Module 8 - Consideration Flashcards
What is the primary basis for the enforcement of promises
consideration
Consideration
the value given in return for a promise (bilateral) or the return for a performance (unilateral)
What are the two parts of consideration?
- Something of legally sufficient value must given in exchange (value in eyes of law)
- There must be a bargained for exchange
Legally sufficient consideration may take the form of:
(1) Promising to do something they have no legal duty to do
(2) Performing an act they are not obligated to take
(3) Forbearing from doing something that they could legally do
What was Hamer vs. Sidway about?
uncle told nephew if you don’t drink or use tobacco until 21 I will pay you money
- was legal to do so at the time so he got the money
What does Bargained-for Exchange mean
the value given must be promised in return for another value
What each party is willing to give up for the other parties promise
How are gifts distinguished from contracts
contracts must be bargained for
do courts care if the consideration is of equal value
no
in what situations do courts inquire into the adequacy of consideration?
when their is fraud, undue influence, duress or lack of bargained-for exchange
if someone already has the legal obligation to do something can that be consideration
no
What are the 5 Rules of Consideration?
1 Lack of Consideration Rule
#2: Adequacy of Consideration Rule
#3 Illusory Promise
#4 Past Consideration
#5: Pre Existing
What does Rule #1 Lack of Consideration mean?
only promises supported by consideration are enforceable
What are the exceptions to Rule #1
- Promissory Estoppel
- Charitable Subscriptions
What is a promissory estoppel
it is when a promisor makes a clear and definite promise, on which the promisee justifiably relies, the promisor may be bound despite the lack of a valid legally binding contract
what are the required elements for a promissory estoppel
- There must be a clear and definite promise
- Promisee Justifiably relied on the promise
- Reliance is substantial and definite
- Enforcing it is in the best interest of justice
Why are charitable subscriptions the exception to rule #1
similar to promissory estoppel because charity is relying on the money promised
What does Rule #2 Adequacy of Consideration mean
Courts do not care about the adequacy of the exchange of value
- they don’t care if you got a fair deal
what is the exception to rule #2
situations involving wrong doing – fraud, duress, undue influence
What does Rule #3 Illusory Promise mean?
when a contract contains a statement by the promisor that requires no actual obligation on the part of that person to fulfill, the promise is an illusory promise
Terms of contract are vague so we don’t really know what the agreement is
If profits continue to be high, everyone will get a 10 percent bonus at the end of the year—if management agrees
this is a…
illusory promise
What is an exception to Rule #3: Illusory Promise
Option to cancel
- like subscriptions because you are both under the impression you can cancel at anytime
What is rule #4: Past consideration
promises made in return for actions or events that have already happened are unenforceable
past consideration is no consideration
What is rule 5: Pre-existing duty
promise to do something or not do something you are legally obligated to do is not sufficient consideration
What are the two scenarios where Rule #5 comes up?
Obligation under the law
Existing contractual duty
