CH11: Consideration

Introduction

• Consideration : something of legal value given or received as an inducement to enter into a contract

  • The price of the contract

  • Whatever is given and received as the basis of the contract

  • A promise, performance, or forbearance bargained by the promisor in exchange for their promise

  • Without consideration by both parties, contract cannot be enforceable

• Two elements to consideration

  • A bargained-for-exchange

  • Something of legal value to the receiver or of legal detriment to the giver

• Bilateral contract : both parties must give consideration

• Consideration need not be money, but can be money

• Consideration need not be of equal value

  • Must be freely agreed to

  • No relief for a bad bargain

  • Courts may not enforce if relative value is so disproportionate as to be unconscionable

    • To be unconscionable, must be so unreasonable and unfair as to shock the conscience of the court

• Consideration can also be something of detriment to the giver (forbearance)

  • Forbearance : refraining from the enforcement of something that is due

    • Giving up of one’s right to engage in legal conduct as the basis of a contract

  • Do something not obligated to do

  • Give up right to engage in activity giver has legal right to engage in

  • If forbearance involves giving up illegal activity, it will not constitute consideration, and no contract will be formed

Illusory Promises

• For valid consideration in contract, each party must give something of value to the other, or of detriment to themselves (e.g. forbearance)

  • If promised performance pr forbearance is vague/uncertain or phrased to make performance by either party optional instead of mandatory, then consideration is invalid

• Illusory promises : promises that appear to obligate one to render some performance, but in reality does not obligate one to perform

  • Qualifications of ‘wish’, ‘desire’, ‘want’ are illusory

    • No guarantee = no valid consideration

• Requirements and output contracts are valid

  • Requirements contracts : obligates one party to purchase all the goods or services she will need over a specific period of time

  • Output contracts : obligates the company to sell all the goods it produces to a specific reseller for a stated price

  • UCC imposes good faith requirement on requirements and output contracts

  • Common law implies good faith requirement in personal services contracts

    • Reasonable/good faith determined by performance in previous years and normal practice sin the industry

Past Considerations

• Consideration must have a present value for the parties

• Cannot cite consideration given in the past

• Past consideration is not valid consideration

Pre-Existing Duty

• Agreement to do that which a party is already obligated to do is not sufficient consideration

• Modifications

  • Common law requires additional consideration unless good faith dispute as to meaning of contract

  • Under UCC, contracts can be modified without additional consideration by mutual consent of the parties

• Parties can always agree to honor contracts even if the contract lacks consideration