BAR FLASHCARDS - C3 Consideration
(33 cards)
CONSIDERATION
Courts will enforce a promise as a contract only if it is supported by consideration or a substitute for consideration.
ELEMENTS OF CONSIDERATION
Basically, two 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 or, as it is traditionally stated, 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.
Bargained-For Exchange: Act or Forbearance by Promisee Must Be of Benefit to Promisor
An act or forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form a contract if it benefits the promisor.
The benefit, however, need not be economic (for example, the gratification of influencing the mind of another is sufficient).
Bargained-For Exchange: “Past” or “Moral” Consideration
Past consideration is NOT consideration.
A promise given in exchange for something already done does not satisfy the bargain requirement.
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.
Bargained-For Exchange: “Past” or “Moral” Consideration - Exceptions
Where a past obligation is unenforceable because of a technical defense (for example, the statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed. Also, under the modern trend, if a past act benefited the promisor and was performed by the promisee at the promisor’s request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.
Promises for promises
This is consideration
Promise for performance
This is consideration
Promise for forbearance
This is consideration
Adequacy of Consideration
In general, courts do not inquire into the adequacy or fairness of consideration. Even a MERE peppercorn will suffice.
However, if something is entirely devoid of value (token consideration), it is insufficient.
Sham consideration (insig- nificant sum recited in the contract) 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 and Legal Detriment
Legal detriment results if the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do. A legal benefit is the reverse. It is forbearance or performance of an act that the promisor was not legally entitled to demand or expect.
Preexisting Legal Duty Not Consideration
Traditionally, performing or promising to perform an existing legal duty is insufficient consideration.
Contract modifications: Consideration
Under common law, any contract modification needs some consideration. This is the Pre-existing legal duty rule.
Pre-existing legal duty rule.
Need new consideration to modify common law contract. SOmeone asking for more money to do the exact same thing they already agreed to do for less money.
Pre-existing legal duty rule: EXCEPTIONS
The preexisting legal duty rule is riddled with exceptions. There is consideration if:
— New or different consideration is promised;
— The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
— The preexisting duty is owed to a third person rather than to the promisor;
— There is an honest dispute as to the duty; OR
— There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
There is consideration for a modification to the contract if (pre-existing legal duty rule exceptions):
— New or different consideration is promised;
— The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
— The preexisting duty is owed to a third person rather than to the promisor;
— There is an honest dispute as to the duty; OR
— There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
Consideration needed to modify sales of goods contracts
NO consideration is neeed to modify sales of goods contract.
A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.
payment of a smaller sum than due on an existing debt
No consideration generally for the release of the debt, so invalid.
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, courts will attempt to avoid this result by applying the above exceptions.
Thus, you should check the facts for new or different consideration given (for example, 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 Contracts
Under general contract law, a contract can’t be modified unless the modification is supported by new consideration.
The modern view, however, permits modification without consideration if:
(1) the modifi- cation is due to circumstances that were unanticipated by the parties when the contract was made and
(2) it is fair and equitable.
UCC modification of contracts
Under the UCC, consideration isn’t necessary to modify; all the parties need are good faith promises of new and different terms.
But watch out for good faith - a seller trying to grub more money isnt good faith.
Discharge of Debts
A debt can be discharged through an accord and 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 contract, it is suffi- cient if the new consideration is of a different type or if the claim is to be paid to a third party. In addition, a debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfac- tion 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.
Exception to consideration: Promissory estoppel
Promisorry estoppel = PROMISE + PERFORMANCE
MUTUAL AND ILLUSORY PROMISES—REQUIREMENT OF MUTUALITY
Consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties). If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises (for example, a party must use their best efforts) to infer mutuality.
