Contracts > II. Contract Formation > D. Lack of consideration as reason not to enforce agreement

Question 1

When is a promise not to sue on a claim valuable consideration?

Answer 1

When the claim is valid or the claimant believes in good faith that the claim is valid.

Question 2

If a reasonable person would believe a claim is valid, can a promise not to sue on that claim be used as valuable consideration?

Answer 2

No. Such a promise only constitutes valuable consideration if the claimant believes in good faith that the claim is valid.

Question 3

What is valuable consideration?

Answer 3

Valuable consideration is a bargained-for change in legal position between the parties.

Question 4

When two parties seeking to contract bargain for changes to their respective legal positions, this is called:

Answer 4

Valuable consideration.

Question 5

What is the difference between valuable consideration and detrimental reliance?

Answer 5

Valuable consideration is a bargained-for change in legal position, while detrimental reliance is a substitute doctrine that arises when valuable consideration is not present in order to prevent injustice.

Question 6

Under the UCC, Art. 2, may a contract for goods be modified without consideration?

Answer 6

Yes. (But only if the modification is sought in good faith.)

Question 7

Under the UCC Art. 2, is a contract modification sought in good faith but without additional consideration binding?

Answer 7

Yes.

Question 8

Name two exceptions to the preexisting legal duty rule.

Answer 8

Honest dispute as to the legal duty owed and unforeseen circumstances making performance impracticable.

Question 9

Are requirements and output contracts treated differently under the UCC. Art. 2 than other contracts with respect to modification?

Answer 9

No. No consideration is required to modify a contract under Art. 2, so long as the modification is entered into in good faith.

Question 10

Must consideration be valuable at the time of contract formation to be considered adequate?

Answer 10

No. The possibility of future value is sufficient to form adequate consideration, even if that event never comes to pass.

Question 11

What is ratification?

Answer 11

A ratification is a new, valid promise to perform what previously was a voidable obligation.

Question 12

Why is a promise to perform a preexisting legal duty not a ratification?

Answer 12

A preexisting legal duty exists only when there is an enforceable underlying agreement. Ratification applies only when no legal duty to perform exists at the time the new promise is made.

Question 13

Is a promise to perform on a disputed debt considered ratification? Why or why not?

Answer 13

No. The obligation to perform on the debt existed prior to this new promise. The original obligation was valid; no voidable agreement is present, so ratification cannot apply.

Question 14

What is the material benefit rule?

Answer 14

Under the material benefit rule, a court may enforce a promise if: (i) it is based on a material benefit that was previously conferred by the promisee on the promisor, and (ii) the promisee did not intend to confer the benefit as a gift. (Although becoming more common, this rule is applied in a minority of jurisdictions.)

Question 15

After a bystander rescued a dog from an icy lake, the dog’s owner said, “To thank you, I’m going to pay you $1,000.”If, despite the fact that the benefit was conferred on the dog owner before his promise, this promise is enforced by a court, what legal theory or rule must the court be applying to reach this result?

Answer 15

The material benefit rule, in which a court will enforce a promise made after the valuable consideration was provided, if that consideration was not initially intended as a gift.

Question 16

Are there any circumstances in which a “moral obligation” to perform on a promise made after a material benefit has been conferred would be sufficient consideration make the promise enforceable?

Answer 16

No. A moral obligation to perform the promise would not be sufficient consideration to support enforcement of the promise under the material benefit rule or under any other circumstances. The general rule of consideration states that if something was already given or performed before the promise was made, it will not satisfy the bargain requirement, even if a reasonable person would feel the circumstances created a moral obligation for the promisor to perform.

Question 17

Can “peace of mind” be valuable consideration?

Answer 17

Yes. Consideration need not be economic. A benefit of peace of mind or the gratification of influencing the mind of another is sufficient to establish bargained-for consideration.

Question 18

Why is a detriment involving a prior obligation not valuable consideration?

Answer 18

If something was already given or performed before the promise was made, it was not given in “exchange” for the promise when made. It is thus not consideration. To constitute bargained-for consideration, the detriment must be the price of the exchange.

Question 19

George tells Sam, “Come to my house, and I will give you my stereo.” Sam promptly goes to George’s house, but George will not give him the stereo. Can Sam legally enforce George’s promise to give him the stereo? Why or why not?

Answer 19

No. A condition on the promise of a gift does not count as consideration. Therefore no legally enforceable agreement exists.

Question 20

George tells Sam, “I was going to give my stereo away, but if you’ll pick my sister up from the airport, I’ll give it to you. Sam agrees and brings George’s sister to the house, but George won’t give him the stereo. Can Sam legally enforce George’s promise? Why or why not?

Answer 20

Yes. George’s request that Sam undertake a detriment (picking up George’s sister) constitutes valuable consideration. In other words, picking up George’s sister was the price of the stereo.

Question 21

What is an illusory promise?

Answer 21

An illusory promise is one where the promisor is not bound to perform.

Question 22

What is mutuality?

Answer 22

Mutuality is a requirement for a valid contract. It requires that consideration exist on both sides of a contract. If one side makes an illusory promise, no consideration is given and the proposed contract is not valid.

Question 23

Is a promise to perform based on the promisor’s satisfaction illusory? Why or why not?

Answer 23

No. The promisor must act in good faith. Thus, both parties have a duty to perform and mutuality exists.

Question 24

When is a conditional promise unenforceable?

Answer 24

When it is wholly within the promisor’s control.

Question 25

When is a conditional promise illusory?

Answer 25

When the condition is wholly within the promisor’s control. If the promisor can control the condition so that he suffers no legal detriment, he has no obligation to perform, rendering his promise illusory.

Question 26

As long as a conditional promise is not illusory, is it enforceable?

Answer 26

Yes, no matter how remote the condition may be.

Question 27

If a conditional promise is wholly within the promisee’s control, is it enforceable?

Answer 27

Yes. The promisor’s obligation to perform does not rest with him, so the promise is not illusory.

Question 28

If a conditional promise is wholly within a third party’s control, is it enforceable?

Answer 28

Yes. As long as the promisor’s obligation to perform does not rest wholly with him, the promise is not illusory and can be enforced.

Question 29

True or False: A legal detriment must involve either a measureable loss to the promisee or an actual benefit to the promisor.

Answer 29

False. Detriment is not equal to loss. As long as the party suffers some sort of detriment (i.e. agreeing to refrain from something it has a right to do, even if it never intended to exercise that right), a legal detriment must exist.

Question 30

Must consideration be equal in order for an agreement to be enforceable?

Answer 30

No. Courts generally don’t inquire as to the adequacy of consideration, so long as consideration is, in fact, given by all parties. Some courts of equity may inquire if the contract is so lopsided as to make the agreement appear unconscionable.

Question 31

A debtor’s payment of a smaller sum than due on an undisputed debt __________ be considered sufficient consideration for a promise by the creditor to discharge the debt.

Answer 31

Will not. Because the debt here was due and the proposed consideration was in no way different from the original obligation, no consideration has been provided to support the creditor’s discharge of the debt. Without additional consideration (i.e. an early payment, cash instead of financing, etc.) the preexisting legal obligation must stand.

Question 32

What is the preexisting legal obligation rule?

Answer 32

A promise to perform, or the performance of, an existing legal duty is not consideration.

Question 33

Is partial payment of a debt sufficient consideration for a promise by a creditor to discharge a debt? Why or why not?

Answer 33

Standing alone, no. Although the creditor may be giving away a legal right to collect the full amount, a detriment sufficient for consideration, the debtor contributes no consideration to the promise, as he was already legally obligated to pay the full amount of the debt. There is thus no mutuality. However, if the debtor makes the payment early or pays with an alternative form of payment, that could be enough consideration to support a discharge.

Question 34

A promise that contains a right to cancel or withdraw at any time may be valid consideration if:

Answer 34

The right is in any way restricted.

Question 35

Is the reservation of an unqualified right to cancel or withdraw at any time always an illusory promise?

Answer 35

No. Such reservations are not illusory if the right is in some way restricted, i.e. “with 60 days’ notice.”

Question 36

Is a contract enforceable if both parties to the agreement have the same unrestricted right to cancel or withdraw?

Answer 36

No it is void. Neither party has provided consideration.

Question 37

For contracts premised on satisfaction, which types of contracts require good faith and which apply a reasonable person standard?

Answer 37

Good faith: personal tasteReasonable person: mechanical fitness, utility, and marketability.

Question 38

Will the presence of substitute consideration make an executory bilateral contract fully enforceable from the moment of formation?

Answer 38

No. Only valuable consideration will make it enforceable from the moment of formation. Although substitute consideration may make the agreement enforceable after its formation, the possibility of substitute consideration after the fact is insufficient to provide mutuality of consideration at the time the contract is formed..

Question 39

When can past consideration be sufficient consideration for a new promise?

Answer 39

When a past obligation would be enforceable except for the fact that a technical defense to enforcement stands in the way (e.g., statute of limitations), the courts will enforce a new promise if it is writing or has been partially performed.