Contract Formation: Consideration Flashcards
What is the general rule re: contract formation and consideration?
promise must be supported by consideration or consideration substitute
What are the two elements necessary to constitute consideration?
- bargained for exchange;
2. that which is bargained for must be of “legal value” (benefit to promisor or detriment to promisee)
Is there consideration when there is a gift?
No.
What is the rule re: “past or moral consideration”?
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:
- 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 - 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
What is the rule re: adequacy of consideration?
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
What is the rule re: pre-existing legal duty and consideration?
General rule: Performing Pre-existing legal duty is NOT sufficient consideration
Exceptions:
- new/different consideration promised;
- the promise is to ratify a voidable obligation
- pre-existing duty is owed to a 3rd person (not promisor)
- there is an honest dispute as to the duty
- there are unforeseen circumstances sufficient to discharge a party
- Modern trend –> modification is fair and equitable in view of circumstances not anticipated
- Good faith modification of UCC contract needs no consideration
What is the rule re: forebearance to sue and consideration?
A promise to refrain from suing = consideration IF:
- claims is valid; or
- claiming believes in good faith that claim is valid
What is the rule re: mutuality and illusory promises?
- 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
What is the rule re: consideration and the right to choose alternative courses?
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:
- at least one alternative involves legal detriment and power to choose lies with promisee or 3rd party; OR
- valuable alternative (one involving legal detriment) is actually chosen
What is the rule re: promissory estoppel or detrimental reliance?
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:
- promisor should REASONABLY EXPECT to induce action or forbearance; AND
- such action or forbearance is ACTUALLY INDUCED
What is the rule with regards to damages and promissory estoppel/detrimental reliance?
- 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.