Recording-2025-03-19T20:06:07.924Z

Key Concepts of Consideration in Contract Law

• Definition of Consideration: Essential element of a contract where something of value is exchanged between parties.

• Value of Something: To have consideration, the thing exchanged must have some legal value and must not be something one is already obligated to do.

Types of Consideration

• Legal Value: Focuses on legal rather than economic value. Can be:

  • An Act: Doing something one is not obligated to do.

  • Forbearance: Agreeing not to do something one has the legal right to do.

Two Key Issues in Consideration

1. Existing Obligation: No credit for fulfilling a preexisting duty. You cannot receive consideration for something you are already legally obligated to do.

   • Example: If a contractor is already obligated to build a house for $200,000, they cannot demand more money for completing that task.

2. Promises of Bargaining: Must be a 'bargained-for exchange', meaning something must be given in exchange for something else.

   • Past Consideration: Refers to acts that have already been completed and cannot be part of a new bargain.

   • Comedic Phrase: "Why are you bringing up old stuff?"

Minimal Consideration

• Peppercorn Rule: A mere peppercorn (symbolizing a very small value) can constitute sufficient consideration, as long as there is a mutual agreement for exchange. Value does not determine enforceability; rather, the presence of a bargain does.

Not Considered Valid Consideration

• Illusory Promises: A promise that does not instill a real obligation, thus lacking legal enforceability. Examples include agreements with no fixed quantity of goods to be delivered.

Preexisting Duty and Modifications

• Preexisting Duty: An existing obligation does not constitute consideration for a new contract. Any modifications must involve new considerations unless they involve additional duties.

• Modification: If the scope of work changes (e.g., changing from a 2-bedroom to a 3-bedroom house), new consideration may be needed for the modification of the contract.

Past Consideration

• Importance: Anything done in the past cannot be used as consideration for a present promise as it lacks the necessary bargain aspect.

• Example: Shoveling someone’s driveway without any expectation of compensation does not create an obligation; fulfilling a subsequent promise without a prior agreement is considered a gift.

Exceptions to Consideration Requirement

• Promissory Estoppel: A promise that leads someone to incur expenses or obligations based on reliance on that promise may enforceable in certain circumstances, protecting individuals from harm resulting from reliance on the promise.

• Liquidated vs. Unliquidated Debts:

  • Liquidated Debt: A known, certain amount owed where a debtor cannot offer less due to preexisting obligations.

  • Unliquidated Debt: A dispute exists regarding the amount owed or whether there is any obligation at all; lesser amounts can sometimes be negotiated.

Agreements Not to Compete

• Vary by Context: Noncompete agreements in the sale of a business are generally enforceable, while those in employment contexts are scrutinized more heavily for fairness.

Moral Consideration

• Moral Consideration: When a gift is relied upon by the recipient, it becomes enforceable because of the dependency created on that promise or gift.

Conclusion

• Consideration is a nuanced but critical aspect of contract law determining the enforceability of promises through the requirement of a bargained exchange of value.