BMGT380 Chapter 12: Consideration

consideration

legal value, bargained for and given in exchange for an act or a promise 

consideration requirements

• 1) tended to limit the scope of a promisor’s liability for his promises by insulating him from the liability for gratuitous promises and by protecting him against liability for reliance on such promises 

• 2) mechanical application of requirement often produced unfair results

unforceable consideration

• Promisor did not ask for anything in exchange for making promise 

• What promisor asked for did not have legal value

legal value 

• In exchange for the promisor’s promise, promisee does, or agrees to do, something he had NO PRIOR LEGAL DUTY to do 

• Promisee refrains from doing, or agrees not to do, something she has a legal ight to do 

forbearance

Promisee refrains from doing, or agrees not to do, something she has a legal right to do 

gross inadequacy

consideration exchanged in a contract is extremely unequal 

nominal consideration

if no other consideration is actually exchanged 

bargained-for exchange

• Legal value for promise or act alone is not enough to make consideration 

• Promisee’s act or promise must be BARGAINED FOR - it must be GIVEN IN EXCHANGE for the promisor’s promise

• Promisee’s performance must be the price the promisor asked for in return 

output contract

Contracts in which one party to the agreement agrees to buy all of the other party’s production of a particular commodity 

requirements contract

supply all of another party’s needs for a particular commodity 

common-law modification rule

“preexisting” duty rule 

• change to an existing contract NOT BINDING unless party seeking more (or diff) performance gives NEW CONSIDERATION - doing what you alrd promised doesn’t count 

exceptions to modifications

• Unforeseen , substantial difficulties (not reasonably anticipated) that make performance far more costly or time-consuming; a fair adjustment can be enforced 

• Mutual Rescission + new contract: parties end the old contract by agreement and immediately make a new one on revised terms; the mutual release supplies consideration

mutual rescission + new contract

parties end the old contract by agreement and immediately make a new one on revised terms; the mutual release supplies consideration

modern guardrails 

• even when consideration is debated, courts police modifications using GOOD FAITH and UNCONSCIONABILITY – they’ll reject coerced or opportunistic changes

liquidated debt

•  debt that is both due and certain; parties have no good-faith dispute about either the existence or the amount of the original debt 

  • Credit’s promise to discharge a liquidated debt for part payment of the debt at or after its due date is UNENFORCEABLE for lack of consideration

unliquidated debt

• good-faith dispute about either the existence or amount of debt 

  • Accord and satisfaction: settlement of an unliquidated debt - creditor cannot maintain an action to recover the remainder of the debt that he alleges is due  

composition agreements 

agreements between a debtor and two or more creditors who agree to accept as full payment a stated percentage of their liquidated claims against the debtor at or after the date on which those claims are payable 

forbearance to sue

agreement by a promisee to refrain, or forbear, from pursuing a legal claim against a promisor can be valid consideration to support a return promise–usually to pay a sum of money–by a promisor

• Promisee must have a good-faith belief in the validity of his or her claim before forbearance amounts to consideration 

past consideration

• (not actually consideration at all) an act or other benefit given in the past that was not given in exchange for the promise in question

moral obligation 

promises made to satisfy a preexisting moral obligation are unenforceable for lack of consideration 

promissory estoppel

promise that the promisor should reasonably expect to induce reliance, reliance on the promise by the promisee, and injustice to the promisee as a result of that reliance