Chapter 11
CONSIDERATION
Consideration - Definition
• A basic requirement of a contract is legally
sufficient consideration
• A promise unsupported by consideration
can not be enforced.
• Consideration is something of value: it
must be legally sufficient (either the
promisor incurs some beneftit OR the
promisee incurs a detriment) & there must
be a bargained-for exchange
Legal Detriment
• By legal detriment, we mean creating,
modifying, or giving up a legal right, which
is not the same as an economic, or actual
detriment.
• Example - Andy promises to pay Bill $15 if
he delivers a book to Carl. Andy’s promise
is binding because Bill incurred a legal
detriment by delivering the book to Carl, as
Bill was under no prior obligation to do so.
Andy and Bill have bargained for this
transaction.
Gratuitous Promises - Gift
Promises
• Purely social or gratuitous gift promises are not
legally enforceable
• To change a gift promise into a legally
enforceable promise, the promisee must do
something in exchange. (Mrs. Colby’s promise to
give her niece $10,000 is unenforceable UNLESS
niece does something in exchange, i.e, get straight
A’s)
• EXCEPTION:, Promissory Estoppel (Jim pledges
to donate 10 million to university. The university
begins construction. Jim can’t retract pledge.)
Illusory Promises
• A contract that provides the parties only
have to perform if they “choose” to. The
parties can choose not to perform their
contractual obligations.
• Illusory promises are without consideration
and are unenforceable
– “All I wish” or “All I desire” is illusory
• BUT, output and requirement contracts are
NOT illusory (“All I need”, “All I require”,
All I produce”). They are enforceable.
Pre-Existing Duty Rule
• A promise to do what one already has a
legal duty to do does not constitute legally
sufficient consideration (police catch thief)
• The pre-existing duty rule is designed to
prevent extortion & a hold-up of contracts.
• EXCEPTIONS
– Unforeseen difficulties; the contract can be
modified.
– Good faith oral modification of a contract for
the sale of goods.
Past Consideration
• Promises made after the promisee has already
done something, are unenforceable (i.e., Tom’s
promise to pay Cindy $ 25 after Cindy has already
found his wallet, is legally unenforceable)
• Remember, consideration must be a bargained-for
exchange; Consideration is required to support a
promise and to induce performance (which you
can’t have for an act already performed)
• Exception - Promises made after past acts
rendering emergency services may be enforced.
Liquidated and Unliquidated
Debts
• Unliquidated debts - Amount of debt is genuinely disputed. These
debts may be COMPROMISED by the payment of a smaller amount
due under an existing obligation, called an accord and satisfaction
($100,000 computer system does not work as promised. To settle the
dispute the parties agree that $700,000 will be paid in full and final
payment for the system; X writes “payment in full” on back of check).
• Liquidated debts - Debts that are undisputed, due and certain, may not
be compromised. Partial payment of liquidated debts are NOT
consideration for a promise by the creditor to accept a lesser amount
(because the debtor has a pre-existing duty to pay). But,a smaller
payment can be made if there was new consideration OR the
agreement to pay the smaller sum was made before the debt actually
became due.