Consideration
2.01 Understanding elements and
characteristics of a contract
CONSIDERATION
Exchange of benefits and detriments by the parties to an
agreements
• Requirements of consideration:
▫ Must involve a bargained-for exchange (promise made in return
for another promise)
▫ Must involve something of value
▫ Benefits and detriments must be legal
• Benefits
▫ Something that a party was not previously entitled to receive
• Detriments
▫ Any loss suffered; anything given up
• Forbearance
▫ Not doing something that you have the right to do
Adequacy of Consideration
• Courts don’t look at adequacy or value of an
agreement unless it is “unconscionable”
• Unconscionable
▫ So grossly unfair or oppressive that it would shock
the conscience of the court
▫ So lop-sided that the average person would not
agree to terms
Nominal Consideration
• Token amount in a written contract where either
the parties cannot or do not wish to state the
amount
Agreements without Consideration
• Promise to make a gift
▫ Gifts have no consideration
▫ Cannot be enforced
• Gift that has been given
▫ Doesn’t have to be returned
▫ Donor – Gives the gift
▫ Donee – Accepts the gift
Illusory Promises
Clause or wording that allows party to escape from legal
obligation
• Termination clause
▫ Illusory – clause to allow termination of contract for any
reason
▫ Not illusory – termination only allowed after a change in
defined circumstances
• Output Contracts
▫ Agreement to purchase all of a specific producer’s product
• Requirements Contracts
▫ Agreement to supply all of the needs of a specific buyer
• Output & Requirements contracts are recognized by the
courts as having consideration by implying fair dealing.
Existing Duty
• Existing Public Duty
▫ No detriment
▫ Obligation to obey the law
• Existing Private Duty
▫ If a person is already under legal duty to do
something, another promise to do that same thing
does not furnish consideration for a new contract.
Past Performance
• An act that has already been performed cannot
be consideration in a contract.
Exceptions to Consideration
• Promises to charitable organizations
▫ Gift or Pledge for future contribution
 Enforceable as consideration if organization
identifies the pledge for a specific use and acts in
reliance on the pledge
• Promises covered by the UCC
▫ Firm offers
▫ Good faith modification of contract
• Promises discharged in bankruptcy
Exceptions to Consideration
• Promises barred from collection
• Promissory Estoppel******
▫ Rely on what a person said
▫ Elements:
 Promise must bring action or forbearance
 One who gave no consideration must have relied on
the promise
 Injustice can be avoided only enforcing the promise