Contract Formation: Consideration Flashcards

1
Q

What is the general rule re: contract formation and consideration?

A

promise must be supported by consideration or consideration substitute

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2
Q

What are the two elements necessary to constitute consideration?

A
  1. bargained for exchange;

2. that which is bargained for must be of “legal value” (benefit to promisor or detriment to promisee)

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3
Q

Is there consideration when there is a gift?

A

No.

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4
Q

What is the rule re: “past or moral consideration”?

A

In General: Promise given in exchange for past acts is NOT enforceable.
Example –> In consideration of you having done X, I now give you $1000

Exceptions:

  1. If past promise is unenforceable due to technical defense (ie..statute of limitations), obligation WILL be enforcable if:
    (i) a new promise is made in writing; or
    (ii) is partially performed
  2. Modern trend –> if past act:
    (i) benefitted promisor; AND
    (ii) was performed by promisee at the promisor’s request OR in response to an emergency, a subsequent promise to pay for that act IS enforceable
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5
Q

What is the rule re: adequacy of consideration?

A

Generally, courts will not look into adequacy of consideration

HOWEVER, consideration that’s totally without value is not sufficient

if there is a possibility of value, that’s OK even if value never comes

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6
Q

What is the rule re: pre-existing legal duty and consideration?

A

General rule: Performing Pre-existing legal duty is NOT sufficient consideration

Exceptions:

  1. new/different consideration promised;
  2. the promise is to ratify a voidable obligation
  3. pre-existing duty is owed to a 3rd person (not promisor)
  4. there is an honest dispute as to the duty
  5. there are unforeseen circumstances sufficient to discharge a party
  6. Modern trend –> modification is fair and equitable in view of circumstances not anticipated
  7. Good faith modification of UCC contract needs no consideration
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7
Q

What is the rule re: forebearance to sue and consideration?

A

A promise to refrain from suing = consideration IF:

  1. claims is valid; or
  2. claiming believes in good faith that claim is valid
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8
Q

What is the rule re: mutuality and illusory promises?

A
  • Consideration must exist on both sides of K. If only one party is bound to perform, the promise is ILLUSORY and will not be enforced
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9
Q

What is the rule re: consideration and the right to choose alternative courses?

A

A promise to choose one of several alternative means of performance is illusory UNLESS every alternative involves legal detriment to promisor.

The promise will NOT be found illusory if:

  1. at least one alternative involves legal detriment and power to choose lies with promisee or 3rd party; OR
  2. valuable alternative (one involving legal detriment) is actually chosen
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10
Q

What is the rule re: promissory estoppel or detrimental reliance?

A

Consideration is NOT necessary if the facts indicate that the promisor should be estopped from not performing:

A promise is enforceable even without consideration if necessary to prevent injustice IF:

  1. promisor should REASONABLY EXPECT to induce action or forbearance; AND
  2. such action or forbearance is ACTUALLY INDUCED
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11
Q

What is the rule with regards to damages and promissory estoppel/detrimental reliance?

A
  • some courts will allow expectation damages
  • some courts might award reliance damages (usually a lesser award) if they follow the 2nd restatement, which provides that the remedy “may be limited as justice requires.
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