BUS 315: Chapter 13: Consideration

release will generally be binding if

1. the agreement is made in good faith (honesty) 2. the release is in a signed writing (required in many states) 3. the contract is accompanies by consideration

for the promissory estoppel doctrine to be applied, requirements

1. there must be a clear and definite promise 2. the promisor should have expected that the promisee would rely on the promise. 3. the promisee reasonably relied on the promise by acting or refraining from some act. 4. the promisee's reliance was definite and resulted in substantial detriment. 5. enforcement of the promise is necessary to avoid injustice *** if met, promise may be enforced even though it is not supported by consideration.

exceptions to the consideration requirement

1.promises that induce detrimental reliance, under the doctrine of promissory estoppel. 2.promises to pay debts that are barred by a statute of limitations. 3.promises to make charitable contributions

consideration in a unilateral contract

_____contracts, in contrast, involve a promise in return for a performance (ex when you finish painting the garage, i will pay you $800. the act of painting is the consideration that creates Anita's contractual obligation to pay her neighbor $800)

requirements contract

a buyer and seller agree that the buyer will purchase from the seller all of the goods of a designated type that the buyer needs, or requires.

release

a contract in which one party forfeits the right to pursue a legal claim against the other. bars any further recovery beyond the terms stated in the __

liquidated debt

a debt that is due and certain in amount. ex barbara signs an installment loan contract w/ her bank. in contrast, babs agrees to pay a set rate of interest on a specified amount of borrowed funds at monthly intervals for 2 years. because both parties know the precise amount of the total obligation, it is a liquidated debt.

unliquidated debt

a debt that is uncertain in amount. reasonable persons may differ over the amount owed. in these circumstances, acceptance of a lesser sum operates as satisfaction, or discharge, of the debt because there is valid consideration. the parties give up a legal right to contest the amount in dispute

promissory estoppel

a doctrine that applies when a promisor makes a clear and definite promise on which the promisee justifiably relies; such a promise is binding if justice will better be served by the enforcement of the promise. person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery applied in a variety of contexts in which a promise is otherwise unenforceable, such as when a promise is made without consideration. under this doctrine, a court may enforce an otherwise unenforceable promise to avoid the injustice that would otherwise result

preexisting duty (not legally sufficient consideration)

a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. ____ __ __ may be imposed by law or may arise out of a previous contract. sheriff, for ex, has a duty to investigate crime and arrest criminals. sheriff cannot collect a reward for providing information leading to the capture of a criminal

rescission

a remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made, may be effected through mutual consent of the parties, by their conduct, or by court decree

accord and satisfaction (basic rule- can be no satisfaction unless there is first an accord. for accord and satisfaction to occur, the amount of the debt must be in dispute)

an agreement for payment (or other performance) between two parties, one of whom has a right of action against the other. after the payment has been accepted or other performance has been made, the "__ _ ____" is complete and the obligation is discharged.

covenant not to sue

an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. ex if liz agrees not to sue for damages in a tort action if dan will pay for the damage to her car. if dan fails to pay for the repairs, liz can bring an action against him for breach of contract.

quasi contract and promissory estoppel

both impose contract obligations on parties in interest of equity and to prevent unfairness even though no actual contract exists. difference is that with quasi contract, no promise was made at all. in contrast, w/ promissory estoppel, a promise was made and relied on, but it was unenforceable.

bargained for exchange

element of __ _ __ distinguishes contracts from gifts (ex "in consideration of the fact that you are not as wealthy as your brothers, i will pay you $5000. word consideration does not mean consideration is given. promise is not enforceable because the son does not have to do anything to receive the $5000 promised

promissory estoppel example

ex jeffrey and kathryn Dow owned 125 acres of land in Maine. dows regarded the land as their children's heritage, and the subject of kids living on the land was often discussed. daughter teresa, with parents permission, installed a mobile home and built a garage on the land. teresa married jarrod, and dows agreed to finance the construction of a house on the land for the couple. jarrod died in a motorcycle accident, teresa financed the house with his life insurance proceeds. construction around $200k. father, lots of carpentry, etc. teresa asked parents for a deed to the property so she could get a mortgage. refused. teresa sued her parents for promissory estoppel and ruled in teresa's favor. court reasoned that the dow's support and encouragement of their daughter's construction of house on the land "conclusively demonstrated" their intent to transfer. for years, made general promises to convey the land to their children. teresa had reasonably relied on their promise in financing the construction of the house to her detriment (200k). court concluded that enforcing the promise was the only way to avoid injustice in this situation.

consideration

generally, the value given in return for a promise or a performance. the consideration, which must be present to make the contract legally binding contains two parts, 1- must be something of legally sufficient value and 2-bargained for exchange

preexisting duty example

if a party is already bound by a contract to perform a certain duty, the duty cannot serve as consideration for a second contract. EX. Contractor begins construction of building. after 3 months, demands an extra $75,000 on its contract. if extra $ is not paid, contractor will stop working. owner, finding no one else to complete the construction, agrees to pay the extra $75,000. agreement is unenforceable because it is not supported by legally sufficient consideration. contractor had a preexisting contractual duty to complete the building.

new consideration

noncompete agreement( covenant not to compete) is valid when there is...

consideration in a bilateral contract

normally consists of a promise in return for a promise. in a contract for the sale of goods, ex, the seller promises to ship specific goods to the buyer, and the buyer promises to pay for those goods. each of these promises constitutes consideration for the contract.

option to cancel clauses

ometimes, option to cancel clauses in contracts present problems in regard to consideration. when promisor has the option to cancel the contract before performance has begun, the promise is illusory. if abe instead reserves the right to cancel the contract at any time after Chris has begun performance by giving Chris thirty days' notice, the promise is not illusory. abe, by saying that he will give chris 30 days' notice, is relinquishing the opportunity (legal right) to hire someone else instead of Chris for a 30 day period. if chris works for one month and abe then gives him 30 days notice, chris has an enforceable claim for 2 months' salary ($10,000

past consideration

something given or some act done in the past, which cannot ordinarily be consideration for a later bargain. _ _____= no consideration Jamil told Allen Iverson when Iverson was in highschool to call himself "The Answer" because he was the answer to the NBA's problems. later that night, Iverson said he would give Jamil 25% of any proceeds from the merchandising of products that used "The Answer." because the promise was made in return for _ _____, it was unenforceable. in effect, it was intention to give jamil a gift

legally sufficient value.

something of value in the eyes of the law. the "something of legally sufficient value" may consist of the following: 1. a promise to do something that one has no prior legal duty to do 2. the performance of an action that one is otherwise not obligated to undertake 3. the refraining from an action that one has a legal right to undertake (called a forbearance)

illusory promise

terms of contract express such uncertainty of performance that the promisor has not definitely promised to do anything. ex president of company says "if profits continue to be high, everyone will get a 10% bonus at the end of the year- if management agrees." ____ __, or no promise at all, because performance depends solely on the discretion of the president (management). there is no bargained-for consideration. the statement indicates only that management may or may not do something in the future

output contract

the buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller's output

estoppel

the principle that a party's own acts prevents him or her from claiming a right to the detriment of another who was entitled to and did rely on those acts

adequacy of consideration general rule

when items exchanged are of unequal value, fairness would appear to be an issue. in general, however, a court will not question the adequacy of consideration based solely on the comparative value of the things exchanged. aka, the determination of whether consideration exists does not depend on a comparison of the values of the things exchanged

when voluntary consent may be lacking

when there is a large disparity in the amount of value of the consideration exchanged, may raise a red flag for the court to look more closely at the bargain. shockingly inadequate consideration can indicate that fraud, duress, or undue influence was involved. may also cause a judge to question whether the contract is so one-sided that it is unconscionable. (ex, an experienced appliance dealer induces a customer to sign a contract written in complicated legal language. contract requires consumer to pay twice market value of appliance, disparity in value may indicate that the sale involved undue influence or fraud. judge would thus want to make sure that the person voluntarily entered into this agreement).