Chapter 13 Consideration

Consideration: Value given in return for a promise or performance.
To be legally binding, consideration must be:
- Something of legally sufficient value
- Bargained for

To be legally sufficient, consideration must be something of value in the eyes of the law.
This may consist of:
- A promise to do something that one has no prior legal duty to do (common in bilateral contracts). Bilateral contracts involve a promise for a promise.
- The performance of an action that one is otherwise not obligated to undertake (common in unilateral contracts). Unilateral contracts involve a promise for performance.
- A forbearance: Refraining from exercising a legal right.

Consideration must be the basis for the bargain between contracting parties.
The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise, performance, or promise of performance.

Adequacy of consideration involves the fairness of the bargain.
General Rule:
- The determination of whether consideration exists does not depend on comparing the values of the exchanged items.
- Something need not have direct economic or financial value to be legally sufficient consideration.
- Courts allow parties to decide what something is worth under the doctrine of freedom of contract.
When Voluntary Consent May Be Lacking:
- Courts may examine the adequacy of consideration if fraud, undue influence, duress, or lack of a bargained-for exchange is involved.

Sometimes, parties mistakenly believe consideration has been exchanged when it has not.

A promise to do what one already has a legal duty to do is not legally sufficient consideration.
- The preexisting legal duty may be imposed by law or arise from a previous contract.
Unforeseen Difficulties:
- An exception may be made if extraordinary difficulties arise during contract performance that were totally unforeseen when the contract was formed.
- The modification must be fair and equitable given the unanticipated circumstances; it will be under the discretion of the court.
Rescission and New Contract:
- Parties can mutually agree to rescind or cancel their contract, particularly if it is executory (still to be carried out).
- Rescission: A remedy where a contract is canceled, and parties return to their pre-contract positions.
- Problems arise when parties rescind and create a new contract simultaneously.
- If a court finds a preexisting duty, the new contract is invalid due to lack of consideration.

Past consideration: Something given or some act done in the past, which cannot be consideration for a later bargain.
Promises made for past actions are unenforceable because the bargained-for exchange element is missing.

If a contract's terms create such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is illusory and unenforceable due to lack of consideration.
A promise is illusory when it fails to bind the promisor.
Option-to-Cancel Clauses:
- If the promisor can cancel the contract before performance begins, the promise is illusory.
Requirements and Output Contracts:
- Requirements contract: A buyer agrees to purchase all required goods of a specific type from the seller.
- Output contract: A buyer agrees to purchase all of the seller's output.

Businesses often use contracts to settle legal claims through:
- Accord and satisfaction
- Release
- Covenant not to sue

Accord and satisfaction: An agreement for payment (or other performance) between two parties, where one has a right of action against the other.
- The accord is the agreement where one party undertakes to give or perform, and the other accepts it in satisfaction of a claim, differing from the original agreement.
- Satisfaction is the performance (usually payment) that occurs after the accord is executed.
- Once the payment is accepted, the accord and satisfaction are complete, and the obligation is discharged.

Liquidated debt: A debt that is due and certain in amount.
- Accord and satisfaction cannot occur if a debt is liquidated.
- In most states, a creditor's acceptance of a lesser sum does not satisfy the obligation to pay the balance because the debtor provides no consideration for waiving the remaining amount.

Unliquidated debt: A debt that is uncertain in amount.
- Accord and satisfaction can occur if a debt is unliquidated.
- Acceptance of a lesser sum discharges the debt because valid consideration exists.

Release: A contract where one party forfeits the right to pursue a legal claim against the other party.
- It prevents further recovery beyond the release terms.
- A release is generally binding if:
  - The agreement is made in good faith (honestly).
  - The release contract is in a signed writing (required in many states).
  - The contract is accompanied by consideration.

Covenant not to sue: An agreement to substitute a contractual obligation for a legal action based on a valid claim.
- Unlike a release, it does not always bar further recovery.

Certain promises may be enforced despite lacking consideration:
- Promises inducing detrimental reliance under promissory estoppel.
- Promises to pay debts barred by a statute of limitations.
- Promises to make charitable contributions.

Promissory estoppel: A doctrine where a promisor makes a clear and definite promise on which the promisee justifiably relies.
- The promise is binding if enforcing it better serves justice.
Application of the Doctrine:
- Originally applied to promises of gifts or donations to charities.
- Later extended to avoid inequity or hardship in business transactions, employment relationships, and family disputes.

The following elements are required for promissory estoppel:
- There must be a clear and definite promise.
- The promisor should have expected the promisee to rely on the promise.
- The promisee reasonably relied on the promise by acting or refraining from some act.
- The promisee’s reliance was definite and resulted in substantial detriment.
- Enforcement of the promise is necessary to avoid injustice.
If these requirements are met, the promise may be enforced even without consideration.
The promisor is estopped (barred) from asserting the lack of consideration as a defense.

Statutes of limitations require creditors to sue within a specified period to recover a debt.
Failure to sue in time bars debt recovery.
A debtor's promise to pay a debt, even if recovery is barred, is enforceable and needs no consideration.
This effectively extends the limitations period, allowing the creditor to sue for the entire debt or the promised amount.

A charitable subscription is a promise to donate to a religious, educational, or charitable institution.
Such promises traditionally were unenforceable without legally sufficient consideration.
The modern view is to create exceptions using promissory estoppel.