Consideration Flashcards
what is consideration
the primary basis for the enforcement of promise in our legal system
promises are generally enforceable only when the parties have exchanged something of value known as consideration
in order to have consideration
- bargained for exchange
2. legal sufficiency
bargained for exchange
something is negotiated and not considered a gratuitous promise
legal sufficiency
to be legally sufficient, the consideration for the promise must be either a legal benefit to the promisor or a legal detriment to the promisee
the promisor must receive something of legal value or the promisee must give up something of legal value in return for the promise
legal benefit
means the obtaining by the promisor of that which he had no prior legal right to obtain
legal detriment
does not mean harm; but rather something which the promisee was previously under no legal obligation to do or refrain from doing
adequacy
legal sufficiency has nothing to do with adequacy of consideration
requirement of legally sufficient consideration is not at all concerned with whether the bargain was fair or either good or bad for either party
the requirement is
- that the parties have freely agreed to an exchange
- that the subject matter exchanged or promised in exchange, either imposed a legal benefit on the promisor or conferred a legal detriment on the promisee
unilateral contracts
in a unilateral contract, one party (the promisor) exchanges a promised for an action (or restraint from action) from another party (the promisee). The promisee does not make a promise in return, but simply fulfills the action or the retrain to complete the contract
bilateral contract
in a biliateral contract there is an exchange of promises, so each party is both a promisor and a promisee
illusory promises
a statement that appears to be a promise but that, upon close examination of the words, promises nothing real or legally binding; it may contain words such as desire, want or wish to buy making performance entirely optional
where one party is not bound, neither party is bound
output and requirements contracts
the agreement of a seller to sell her entire production to a particular purchaser is an output contract
an agreement to purchase all the materials of a particular kind that the purchaser needs from a seller is called a requirement contract
these are not illusory because they are for a provable quantity not a desired amount
pre-existing obligations
the law does not regard the performance of (or the promise to perform) a preexisting obligation, whether private or public, as either a legal detriment or a legal benefit
no consideration at all
modification of a preexisting contract
the preexisting duty rule under common law requires that a contract modification or amendment be supported by additional and new consideration
UCC provides that contract modifications are binding despite no new consideration provided they intend to do so and act in good faith,
if a valid controversy develops regarding a party’s obligations, a subsequent modification that clarifies the dispute and that is unsupported by consideration will be valid
section 89 of the restatement of contracts 2nd provides that
no consideration is needed to modify an existing contract provided that the modification results from
- unforseen circumstances
- the amount of the modification is fair and equitable
settlement of an unliquidated debt
a disputed (unliquidated) debt is an obligation whose existence or amount is contested. the giving up or compromise of a disputed claim constitutes legally sufficient consideration if the dispute is honest and not frivolous
tender and acceptance of a lesser amount than that demanded in the case of a liquidated, or undisputed debt does not operate as an accord and satisfaction and does not discharge debt, unless there is some new consideration present
past consideration
past consideration is an act done before the contract is made. the element of exchange is missing promise is given for an act already done. past consideration is no consideration.
exceptions to the consideration requirement
certain promises are enforceable even though they are not supported by consideration.
- promise to pay debts barred by the statute of limitations
- promise to pay debts discharged in bankruptcy
- promissory estoppel
- promises made under seal
- contract modifications made under seal
- firm offer by a merchant
- renunciation
promise to pay debts barred by the statute of limitations
the statute of limitations provides a time limit on bringing a legal action, but the debtor can become liable again for an expired debt by freely admitting that the debt is owed, by making partial payment, or by making a new promise to pay without pleading the statute
promise to pay debt discharged in bankruptcy
the bankruptcy act limos the enforceability of such promises, but in some cases, they may be enforceable, as with reaffirmation agreement signed by the debtor
promissory estoppel
sometimes non contractual promises are enforced under the doctrine of promissory estoppel where one party has relied, to her detriment, on the promise made by another party
promises made under the seal
under the common law, a promise under seal was binding without consideration. in some states a promise under seal is still binding. most states, however, have created laws which remove the distinction between contracts under seal and written, unsealed contracts
contract modifications under UCC
a contract for the sale of goods can be modified without any consideration provided the parties act in good faith
firm offer by a merchant
is not revocable for lack of consideration during the time stated in the offer, or for a reasonable time (in no event to exceed 3 months)
renunciation
any claim or right arising from a breach can be discharged with a written, signed renunciation
