Chapter 12 Consideration Elements of Consideration promise Consideration the legal value bargained for an given in exchange for an act or a A promise generally cannot be enforced against the promisor unless the promisee has given up something of legal value in exchange for the promise The requirement of consideration means that a promisee must pay the price that the promisor asked to gain the right to enforce the promisor s promise 2 important aspects of the consideration requirement o The requirement tended to limit the scope of a promisor s liability for his promises by insulating him from liability for gratuitous promises and by protecting him against liability for reliance on such promises o The mechanical application of the requirement often produced unfair results Legal Value Consideration can be an act unilateral or a promise bilateral Act or promise can have legal value in one of 2 ways o If in exchange for the promisor s promise the promisee does or agrees to do something he had no prior legal duty to do that provides legal value o If in exchange for the promisor s promise the promisee refrains from doing or agrees not to do something she has a legal right to do that also provides legal value Adequacy of Consideration As long as the promisee s act or promise satisfies the legal value test the courts do no ask whether that act or promise was worth what the promisor gave or promised to give in return for it Several qualifications must be made concerning the general rule on adequacy of consideration o If the adequacy 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 o Ex 500 for 1000 o Gross inadequacy of consideration may also give rise to an inference of fraud duress lack of capacity unconscionability or some other independent basis for setting aside a contract Inadequacy of consideration alone is not sufficient enough to prove lack of true consent or contractual capacity Bargained For Exchange The promisee s act or promise must have been bargained for and given in exchange for the promisor s promise It must be the price that the promisor asked for in exchange for making his promise Exchanged That Fail to Meet Consideration Requirements Illusory Promises Ex buy all the sugar that I want paint your house if I feel like it Effect of Cancellation or Termination Clauses Central issue concerns whether a promise subject to cancellation or termination actually represents a binding obligation Limits on circumstances under which cancellations may occur ex dealer s failure to live up to dealership obligations or the time in which cancellations may occur no cancellations for the first 90 days or a requirement of advance notice of cancellation such as a 30 day notice requirement would all effectively remove a promise from the illusory category Effect of Output and Requirements Contracts Output contracts one party agrees to buy all of the other party s production of a Requirements contracts one party agrees to supply all of another party s needs particular commodity for a particular commodity The Code legitimizes requirements and output contracts o Good faith Effects of Exclusive Dealing Contracts The Code recognizes that unless the parties agree to the contrary an exclusive dealing contract imposes a duty on the distributor to use their best efforts to sell the goods and imposes a reciprocal duty on the manufacturer to use their best efforts to supply the goods Preexisting Duties Preexisting Public Duties crimes or torts 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 Public officials by virtue of their offices have a preexisting legal duty to perform their public responsibilities Preexisting Contractual Duties and Modifications of Contracts under the Common Law Most important cases are preexisting contractual duties o Generally occur when the parties to an existing contract agree to modify that contract o General common law rule on contract modification holds that an agreement to modify an existing contract requires some new consideration to be binding Many courts enforce an agreement to modify an existing contract if the modification resulted from unforeseen circumstances that a party could not reasonably be expected to have foresee and which made that party s performance far more difficult than the parties originally anticipated Courts can also enforce fair modification agreements by holding that the parties mutually agreed to terminate their original contract and then entered a new one Preexisting Duty and Contract Modification under the UCC The Code does not require consideration for firm offers The Code also provides that an agreement to modify a contract for the sale of goods needs no consideration to be binding Modification agreements under the Code are still subject to scrutiny under the general Code principles of good faith and unconscionability so unfair agreements or agreements that are the product of coercion are unlikely to be enforced The Code contains 2 provisions to protect people from fictitious claims that an agreement has been modified o If the original agreement requires that any modification to be in writing an oral modification is unenforceable o Regardless of what the original agreement says if the price of the goods in the modified contract is 500 or more the modification is unenforceable unless the requirements of the Code s statute of frauds section are satisfied Preexisting Duty and Agreements to Settle Debts Liquidated debt a debt that is both due and certain that is the parties have no good faith dispute about either the existence or the amount of the original debt o A creditor s promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable for lack of consideration Unliquidated debts a good faith dispute about either the existence or the amount of debt o The settlement of an unliquidated debt is called an accord and satisfaction o When an accord and satisfaction has occurred the creditor cannot maintain an action to recover the remainder of the debt he alleges is due 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
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