Contract Formation: Consideration

Question 1

What is the general rule re: contract formation and consideration?

Answer 1

promise must be supported by consideration or consideration substitute

Question 2

What are the two elements necessary to constitute consideration?

Answer 2

1. bargained for exchange;

2. that which is bargained for must be of “legal value” (benefit to promisor or detriment to promisee)

Question 3

Is there consideration when there is a gift?

Answer 3

No.

Question 4

What is the rule re: “past or moral consideration”?

Answer 4

In General: Promise given in exchange for past acts is NOT enforceable.
Example –> In consideration of you having done X, I now give you $1000

Exceptions:

1. If past promise is unenforceable due to technical defense (ie..statute of limitations), obligation WILL be enforcable if:
   (i) a new promise is made in writing; or
   (ii) is partially performed
2. Modern trend –> if past act:
   (i) benefitted promisor; AND
   (ii) was performed by promisee at the promisor’s request OR in response to an emergency, a subsequent promise to pay for that act IS enforceable

Question 5

What is the rule re: adequacy of consideration?

Answer 5

Generally, courts will not look into adequacy of consideration

HOWEVER, consideration that’s totally without value is not sufficient

if there is a possibility of value, that’s OK even if value never comes

Question 6

What is the rule re: pre-existing legal duty and consideration?

Answer 6

General rule: Performing Pre-existing legal duty is NOT sufficient consideration

Exceptions:

1. new/different consideration promised;
2. the promise is to ratify a voidable obligation
3. pre-existing duty is owed to a 3rd person (not promisor)
4. there is an honest dispute as to the duty
5. there are unforeseen circumstances sufficient to discharge a party
6. Modern trend –> modification is fair and equitable in view of circumstances not anticipated
7. Good faith modification of UCC contract needs no consideration

Question 7

What is the rule re: forebearance to sue and consideration?

Answer 7

A promise to refrain from suing = consideration IF:

1. claims is valid; or
2. claiming believes in good faith that claim is valid

Question 8

What is the rule re: mutuality and illusory promises?

Answer 8

• Consideration must exist on both sides of K. If only one party is bound to perform, the promise is ILLUSORY and will not be enforced

Question 9

What is the rule re: consideration and the right to choose alternative courses?

Answer 9

A promise to choose one of several alternative means of performance is illusory UNLESS every alternative involves legal detriment to promisor.

The promise will NOT be found illusory if:

1. at least one alternative involves legal detriment and power to choose lies with promisee or 3rd party; OR
2. valuable alternative (one involving legal detriment) is actually chosen

Question 10

What is the rule re: promissory estoppel or detrimental reliance?

Answer 10

Consideration is NOT necessary if the facts indicate that the promisor should be estopped from not performing:

A promise is enforceable even without consideration if necessary to prevent injustice IF:

1. promisor should REASONABLY EXPECT to induce action or forbearance; AND
2. such action or forbearance is ACTUALLY INDUCED

Question 11

What is the rule with regards to damages and promissory estoppel/detrimental reliance?

Answer 11

• some courts will allow expectation damages
• some courts might award reliance damages (usually a lesser award) if they follow the 2nd restatement, which provides that the remedy “may be limited as justice requires.