Ch 12: Consideration (Contracts)

Front 1

consideration

Back 1

the value (such as cash) given in return for a promise or in return for a performance
- a primary basis for the enforcement of promises

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Elements of consideration

Back 2

1. something of legally sufficient value must be given in exchange for the promise
2. usually there must be a bargained-for exhange

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Legal Value

Back 3

May consist of
1) A promise to do something one has no prior legal duty to do
2) the performance of an action that one is otherwise not obligated to undertake
3) refraining from an action that one has a legal right to undertake (forbearance)

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Bargained-for Exchange

Back 4

distinguishes contracts from gifts
EX; Paloma says to son "In consideration of the fact that you are not as wealthy as your brothers, I will pay you $5,000" - he doesn't have to do anything so it is a gift (she gives reason for it), it is not a contract

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Courts Typically Will not consider adequacy

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When the items exchanged are of unequal value, fairness would be an issue but courts will not question the adequacy of consideration based solely on the comparative value of the things exchange
-Courts leave it up to the parties to decide what something is worth - free to make bad bargains

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Evidence of Inadequate Consideration

Back 6

When there is a gross disparity, may get courts involved. Shockinly inadequate consideration can indicate that fraud, duress, or undue influence may be involved or the element of bargained-for exchange was lacking
When consideration is grossly inadequate, a court may also declare the contract unenforceable because it iis unconscionable - so one sided under the circumstances as to be clearly unfair

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Agreements that lack consideration

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-Preexisting duty
-past consideration
-illusory promises

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preexisting duty

Back 8

a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration

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unforseen difficulties

Back 9

an extrodinary difficulty that was totally unforseen at the time the contract was formed
-often offeror may agree to pay extra to overcome this difficulty
-courts will refrain from applying the preexisiting duty rule and enforce the agreemtn

Front 10

recission

Back 10

the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made
*often parties recind and make a new contract at once - difficult to determine whether there was consideration for the new contract, or whether the parties had a preexisting duty under the previous contract
-If the courts finds a preexisting duty, then the new contract will be invalid because there is no consideration

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past consideration

Back 11

promises made in return for actions or events that have already taken place
These are unenforceable
They lack consideration in that the element of bargained-for exchange is missing

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Illusory Promises

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If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything.
It is without consideration and unenforceable
-A promise is this when it fails to bind the promisor
*When the promisor has the option to cancel the contract before performance has begun, then the promise is illusory

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Requirements contract

Back 13

a buyer and a seller agree that the buyer will purchase from the seller all of the goods of a designated type that the buyer needs or requries
* often uncertain performance is a characteristic of this

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Output contract

Back 14

the buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller's output
* often uncertain performance is a characteristic of this

Front 15

accord and satisfaction

Back 15

involves a debtor's offer of payment and a creditor's acceptance of a lesser amount than the creditor originally claimed was owed.
accord - agreement under which one of the parties undertakes to give or perform something other than that on which the parties originally agreed
satisfaction - takes place whne the accord is executed.
*there can be no satisfaction unless there is first an accord
* for A and S to occur, the amount of the debt must be in despute

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liquidated debt

Back 16

a debt whose amount has been ascertained, fixed, agreed on, settled, or exactly determined
*A and S can't take place

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unliquidated debt

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it is not settled, fixed, agreed on, ascertained, or determined, and thus acceptance of the payment of a lesser amount operates as satisfaction, or discharge, of the debt
*reasonable persons may differ over the amount owed

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release

Back 18

a contract in which one party forfeits the right to pursue a legal claim against the other party.
will be binding if
1) given in good faith
2) stated in a signed writing
3) accompanied by consideration

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covenant not to sue

Back 19

an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim.
*does not always bar further recovery (different than release)

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Exceptions to the consideration Requirement

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Promise may be enforced despite lack on consideration:
1. Promises than induce detrimental reliance, under the doctrine of promissory estoppel
2. Promises to pay debts that are barred by a statute of limitations
3. Promises to make charitable contributions

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Requirements to State a claim for Promissory Estoppel

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1. There must be a clear and definite promise
2. The promisor should have expected that the promisee would rely on the promise
3. The promisee reasonably relied on the promise by acting or refraining from some act
4. The promisee's reliance was definite and resulted in substantial detriment
5. Enforcement of the promise is necessary to avoid injustice

*if met, a promise ma be enforced even though it is not supported by consideration

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promissory estoppel

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"detrimental reliance"
-a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery

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promises to pay debts barred by a statute of limitations

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statutes of limitations require a creditor to sue within a specified period to recover a debt.
A debtor who promises to pay a previous debt even though recovery is barred by the statute of limitations makes an enforceable promise - THE PROMISE NEEDS NO CONSIDERATION
(basically, the promise extends the limitations period, and the creditor can sue to recover the entire debt or at least the amount promised

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Charitable subscriptions

Back 24

generally, these count as gifts-traditionally unenforceable
Sometimes an exception by applying the doctrine of promissory estoppel
EX: Church receives pledges, buys land, etc, then doesn't recieve the money - can be enforceable