Chapter 11: Consideration and a Promissionary Estoppel - DONE

Contracts that lack consideration and are therefore unenforceable.

1. Illegal Consideration 2. Illusionary Promises 3.Preexisting Duty 4. Past COnsideration 5.

Consideration requires two seperate elements:

1. Something of legal value must be given (i.e., either a legal benefit must be received or legal detriment must be suffered) 2. there must be a bargained-for exchange. Or legal value and bargained for exchange

. Contracts based on illegal consideration are void.

A contract cannot be supported by a promise to refrain from doing an illegal act because that is illegal consideration

Preexisting duty

A promise lacks consideration if a person promises to perform an act or do something he is already under an obligation to do. The promise is unenforceable because no new consideration has been given.

A requirement contract

BLANK is a contract in which a buyer agrees to purchase all of its requirements for an item from one seller. Such contracts serve the legitimate business purposes of (1) assuring the buyer of a uniform source of supply and (2) providing the seller with reduced selling costs.

A Best Efforts Contract

BLANK is a contract that contains a clause that requires one or both of the parties to use their best efforts to achieve the objective of the contract. The courts generally have held that the imposition of the best-efforts duty provides sufficient consideration to make a contract enforceable.

consideration

Contracts that are not supported by BLANK are usually not enforceable.

An example of illegal consideration

Example A person threatens a business owner, "I will burn your business down unless you agree to pay me $10,000." Out of fear, the business owner promises to pay the money. This agreement is not an enforceable contract because the consideration given—not to burn a business—is illegal consideration. Thus, the extortionist cannot enforce the contract against the business owner.

Settlement Agreement

Example A retailer enters into a contract to license computer software from a technology company for $300,000. This software is to be used to keep track of inventory, accounts receivable, and other financial data. After the software is installed, the computer system works but not as well as promised. The retailer refuses to pay the full amount of the contract. To settle the dispute, the parties agree that $200,000 is to be paid as full and final payment for the software. The retailer pays the $200,000 as agreed. Here, the retailer performed the accord, so there is an accord and satisfaction.

An example of past consideration

Example Felipe, who has worked in management for the Acme Corporation for thirty years, is retiring. The president of Acme says, "Because you were such a loyal employee, Acme will pay you a bonus of $100,000." Subsequently, the corporation refuses to pay the $100,000. Unfortunately for Felipe, he has already done the work for which he has been promised to be paid. The contract is unenforceable against Acme because it is based on past consideration

An Exmaple of an Input Output Contract

Example Organic Foods Inc. is a company that operates farms that produce organically grown grains and vegetables. Urban Food Markets is a grocery store chain that sells organically grown foods. Urban Food Markets contracts with Organic Foods Inc. to purchase all the foods Organic Foods Inc. grows organically this year. This is an example of an output contract: Organic Foods Inc. must sell all of its output to Urban Foods Market, and Urban Foods Market must buy all of the output.

What is an example of a best efforts contract:

Example Real estate listing contracts often require a real estate broker to use his or her best efforts to find a buyer for the listed real estate. Contracts often require underwriters to use their best efforts to sell securities on behalf of their corporate clients. Both of these contracts would be enforceable. Of course, a party can sue another company for failing to use its promised best efforts.

An example of preexisting duty

Example Statutes prohibit police officers from demanding money for investigating and apprehending criminals and prohibit firefighters from demanding payment for fighting fires. If a person agrees to such a demand, she does not have to pay it because public servants are under a preexisting duty to perform their functions.

AN example of a requirement contract

Example The Goodyear Tire & Rubber Company manufactures tires that are used on automobiles. Ford Motor Company manufactures automobiles on which it must place tires before the automobiles can be sold. Assume that Ford Motor Company enters into a contract with Goodyear Tire & Rubber Company to purchase all of the tires it will need this year from Goodyear. This is an example of a requirements contract: Ford Motor Company has agreed to purchase all of the tires it will need from Goodyear. Goodyear may sell tires to other purchasers, however.

Illusory promises (or illusory contracts ),

If parties enter into a contract but one or both of the parties can choose not to perform their contractual obligations, the contract lacks consideration. Such promises, which are known as BLANK are unenforceable.

SPecial Contracts: An Ourput Input Contract

In an output contract, the seller agrees to sell all of its production to a single buyer. Output contracts serve the legitimate business purposes of (1) assuring the seller of a purchaser for all its output and (2) assuring the buyer of a source of supply for the goods it needs.

Instances where there are settlement agreements

In some situations, one of the parties to a contract believes that he or she did not receive what he or she was due. This party may attempt to reach a compromise with the other party (e.g., by paying less consideration than was provided for in the contract). If the two parties agree to a compromise, a settlement of the claim has been reached.

You must follow the original terms stated in the contract

In the private sector, the preexisting duty rule often arises when one of the parties to an existing contract seeks to change the terms of the contract during the course of its performance. Such midstream changes are unenforceable: The parties have a preexisting duty to perform according to the original terms of the contract.

Consideration

It can consist of money, property, the provision of services, the forbearance of a right, or anything else of value. Most contracts are supported by BLANK.

Another example of a gift promise:

On May 1, Mr. Smith promises to give his granddaughter $10,000 on June 1. If Mr. Smith actually gives the $10,000 to his granddaughter on or before June 1, it is a completed gift promise. Mr. Smith cannot thereafter recover the money from his granddaughter, even if the original promise lacked consideration.

An example fo an enforcable gift promise:

On May 1, Mrs. Colby promises to give her son $10,000 on June 1. When June 1 arrives, Mrs. Colby refuses to pay the $10,000. The son cannot recover the $10,000 because it was a gift promise that lacked consideration. If, however, Mrs. Colby promises to pay her son $10,000 if he earns an A in his business law course and the son earns the A, the contract is enforceable and the son can recover the $10,000.

Terms of past consideration and how the court views past consideration

Problems of past consideration often arise when a party promises to pay someone some money or other compensation for work done in the past. Past consideration is not consideration for a new promise; therefore, a promise based on past consideration is not enforceable. . In the following case, the court had to decide whether there was mutuality of consideration.

The most common forms of consideration are

The most common types consist of either a tangible payment (e.g., money, property) or the performance of an act (e.g., providing legal services). Less usual forms of consideration include the forbearance of a legal right (e.g., accepting an out-of-court settlement in exchange for dropping a lawsuit) and noneconomic forms of consideration (e.g., refraining from "drinking, using tobacco, swearing, or playing cards or billiards for money"1 for a specified time period).

For consideration:

The parties may, however, voluntarily perform a contract that is lacking in BLANK. If a contract that was lacking in BLANK is performed by the parties, the parties cannot subsequently assert lack of BLANK to undo the performed contract. .

For the doctrine of promissory estoppel to apply, the following elements must be shown:

The promisor made a promise. The promisor should have reasonably expected to induce the promisee to reply on the promise. The promisee actually relied on the promise and engaged in an action or forbearance of a right of a definite and substantial nature. Injustice would be caused if the promise were not enforced.

consideration

This means that a party who has not given BLANK cannot enforce a contract.

In this instance if someone decides to claim that their contract did not have sufficient consideration:

This rebuttable presumption, however, may be overcome by sufficient evidence. A few states provide that contracts made under seal cannot be challenged for lack of consideration.

Bargained-for exchange.

To be enforceable, a contract must arise from a bargained-for exchange. In most business contracts, the parties engage in such exchanges. The commercial setting in which business contracts are formed leads to this conclusion.

Legal Value

Under the modern law of contracts, a contract is considered to be supported by legal value if (1) the promisee suffers a legal detriment or (2) the promisor receives a legal benefit. Promisee ( suffers a detriment) and the Promisor receives a legal benefit

An example of the doctrine of promissory estoppel

XYZ Construction Company, a general contractor, requests bids from subcontractors for work to be done on a hospital building that XYZ plans to submit a bid to build. Bert Plumbing Company, a plumbing subcontractor, submits the lowest bid for the plumbing work, and XYZ incorporates Bert's low bid in its own bid for the general contract. Based on all of the subcontractors' bids, XYZ submits the lowest overall bid to build the hospital and is awarded the contract. Bert Plumbing plans to withdraw its bid. However, the doctrine of promissory estoppel prevents Bert from withdrawing its bid. Since XYZ has been awarded the contract to build the hospital based partially on Bert's Plumbing bid, XYZ can enforce Bert's promise to perform under the doctrine of promissory estoppel. Allowing Bert to withdraw its bid would cause injustice.

Gift promises

also called gratuitous promises ,

The settlement agreement is called

an accord.

Written contracts

are presumed to be supported by consideration.

Gift promises

are unenforceable because they lack consideration. To change a gift promise into an enforceable promise, the promisee must offer to do something in exchange—that is, in consideration—for the promise. Gift promises cause considerable trouble for persons who do not understand the importance of consideration.

Promissory estoppel

is an equity doctrine that permits a court to order enforcement of a contract that lacks consideration

Promissory estoppel:

is an equity doctrine that permits a court to order enforcement of a contract that lacks consideration. BLANK is applied to avoid injustice. It is usually used to provide a remedy to a party who has relied on another party's promise but that party has withdrawn its promise and is not subject to a breach of contract action because consideration is lacking.

Consideration

is defined as something of legal value given in exchange for a promise.

If the accord is performed,

it is called a satisfaction.

Remember that Consideration

must be given before a contract can exist.

If the accord is not satisfied,

the other party can sue to enforce the accord.

An accord is enforceable even though no new consideration is given because

the parties reasonably disagreed as to the value of the goods or services contracted for. In the alternative, the nonbreaching party to an unperformed accord can choose to enforce the original contract rather than the accord.

The doctrine of promissory estoppel estops (prevents)

the promisor from revoking his or her promise based on lack of consideration. Therefore, the person who has detrimentally relied on the promise for performance may sue the promisor for performance or other remedy the court feels is fair to award in the circumstances.

To be enforceable, a contract must be supported by consideration,

which is broadly defined as something of legal value.