Week 3 - Test 1 Flashcards
each party to a contract must get something to which that party was not legally entitled before entering the contract, and each party must give up something to which that party was legally entitled before the contract
consideration
Common law included a concept that contracts (1) –formal contracts–could be binding without (2), but much modern law has abolished that theory.
- under seal
2. consideration
4 places consideration might be excused under law
- promissory estoppel
- promise to pay charitabe donation
- promise to pay debt not legally enforceable
- promise under which one person “guarantees” performance by another (cosigning)
Consideration : Each party must (1) to which that party was not (2) before entering the contract, and each party must (3) to which that party was (4) before the contract.
- get something (not weighed by courts)
- legally entitled
- give up something
- legally entitled (smoking v. street racing)
each party is induced to enter contract by consideration offered by the other party
bargained-for
an illusion; stated consideration does not really obligate the party (such as “if I like it, I will pay you”)
illusory
imposed or influenced by individual position or bias
subjective standard
not influenced by personal opinion or bias–this may be able to be imposed on a more measurable standard such as “if you do a good job, I will pay you” (esp. for professionals)
objective standard
an offer can be made irrevocable for a period of time, without consideration (gap-filling provision for at-first-glance illusory contracts)
“merchant’s firm offer” rule
stated consideration did not really occur–not allowed.
sham consideration
minimal–such as an amount sometimes recited in a contract even when the actual consideration is higher
nominal
recital
formal statement
If consideration is “shockingly” unequal, a court may invalidate a contract as (1). Especially likely if one party has no (2)–courts try to protect these people.
- unconscionable
2. bargaining power
event that must occue before the contemplated transaction is completed (for example, offer to buy a house if able to secure a loan–but not applying for that loan would be a breach)
condition precedent
event that may “undo” an executed contract (e.g., allowing return of a dress if husband doesn’t like it)
condition subsequent
contract under which buyer agrees to purchase all that seller produces; court may impose requirement of reasonable performance (third party will buy everything of what is made by a manufacturer–implication that manu will stick to normal output)
output contract
contract under which buyer agrees to purchase all of buyer’s needs from seller (exclusive dealing); court may impose requirement of reasonable performance (e.g., agreement to buy all baked goods from one supplier–needs based because no guarantee how much will be bought from third party)
needs contract
contract under which parties agree to deal only with each other with respect to particular needs (can have antitrust implications)
exclusive dealing
The general rule is, “(1) is no consideration” (e.g., offering reward for something already done)
past consideration
Consideration cannot be valid for (1), in which the offeree does not receive something new (professor offering tutoring during office hours)
preexisting obligations
a way of sharing risk (I will build for cost of materials + 20%)
cost-plus contract
contract total price includes “estimates” for components; if actual price of components differs from allowances, total contract price changes
allowances
incentive consideration
consideration changes to motivate faster or better performance
A new contract signed halfway through job completion (to complete the job) is considered (1) and is not a contract because it lacks (2). This can be overcome with an (3) though
- blackmail
- consideration
- added offer
The UCC does not require consideration to support modification of an existing contract for the sale of goods, if the modification is made in (1) and in repsonse to circumstances that would not have ebeen (2)
- good faith
2. reasonably foreseeable
agreement to accept and give payment or performance, different from that originally required by contract (e.g., in signing a new contract halfway)
accord and satisfaction
to terminate a contract before all of its terms are compltely performed
rescind
mutual agreement to cancel
recision
waiver
intentional reliquishment of right, claim or privelege
debt that is not in dispute (e.g., no complaints about service paid for)
liquidated debt
debt, the amount of which is in dispute; settlement of which can constitute consideration
unliquidated debt
Acceptance of a lower amount than agreed to could be ruled as (1), or (2)
- waiver of the unpaid amount
2. a completed gift
Courts are sometimes called on to review the fairness of (1), particularly in cases in which the losing party must pay for these for the winning part
- legal fees
Consideration makes a contract (1) as a (2), rather than (3) as a (4).
- enforceable
- contract
- unenforceable
- gift
“No Purchase Necessary” in contests seeks to avoid a (1)
- contractual relationship
Consideration is only an issue when there is an (1) to be completed–it is not an issue with (2).
- outstanding promise
2. executed contracts
2 things that must be in place for a promise to be supported by consideration
- promise gives up something of value or circumscribes (limits) a liberty in some way. (Ie, legal detriment)
- Promissor makes their promise as part of a bargain in exchange for what the promisee has given up–either another promise OR execution of the contract
Two approaches to consideration
- Detriment Approach
2. Bargain Approach
The detriment approach say that consideration is either a (1) by the (2) OR a (3) by the (4).
- benefit received
- promissor
- detriment incurred
- promissee
The detriment approach has been found to be (1)–the question of whether something is a (2) or a (3) can sometimes be fuzzy. Sometimes courts will (4) on this old approach, though.
- overbroad
- benefit
- detriment
- fall back
The bargain approach says that consideration is an exchange of (1), (2) or both, in which each party views what he or she gives up as the (3) of what he or she gets. Most courts use this approach.
- promises
- acts
- price
Not doing something someone has a legal right to do
forebearance
if a party does or promises to do soemthing they are already legall obligated to do, they have not incurred any kind of detriment necessary to constitute consideration
Pre-Existing Duty Rule
To be considered a gift, the person receiving the (1) does not have to do anything
offer
Donations can be (1) because of lack of consideration, but cannot be (2) because they are executed contracts.
- discontinued
2. returned.
Courts may find consideration, for example, in large donations, because “to their detriment, Offeree acted.” Enforced because of reliance on the promise.
Promissory Estoppel
If you see a contract which gives one party total discretion on whether to perform, nothing is promised
Illusory
Analyze:
- “Sell me as many as I choose to order.”
- I’ll buy your painting if I like it.
- Sell me as many as I require
- I will cut your grass weekly for as long as I want. (termination at will)
- Not promising anything - no consideration. Illusory.
- Not promising anything really, but could hold up–subjective standard, good faith
- Not illusory - consideration = exclusive sales - valid.
- Illusory. Nothing promised. No contract.
The court does not have to look at the (1) of a bargain. Also there is no obligation for one person to tell another about inadequacy–this applies to (2) OR (3)!
- adequacy
- intent
- ignorance
“$1 and other valuable consideration”–just to make a contract enforceable
sham consideration
Agreement to accept promise other than what was agreed to in a contract, plus the promise that is newly agreed to.
accord and satisfaction
Accord and satisfaction differs from a counter-offer because (1)
the agreement is already in place
Accord and satisfaction comes into play with (1) and (2) amounts
- disputed (did not know price right away–high service bill that can be negotiated down)
- undisputed (knew price = preexisting duty to pay–cannot write “paid in full” on back of inadequate check)
If the promise is contingent on a condition, consideration kicks in when the condition is met - but the person must make a good faith effort to meet the condition! (eg, will buy house if I can get a loan)
condition precedent
If condition is outside control of both parties, the consideration kicks in at meeting of that condition–parties may not revoke (e.g., split will 50/50)
condition subsequent
