained for exchange. (Consideration will be satisfied if so)
A party may allow a reformation of the contract where the circumstances have changed
to create an inequitable outcome. (Brian Construction v. Brighenti)
Alaska Packers v. Domenico
no consideration where the sailors required a higher wage to continue an expedition
When, if ever, can settling a lawsuit serve as consideration?
Settling a lawsuit can serve as consideration, so long as the party believes, in good faith, they have a legal claim
The detriment is refraining from exercising a legal right to claim a judicial remedy.
Dyer v. National By-Products
does not matter if the the claim has merit, but only if the claim is believed to have merit in good faith
Restatement of Contracts §74
Claim settlement is encouraged
[As with Dyer, most courts have read a “good faith”
requirement into (b); i.e., honest and reasonable]
Past consideration can be enforced if
necessary to prevent injustice
Webb v. McGowin
Past consideration permitted because
someone saved someone’s life, a material benefit, of which is a
service that could be implied they would have contracted for.
The subsequent agreement to pay money was a ratification of
the contract)
Restatement of Contracts §86
(1)A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched;
or
to the extent that its value is disproportionate to the benefit.
A promise to pay past debt
is generally enforceable even though no
consideration is provided
A promise to pay for benefits or services received will
generally be enforceable without consideration. The subsequent promise will generally be considered a ratification of an implied offer
Promissory Estoppel
Promises that foreseeably induce reliance on the part of the promisee
will often be enforceable without consideration under the doctrine of
promissory estoppel. Restatement of Contracts §90
3 elements of Promissory Estoppel
- Promisor should reasonably expect to induce action or
forbearance; - Action or forbearance occurs as a detriment to the
promisee; and - Enforcement of the promise can prevent injustice.
Promissory Estoppel can serve as a substitute for for consideration or as a cause of action where
there is no contract but a promisee relies to their detriment
For promissory estoppel to apply, a promise must
(1) reasonably induce reliance, (2) the reliance causes a detriment to the
party, and (3) injustice can be avoided through enforcement of the promise. Second
Restatement § 90
Hoffman v. Red Owl
Promissory estoppel can substitute for a written contract
Reliance can also prevent an offeror from withdrawing their offer if
it is reasonable that an offeree will rely on that offer
Award will generally be limited
as justice requires; sometimes
reliance, sometimes expectation
Parol Evidence limits
the extent that parties can introduce extrinsic evidence before the contract was signed
Restatement of Contracts §214
A writing is more likely to be impartial and accurate than
memory from the distant time ago when negotiations were
taking place.
Restatement of Contracts §210
i. A document is intended to be integrated if it is intended as the
final expression of the agreement. (a merger clause can indicate
that the contract is completely integrated)
ii. Partial integration: a contract that does not contain all the terms
and is not fully complete on its own.
iii. Total integration: a document that contains all the terms of an
agreement.
A document is intended to be integrated if
it is intended as the
final expression of the agreement. (a merger clause can indicate that the contract is completely integrated)
Partial integration
a contract that does not contain all the terms and is not fully complete on its own
Total integration
a document that contains all the terms of an agreement.
Where an agreement is partial
no evidence may be introduced
that contradict the terms of the written document
Where there is a total integration
no supplementing evidence
may be introduced.
Does total integration bar subsequent oral agreements
no
Who determines if there is partial or total integration
judge
What is generally upheld
Merger Clauses
Parol Evidence does not apply to
aid in the interpretation of an
ambiguous term
REST. § 71
REQUIREMENT OF EXCHANGE
* (1) To constitute consideration, a performance or a return promise must
be bargained for.
* (2) 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.
* (3) The performance may consist of
* (a) an act other than a promise, or
* (b) a forbearance, or
* (c) the creation, modification, or destruction of a legal relation.
* (4) The performance or return promise may be given to the promisor or
to some other person. It may be given by the promisee or by some
other person.
HARRIS V. WATSON
For policy reasons, a promise to pay additional money during times of danger does not constitute adequate consideration to support a contract and will not be upheld.
STILK V. MYRICK
A contract for services cannot be modified without the payment of additional consideration.
ALASKA PACKERS ’
ASS ’N V.
DOMENICO
If parties enter a new agreement under which one party agrees to do no more than he was already obligated to do under an existing contract, the new agreement is unenforceable for lack of consideration.
BRIAN CONSTRUCTION
“[W]here a contract must be performed
under burdensome conditions not
anticipated, and not within the
contemplation of the parties at the time
when the contract was made and the
promisee measures up to the right standard
of honesty and fair dealing and agrees, in
view of the changed conditions, to pay what
is then reasonable, just, and fair, such new
contract is not without consideration.”
Restatement v. UCC on Modifications
Restatement § 89(a) = fair and equitable in view of
circumstances not
anticipated by the
parties when the
contract was made
UCC § 2-209 must meet good faith test but no consideration needed
Historical vs modern approach for consideration
Historically / Some Courts: Benefit Promisor / Detriment Promisee
Modern Approach: Bargained-for Exchange
Historical vs modern approach for modification
- Historically: Pre-Existing Duty Rule
- Modern Approaches: Restatement & UCC
REST. §79
ADEQUACY OF CONSIDERATION;
MUTUALITY OF OBLIGATION
If the requirement of consideration is met, there is no
additional requirement of . . . equivalence in the values exchanged
Disparity in value . . . sometimes indicates that the purported consideration
was not in fact bargained for but was a mere formality or pretense. Such a sham or
“nominal” consideration does not satisfy the requirement
of §71.
Is there consideration
when a promise has no value (a “worthless piece of paper”)?
No, Something that does not have value cannot constitute consideration.
