CONSIDERATION

Courts will only enforce contracts supported by consideration or substitute for consideration.

Elements of Consideration

Bargained for Exchange - promise must induce the detriment and the detriment must induce a promise. Gift is not a bargain. Act of forbearance must be a benefit to the promisor, need not be economic. Past or Moral consideration does not satisfy this element. Exception - Where a past obligation was unenforceable due to a technical defect (like SOL), that obligation will be enforceable if a new promise is made in writing or is partially performed. Under the modern trend, if a past act benefited the promisor and was performed by the promisee at the promisor's request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.
Legal Value Element or must constitute a benefit to the promisor or a detriment to the promisee - courts do not look into fairness and adequacy of consideration; however, something that is devoid of value (token consideration) is insufficient. Sham consideration (insignificant sum recited in the contract) is insufficient if not paid. Possibility of future value is ok. Legal Benefit/Legal Detriment theories - majority requires that a party incurs a detriment (doing smh you have no duty to, or refraining from what is your right), but under minority rule, conferring a benefit on the other party is also sufficient. Forbearance to sue is consideration if claim is valid or claimant in good faith believed that the claim was valid.

Promise to perform a Preexisting Legal Duty is not sufficient unless:

New or different consideration is promised ( delinquent mortgage repayment plan with different payment structure, earlier, cash not stock BUT paying less is usually not sufficient);
The promise is to ratify a voidable obligation (minor contract, contract despite fraud);
Preexisting duty is owed to a third party not a promisor;
there is a honest dispute as to duty;
There are unforeseen circumstances sufficient to discharge the duty

MUTUAL AND ILLUSORY PROMISES

Consideration must be mutual. If only one party is bound to perform, consideration is illusory and will not be enforced. Courts will often supply implied promises. Common examples of contracts that satisfy the mutuality requirement:
1. Requirement and output contracts (NOTE the language: all the widgets I require - OK v. all the widgets I want- NOT OK);
2. Conditional promises, unless condition is entirely within promisor's control;
3. Contracts where a party has the right to cancel, if that right is somehow restricted (party must give 60 day notice);
4. Exclusivity agreements (like exclusive marketing (the court will find an implied promise to use best efforts);
5. voidable promises (by infant);
6. Gratuitos suretyship promises made before or at the same time that consideration flows to the principal debtor.

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

PROMISSORY ESTOPPEL OR DETRIMENTAL RELIANCE
Consideration is not necessary when promisor should be estopped from not performing . Sec 90 of First Restatement holds that promise is enforceable if necessary to prevent the injustice of:

The promisor should reasonably expect to induce action or forbearance;
of a definite and substantial character; and
such action or forbearance is in fact induced.

Second Restatement does not require that the action or forbearance be of a definite and substantial character. But, the remedy "may be limited as justice requires." Typically, First Restatement would award expectation damages (what was promised under the contract), and the Second Restatement might award reliance damages (whatever promisee spent in reliance on the promises), which is usually something less then expectation damages, but can theoretically exceed them.

Valid contract is better then promisory estoppel, as estoppel in some states can limit recovery to that which "justice requires."

	Created by Jana Slavina over 10 years ago

Bar Exam CONTRACTS (CONSIDERATION) Note on Consideration, created by Jana Slavina on 28/01/2015.