Glossary of Contracts - Consideration
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- What is Consideration?
- A bargained-for legal detriment to P given in exchange for D's promise.
- Review the steps of factual analysis for Consideration.
- 1) Identify the promise by D that P wants the court to enforce.
2) Identify EVERY possible act, forbearance, or promise by P that might serve as consideration.
3) Test each to see if it is legally sufficient consideration.
- Bargain Component: Examine each party's state of mind. P must have given consideration in exchange for D's promise. D must have made the promise in exchage for P's consideration.
- Legal Value Component: The consideration must be a legal detriment to P and a legal benefit to D.
4) If there is not conventional consideration, see if there is a valid substitute for consideration.
- If the bargain element is missing, look for promissory estoppel.
- If the legal value element is missing, look for moral obligation.
- What is a donative promise?
- A promise not made in return for consideration. Consideration fails if D's promise was donative.
- What is the Peppercorn Theory?
- The theory that the smallest legal detriment can serve as consideration. Something with very little economic value might have significant legal value (Widow bargained for note in Newman and Snells State Bank v. Hunter.)
- When is a conditional promise still valid as consideration?
- When the condition is out of the control of the the P. It is still a legal detriment because P sacrifices a legal right by being at the mercy of the bargain.
- What is consideration when D's offer is unilateral (D's promise in return for P's act)?
- P has given consideration if P's act of acceptance has resulted in P's legal detriment. This can result from an action on P's part, or even a forebearance.
- What is Mutuality of Consideration?
- It's the idea that both D and P must have given valid consideration. It's discredited; only the party seeking to enforce the promise is asked to show that they gave adequate consideration.
- What attacks does D have against the Legal Sufficiency of P's Consideration?
- Pre-existing Duty
- When is a claims settlement valid consideration?
- Valid Claim - Surrendering a valid claim is valid consideration
MAJORITY - If P subjectively believes that claim is valid, and that belief is objectively reasonable, then surrendering the claim is valid consideration.
MINORITY - some believe that subjective belief is enough, or that invalid claims are never adequate consideration.
- How does the UCC view output/requirements contracts? How does the common law?
- The common law underwent a gradual shift from holding that output/requirements Ks were invalid because they were fatally indefinite for mutual assent and consideration. Intermediately, consideration could be found if there were some foreseeable, established output level that implied the quantities being detal with. Modernly, a mere restriction on whom one could deal with was deemed to be valid consideration.
The UCC recognizes all output/requirements contracts as being valid, as long as the bargaining is done in "good faith"
- In what situations can Termination Clauses be used by D as a invalidation of P's consideration?
- Generally, when the termination clause gives P an unfettered right to exit the agreement. There is no legal detriment to P, then.
The termination clause is not unfettered, however, when:
- Termination is conditional upon some factor outside of P's control.
- P is required to give notice some specified period before termination.
- P is simply required to give notice (this kind of clause must have specifically be bargained for.)
- P may cancel at any time, and no notice is necessary, but P does in fact give notice and only does so after a reasonable time after K formation.
- How does P's pre-existing duty affect P's purported consideration?
What are the exceptions?
- Generally, if P's consideration was a pre-existing duty, then there was no new legal detriment, and the consideration is not valid.
- Rescission of prior K (SoA).
- Surrendering the right to enter into a contract of recission (SoA).
- Three-party situations (Majority).
- Voluntary Modification prompted by unforeseen difficulty or expense (Minority).
Note: a Legal Power to Breach is almost never recognized as a legal right that can be surrendered, as it would legitimize extortion.
- Describe the SoA on finding a recission of a previous contract to allow for P's promise to be valid consideration.
- Rescission prior to new K is always valid
- Majority say that Rescission simultaneous with new K is valid.
- Purported Modification of of an existing K. Traditional view is that this is invalid consideration. Modern view is that it is valid, if between businesses and if good faith.
- Goes furthest, doing away with pre-existing duty rule. All modifications are valid without requiring consideration. Parties do not even need to be businesses.
- Name three related problems under Claims settlements and describe the law on each.
- Disputed or Unliquidated Claims - Many claims (most tort claims) have ambiguous values until decided court. Giving up the right to go to court can thus be valid consideration.
Composition with Creditors - Entering a composition with creditors forfeits the legal right to prefer one creditor over another; everyone gets the same proportion of what they are owed. This is valid consideration.
Check Cashing Problems - Can the creditor cash a check if the debtor has written "this partial payment satisfies the whole debt" on it?
- If the debt was disputed or unliquidated, then he'll forfeit the rest of the debt.
- If it's undisputed or liquidated, the there's a SoA. 1) it doesn't matter what the debtor writes on the check, 2) the creditor must explicitly reserve his his right to the remainder of debt (e.g. "without prejudice") on the check, or 3) MINORITY: creditor will lose remainder of debt if cashes the check, regardless of reservation of right.
- What are the situations when an agreement is still valid, even if there is no legal detriment (Moral obligation situations)?
- - Wholly moral obligation (small minority)
- Material Benefit conferred pursuant to K (minority)
- Promise was voidable or unenforceable when made, D renews promise when the restriction lifts (void duties are no good)
- Promise becomes unenforceable (different situations)
- Conferral of material benefit on promisor, subsequent promise by promisor to pay (SoAs)
- What are the situations when an agreement is still valid, even if D's promise becomes unenforceable (Moral obligation situation)?
- - If Statute of Limitations runs out, promise must be renewed in writing, or part payment.
- If Bankruptcy Proceedings, promised must be renewed (writing not necessary), or part payment
- If Promise voluntarily discharged, agreement is NOT valid; no legal or moral duty.
- If there is a conferral of a material benefit on D, and subsequent promise by D to pay, when will this be treated as a moral obligation that serves as a substitute for consideration?
- - If P conferred benefit without expectation of payment, then MINORITY say that this is valid substitute for consideration. MAJORITY say that P must have an expectation of payment.
- Quasi-K (e.g. statutorily enforced) and implied-in-fact (facts imply that K was agreed upon) Ks: four views.
1) promise unenforceable
2) promise is admissable evidence of value of benefit conferred.
3) promise enforceable, but only to a value deemed reasonable given the benefit conferred.
4) promise enforceable, whatever the terms.
- Also, fringe cases such as misdelivery, where someone is expected to pay (no quasi-K, but also not donative.)
- What are the elements of Promissory Estoppel?
- Promise: D makes a promise
Foreeable: At the time, D could forsee that P would rely on the promise
Reliance: P relies (detrimentally changes position) on the promise
Substantial: The reliance was substantial
Reasonable: The reliance was Reasonable.
"D can be estopped when he makes a promise that he can foresee will be relied upon by P. Then, P substantially and reasonably relies on the promise."
- What kinds of damages might be available as a result of Promissory Estoppel?
- Expectation Interest: P's economic position had D made good on the promise.
Restitution Interest: Benefit that P confers upon D.
Reliance Interest: P's economic losses, given reliance on D's promise.
Usually, only reliance interest is awarded. MINORITY: Sometimes, restitution and expectation interest are awarded as well.
- What is the consideration given in the renegotiation of terms of an at-will employment agreement?
- Basically, the forebearance of the employer to fire the employee or the employee not to leave (both legal rights) is consideration for the other's promise.
It's tricky because the consideration can still be terminated at will. Yet, that's the law.
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