Chapter 4
Consideration
I.
The Basics
Consideration is the exchange of value, or
the promise to exchange value, by the
parties to a contract.
A.
1.
2.
Agree to do something no legally obligated to do
or
Agree not to do something hey had a legal right
to do.
Bilateral Contract
B.
1.
2.
3.
4.
Found in the promises exchanged
Each party to make at least one promise to the
other
Promisor: Maker of the Promise
Promisee: Receiver of the Promise
Benefit / Detriment Theories of
Consideration
C.
1.
2.
3.
4.
Consideration – Promisor agrees to suffer a loss
or a detriment
Detriment – Loss suffered in agreeing to do
something not obligated or agreeing not to do
what entitled to do.
Benefit theory – value the promisee is receiving
Detriment theory – value promisor is giving up
Unliateral Contracts
D.
Instead if return promises, promisor asks for the
performance
1.
„
Adequacy and equality of consideration
E.
Promises do not have to be equal
1.
„
2.
F.
Assignment p. 76
Only need inducement to contract
Does not need to meet a reasonable person standard
Some promises do not constitute valid
consideration
II. Promises that are not valid
consideration
Illusory Promise
A.
Where the promisor has not obligated himself to perform
the contract
1.
„
„
„
„
Ex. 4.4 Sell Peaches “If I feel like it.”
Ex. 4.5 Sell Zuchini “If yield is high enough.”
Is there an obligation to perform here?
Only if the promisor chooses to perform.
What legitimate uses are there?
2.
‰
‰
Problems?
Benefits?
Promise of good faith?
3.
‰
Covenant of good faith and fair dealing
Promises to confer gifts
B.
Donative Promise – a promise to make a gift
These are not contracts
„
„
Moral Pressure
C.
Mills v. Wyman
1.
„
„
Cant force father to pay since he his not part pf the
contractual undertaking
No moral obligation is contractual
Webb v. McGowan
2.
‰
A promise made, supported by moral consideration is
enforceable if the promisor received economic benefit
from the promisee, even if the benefit was received
before the promise was made.
Preexisting duty
D.
If a party has a legal duty to perform some acts
or act, a new promise to perform those same
acts does not constitute valid consideration
Modification – Changes to a contract through
mutual agreement of the parties
1.
2.
a.
b.
c.
d.
Common law requires additional consideration
UCC does not (§2-209)
If unforeseen at the time of contract formation, parties
can make enforceable modification because “new”
consideration
No preexisting duty if rescind contract and enter in a
new one with changes
Discharge of debt
3.
‰
The settling of a debt for a lesser amount is confined to:
a.
b.
c.
Liquidated debt – liability and amount due are not in
dispute
Unliquidated debt – parties have a legitimate disagreement
as to existence of liability and amount due
Accord and satisfaction – agreement to substitute a
different contract
Public Obligations
4.
‰
Cop can’t get reward
Nominal Consideration
E.
Consideration that is extremely small in relation to other
party’s
Not enforceable
Token promise for a promise to surrender something of
real value Æ gifts
1.
2.
3.
Giving up legal claim or right
F.
Valid legal claim
1.
a.
b.
Release – Contract where party voluntarily gives up some or
all of his rights
Valid consideration
Invalid legal claim
2.
a.
b.
Not valid consideration
Unless good faith belief in validity of claim – rpp to agree
Legal right
3.
a.
Sufficient consideration – Hamer v. Sidway
‰
Giving up a legal right in return for payment = valid consideration
III. Promissory Estoppel
A.
B.
„
C.
1.
2.
3.
4.
5.
6.
D.
Background – Kirsky v. Kirsky
Detrimental Reliance
Reliance on a promise which damaged her
Need:
Reliance must be foreseeable
Intended recipient must have actually relied on the promise
Reliance must cause loss or detriment
Reliance must be reasonable
Promisee must shoe substantial economic loss if promise was
allowed to be retracted
Only way to avoid injustice is to enforce promise and not allow
retraction
Rest. 2d. §90 p. 95
„
„
„
The key to consideration:
Each party must have suffered detriment or
been given a benefit
There must some form of “Bargained for
exchange”