Ch 10 Consideration

Consideration

What a person receives in return for performing a contract obligation. A bargained-for-exchange (incentive for entering a contract). Consideration may be money, goods, services.

Examples of consideration

1. Benefit to promisor (money, goods, etc)

2. Detriment to promisee (giving up something of value, quitting smoking)

3. Promise to do something (commitment to perform a service or pay for something)

4. Promise to refrain from doing something (conditional estate)

Consideration based on contract, bilateral/unilateral

B: exchange of promises

U: Promise in exchange for act

Rules of Consideration

For a promise to be enforced legally, there MUST be consideration

Exception to rules of consideration

Promissory Estoppel, party relies on promise to their detriment, enforcement is necessary to avoid significant injustice even without the element of consideration

Rules of Consideration, not valid considerations

Illusory promise is not valid consideration, past consideration is not valid for purposes of present contract, promise to do something already legally obligated is not valid consideration

Promissory Estoppel

A substitute for consideration, an otherwise unenforceable agreement may become enforceable due to one parties detrimental reliance on the promise of the other party.

Occurs when one party makes a promise knowing the other relies on it, the only way to avoid injustice is to enforce the promise.

Examples of Promissory Estoppel

Job Offer Rescinded: after company promises salary and relocation expenses, causing candidate to sell their house and move just to have their job cancelled, the candidate RELIED on the promise

Rent Reduction: if a landlord agrees to lower rent during crisis but then tries to claim full rent for the same period the court may prevent back pay because the tenant RELIED on the reduced rate

Adequacy of Consideration

In general, courts do not care if consideration is adequate or fair, bad bargains will be enforced (absent fraud or other defense).

Example of adequacy of consideration

Selling a $10,000 car for $100, still enforceable even though it is a bad bargain for the seller.

Illusory Promise

A situation in which a party appears to commit to something but has not really committed to anything, its not really a promise so it is not legally binding, imposes no real obligation and has no consideration to support a contract.

Example of illusory promise

1. A company tells an employee they will get a bonus if management decides to (unenforceable because it is entirely up to the employer)

2. Shawn offers to sell Molly his skis for $300, and Molly responds, "I'll look at them in the morning, and if I like them, I'll pay you".

Partial Payment of Debt: Liquidated Debt (QUIZ Q)

No dispute as to the amount of money owed, fixed amount.

Partial Payment of Debt: Unliquidated Debt (QUIZ Q)

Parties either dispute fact money owed, or dispute amount of money owed, uncertain amount.

Accord and Satisfaction

An accord and satisfaction is an agreement to set aside one contract and substitute it with a new one. An accord and satisfaction discharges the original contract only when the terms are completely satisfied

Accord

The reaching of a substitute agreement

Satisfaction

The performance of the accord

Example of accord and satisfaction

Disputed debt, contractor charges $8,000 for a job but the homeowner deems the work shoddy and refuses to pay, they then agree that the homeowner will pay $3,000 instead.