Chapter 11

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Mandatory Elements for the Doctrine of Promissory Estoppel to Apply:

1. The promisor made a promise 2. The promisor should have reasonably expected to induce the promise to reply on the promise 3. The promisee actually relied on the promise and engaged in an action or forbearance of a right of a definite and substantial nature

Requirements Contract

A contract in which a buyer agrees to purchase all of its requirements for an item from one seller. Serves the legitimate business purposes of: (1) assuring the buyer of a uniform source of supply and (2) providing the seller with reduced selling costs. Seller can still sell to other purchasers.

Output Contract

A contract in which a seller agrees to sell all of its production to a single buyer. Serve 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.

Illusory Promise (Illusory Contract)

A contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations. Thus, the contract lacks consideration.

Best-Efforts Contract

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. Best efforts duty provides sufficient consideration to make a contract enforceable. A party can sue another company for failing to use its promised best efforts.

Past Consideration

A prior act or performance. Past consideration do not support a new contract. New consideration must be given. When a party promises to pay someone some money or other compensation for work done in the past.

Gift Promise (Gratuitous Promise)

A promise that is unenforceable because it lacks 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. A completed gift promise cannot be rescinded for lack of consideration.

Illegal Consideration

A promise to refrain from doing an illegal act. Such a promise will not support a contract.

Promissory Estoppel (Detrimental Reliance)

An equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who had adjusted jis or her position in justifiable reliance on the promise. Permists court to order enforcement of a contract that lacks consideration,. Estops (prevents) the prmisor from revoking his or her promise based on lack of consideration.

Contracts that Lack Consideration

Illegal consideration, illusory promise, preexisting duty, and past consideration

Two Elements of Consideration

Legal Value and Bargained-for-Exchange

Legal Value

Modern law of contracts: contract is supported by legal value if: (1) the promisee suffers a legal detriment and (2) the promisor receives a legal benefit

Accord and Promise (Compromise)

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 by paying less consideration that what was provided for in the contract. If two parties agree to a compromise, a settlement of the claim has been reached.

Preexisting Duty

Something a person is already under the obligation to do. A promise lacks consideration if a person promises to perform a preexisting duty. Arises when one of the parties to an existing contract seeks to change the terms of the contract during the course of its performance.

Consideration

Something of legal value given in exchange for a promise. Ex: money, property, the provision of services, the forbearance of a right, and noneconomic forms of consideration (refraining from drinking, using tobacco, etc)

Bargained-for Exchange

Such exchanges occur in most business contracts due to the commercial setting in which business contracts are formed.

Satisfaction

The performance of an accord.

Accord

The settlement agreement in an Accord and Promise (Compromise). An agreement whereby the parties agree to accept something different in satisfaction of the original contract. If the accord is not satisfied, the other party can sue to enforce the accord. An accord is enforceable without new consideration because the parties reasonably disagreed as to the value of the goods or services contracted for. The non-breeching party to an unperformed accord can choose to enforce the original contract.


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