Chapter 12 Consideration If there is no consideration there is no contract Consideration legal value bargained for and given in exchange for an act or a promise Promise cannot be enforced unless the promisee has provided consideration something of legal value Two kinds of legal value o Where an exchange for the promisor s promise the promisee either does something or agrees to do something he had no prior obligation to do o Where the promisee doesn t do something or agrees not to do something that he was legally entitled to do There is no requirement that the act or promise have economic value Adequacy of Consideration Do the courts care about the amounts of consideration o General rule no Three exceptions o If the inadequacy of the consideration is apparent on the face of the agreement courts will treat the agreement as a gift rather than a contract Example If you give me 500 I will give you 1000 in exchange Why would you do this You wouldn t unless it was a gift o If the consideration is grossly inadequate the court might get suspicious and think there is fraud or o Nominal consideration something of value is sold for a dollar or really cheap going to be an duress going on unenforceable deal Bargain for Exchange In addition to there being consideration the consideration has to be bargained for and given in exchange o Party a bargains for and gives consideration to party b and vice versa Gottlied Case o Holding consideration can consist of a detriment something somewhat negative that happens to you that you incur The detriment that the couple incurred They had to spend time to travel to the casino They had to wait in line to spin the wheel By taking part in the promotion the couple provided information regarding their gambling patterns to the casino The couple became part of the entertainment at the casino Exchanges that Fail to Meet the Consideration Requirements 1 Illusory Promise where you re not promising to do anything at all o Regarded as no consideration therefore there is no contract o Heye Case Company has the right to change any term pertaining to this woman s employment The company is agreeing to nothing under our employee handbook we can change anything anytime during you employment o Most contracts have a termination clause says under what conditions the contract can be terminated Does a termination clause make a contract illusory Rule it is illusory only if there is a right to cancel or terminate for any reason or anytime without giving notice Rule if there is a notice clause example 30 days notice it is no longer illusory o Output contract and requirements contract Output contract one party party A to the contract agrees to buy all of the other party s party B s production of a particular commodity output Requirements contract party B agrees to supply of another party s needs for a particular commodity o Exclusive dealings contract Modern view neither an output contract or a requirements contract are illusory Modern rule not illusory o Exam question Which of the following kinds of contracts are typically regarded as illusory 2 Preexisting Duties performing or agreeing to perform a preexisting duty is not consideration o Preexisting public duties every member of society has an obligation to obey the law Promisee s promise not to commit a crime or tort cannot be consideration o Preexisting contractual duties and modifications of contracts under the common law suppose two parties have a contract and decide to modify it Issue is the modification effective General rule common law an agreement to modify an existing contract requires new consideration anything of legal value to be effective Two exceptions Ross Case 1 Any amount of new consideration is effective or sufficient 2 Courts will enforce a modification if it results from unforeseen circumstances that change one party s performance obligations makes one party s performance far more difficult than parties originally anticipated then you don t need new consideration Example Acme requested extra payment because abnormal subsurface rock formations made excavation on the construction site far more costly and time consuming than could have been reasonably expected o Ross goes to work for the May company they tell him he has a job as long as he wants gives him an employee handbook with rules they have to follow if they decide to fire him o 20 years later he gets a new handbook saying he does not have a job for as long as he wants and he can be fired for whatever reason o He starts acting strange and they fire him he sued for breach of contract o Was told he has a job as long as he wants but they say no he got a new o Issue modification of contract was this contract supported by new handbook consideration o Findings not supported by new consideration so the new handbook does not apply to him and the old one does So they could not fire him for whatever they wanted and they breached a contract o Point if you re going to modify the contract under the common law you need new consideration to be effective UCC Rule an agreement to modify a contract for the sale of goods does not require new consideration to be effective Three exceptions 1 2 If the modification is the result of coercion it will be unenforceable If the original contract requires that a modification to be in writing then an oral modification will be ineffective 3 Even if an original contract does not require the modification to be in writing if the price of goods in the modified contract is 500 or more the modification must be in writing in order to be effective o Preexisting duty and agreements to settle debts Liquidated debt a specific amount and you owe it on a certain date a debt that is both due and certain no dispute about the fact that you owe An agreement by your creditor to take less money on the due date or later is unenforceable You owe 2000 on Jan 30 you agree with visa to pay 1000 by Jan 30 can they come back and take the other 1000 Yes lack of consideration Suppose you pay it early you agree to pay a lesser amount early 1000 on Jan 15 This is enforceable because the consideration you ve given is the promise to pay it early Unliquidated debt there is a good faith dispute about either the existence or the amount of the debt Settlement an accord and satisfaction 1 Accord is the promise 2 Satisfaction is the payment Once you pay can they come after you for the disputed charges No You reached an agreement you only have to pay the undisputed charges
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