Here is the chapter 12 outline/notes for your test on Thursday. Please post questions in the comment section.
Chapter 12 Consideration - just b/c a promise is made d/n mean that it can or will be enforced. Must have consideration = value (i.e. money) given in return for a promise or performance.
1. Elements of Consideration - often broken into two parts: (1) something of legally sufficient value must be given in exchange for the promise; and (2) must be bargained-for exchange.
a. Legal Value - may be
i. promise to do something that one has no prior legal duty to do,
(1) bilateral k normally consist of promise exchanged for a promise, each promise constitutes consideration for the k.
ii. performance of an action that one is otherwise not obligated to undertake, or
(1) unilateral k normally involves a promise in exchange for performance so that act/performance is the consideration that creates the contractual obligation.
iii. refraining from an action that one has a legal right to undertake (forbearance)
(1) See Hamer v. Sidway, p. 243 does forbearance constitute consideration?
b. Bargained-For Exchange - consideration must provide the basis for the bargain struck b/w the contracting parties. Promise given by the promisor must induce the promisee to offer a return promise, performance, or forbearance. And the promisee’s promise must induce the promisor to make the promise.
i. This distinguishes ks from gifts. “In consideration of the fact that you aren’t as wealthy as your brothers, I will give you $500.” Gift b/w promisee isn’t giving up anything of legal value in exchange.
2. Adequacy of Consideration - must be something of legally sufficient value in the law’s eyes. Involves how much is given / fairness of the bargain.
a. Not really when items exchanged are of unequal value. Law will recognize this as long as the consideration is legally sufficient, even if deal seems unwise.
b. Court sometimes determines adequacy of consideration in terms of its amount or worth b/c inadequate may indicate fraud, duress, or undue influence, or incompetence.
i. I sell my $100,000 house for $50,000. Might indicate that I was unduly pressured or defrauded. Also may indicate I was in a hurry –> legally sufficient.
ii. See Seaview Orthopaedics v. National Healthcare Resources, Inc., p. 245.
3. Agreements that Lack Consideration - sometimes one or both parties may think that consideration is exchanged and it isn’t. See below.
a. Preexisting Duty - promise to do what one already has a legal duty to do d/n constitute legally sufficient consideration. Sheriff cannot collect an award for finding convict he was obligated to find. Builder cannot demand more money for finishing a building he was already under k to finish.
i. Unforeseen Difficulties - exception to preexisting duty rule. If in the interests of fairness and equity, one party runs into extraordinary difficulties in performance. D/n involve types of risk ordinarily assumed in business.
ii. Rescission & New K - two parties can mutually agree to rescind/cancel the k to the extent that it is executory (remains to be carried out). Unmaking of a k so as to return the parties to the positions they occupied before the k was made.
b. Past Consideration - promises in return for actions/events that have already taken place are unenforceable. They lack consideration b/c bargained-for exchange is missing. You cannot bargain for something that already took place, no past consideration.
i. E, real estate agent does her friend F a favor by selling F’s house w/out charging a commission. Later F says to E, “in return for your generosity, I will pay you $3,000.” Promise is made in return for past consideration –> unenforceable. F is making a gift.
ii. Is party’s suggestion that a pro athlete use nickname for marketing products sufficient consideration for athlete’s later promise to pay the party a portion of profits? See Blackmon v. Iverson, p. 248
4. Problem Areas Concerning Consideration - see a,b,&c below
a. Uncertain Performance - if terms of the k express such uncertainty of performance that promisor hasn’t promised to do anything –> promise is illusory, w/out consideration and unenforceable. CEO says, “You all have worked hard, if profits remain high, a 10% bonus will be given at the end of the year, ir management thinks it is warranted.” No promise b/w performance depends on discretion of CEO, no bargained-for consideration. Statement declares CEO may or may not act in the future, d/n obligate her.
i. Option-to-cancel Clauses - sometimes present consideration problems. I k to hire you for one year, for $5k/month reserving right to cancel at any time. This k is illusory b/c it can be cancelled anytime w/out liability.
(1) If you are required to give one months notice to exercise the option to cancel = $5k, then this = consideration
ii. Requirements Ks & Output Ks - consideration problems arise b/c of uncertainty of performance.
(1) Requirements K - buyer & seller agree that the buyer will purchase form seller all goods of a designated type that buyer needs/requires.
(2) Output K - buyer & seller agree that buyer will purchase from seller all of what seller produces/output.
b. Settlement of Claims - business people can settle legal claims in several ways, impt to understand nature of consideration given in settlement agreements.
i. Accord & Satisfaction - debtor offers to pay a lesser amount than the creditor purports to be owed, & creditor accepts. Accord = agreement under which one party agrees to give/perform, & other person accepts in satisfaction of a claim something other than that on which the parties originally agreed. Satisfaction = accord is executed.
(1) Liquidated Debts = one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined. If debt is liquidated, no accord & satisfaction can occur.
(a) If A signs installment loan k w/ bank in which she agrees to pay a specified rate of interest on specified sum of borrowed funds at monthly intervals for 2 years. Total obligation is precisely known to both parties.
(i) In most states, acceptance of a lesser sum than the entire amount of a liquidated debt is NOT satisfaction, balance of debt is still legally owed. Why? Preexisting duty to pay –> no consideration given by the debtor.
(2) Unliquidated Debts - reasonable persons may differ over amount owed, it isn’t settled, fixed, agreed on, or ascertained. Here, acceptance of payment of the lesser sum operates as satisfaction/discharge of the debt
(a) I go to dentist, I need 3 platinum fillings, no price discussion, no standard fee for this procedure. I do work & leave, get a bill for $3k. I believe the amount to be unreasonable, and send a check for $2k on back I write, “payment in full for 3 platinum fillings.” Dentist cashes my check. Debt is eradicated.
(i) Why? B/c parties give up legal right to contest the amount in dispute = consideration.
ii. Release = k in which one party forfeits the right to pursue a legal claim against the other party. It bars further recovery beyond terms of the release.
(1) I am in car accident caused by A’s negligence. A offers me $1k if I release him from further liability from the accident. I believe it will cover my damages & release him in writing. Later I want to collect more, I cannot b/c = valid k. We both assented to bargain & sufficient consideration existed (legal right to sue)
(2) Binding if:
(a) given in good faith
(b) stated in a signed writing
(c) accompanied by consideration
iii. Covenant Not to Sue - agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. Unlike a release, it d/n always bar further recovery. If A dn pay me the $1k on the release, I can sue him for breach.
c. Promises Enforceable W/out Consideration - some exceptions to the rule that only promises supported by consideration are enforceable. These promises may be enforceable despite lacking consideration.
i. Promises to Pay Debts Barred by a Statute of Limitations
(1) SOL require creditor to sue w/in a specified period of time to recover debt. If creditor fails, debt recover is barred. A debtor who promises to pay previous debt even though barred by the sol makes enforceable promise. The promise needs no consideration.
(a) Promise can be implied if debtor acknowledges debt w/ a partial payment.
ii. Promissory Estoppel (detrimental reliance) - a person who has reasonably & substantially relied on the promise of another may be able to obtain some measure of recovery. Promisor is estopped from asserting the lack of consideration as a defense. Ct can enforce otherwise unenforceable promise to avoid injustice. Following elements are required:
(1) Clear & definite promise
(2) Promisee must justifiably rely on the promise
(3) Reliance normally must be of a substantial & definite character
(4) Justice is better served by the enforcement of the promise.
iii. Charitable Subscriptions - subscriptions to religious, educational, & charitable institutions are promises to make gifts & are unenforceable b/c no legally sufficient consideration
(1) Some exceptions:
(a) Charity agrees that donated gift $ will be used in a certain way.
(b) Exceptions under promissory estoppel/detrimental reliance
(i) Church solicits pledges to erect new building. On basis of pledges, employs architects, & makes other ks that change their position. = detrimental reliance.
(c) Exception for public policy
