Definition
Consideration is a bargained-for exchange of legal value.
Past Consideration
A promise given in exchange for something already done does not satisfy the bargain requirement.
Exceptions: A subsequent promise to pay for an act will be enforceable:
- If that past act benefited the promisor and 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.
What is a “bargained for exchange?”
The promise induces the detriment and the detriment induces the promise
No bargain for gifts
See Past Consideration card
What is “legal value?”
There must be a legal benefit and a legal detriment
Legal Detriment: if the promisee does something they are not legally obligated to do or refrains from doing something they have a legal right to do.
Legal Benefit: The forbearance or performance of an act that the promisor was not legally entitled to demand or expect.
Promising to Perform Pre-existing Legal Duties as Consideration
This is generally insufficient consideration.
Exceptions:
- New or different consideration is promised
- The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud)
- The preexisting duty is owed to a third person rather than to the promisor
- There is an honest dispute as to the duty
- There are unforeseen circumstances sufficient to discharge a party (such as impracticability)
- If the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
- UCC: a good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.
Modifying Contracts
Generally, a contract can’t be modified unless the modification is supported by NEW consideration.
However, modification without consideration is allowed if: (1) the modification is due to circumstances that were unanticipated by the parties when the contract was made and (2) it is fair and equitable.
UCC: Consideration isn’t necessary to modify; all the parties need are good faith promises of new and different terms.
What is an Illusory Promise?
If only one party is bound to perform, the promise is illusory and will not be enforced.
Requirement of Mutuality
Consideration must exist on both sides of a contract.
Courts can supply implied promises (for example, a party must use their best efforts) to infer mutuality.
Can a party choose one of several means to perform?
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 third party, or
(2) a valuable alternative (that is, one involving legal detriment) is actually selected.
Consideration and Promissory Estoppel
A promise is enforceable if necessary to prevent injustice if:
a. The promisor should reasonably expect to induce action or forbearance, and
b. Such action or forbearance is in fact induced.
