Consideration

Question 1

Elements of Consideration

Answer 1

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.

Past Consideration = No Consideration

In general, courts do not inquire into the adequacy or fairness of consideration.
* However, if something is entirely devoid of value (token consideration), it is insufficient.
* Sham consideration (insignificant 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.

Question 2

Modification of Contracts (Consideration)

Answer 2

Under general contract law, a contract can’t be modified unless the modification is supported by new consideration. (Pre-existing Legal Duty Rule)

The modern view, however, permits modification without consideration if:
1. The modification is due to circumstances that were unanticipated by the parties when the contract 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 and different terms.

Question 2

Discharge of Debts

Answer 2

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 sufficient 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 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

Question 2

Promissory Estoppel or Detrimental Reliance

Answer 2

Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if:
* The promisor should reasonably expect to induce action or forbearance; and
* Such action or forbearance is in fact induced.