4. Consideration

Question 1

What is required for consideration?

Answer 1

1) Bargained-for exchange between parties

2) Legal value

Question 2

What is required for bargained-for exchange?

Answer 2

Promise to act/forbear

• Benefit to Promisor
• Detriment to Promisee
• Economic/Non-economic
• NOT gift

Moral consideration (overcome technical defence preventing enforceability of previous promise, e.g. SoL) => New promise

• Writing
• Part performance

Past consideration => New promise (some states)

1) Promisor benefitted from Promisee’s act
2) Promisee acted at Promisor’s request/In response to emergency
3) Promisee did not intend to confer gift

Question 3

What is required for consideration to have legal value?

Answer 3

Promise not to sue on claim

• Valid claim
• NOT valid claim (reasonable person would believe claim well-founded + Promisor (not to sue on claim) made claim in good faith)

Adequate

• NOT sham
• NOT entirely devoid of value

Legal benefit

1) Promisee’s forbearance/performance of act
2) Promisor not legally entitled to expect/demand
3) Confers benefit on Promisor

Legal detriment

• Promisee’s obligation not legally required
• Promisee’s refrain from legally required act

Question 4

What is the rule for pre-existing legal duties?

Answer 4

Promise to perform/performance of pre-existing legal duty is NOT consideration

Question 5

What are the exceptions to pre-existing legal duties (as new consideration)?

Answer 5

Goods (Art 2)

• Honest in fact + observance of reasonable commercial standards in fair dealing (good faith) => Valid (NOT as new consideration)
• NOT extort modification from other party (bad faith)

Real estate/Services/Changing debt payment

• New/Different consideration already promised
• Ratify voidable obligation
• Duty owed to TP
• Honest dispute re scope of duty
• Unanticipated circumstances at time of contract (fair + equitable, rises to impracticability)

Question 6

What is required for consideration to be mutual (not illusory)?

Answer 6

Express
- Offeror + Offeree give consideration

Implied (by courts)

• Requirements/Output contract
• Conditional promise (NOT entirely within Promisor’s control)
• Exclusivity agreements
• Voidable promises
• Option contracts
• Unilateral contracts
• Gratutitous suretyship promises (Surety promised before/at time Creditor performs)
• NOT right to cancel

Alternative choices

• Power to choose is with Promisee/TP + at least one of choices has legal detriment to Promisor
• ALL choices have legal detriment to Promisor

Question 7

What is required for enforcing contracts by promissory estoppel without consideration (as substitute for consideration)?

Answer 7

1) NOT valid contract
- Gratuitous promise

2) Promisor would reasonably expect Promisee’s detrimental reliance
3) Promisee’s actual detrimental reliance

Question 8

What remedies are available for promissory estoppel?

Answer 8

Second Restatement (some states)
- Award 'as justice requires' (reliance damages)

Some states
- Expectation damages (promised under contract)

Question 9

What is the difference between bilateral and unilateral contracts?

Answer 9

Bilateral contract

• Seeks promise to perform in return => Offeree’s promise to perform becomes acceptance => Contract formed
• NOT revocable (once accepted)

Unilateral contract

• Seeks performance in return (consideration)
• Revocable (NO acceptance involved)