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Consideration

Consideration. 2.01 Understanding elements and characteristics of a contract. CONSIDERATION. Exchange of benefits and detriments by the parties to an agreements Requirements of consideration: Must involve a bargained-for exchange (promise made in return for another promise)

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Consideration

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  1. Consideration 2.01 Understanding elements and characteristics of a contract

  2. CONSIDERATION Exchange of benefits and detriments by the parties to an agreements • Requirements of consideration: • Must involve a bargained-for exchange (promise made in return for another promise) • Must involve something of value • Benefits and detriments must be legal • Benefits • Something that a party was not previously entitled to receive • Detriments • Any loss suffered; anything given up • Forbearance • Not doing something that you have the right to do

  3. Adequacy of Consideration • Courts don’t look at adequacy or value of an agreement unless it is “unconscionable” • Unconscionable • So grossly unfair or oppressive that it would shock the conscience of the court • So lop-sided that the average person would not agree to terms

  4. Nominal Consideration • Token amount in a written contract where either the parties cannot or do not wish to state the amount

  5. Agreements without Consideration • Promise to make a gift • Gifts have no consideration • Cannot be enforced • Gift that has been given • Doesn’t have to be returned • Donor – Gives the gift • Donee – Accepts the gift

  6. Illusory Promises Clause or wording that allows party to escape from legal obligation • Termination clause • Illusory – clause to allow termination of contract for any reason • Not illusory – termination only allowed after a change in defined circumstances • Output Contracts • Agreement to purchase all of a specific producer’s product • Requirements Contracts • Agreement to supply all of the needs of a specific buyer • Output & Requirements contracts are recognized by the courts as having consideration by implying fair dealing.

  7. Existing Duty • Existing Public Duty • No detriment • Obligation to obey the law • Existing Private Duty • If a person is already under legal duty to do something, another promise to do that same thing does not furnish consideration for a new contract.

  8. Past Performance • An act that has already been performed cannot be consideration in a contract.

  9. Exceptions to Consideration • Promises to charitable organizations • Gift or Pledge for future contribution • Enforceable as consideration if organization identifies the pledge for a specific use and acts in reliance on the pledge • Promises covered by the UCC • Firm offers • Good faith modification of contract • Promises discharged in bankruptcy

  10. Exceptions to Consideration • Promises barred from collection • Promissory Estoppel****** • Rely on what a person said • Elements: • Promise must bring action or forbearance • One who gave no consideration must have relied on the promise • Injustice can be avoided only enforcing the promise

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