Consideration

Question 1

Consideration

Answer 1

• Courts will enforce a promise as a K only if it is supported by consideration/a sub for consideration

Question 2

Elements of Consideration

Answer 2

• 2 elements are necessary to constitute consideration:
  (1) a bargained-for exchange between the parties; and
  (2) legal value, meaning that which is bargained for must be considered of legal value (it must constitute a benefit to the promisor or a detriment to the promisee)

Question 3

Bargained For Exchange

Answer 3

• This element of consideration requires that the promise induce the detriment and the detriment induce the promise.
• There is no bargain involved (meaning, no consideration) when one party gives a gift to another

Question 4

Act/Forbearance by Promisee Must Be of Benefit to Promisor

Answer 4

• An act/forbearance by the promisee (or a promise to act/forbear) is sufficient consideration to form a K if it benefits the promisor.
• The benefit, however, need not be economic (ex. the gratification of influencing the mind of another is sufficient).

Question 5

Past or Moral Consideration

Answer 5

• A promise given in exchange for something already done does not satisfy the bargain requirement

Question 6

Tip:

Answer 6

• Beware of questions that use the word “consideration” to refer to something already done, as in “In consideration of your having done X, I promise
  you $1,000.” Under the general rule, this promise is not enforceable because the promise is given in exchange for past acts.

Question 7

Exceptions: Past Acts

Answer 7

• Where a past obligation is unenforceable because of a technical defense (ex. SOL), that obligation will be enforceable if a new promise is made in writing/partially performed.
• Under the modern trend, if a past act benefited the promisor & was performed by the promisee at the promisor’s request in response to an emergency, a subsequent promise to pay for that act will be enforceable.

Question 8

Legal Value Element: Adequacy of Consideration

Answer 8

• In general, cts do not inquire into the adequacy/fairness of consideration.
• However, if something is entirely devoid of value (token consideration), it is insufficient.
• Sham consideration (insignificant sum recited in K) is also insufficient if not paid.
• But note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.

Question 9

Legal Benefit & Legal Detriment

Answer 9

• Legal detriment results if the promisee does something they are not legally obligated to do/refrains from doing something they have a legal right to do.
• A legal benefit is the reverse.
• It is forbearance/performance of an act that the promisor was not legally entitled to demand/expect.

Question 10

Preexisting Legal Duty Not Consideration & Exceptions

Answer 10

• Traditionally, performing/promising to perform an existing legal duty is insufficient consideration.

Exceptions:
The preexisting legal duty rule is riddled with exceptions.
There is consideration if:
(1) New/different consideration is promised;
(2) The promise is to ratify a voidable obligation (ex. a promise to ratify a minor’s K after reaching majority or a promise to go through with a K despite the other party’s fraud);
(3) The preexisting duty is owed to 3rd person rather than to the promisor;
(4) There is an honest dispute as to the duty; OR
(5) There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the mod is fair and equitable in view of circumstances not anticipated when the K was made.
- Also, a good faith agreement modifying a K subject to the UCC needs no consideration to be binding.

Question 11

Tip:

Answer 11

Although payment of a smaller sum than due on an existing debt is generally not sufficient consideration for a promise by the creditor to discharge the debt, cts will attempt to avoid this result by applying the above exceptions. Thus, you should check the facts for new/different consideration given (ex. payment earlier than required or payment in stock instead of cash); this change in performance could make the payment of a smaller amount sufficient consideration

Question 12

Modification of Ks

Answer 12

• Under general K law, a K can’t be modified
  unless the modification is supported by new consideration.
• The modern view, however, permits modification without consideration if:
  (1) the mod is due to circumstances that were unanticipated by the parties when the K was made and
  (2) it is fair and equitable.
• Under the UCC, consideration isn’t necessary to modify; all the parties need are good faith promises of new & different terms.

Question 13

Tip:

Answer 13

For MBE purposes, the examiners have indicated that they have adopted the modern view. However, on any non-UCC essay question that involves mod, you should discuss the traditional view and any relevant state exceptions, including the modern Restatement view where it is relevant.

Question 14

Discharge of Debts

Answer 14

• A debt can be discharged through an accord & satisfaction (see discussion in Module 6).
• In general, an accord must be supported by consideration.
• Even if the consideration is of a lesser value than the originally bargained-for consideration in the prior K, it is sufficient if the new consideration is of a different type or if the claim is to be paid to a 3rd party.
• In addition, a debtor’s offer to make a partial payment on an existing debt will suffice for an accord & satisfaction if there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration

Question 15

Forbearance to Sue

Answer 15

• A promise to refrain from suing on a claim constitutes consideration if the claim is valid or the claimant in good faith believed the claim was valid.

Question 16

Mutual & Illusory Promises - Requirement of Mutuality

Answer 16

• Consideration must exist on both sides of a K (although the benefit of the consideration generally need not flow to all parties).
• If only one party is bound to perform, the promise is illusory and will not be enforced.
• Cts often supply implied promises (ex. a party must use their best efforts) to infer mutuality

Question 17

Examples of Ks that Satisfy Mutuality Requirement

Answer 17

(1) Requirements and output K
(2) Conditional promises, unless the condition is entirely within the promisor’s control
(3) Ks where a party has the right to cancel, if that right is somehow restricted (ex. a party must give 60 days’ notice)
(4) Exclusivity agreements (ex. exclusive marketing agreements) b/c the ct will find an implied promise to use best efforts
(5) Voidable promises (ex. one made by an infant)
(6) Unilateral and option Ks, and
(7) Gratuitous suretyship promises made before/at the same time that consideration flows to the principal debtor

Question 18

Tip:

Answer 18

Closely analyze the wording of K terms; language can make a big difference here. Ex., a valid requirements or output K term will say, “all the widgets I require” or “all that you produce,” but a term such as “all the widgets I want” or “all you want to sell me” is illusory.

Question 19

Right to Choose Alternative Courses

Answer 19

• A promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor.
• The promise will not be found illusory if:
  (1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a 3rd party, or
  (2) a valuable alternative (one involving legal detriment) is actually selected.

Question 20

Promissory Estoppel/Detrimental Reliance

Answer 20

• Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.
• A promise is enforceable if necessary to prevent injustice if:
  (1) The promisor should reasonably expect to induce action/forbearance, and
  (2) Such action/forbearance is in fact induced
• If the elements for promissory estoppel are present, some jurisdictions will award expectation damages (what was promised under the K), but the 2nd Restatement provides that the remedy “may be limited as justice requires.”
• Thus, a ct following the 2nd Restatement might award reliance damages (whatever the promisee spent in reliance on the promise), which usually is something less than expectation damages, but theoretically can exceed them.

Question 21

Tip

Answer 21

A valid K is better than an agreement that
can be enforced only by promissory estoppel because some states limit recovery under promissory estoppel to that which “justice requires.” Thus, in a question asking whether a party can prevail based on an agreement, always check first to see if there is a valid K. Only if there isn’t should you consider promissory estoppel as a proper choice.