Chapter 12: Consideration

Special Cases of Consideration

1) Third Party Beneficiary contracts: consideration can consist of a benefit that accrues to a third party. Remember legal benefit or detriment. 2) Promissory Estoppel: promises to donate to charity may be enforced despite lack of consideration, especially when charity has changed its position in reliance on the position

Conditional Contract--Illusory Promise

A contract in which the obligations are contingent upon the occurrence of a stated event

Bargaining for Exchange

A mutually agreed upon exchange

Promise to Pay Debt Barred by the Statute of Limitations--Contracts Without Consideration

A new promise by the debtor to pay the debt renews the running of the statute of limitations for a second statutory period

Voidable Promises--Contracts Without Consideration

A new promise to perform a voidable obligation that has not been previously avoided is enforceable

Moral Obligation--Contracts Without Consideration

A promise made to satisfy preexisting moral obligation is generally unenforceable for lack of consideration

Requirements Contract--Illusory Promise

Agreement to buy all of one's needs from a single producer

Output Contract--Illusory Promise

Agreement to sell all of one's production to a single buyer

Past Consideration--Bargaining for Exchange

An act done before the contract is made is not consideration

Legal Sufficiency for Consideration

Consists of either a legal benefit to the promisor or a legal detriment to the promisee

Promissory Estoppel--Contracts Without Consideration

Doctrine that prohibits a party from denying his promise when the promisee takes action or forbearance to his detriment reasonably based upon the promise

Legal Detriment

Doing an act one is not legally obligated to do or not doing an act that one has a legal right to do

Exclusive Dealing Contract--Illusory Promise

Grant to a franchisee or licensee by a manufacturer of the sole right to sell goods in a defined market

Elements--Consideration

Legal sufficiency and must be bargained for exchange

Promise to Pay Debt Discharged in Bankruptcy--Contracts Without Consideration

May be enforceable without consideration

Adequacy of Consideration

Not required where the parties have freely agreed to the exchange

Legal Benefit

Obtaining something to which one had no prior legal right

Settlement of a Disputed Debt--Preexisting Contractual Obligation

Payment of a lesser sum of money to discharge a disputed debt (one of whose existence or amount is contested) is legally sufficient consideration

Settlement of an Undisputed Debt--Preexisting Contractual Obligation

Payment of a lesser sum of money to discharge an undisputed debt (one whose existence and amount are not contested) does not constitute legally sufficient consideration

Preexisting Contractual Obligation

Performance of a preexisting contractual duty is not consideration

Illusory Promise

Promise that imposes no obligation on the promisor cannot serve as consideration; the following promises are NOT illusory: 1) Output Contract 2) Requirements Contract 3) Exclusive Dealing Contract 4) Conditional Contract 5) Unilateral Contract

Preexisting Public Obligations

Public duties such as those imposed by tort of criminal law are neither a legal detriment nor a legal benefit and therefore are not sufficient as consideration.

Promises Made Enforceable by Statute--Contracts Without Consideration

Some gratuitous promises have been made enforceable by statute; the Code makes enforceable 1) contract modifications 2) renunciations 3) firm offers

Consideration

The inducement to enter into a contract/ make a promise enforceable. To be legally sufficient consideration must be either a legal benefit or a legal detriment. Need not to be "adequate in value" or equal in value.

Substituted Contracts--Preexisting Contractual Obligation

The parties agree to rescind their original contract and to enter into a new one; recession and new contract are supported by consideration

Modification of a Preexisting Contract--Preexisting Contractual Obligation

Under the common law a modification of a preexisting contract must be supported by mutual consideration; under the Code a contract can be modified without new consideration

Contracts Under Seal--Contracts Without Consideration

Where still recognized, the seal acts as a substitute for consideration