Chapter Twelve Consideration legal value bargained for an given in exchange for an act or a promise Promise generally cannot be enforced against a promisor unless the promise has given up something of legal value in exchange for the promise Requirement for consideration is that promise must pay the price that the promisor asked to gain the right to enforce the promisor s promise If promisor did not ask for anything in exchange for making her promise or if what the promisor asked for did not have legal value her promise is not enforceable against her no consideration Legal Value consideration can be an act in the case of a unilateral contract or bilateral contract in the exchange for the promisor s promise the promise does agrees to do something he had no prior legal duty to do that provides legal value in the exchange for the promisor s promise the promise refrains from doing or agrees not to do something she has a legal right to do that also provides legal value does not need to have monetary or economic value Adequacy for Consideration courts generally do not concern themselves with question regarding the adequacy of the consideration that the promise gave o If the inadequacy of consideration is apparent on the face of the agreement most courts conclude that the agreement was a disguised gift rather than an enforceable bargain giving 50 for 100 o Gross inadequacy may give inference of fraud duress lack of capacity unconscionability or some other independent basis for setting aside a contract Inadequacy of consideration standing alone is never sufficient to prove lack of true consent or contractual capacity o Nominal consideration some agreements recite 1 or 1 and other consideration courts often find that these are attempts to make gratuitous promises and often refuse to enforce such agreements unless they find that the stated consideration was truly bargained for Bargained For Exchange fact that promisee s act or promise provides legal value is not in itself sufficient basis for finding that it amounted to consideration promisee s act or promise must have been bargained for an given in exchange for the promisor s promise It must be the price that the promisor asked for in exchange for making his promise Exchanges That Fail to Meet Consideration Requirements Illusory promises agreement lacks mutuality of obligation required for an agreement to be enforceable ex A promisee s promise to buy all the sugar I want Effect of Cancellation or Termination Clauses central issue is whether a promise subject to cancellation or termination actually represents a binding obligation Effect of Output and Requirement Contracts agreements contracts to buy all of the other party s production of a particular commodity output or to supply all of another party s needs for a particular commodity requirements o limited to quantity needs that occur in good faith and are not unreasonably disproportionate to any quantity estimate contained in the contract or to any normal prior output or requirements if no estimate is stated 2 306 1 Effect of Exclusive Dealing Contracts unless the parties agree to the contrary an exclusive dealing contract imposes a duty on the distributor to use her best efforts to sell the goods and imposes a reciprocal duty on the manufacturer to use his best efforts to supply the goods Preexisting Duties generally performing or agreeing to perform a preexisting duty is not consideration Every member of society has a duty to obey the law and refrain from committing crimes or torts Preexisting Contractual Duties and Modifications of Contracts under the Common Law an agreement to modify an existing contract requires some new consideration to be binding Preexisting Duty and Contract Modification under the UCC an agreement to modify for the sale of goods needs no consideration to be binding 2 209 1 o If the original agreement requires any modification to be in writing an oral modification is unenforceable 2 209 2 o Regardless of the original agreement if the modified contract is 500 or more the modification is unenforceable unless the requirements of the Code s statute of frauds section 2 201 are satisfied 2 209 3 Preexisting Duty and Agreements to Settle Debts o Liquidated debts a debt that is both due and certain the parties have no good faith dispute about either the existence or the amount of the original debt If the debtor does nothing more than pay less than an amount he clearly owes there is no consideration for a creditor s promise to take less creditor can sue for full amount o Unliquidated Debts good faith dispute about either the existence or the amount of debt settlement of such debt is called an accord and satisfaction After an accord and satisfaction creditor cannot maintain an action to recover the reminder of the debt that he alleges is due o Composition Agreements agreements between a debtor and two or more creditors who agree to accept as full payment a stated percentage of their liquidated claims against the debtor at or after the date on which those claims are payable Generally enforced by the courts despite the fact that enforcement appears to be contrary to the general rule on part payment of liquidated debts o Forbearance to Sue an agreement by a promise to refrain or forbear from pursing a legal claim against a promisor can be valid consideration to support a return promise by a promisor o Past consideration is not consideration an act or other benefit given in the past that was not given in exchange for the promise in question o Moral Obligation promise made to satisfy a preexisting moral obligation is unenforceable Exceptions to the Consideration Requirement Promissory Estoppel reliance on donative promise is a sufficient basis for enforcing promise against the promisor Promise to Pay Debts Barred by Statutes of Limitation there is an express statutory time limit on a person s ability to pursue any legal claim many states enforce a debtor s new promise to pay such a debt Promise to Pay Debts Barred by Bankruptcy Discharge most states enforce a new promise by debtor to pay reaffirm the debt regardless of whether the creditor has given any consideration to support it Debtor must reaffirm before the date of discharge and debtor has the right to revoke promise within 30 days after it becomes enforceable also requires Bankruptcy Court to counsel debtor and approve reaffirmation o Some states also require reaffirmation promises to be in writing Charitable
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