Consideration Flashcards
(15 cards)
CONSIDERATION - WHAT IS EACH PARTY GIVING UP?
To constitute consideration, a return promise must be bargained for. A return promise is bargained for when it is sought by the promisor “in exchange” for his promise and is given by the promisee in exchange for that promise. Restatement (Second) § 71
Bargained For Exchange – reciprocal inducement
For valid consideration, the bargained for exchange of promises must be for some beneficial value to each party.
Legal Value/Detriment
Courts do not inquire into adequacy of consideration, but something totally devoid of value (token) and illusory is insufficient.
Promissory Estoppel (Gratuitous Promises that are Detrimentally Relied Upon)
A promise to make a gift is generally unenforceable, but gratuitous promises that are relied on are enforceable even when consideration is missing. Promissory estoppel makes a gratuitous promise enforceable where the promisee has reasonably and foreseeably relied on the promise to his detriment. “Reliance” provides the basis for enforcing a promise in the absence of consideration. Restatement (Second) §90
GIFTS
NOT VALID CONSIDERATION - No bargained for exchange (A promised to give B $$ when she turned 21; not enforceable bc B reaching 21 not bargained for; plus no estoppel bc will reach 21 regardless of A’s promise
Conditional Gifts
Minor burden imposed on recipient of gift is not sufficient consideration
Exception: Promise to gift enforceable under PE if: - Promisor/donor KNOWS promise will INDUCE SUBSTANTIAL RELIANCE by promisee, and failure to enforce promise causes SUBSTANTIAL INJUSTICE
EXCHANGE FOR PEACE OF MIND
VALID CONSIDERATION - Sufficient (enforceable bargain – meets legal requirement) – economic benefit not required
Gratification in exchange for something – sufficient.
INFORMAL UNRELIED ON GRATUITOUS PROMISES
NOT VALID - promises to pay for a service that was previously gratuitously rendered is not valid Consideration
ACT OF FORBEARANCE (refraining from smoking) IF IT BENEFITS PROMISOR
VALID - Sufficient consideration.
MORAL CONSIDERATION
NOT VALID CONSIDERATION unless material benefit is received.
Exception – Material Benefit/Detrimental Reliance
When party performs unrequested service that constitutes a MATERIAL BENEFIT, performing party may enforce payment even though lack of consideration provided that the performing party rendered services with EXPECTATION OF COMPENSATION and it is enforced ONLY TO EXTENT NECESSARY TO PREVENT INJUSTICE (can’t be more than what it was worth)
PAST CONSIDERATION
Generally NOT VALID BUT see EXCEPTIONS below.
- Where a benefit was already received, or a detriment already suffered - no present bargained for exchange.
EXCEPTIONS to Past Consideration:
o Emergency situations – physician renders aid without discussion of compensation, subsequent promise to pay physician is enforceable
o Debts - One signs a writing promising to repay debt that is no longer collectable due to statute of limitations – creates a new promise for the amount promised in the signed writing or debtor makes partial payment on the debt or provides new collateral for the debt.
o Correcting Mistakes – A paints house B by mistake. Owner of house B promises to pay – Binding
o Necessaries – A finds B’s escaped bull, feeds & takes care of it. B promises to pay reasonable compensation = Binding
FORBEARANCE TO SUE/PROMISE NOT TO BRING LEGAL ACTION
VALID CONSIDERATION
- Promise to refrain from suing on a valid legal claim or assert a valid lawful defense may constitute consideration if claim is valid or claimed in good faith reasonably believing claim was valid - party is giving up legal right; legal action need not be one of certain success
PROMISE OF AT-WILL JOBS
If an employer promises an at-will, job to an employee, and then revokes the promise before the employee shows up for work, Promissory Estoppel may apply.
PRE-EXISTING LEGAL DUTY
Generally NOT VALID CONSIDERATION
- Performing or promising to perform an existing legal duty (which is undoubtful nor the subject of honest dispute) that one is already obligated to do or refrain from is insufficient consideration as there is no legal detriment unless performance is different or varies the preexisting duty in some way (however slightly).
EXCEPTIONS to Pre-Existing Legal Duty:
Third Party: When a third party’s promise is exchanged for the promise to perform an act that the promisor is already contractually obligated to perform, the party’s promise to the third party is sufficient consideration
ILLUSORY PROMISES
An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding.
