Professional Documents
Culture Documents
Consideration
Elements of Consideration
Bargained for exchange
A performance or return promise is bargained-for if it is sought by the promisor in exchange
for his promise, and it is given by the promisee in exchange for that promise. (Rest 2d. 71(2))
The bargain requirement serves the purpose of distinguish between enforceable promises and
ordinary gifts.
1. Gifts A promise to make a gift is unenforceable, not only because it is not bargainedfor but also because the offeree suffers no legal detriment.
2. Bargain v. precondition Performance of a bargain benefits the promisor and
therefore is valid consideration. Performance of a precondition does not benefit the
promisor and is not consideration.
3. Benefit The benefit a promisor receives as part of a bargain does not have to be
economic in nature. However, the benefit must be more than just altruistic pleasure;
moral obligations do not constitute valid consideration
4. Adequacy of Consideration
a. Nominal Consideration Although courts will not ordinarily examine the
adequacy of consideration, courts will do so in cases involves purely token
consideration, in order to thwart attempts to make gratuitous promises appear
legal enforceable. Nominal consideration is usually evidence that a gift is
masquerading as a bargained-for exchange.
b. Recited Consideration A majority of courts allow a promisor who is
opposing enforcement of a contract to prove that the consideration recited in the
agreement was not actually given.
c. Past consideration As a general rule, past consideration is not consideration.
Promissory Estoppel
Promissory estoppel is an equitable doctrine that is used to avoid injustice by enforcing
otherwise unenforceable promises. It estops the promisor from claiming that no consideration
was given (Rest. 2d. 90)
Requirements for Promissory Estoppel
1. That there was actual reliance on the contract or promise
2. That the reliance was foreseeable to the breaching party.
3. That it was clearly detrimental.
4. That injustice can only be avoided by enforcement.
Case overviews
1. Hamer v. Sidway (1891).
a. Facts: A young mans uncle promised to pay him $5,000 if he abstained from
drinking, smoking, swearing and gambling until the age of 21. The uncles
executor refused to honor the promise, claiming no consideration.
b. Issue: Does voluntary forbearance of a legal right constitute consideration?
c. Rule: Forbearance of a right is sufficient legal detriment to constitute
consideration.
2. Batsakis v. Demotsis (1949).
a. Facts: During World War II, Batsakis loaned Demotsis 500,000 drachmas to get
back to America. Demotsis promises to pay $2,000. Demotsis refused to repay
the debt, claiming that inadequate consideration was given for her promise.
b. Issue: Is a contract void if the consideration furnished by one party is
substantially disproportionate to that given by the other?
c. Rule: Inadequacy in a contract does not void a contract, as long as the
consideration has some value. A party that receives the benefit it seeks will not be
relieved from a bad bargain.
1. Courts have held that modifications of rents and wages are invalid because of the preexisting duty rule.
2. An agreement to accept payment of a lesser sum on or after the due date is not binding
for lack of consideration
a. This rule is severely criticized because it discourages settlements. It has been
overruled in some jurisdictions.
b. Most jurisdictions follow it, but hold that sufficed detriment exists if payment of
a lesser sum is accompanied by some additional act of the debtor.
3. The pre-existing duty rule is not applicable if:
a. The original contract is rescinded and a new contract is executed.
b. Contraction modification is a partial rescission and therefore supported by
consideration.
c. Some new detriment can be found for consideration.
d. Rest. 2d. 89(a) allows a modification to be binding if compelled by unforeseen
circumstances.
e. Under promissory estoppel, a modification is binding to the extent that justice
requires enforcement because of reliance on the modification.
f. Some state statutes allow modifications without consideration as long as written
and signed.
g. Dropping an invalid claim serves in most courts as consideration for
modification if the party has a genuine and reasonable subjective belief that the
surrendered claim in valid.
Economic Duress
1. Rule: A contract is voidable if a party was forced to agree to it by use of a wrongful
threat precluding his exercise of free will.
2. Proof: A party must show that immediate possession of needful goods is threatened and
that the goods could not be obtained from another source
3. The remedy is usually restitution
4. Exercise of a legal right is not duress
Check Tendered as Payment in Full
1. Common law Rule If there is a good faith dispute over the amount of a debt and the
debtor tenders a check for a lesser amount than the creditors claim, cashing the check,
even under protest, discharges the debt.
a. A debtors intention that the check be full satisfaction of the debt must be
cleared indicated to the creditor.
b. Partial payment by a fiduciary will not result in an accord and satisfaction.
2. UCC 1-207 - A creditor can cash a check tendered as payment in full and still reserve
the right to sue for the balance of the debt by righting words of protest on the check.
Unconscionability and Adhesion Contracts
1. Judges decide the issue of unconscionability as a matter of law.
2. Unconscionability is determines by circumstances at the time the contract was made.
3. Parties are entitled to a reasonable opportunity to present evidence of the circumstances
to aid the court in making its decision
Remedies
Equitable Remedies
Although the standard relief for breach of contract is monetary damages, they may be
inappropriate in certain situations, such as where the amount of damages is too speculative, or
the contract was for unique goods. In such cases, courts will grant primarily two forms of
equitable relief: injunctions and specific performance. A primary consideration in granting
equitable relief is the issue of justice and fairness.
Specific Performance (Rest. 2d. 359; UCC 2-716)
Instead of giving monetary damages, a court can force the breaching party to perform as
promised in the contract. Specific performance is usually granted where a contract involves a
unique good, such as land. Before granting this remedy a court will consider several issues:
1. Indefiniteness (Rest. 2d. 362). The agreement between the parties must be
sufficiently definite and certain to be specifically performed, all material terms included.
2. Extensive Supervision (Rest. 2d. 366). If specific performance of the agreement
requires extensive supervision by the court to ensure that each party is fulfilling its duties
property, the court will avoid awarding this measure of damages.
3. Adequacy of Alternative Remedies (Rest. 2d. 360). Specific performance is an
attractive remedy if other remedies do not appear adequate. Relevant considerations
include:
a. The difficulty of proving monetary damages,
b. The availability of satisfactory substitute goods, and
c. The likelihood the plaintiff will be able to collect a monetary judgment from the
defendant.
4. Do equity to get equity (Rest. 2d. 364). A court may refuse to grant equitable relief
if the party requesting such relief did not act fairly in forming the contract or if denial
would cause great hardship to the breaching party.
5. Personal Service (Rest. 2d. 367). Contracts made for the personal services of a party
are rarely specifically enforced because courts dislike the idea of forcing people to work
in places not of their choosing. However, injunctions are used to prohibit the breaching
employee from working for his employers competitors for the duration of the contract.
Injunctions (Rest. 2d. 361)
As another alternative to monetary damages (and to specific performance), a court may prohibit
the breaching party from rendering the contracted-for performance to anyone but the
nonbreaching party. Courts will grant an injunction if:
1. A noncompetition clause is in the contract.
2. The contract is for unique services. The employer must prove that the employees
services or abilities are special or unique.
3. The employees livelihood is not threatened. A court will not gran an injunction if doing
so would leave the employee with no other reasonable means of making a living.
Case Overviews
c. Rule: Damages are based on the reasonable cost to complete the contract and
repair any defective performance less the unpaid portion of the contract price.
c. Rule: Once notified of repudiation, other party may not continue and has
obligation not to increase damages.