Consideration Flashcards
Consideration
- Courts will enforce a promise as a K only if it is supported by consideration/a sub for consideration
Elements of Consideration
- 2 elements are necessary to constitute consideration:
(1) a bargained-for exchange between the parties; and
(2) legal value, meaning that which is bargained for must be considered of legal value (it must constitute a benefit to the promisor or a detriment to the promisee)
Bargained For Exchange
- This element of consideration requires that the promise induce the detriment and the detriment induce the promise.
- There is no bargain involved (meaning, no consideration) when one party gives a gift to another
Act/Forbearance by Promisee Must Be of Benefit to Promisor
- An act/forbearance by the promisee (or a promise to act/forbear) is sufficient consideration to form a K if it benefits the promisor.
- The benefit, however, need not be economic (ex. the gratification of influencing the mind of another is sufficient).
Past or Moral Consideration
- A promise given in exchange for something already done does not satisfy the bargain requirement
Tip:
- Beware of questions that use the word “consideration” to refer to something already done, as in “In consideration of your having done X, I promise
you $1,000.” Under the general rule, this promise is not enforceable because the promise is given in exchange for past acts.
Exceptions: Past Acts
- Where a past obligation is unenforceable because of a technical defense (ex. SOL), that obligation will be enforceable if a new promise is made in writing/partially performed.
- Under the modern trend, if a past act benefited the promisor & was performed by the promisee at the promisor’s request in response to an emergency, a subsequent promise to pay for that act will be enforceable.
Legal Value Element: Adequacy of Consideration
- In general, cts do not inquire into the adequacy/fairness of consideration.
- However, if something is entirely devoid of value (token consideration), it is insufficient.
- Sham consideration (insignificant sum recited in K) is also insufficient if not paid.
- But note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.
Legal Benefit & Legal Detriment
- Legal detriment results if the promisee does something they are not legally obligated to do/refrains from doing something they have a legal right to do.
- A legal benefit is the reverse.
- It is forbearance/performance of an act that the promisor was not legally entitled to demand/expect.
Preexisting Legal Duty Not Consideration & Exceptions
- Traditionally, performing/promising to perform an existing legal duty is insufficient consideration.
Exceptions:
The preexisting legal duty rule is riddled with exceptions.
There is consideration if:
(1) New/different consideration is promised;
(2) The promise is to ratify a voidable obligation (ex. a promise to ratify a minor’s K after reaching majority or a promise to go through with a K despite the other party’s fraud);
(3) The preexisting duty is owed to 3rd person rather than to the promisor;
(4) There is an honest dispute as to the duty; OR
(5) There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the mod is fair and equitable in view of circumstances not anticipated when the K was made.
- Also, a good faith agreement modifying a K subject to the UCC needs no consideration to be binding.
Tip:
Although payment of a smaller sum than due on an existing debt is generally not sufficient consideration for a promise by the creditor to discharge the debt, cts will attempt to avoid this result by applying the above exceptions. Thus, you should check the facts for new/different consideration given (ex. payment earlier than required or payment in stock instead of cash); this change in performance could make the payment of a smaller amount sufficient consideration
Modification of Ks
- Under general K law, a K can’t be modified
unless the modification is supported by new consideration. - The modern view, however, permits modification without consideration if:
(1) the mod is due to circumstances that were unanticipated by the parties when the K was made and
(2) it is fair and equitable. - Under the UCC, consideration isn’t necessary to modify; all the parties need are good faith promises of new & different terms.
Tip:
For MBE purposes, the examiners have indicated that they have adopted the modern view. However, on any non-UCC essay question that involves mod, you should discuss the traditional view and any relevant state exceptions, including the modern Restatement view where it is relevant.
Discharge of Debts
- A debt can be discharged through an accord & satisfaction (see discussion in Module 6).
- In general, an accord must be supported by consideration.
- Even if the consideration is of a lesser value than the originally bargained-for consideration in the prior K, it is sufficient if the new consideration is of a different type or if the claim is to be paid to a 3rd party.
- In addition, a debtor’s offer to make a partial payment on an existing debt will suffice for an accord & satisfaction if there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration
Forbearance to Sue
- A promise to refrain from suing on a claim constitutes consideration if the claim is valid or the claimant in good faith believed the claim was valid.
