Transcript Chapter 011 - Consideration

CHAPTER 5
CONSIDERATION AND
PROMISSORY
ESTOPPEL
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Consideration
• Consideration – something of legal value given
in exchange for a promise.
• Consideration is a necessary element for the
existence of a contract.
• Contracts unsupported by consideration are
generally not enforceable.
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Consideration
•
(continued)
Consideration consists of two elements:
•
•
Something of legal value must be given; and
There must be a bargained-for exchange.
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Legal Value
•
A contract is considered supported by legal
value if:
• The promisee suffers a legal detriment; or
• The promisor receives a legal benefit.
•
Most commonly involves tangible payment
(e.g., money, property) or performance of an
act (providing services)
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Bargained-for Exchange
• Process of bargaining or inducement that
leads to an enforceable contract.
• Naturally present in most commercial
transactions.
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Gift Promises
• Gratuitous promises unenforceable due to
lack of consideration.
– Promise freely given and not induced by
promise of some benefit.
• Completed gift promise not revocable.
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Contracts Lacking Consideration
Illegal
Consideration
Illusory
Promise
Moral
Obligation
Past
Consideration
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Preexisting
Duty
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Illegal Consideration
• A promise to refrain from doing an illegal
act.
– E.g., “I will not drink alcohol until I am 21 if
you pay me $1,000.”
• Such a promise is not enforceable.
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Illusory Promise
• A contract that both parties enter, but one
or both of the parties can choose not to
perform their contractual obligations.
– E.g., “I will pay you a bonus at the end of the
year if I feel like it at that time.”
• Such a promise is unenforceable.
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Moral Obligation
• Promises made out of a sense of moral
obligation or honor lack consideration.
– E.g., “I will pay you $1,000 because I am your
uncle and families take care of each other.”
• Such promises are unenforceable in most
states.
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Preexisting Duty
• A promise to do something the party is
already under an obligation to do.
– E.g., a police officer has a preexisting duty to
use best efforts to recover stolen property.
• Such a promise is unenforceable because
no new consideration has been given.
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Preexisting Duty
(continued)
• Preexisting duty rule arises when one party to an
existing contract seeks to change the terms of
the contract during the course of its
performance.
• Such midstream changes are unenforceable
without additional consideration.
• The parties have a preexisting duty to perform
according to the original terms of the contract.
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Preexisting Duty
(continued)
• Sometimes a party to a contract runs into
substantial unforeseen difficulties while
performing his or her contractual duties.
– Outside normal risks of business. E.g., contractor
finds substantial environmental contamination that
must be remediated at great expense.
• The contract can be modified and enforced
without new consideration being given.
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Past Consideration
• Problems of past consideration often arise when
a party to a contract promises to pay additional
compensation for work done in the past.
– E.g., “I will pay you a $1,000 bonus because you’ve
been a great employee.”
• Past consideration (e.g., prior acts) will not
support a new contract.
• New consideration must be given.
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Summary: Promises Lacking Consideration
Problem
Description of Promise
Illegal consideration
Promise to refrain from doing an illegal act.
Illusory promise
Promise where one or both parties can choose not to
perform their obligation.
Moral obligation
Promise made out of a sense of moral obligation or
honor or love or affection. Some states enforce these
types of contracts.
Preexisting duty
Promise based on the preexisting duty of the party to
perform. The promise is enforceable if there are
unforeseen difficulties.
Past consideration
Promise based on the past performance of the
promise.
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Special Business Contracts
• Business contracts that specifically allow a
greater degree of uncertainty concerning
consideration:
– Output Contracts
– Requirements Contracts
– Best-Efforts Contracts
• Not regarded as illusory.
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Settlement of Claims
• Law promotes voluntary settlement of disputed
claims.
– Saves judicial resources, and
– Serves the interests of the parties entering
into the settlement.
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Settlement of Claims
(continued)
• Accord – parties agree to accept something
different in satisfaction of the original contract.
• Satisfaction – performance of the accord.
• If the accord is not satisfied, the other party can
sue to enforce either the accord or the original
contract.
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Promissory Estoppel
• Promise legally unenforceable due to lack of
consideration or other problem.
• This doctrine provides a remedy if withdrawal
of a promise by a promisor will adversely
affect a promisee who detrimentally relied on
the promise.
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Promissory Estoppel
(continued)
The following elements must be shown:
• Promisor made a promise.
• Promisor should have reasonably expected
that promisee would rely on the promise.
• Promisee did rely on promise.
• Injustice would result if promise not
enforced.
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