Consideration

I. Elements of Consideration

A. Legal value

1. Promisee does, or agrees to do, something he or she had no prior legal duty to do

a. Performance

b. Forbearance

c. Promise to perform

d. Promise to forbear

2. Amount or adequacy of consideration is unimportant

3. I.e., courts generally do not cancel a contract based on the inequality of the exchange

B. Bargained for and given in exchange for an act or promise

II. Exchanges That Fail to Meet Consideration Requirements

A. Illusory promises

1. Promise is illusory if

a. Does not bind the promisee to do or refrain from doing anything

b. I.e., I promise to mow your lawn if I feel like it.

2. Promise is valid if

a. Output contract: one party promises to buy all the goods another party produces

b. Requirements contract: one party promises to buy all the goods that it needs

i. A partys demands are limited to those quantity needs that are based on good faith

ii. A party can increase the amount if it is not unreasonably disproportionate to a quantity estimate in the contract

B. Preexisting duties

1. Public duties: everyone has a duty to obey the law and refrain from committing crimes or torts

2. Contractual duties

a. Under common law

i. An agreement to modify an existing contract requires new consideration to be binding, such as

a) Greater money

b) Faster service

ii. Unless the modification resulted from unforeseen circumstances that

a) A party could not reasonably be expected to have predict; and

b) Makes that partys performance far more difficult than the parties originally anticipated

b. Under UCC

i. Does not require new consideration to modify a contract for the sale of goods

ii. Only requires good faith and fairness

iii. However, if the original agreement requires a modification to be in writing, any oral agreement is unenforceable

3. Agreements to settle debts

a. If a debt is due and undisputed, a creditors promise to discharge the debt upon receipt of part payment is unenforceable for lack of consideration

b. However, if a debt is not due or is disputed, a creditors promise to discharge it will be enforceable (settlement of the debt = accord and satisfaction)

4. Forbearance to sue: an agreement to refrain from suing can be valid consideration

C. Past consideration

1. An act or other benefit given in the past that was not given exchange for the present promise is not valid consideration

2. Promises made to satisfy a preexisting moral obligation are unenforceable

III. Exceptions to the Consideration Requirement

A. Promissory estoppel: donative promises that are detrimentally relied upon will be enforced absent consideration, such as

1. Gratuitous agency promises

2. Promises of bonuses or pensions

3. Promises of gifts of land

B. Promises to pay debts no longer enforceable

1. Debts barred by the statute of limitations

a. State statutes often prohibit suit after the passage of a certain amount of time

b. Many states enforce a new promise to repay debts for which creditors can no longer sue due to statutes of limitations

2. Debts barred by bankruptcy discharge

a. Most states enforce a promise to repay the debts without consideration

b. Promise must be made prior to the date of discharge and can be revoked for up to 30 days after becoming enforceable

C. Charitable subscriptions: promises to make gifts for charitable or educational purposes are enforced without consideration if the donee has acted in reliance on the gift