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33 Cards in this Set
- Front
- Back
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Consideration (definition)
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(R §71): (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of: a) an act other than a promise or, b) a forbearance, or c) the creation, modification, or destruction of a legal right/relation. (4) The performance or return promise may be given to the promisor or to some other person.
*Consideration =something of some value in the eyes of the law: either benefit to the promisor or some detriment to the promisee. |
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Purpose of consideration
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• Cautionary impact: act of consideration promotes deliberation and thinking transaction through
• Evidentiary benefit: improves clarity of evidence that contract exists • Channeling benefit: by putting transaction into this form, you are channeling it into a legal format w/ legal repercussions |
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What is Bargained-For exchange?
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o A promise must induce the detriment and the detriment must induce the promise
o Legal detriment will result if the promisee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do o OR Legal benefit – is a forbearance or performance by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor. |
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Gifts
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o Ordinary Gifts – promise fails to be enforceable for lack of consideration not only because the promise is not part of a bargain, but also because no detriment is suffered by promisee.
o Conditional Gifts – promisee undergoes a detriment. There is lack of consideration only because there is a lack of bargain. -CASE STUDY: Kirksey v. Kirksey |
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Test for distinguishing Bargains from Pre-Conditions
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Ask whether the occurrence of the condition is a benefit to the promisor? If so, the promisee’s action was probably bargained for. If not, the promisee’s action was merely a precondition.
• Question of fact – look at surrounding circumstances • A bargain may be present even though promisor doesn’t receive an economic benefit (could receive a non-economic benefit) • Valuable consideration may consist of some right, interest, profit or benefit accruing to the one party OR a forbearance, detriment, loss, or responsibility given, suffered, or undertaken by another. •CASE STUDY: Hamer v. Sidway |
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Promisee Must be Aware of the Promise
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For this reason, most Courts hold that where a reward is promised for a certain act, and the act is performed w/o the actor being aware of the reward, he can’t recover.
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Nominal Consideration
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essentially promises of gifts which frequently recite that agreement is made “in consideration of $1 paid” or some other miniscule sum. The recital of purely nominal consideration is usually an indication that there was no bargain at all, but rather a gift.
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Importance of whether recited consideration was actually paid
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•Significance of Showing – a showing that consideration wasn’t paid (majority view) will not necessarily mean that there is no consideration. The underlying issue is always was there a bargain?
•Close Cases – the recital may make a difference, especially when it is unclear whether there was a bargain or not |
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Past-Consideration
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NOT SUFFICIENT. Where the detriment has been suffered before the promise was made, it is obviously not bargained for by the promisor
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Detriment
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promisee must do something he doesn’t have to do, or refrain from doing something that he has a right to do. (Non-economic detriments are ok if it aids him morally, physically, or spiritually.) As long as the party has restricted his freedom of action, he has suffered a legal detriment, regardless of whether there is “harm” to him in the commonly-accepted sense.
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Courts will not inquire into the adequacy (equivalency) of the values exchanged
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Parties exchange things that don’t have roughly equivalent value (due to donative intent of parties, one party is more ignorant than the other, or that the parties are mistaken). In these cases, as long as the promisee suffers some detriment (no matter how small) the court will find consideration.
o R §79 states “if the requirement of consideration is met, there is no additional requirement of (b) equivalence in the values exchanged. |
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Only the EXTREME LACK OF EQUIVALENT value may indicate that the bargain element isn’t satisfied.
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A gross inequality b/w the two things exchanged may be evidence of fraud, duress, unconscionability, or mistake. R §79.
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Apfel v. Prudential-Bache Securities, Inc
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o Apfel (pl) agrees to disclose a method of computerizing municipal securities and not share the method with any other company or the public. After 3 yrs, def stops paying for the method and argues that it was in public domain, so pl didn’t have a right to sell it.
o ISSUE: Was there consideration when the ideas sold in the contract were not novel? o ‘Novelty’ of idea was irrelevant; idea had value to def. and so there was consideration o Parties are free to bargain, even if the consideration bargained for is of unequal or dubious value. |
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In Re Greene
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o Woman made K w/ her lover that he would pay her a lot of money, pay her rent, life insurance, etc. Woman was to give her lover $1 as consideration for his above actions.
o HOLDING: A $1 nominal consideration will not support an executor promise to pay hundreds of thousands of dollars. Promise is unenforceable since there appears no other sufficient consideration in the written agreement. Past illicit intercourse is not consideration. “Other good and valuable consideration” is plausible, but there is no proof that anything good or valuable had been given at the time the K was made. Lover’s previous payments were gratuitous. Although the parties may have intended to make a valid agreement, the most formal document possible can’t disguise what is in reality a gift. |
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Fiege v. Boehm
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o Boehm became pregnant and believed in good faith that Fiege was the father. Fiege promised to pay Boehm for the birth expenses and make support payments for the raising of the child as long as Boehm would not institute criminal bastardy proceedings against him. Def made payments under the agreement but stopped when blood tests revealed that he was not the father.
o Boehm (pl) argues that def. agreed to pay in exchange of pl’s promise to forbearance to prosecute. While Fiege (def) argues that pl’s forbearance was not based on a valid claim and so no consideration existed. o ISSUE: Can forbearance from asserting a good faith legal claim be sufficient to constitute consideration? o Forbearance from asserting a legal claim known to be invalid is NOT valuable consideration. However, it is valid consideration (this case) if the party subjectively believed (in good faith) that the claim is valid and pl’s belief must be objectively reasonable! |
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Pre-Existing Duty Rule
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If a party does or promises to do something he is already legally obligated to do, or if he forbears or promises to forbear form doing something which he isn’t legally entitled to do, he has not incurred the kind of detriment necessary for her performance or forbearance to constitute consideration.
-Alaska Packers |
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Alaska Packers v. Domenico
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o Workers coerced superintendent into promising them higher wages once they were at sea, since they couldn’t get other workers at that point (hold-up situation). Superintendent told them that he didn’t have the authority to change the terms, but they would get their higher wages. When they returned to shore, Alaska packers refused to pay them promised higher wages.
o ISSUE: Was there actual consideration to uphold the new ‘modified’ contract? No bc there’s no new consideration in this agreement to render same services! o HOLDING: You can’t coerce someone to change the terms of a contract, which you have already agreed to. Victims of hold-up situations can take resistant party to court to get them to follow the terms of the original agreement. o There is a lack of consideration for the new agreement (did nothing additional for the added compensation; no new benefit to the promisor and no new detriment to the promisee). |
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R §73
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in accord w/ the majority of courts in holding that an agreement to do what one is already legally obligated to do isn’t consideration. “Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration.” Restatement does put some limits on the pre-existing duty rule.
--Limitation to R §73: Unforeseen Circumstances- R § 89(a) makes a modification binding if it is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made. |
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Levine v. Blumenthal
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o P trying to recover unpaid balance of rent increase for 2nd year of lease. D claims that P allowed him to stay under the same rent “until business improved” in light of extreme economic adversity. Owner received no benefit, D could’ve filed bankruptcy and P would’ve gotten nothing back.
o ISSUE: No consideration for the reduced rent. o HOLDING: Economic adversity (and fear that tenant will go bankrupt) will never suffice as consideration. An addition to a K must have its own consideration. o There WOULD have been consideration IF there was an actual agreement for debtor to refrain from bankruptcy (forbearance) |
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Possible exceptions to the pre-existing duty rule
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o Promise to pay less, but also to not enter bankruptcy, is sufficient consideration
• Creditor doesn’t want debtor to enter bankruptcy o A promise to pay (less money) before maturity can be sufficient consideration • He’s agreeing to do something new, because his pre-existing duty was to pay the money at a later date o Substituted performance is enforceable • Ex: a debtor owes a creditor 1,000 but doesn’t have the money. He has 3 boxcars of wheat and offers that to the creditor in place of the money, and the creditor accepts the wheat in place of the 1,000. • Referred to as an “accord.”/ when debtor delivers wheat, it is called “satisfaction” |
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R §89(c)
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allows the use of promissory estoppel to make a modification binding “to the extent that justice requires enforcement, in view of material change of position in reliance on the modification.”
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possible exceptions to the pre-existing duty rule *
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* See outline and fill in
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Mutuality of Obligations
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Both promises must be binding promises or the K is void for lack of consideration. (Requirement of consideration on each side of the K.)
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Unilateral Contracts
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The act that the offeror bargains for from the offeree must be sufficient consideration for the promise that the offeror makes. The bargained-for-act must (in the majority view) impose a legal detriment on the offeree or (in the minority view) must confer a legal benefit on offeror.
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Bilateral Contracts
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A makes a promise (his offer), which is conditioned on the giving of a return promise by the offeree (B). The return promise by B is the consideration for A’s promise, and A’s promise is consideration for D’s promise.
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Illusory Promise
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A statement which appears to be promising something, but that doesn’t commit the promisor to anything at all.
• EX → Reservation of right to Change Mind – common kind of illusory promise that occurs when the promisor reserves the right to change his mind. |
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(Exception) When we enforce an illusory promise
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Promissory Estoppel – will enforce these promises if promisor should reasonably expect the promise to induce substantial action or forbearance by promisee, and the promise DOES induce such action/ forbearance.
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alternative promises
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a promise which reserves to the promisor several alternative performances is generally consideration only if each of the alternative performance would’ve been considered if it had been bargained for alone. R §77(a).
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Right to Terminate Agreement
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1. Where termination possible only after partial performance - if one party to a K has the right to terminate only after he has done an act which by itself would constitute consideration, his promise is not illusory, and constitutes consideration.
2. Termination based upon party’s inability to perform - does not render the contract void for lack of consideration 3. Unfettered right to terminate with notice - where the agreement provides that one party may terminate simply by giving notice at any time, the party with their termination right has not furnished consideration b/c the party hasn’t promised anything at all, since he has reserved an unfettered right to change his mind. a. Duty to notify under UCC – §2-309(3) provides that “termination of a K by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and agreement dispensing with notification is invalid if its operation would be unconscionable.” |
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McMichael v. Price
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o P (Buyer) and D (Seller) entered into a K where P would buy all the sand that he could sell from D over 10 years. This allowed P to escape the K by not selling any sand (esp bc he had no official business in selling sand), but both P and D thought that P could sell a lot of sand. P didn’t sell as much sand as D (seller) thought (and wasn’t making as much $) so he stopped selling him sand. D argues that P (buyer) had a free way out of the K by not selling any sand, so there was no mutuality of obligation.
o ISSUE: Was there mutuality of obligation to make it a binding contract? Yes o HOLDING: Although P didn’t own a sand-selling store, it was anticipated by both parties that with all of P’s connections and past experience in the sand business, he would be able to sell a substantial amount of sand to the mutual profit of the contracting parties. Crt rules that D’s allegation is w/o force b/c it was the intent of the parties (based on expectations of mutual profit) to enter into a mutually binding contract. (Price of sand to be bought was fixed, and P (buyer) was compelled by the contract to buy all the sand he could, and a breach of that duty would also have made buyer liable for D (seller’s) damages. |
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Requirements and Output Contracts
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buyer agrees with seller that buyer will buy all of his requirements for a particular good from seller at an agreed-upon price. Or, if seller agrees to sell all his output of a particular product to buyer.
• UCC Approach, §2-306 |
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UCC Approach to Requirements and Output Contracts, §2-306
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Explicitly validates requirement and output contracts.
o “A term which measures the quantity by the output of the seller of the requirement of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirement may be tendered or demanded.” o Exclusivity implied in requirement contracts - §2-306 contemplates that the buyer in a requirements contract will deal exclusively w/ the seller that he has contracted with. o No speculation allowed under requirement contracts – when a change in market conditions make it highly advantageous for a requirements buyer to increase his requirement sharply, the UCC probably doesn’t permit such abuse of the K. |
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Wood v. Lucy, Lady Duff-Gordon
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{Finding Consideration through an implied promise.}
• Crt (Cardozo) takes a broader view and abandons formalism! Doesn’t need explicit wording! (Can be implied) • P (agent) got exclusive rights to marketing D’s products and was to receive ½ of all income. Wood’s only duties under the K were to account for monies received and secure patents as necessary, but if Wood didn’t market the clothes, no monies would be received and no patents would be necessary. • D (Lady Duff) marketed her own products and withheld those profits from P. P (agent) sued for breach. Lady Duff (D) argues that the K lacks mutuality b/c P didn’t explicitly promise to market D’s products. (Since there was no express promise according to language, Lady Duff argues that there was no consideration.) • ISSUE: Is an agreement where the promisee is not specifically mandated to act might still indicate a requirement for performance sufficient to allow consideration to be inferred? YES.• HOLDING: Cardozo finds an implied promise/obligation to use reasonably efforts to market design. • Evidence of mutuality of obligations (creating consideration): o P’s acceptance of the exclusive agency was acceptance of its duties. P’s sole compensation was to be ½ of the profits, so he would get no money if he didn’t use his best efforts. There was mutuality b/c P had to give monthly reports and D wouldn’t have entered an exclusive agency agreement if she didn’t expect P to work and market her products. • UCC § 2-306(2) Output, Requirements, and Exclusive Dealings o Codification of Wood case – requires that a buyer use nest efforts to promote the sale of goods |
