Contracts: Consideration


Consideration is legal value given in return for a promise or performance.
§   Must have something of legal value or sufficiency.
§   Must be a bargained-for exchange.
Elements of Consideration
Consideration for a promise must be either:
§   Legally detrimental to the promisee, or legally beneficial to the promisor.
“Legal Value”:
§   Promise,
§   Performance, or
§   Forbearance.
Case 11.1: Hamer v. Sidway (1891).
Adequacy of Consideration
A Court will not question the fairness of the bargain if legally sufficient.
§   Law does not protect a person for entering into an unwise contract.
§   In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.
Case 11.2: Powell v. MVE Holdings (2001).
Agreements That Lack Consideration
Preexisting Duty.
§   Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration.
§   Exceptions:
•          Unforeseen Difficulties.
•          Recession and New Contract.
Past Consideration is no consideration because the bargained-for exchange element is missing.
Problem Areas Concerning Consideration
ü   Uncertain Performance.
ü   Settlement of Claims.
ü   Promises enforceable without consideration.
ü   Uncertain Performance
ü    Illusory Promises.
§   Promisor has not definitely promised to do anything (no promise at all).
ü   Option-to-Cancel Clauses.
ü   Requirements and Output Contracts.
Settlement of Claims
Debtor offers to pay a lesser amount than the creditor purports to be owed.
Accord and Satisfaction.
Liquidated Debt.
Ø  Amount has been ascertained, fixed, agreed on, settled, or exactly determined.
Unliquidated Debt.
Ø  Parties give up legal right to contest the amount in dispute, and thus consideration is given.
Release bars any further recovery beyond the terms stated in the release.
Case 11.3: Mills v. Berlex Laboratories (1999).
Convenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim.
Promises Enforceable Without Consideration
Promises to Pay Debt Barred by a Statue of Limitations.
Detrimental Reliance and Promissory Estoppel:
§   Must be definite promise.
§   Promisee must justifiably rely on the promise.
§   Reliance is substantial.
§   Justice will be served by enforcing promise.

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Papoo Parmar

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