Contracts: Consideration

Introduction

Consideration is legal value given in return for a promise or performance.

§   Must have something of legal value or sufficiency.

§   Must be a bargained-for exchange.

Elements of Consideration

Consideration for a promise must be either:

§   Legally detrimental to the promisee, or legally beneficial to the promisor.

“Legal Value”:

§   Promise,

§   Performance, or

§   Forbearance.

Case 11.1: Hamer v. Sidway (1891).

Adequacy of Consideration

A Court will not question the fairness of the bargain if legally sufficient.

§   Law does not protect a person for entering into an unwise contract.

§   In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.

Case 11.2: Powell v. MVE Holdings (2001).

Agreements That Lack Consideration

Preexisting Duty.

§   Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration.

§   Exceptions:

•          Unforeseen Difficulties.

•          Recession and New Contract.

Past Consideration is no consideration because the bargained-for exchange element is missing.

Problem Areas Concerning Consideration

ü   Uncertain Performance.

ü   Settlement of Claims.

ü   Promises enforceable without consideration.

ü   Uncertain Performance

ü    Illusory Promises.

§   Promisor has not definitely promised to do anything (no promise at all).

ü   Option-to-Cancel Clauses.

ü   Requirements and Output Contracts.

Settlement of Claims

Debtor offers to pay a lesser amount than the creditor purports to be owed.

Accord and Satisfaction.

Liquidated Debt.

Ø  Amount has been ascertained, fixed, agreed on, settled, or exactly determined.

Unliquidated Debt.

Ø  Parties give up legal right to contest the amount in dispute, and thus consideration is given.

Release bars any further recovery beyond the terms stated in the release.

Case 11.3: Mills v. Berlex Laboratories (1999).

Convenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim.

Promises Enforceable Without Consideration

Promises to Pay Debt Barred by a Statue of Limitations.

Detrimental Reliance and Promissory Estoppel:

§   Must be definite promise.

§   Promisee must justifiably rely on the promise.

§   Reliance is substantial.

§   Justice will be served by enforcing promise.