Chapter 14
Consideration
Twomey, Business Law and the
Regulatory Environment (14th Ed.)
The Nature of Consideration [14-1]
Contract for the sale of a Ford Torino by Jake Plumber to Tom Irvin for $1272
$1272
benefit
detriment
Jake Plumber
detriment
benefit
Tom Irvin
benefit
Ford Torino
Loan by Bank Two to Tom Irvin for purchase of Ford Torino
Repayment of $1272 plus 8% interest
detriment
Bank Two
Tom Irvin
detriment
benefit
$1272
Gift of Ford Torino by Tom Irvin to his sister Becky, as a graduation gift
none
detriment
benefit
Tom Irvin
detriment
Ford Torino
Becky Irvin
benefi
t
A gift does not have consideration.
A promise to make a gift is not enforceable.
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Consideration and Promises
Act
Consideration as the Price
Promise
To Forbear
To Act
+
The Promise
Binding
Exceptions to Consideration
Charitable Subscription
Uniform Commercial Code
Sealed and Written Instruments
Promissory Estoppel
What Is Not Consideration
Unrequested Benefit
Promise to Perform Existing Obligation
Moral Obligation
Illegal Consideration
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Not Binding
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Chapter 14 Summary
A promise is not binding if there is no consideration for
the promise. Consideration is what the promisor
requires as the price for the promise. That price may be
doing an act, refraining from the doing of an act, or
merely promising to do or to refrain. In a bilateral
contract, it is necessary to find that the promise of each
party is supported by consideration. If either promise is
not so supported, it is not binding, and the agreement of
the parties is not a contract.
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Chapter 14 Summary [2]
Consequently, the agreement cannot be enforced. When
a promise is the consideration, it must be a binding
promise. The binding character of a promise is not
affected by the circumstance that there is a condition
precedent to the performance promised. Likewise, the
binding character of the promise and of the contract is
not affected by a provision in the contract for its
cancellation by either one or both of the parties.
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Chapter 14 Summary
[3]
A promise to do what one is already obligated to do is
not consideration, although some exceptions are made.
Such exceptions include the rendering of a partial
performance or a modified performance accepted as a
good-faith adjustment to a changed situation, a
compromise and release of claims, a part-payment
check, and a compromise of creditors.
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Chapter 14 Summary
[4]
Because consideration is the price that is given to
obtain the promise, past benefits conferred on the
promissor cannot be consideration. In the case of a
complex transaction, however, the past benefit and
the subsequent transaction relating to the promise
may in fact have been intended by the parties as one
transaction. In such a case, the earlier benefit is not
past consideration but is the consideration
contemplated by the promissor as the price for the
promise subsequently made.
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Chapter 14 Summary
[5]
A promise to refrain from doing an act can be
consideration. A promise to refrain from suing or
asserting a particular claim can be consideration.
Generally, the promise to forbear must be for a
specified time as distinguished from agreeing to
forbear at will. When consideration is forbearance to
assert a claim, it is immaterial whether the claim is
valid as long as the claim has been asserted in good
faith in the belief that it was valid.
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Chapter 14 Summary
[6]
When the promissor obtains the consideration
specified for the promise, the law is not
ordinarily concerned with the value or adequacy
of that consideration. Exceptions are sometimes
made in the case of fraud or unconscionability
and under consumer protection statutes.
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Chapter 14 Summary
[7]
There is a current trend to abandon the
requirement of consideration, with promissory
estoppel the most extensive repudiation of that
requirement.
All transactions must be lawful; therefore,
consideration for a promise must be legal. If it is
not, there is no consideration, and the promise is
not binding.
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Chapter 14 Summary
[8]
When the promissor does not actually receive
the price promised for the promise, there is a
failure of consideration, which constitutes a
breach of the contract.
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Chapter 14 Summary
[9]
Although consideration is required to make a promise
binding, the promise that is not supported by
consideration is not unlawful or illegal. If the promissor
voluntarily performs the promise, the promissor cannot
undo the performance and restore matters to their
position prior to the making of the agreement. The
parties are free to perform their agreement, but the
courts will not help either of them because there is no
contract.
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