Consideration Flashcards
(36 cards)
Contract is
Mutual assent + consideration
17 says
17 says that the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. RS71, in turn, says that to constitute consideration, a promise must be bargained for.
- Bargain Theory of Consideration
In order to legally enforce
- A contract is an enforceable promise
- With some exceptions, to be enforceable a promise must be supported by consideration
- A promise is supported by a consideration if it is bargained for
- A promise is bargained for “if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise”
Dahl v. Hen Pharma
Promise for Promise
- Consideration? Yes – exchanged promises
- (1) Agreed to experiments and detriment of subjecting to schedule of experiments, effects of experiments in exchange for the year supply
- (2) Pharmaceutical company agrees to provide year supply in exchange for the benefit of having test subjects and being able to carry out the experiments
Two basic aspects of consideration
(1) Promisee suffer a legal detriment, i.e. promises must give up something of value, or circumscribe his liberty in some way ( and maybe promisor gains a benefit); and
(2) Promise must be bargained for, i.e. promise was made to induce other’s performance (or legal detriment) suffered by the promisee. Both promises have to be given up to induce others.
Policy of Consideration
(1) Evidentiary – existence of consideration provides objective evidence that the parties intended to be legally bound by the agreement they made
(2) Cautionary – requirement of consideration also affords parties the opportunity to consider the full implications of their actions before binding themselves because statements and promises made without the support of consideration are not binding
(3) Channeling – following traditions of formalities and the courts enforce it. It is for judicial efficiency
policy consideration
- Exchange transactions are enforced b/c society wants the reliability of commercial exchanges.
a. In contrast, gifts are of little commercial utility - Courts can police unfair bargaining
- UCC 2-205 – as long as there is a set time you don’t need consideration, 3 months is the longest time
Distinguishing Bargains from Gratuitous Promises: Alternative to bargain for exchange is a gratuitous promise
- Was the promise to do something made IN EXCHANGE for something else? Why are the parties making the promise?
- Consideration is the difference between a bargain and a gratuitous gift.
- Proposal of contingent gift
proposal of a gift is not an offer within the present definition; there must be an element of exchange. It is not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him.
Johnson v. U
Promise can be revoked
i. Holding: The school’s intent to establish a fund based on the donation is not consideration as not induced by Johnson’s note to donate upon death.
ii. Donation will be given if set up memorial scholarship – conditional gift
iii. Promise to pay money can be revoked at any time
iv. If yo make a promise for something you already have to do, there is no bargain. Nothing has changed.
Kirksey v. Kirksey
Kirksey v. Kirksey – She gave up her own land and moved because of his promise, but P did not exchange a reciprocal promise with D that would give him consideration to secure the land and let her live there for a long period of time?
i. Gift that could be revoked – no consideration on D’s part, nothing from P to induce D to secure the land as hers
ii. May have suffered a detriment, but bargain is the decisive test
Mutual Inducement
- R2oC § 81: A promisor must induce a promise OR performance from the promisee. Promisee must use performance or promise to induce promisor to keep promise.
Hamer v. Sidway
Inducement as consideration
Because the nephew (1)gave up a legal right to do as he pleased (smoke, drink, curse, etc.), and performed exactly what the (2) uncle induced him to do to receive the $5000, there was consideration and payment is due.
Rule from gamer about consideration viewed as a sacrifice
- But suffered no detriment as became a better person because of his restrictions - still sacrificed a right/freedom in an exchange for the payment
- Rule: Consideration viewed as a sacrifice or detriment meant to induce promise to be carried out (mutual inducement) or to exchange benefits for both parties (bargain theory)
• Benefit detriment is not the end all be all but helps identify if one was trying to give a gift or make a bargain
MORAL AND PAST CONSIDERATION
Generally not binding but there are exceptions. If someone acknowledges a moral duty and makes a promise because of it, that is binding. Also goes the other way
• Moral consideration (a moral obligation) is only sufficient consideration where the promisor himself has received a material/substantial benefit (Webb v. McGowin); in such cases, promises made in recognition of previously-received benefit may be enforceable “to the extent necessary to prevent injustice” (RST §86) fair amount of judicial discretion
- Promise for Benefit Received
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice
(2) A promise is not binding under subsection (1) if
(a) if the promisee conferred the benefit as a gift or, for other reasons the promisor has
not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit
Moore v Elmer
Past Consideration
- Moore did predictions for Elmer, and Elmer sent a note after that said if she was right and he died before 1900, he would pay her mortgage.
- Rule: If the services were rendered ahead of time, you cant induce something that has already happened in the past. You cant bargain for something that has already been given to you.
- Cannot add consideration to a past favor with an additional “piece” as agreement already was carried out
- Court held that consideration didn’t exist (no bargain) and this was more like a wager or bet
Mills v. Wyman
Moral Consideration
- Son is really sick. Good Samaritan takes care of him; paying for medicine and treatment. Dad promises to pay.
- Rule: There is no legal obligation for a father to take care of a grown son, and so it follows that the promise had no legally binding force, since there was no moral consideration.
- The dad did not receive a material benefit
- Father did not bargain for/know of the son’s care, nor did he have to since the son was not a minor – no exchange
- If son was a minor, there is a legal obligation for the father to make sure he is cared for – then moral consideration would suffice
Webb v McGowin
86 applied
• Facts: Guy working maneuvers large object and saves a life but injures himself in the process. Guy whose life was saved promises to pay. Other guy sues to enforce that promise.
• Rule: McGowin recognized a moral obligation to help the man who suffered on his behalf because of the substantial benefit (his life/lack of injury) he received at Webb’s expense, so the agreement to pay for his care had sufficient consideration and is a valid agreement
Difference here is that in the first case the son dies and he’s just sad. He isn’t deprived on any material benefits. His position doesn’t change. In the second case, he receives a material benefit in that his life was material.
Pre-exisiting duties are unenforceable
• A promise to do something the party is already under an obligation to do.
E.g., a police officer has a preexisting duty to use best efforts to recover stolen property.
• Such a promise is unenforceable because no new consideration has been given.
• Preexisting duty rule arises when one party to an existing contract seeks to change the terms of the contract during the course of its performance. Such midstream changes are unenforceable without additional consideration. The parties have a preexisting duty to perform according to the original terms of the contract.
Unforseen Difficulties
• Sometimes a party to a contract runs into substantial unforeseen difficulties while performing his or her contractual duties.
o Outside normal risks of business. E.g., contractor finds substantial environmental contamination that must be remediated at great expense.
• The contract can be modified and enforced without new consideration being given.
§89. Modification of Executory Contract
Allows modification, where fair and equitable, in view of unforeseen circumstances, or detriment in reliance
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made, or
(b) to the extent provided by the statute, or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise
UCC 2-209 Modification
UCC 2-209 Modification, Rescission and Waiver
An agreement modifying a contract within this article needs no consideration to be binding
Stilk v. Myrick
Coercion not Consideration
- Rule: Not giving up or adding any benefit beyond what they were already supposed to be doing (preexisting duty)
- The Court holds that there was no new consideration because there was no new duty; the original crew just simply fulfilled their preexisting duty.
- Captain coerced into accepting the contract to pay more – coercion is not an act of consideration, nor could the sailors alter a contract that had already begun execution w/o issuing new consideration
