Elements of Consideration
I. Bargained For and Given
in Exchange –
i. Detriment induces the
promise (promisor bargains for detriment in exchange for promise)
ii. Promise induces a detriment
(promisee acts or forbears b/c of the promise, there must be knowledge of the promise)
iii. Legal Detriment to the
promisee or benefit to the promisor.
·
Restatement §17 – Formation of a contract requires a bargain, where there is a manifestation of mutual assent
to the exchange and a consideration.
·
Restatement §71 – To constitute consideration, a performance or return promise must be bargained
for. This is done only if it is sought by the promisor in exchange for his promise, and is given by the promisee in exchange
for that promise.
·
Restatement §75 – a promise is consideration, but only if the performance promised would be consideration.
iv. Langer
v. Superior Steel Corp
– Consideration here, not a gift; the promise ($100/mo) induced the detriment (forbears
from legal right to work from competitor). So, there was a detriment to promisee and benefit to promisor (former employee
wouldn’t work for competitor).
v. Bogigian
v Bogigian
- No consideration b/c the signed release was not bargained for (must have been offered by one party and accepted
by another – the signor didn’t know what she was signing).
b. Gift – not enforceable
because there is no consideration.
i. The act or forbearance
by the promisee must be a benefit to the promisor – it’s not enough that the promisee’s
incurs detriment; the detriment must be the price of the exchange. If the promisor’s motive was to induce the detriment, it will be treated as consideration.
1. Kirksey v. Kirksey – Though there
was detriment to promisee (giving up her land & moving), her detriment gives nothing beneficial to the promisee, which
is a condition for consideration. (Could use promissory estoppel here, but the theory was not used at the time.)
ii. The benefit to the
promisor doesn’t have to be an economic benefit. Peace of mind, or gratification that
promisee did or didn’t do something is sufficient.
1.
Hamer
v Sidway (vices)
– Consideration
here, not a gift; the promise ($5k) induced the detriment (forbears from legal right - vices). So, there was
a detriment to promisee and benefit to promisor (satisfaction). Promisor’s benefit doesn’t
have to be an economic benefit, as long he got what he wanted.
iii. Mixed Motives
1. Thomas
v Thomas (dying wish)
– There was a promise (fulfillment of brother’s dying wish for widow to have home), and there was a consideration
(she paid £1/yr
& kept home in good shape). The motive was for it to be a gift, but it didn’t matter because there was a valuable
consideration, even if it was not bargained for.
a. Restatement § 81 – Consideration
as Motive or Inducing Cause: (1) The fact that what is bargained for does not of itself induce the making of a promise
does not prevent it from being consideration for the promise. (2) The fact that a promise does not of itself induce a performance
or return promise does not prevent the performance or return promise from being consideration for the promise.
iv. UCC §2-203: Seal inoperative. The seal is no longer used to enforce a contract/writing, just because it had a seal affixed. The writing/seal would still have to show consideration.
II.
Legal
value – that which is bargained for must constitute a benefit to the promisor or a detriment to the promisee.
a. Adequacy of Consideration
– If there is consideration courts will normally not look into the adequacy of it. Freedom
of contract; laissez-faire attitude (Peppercorn Theory).
i. Haigh
v. Brooks
(paper) – There was a promise (to pay £9995), and CS (paper of guaranty).
There was a bargain, and thus it shows D had value assigned to the paper, that he would bargain for it. Value of what
is exchanged is established by the value the party places on it; this is sufficient for consideration.
ii. Apfel
v. Prudential-Bache Securities, Inc. (novelty) – There was a promise (P to pay for the technique) and
there was consideration (D telling them the technique). Showing of novelty is not required to
validate the contract for purchase of idea, only that the idea is valuable. There was a bargain, and P got value out of it.
iii. Fiege
v. Boehm (baby mama) –
There was a promise (to pay childbirth costs) and consideration (forbearance from pursuing legal claims). Forbearance from
pursuing legal claims counts as valuable consideration, even if the legal claims are no longer valid, as long as at time K
was made, there was good faith & reasonable belief that she could pursue those legal claims.
b. However, courts may still
look into the adequacy of consideration if they think there is an objective disparity. The purpose of consideration
is to police unfair bargaining - to ensure that promise has not been extracted by unfair illegitimate means.
i. Jones
v. Star Credit Corp.
(freezer) –
The
CS (the price paid for the freezer), was unfair. K unconscionable b/c unequal bargaining power. Under UCC-2302, court may refuse to enforce K if unconscionable.
1. § 2-302. If K unconscionable at time it was made, court may refuse to enforce it, or part of it, or limit its application
so as to avoid an unconscionable result. Purpose
of this provision is to prevent oppression and unfair surprise. It is a defense to enforcement.
ii. Token consideration –
where the consideration is something minimal, or of no value, courts say it indicates that this was a gift.
iii. Nominal or sham consideration
– where the consideration was $1 or sum insignificant sum. Many times, this amt is not paid, and never intended to be
paid.
1.
In Re Green (illicit) – Promise (to pay per K), made
in consideration of (1) release from illegal promise of marriage, (2) for past illicit relationship (past CS no good), (3)
$1 CS (nominal), and (4) other CS (didn’t exist). Although parties intended to be bound & make valid agreement,
if there’s no valid CS, there’s no K.
a. Restatement §71 Comment(b) “[…]
a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration
is merely nominal
III. Preexisting
Legal
Duty – A preexisting, enforceable duty cannot count as consideration for the purposes
of contract formation (and is thus not binding)
a.
UCC §1-107 - Waiver or Renunciation of Claim or Right after Breach. - Any claim or right arising out of an alleged
breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered
by the aggrieved party.
i. Levine
v. Blumenthal
(sweep) – There was a K. There was a new promise (landlord to accept less rent), but
no consideration for the new promise (like sweeping); there was a preexisting duty from original K to pay what they did pay.
A new or different CS is necessary to make a change to an original contract binding; it is immaterial how slight
the change is
ii. Alaska
Packers’ Association v. Domenico (salmon) – There is a K; then a new promise
is made, but no CS, b/c there was a preexisting duty from original K.
b. Existing debt - payment of smaller sum
than what is due is not sufficient as consideration for relieving the debt (if debt is $1k and agreement to only pay $500,
this is not consideration, debtor can still enforce for $1k). However, if the consideration is in any way new or different,
then ok (like paying earlier).
c. Modification
i. Angel
v Murray
(garbage)
– There is a K. New promise due to unforeseen events, but no new CS. R2K 89 – modification ok.
Modern trend recognizes necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated
difficulties arise during the course of the performance of a contract, even though there is no CS for the modification, as
long as parties voluntarily agree, it is fair, and made in good faith.
1.
Restatement §89 – Modification of K - A Promise modifying a duty under a contract not fully performed
on either side is binding
a.
If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract
was made; or
b.
To the extent provided by statute; or
c.
To the extent that justice requires enforcement in view of material change of position in reliance on the promise.
d. 5 ways to avoid preexisting duty rule:
i. Terminate
old K; make new K
ii. New or
additional CS
iii. UCC § 2-209
- no CS needed to if waived
iv. R2K § 89
- if the modification is fair, it's enforceable
v. Full performance
of modification, complete transfer (including payments already paid)
IV. Mutuality
of Obligation
– Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory.
An agreement where one party has been bound but the other has not lacks mutuality, since at least one of the promises
is “illusory.” Without mutuality of obligation there is no consideration because consideration
is a promise bargained for and given in exchange for a promise. Only applies to bilateral,
not unilateral contracts.
i. Rehm-Zeiher
Co. v. Walker Co. (whiskey, discretion) - K
to sell goods (whiskey). Discretion up to P if for any “unforeseen reason” they couldn’t
complete the K, & therefore not liable for breach. If one party is not bound to the contract because of the terms of its
agreement, then the contract has no mutuality of obligation, and is therefore not enforceable.
b. Mutuality can still be found to exist in
certain situations even though the promisor has some choice or discretion. Here, CS exists.
Promisor is suffering a legal detriment; he has parted with a legal right to buy (or sell) the goods he may need (or manufacture)
from (or to) another source.
i. Requirements contracts
- promises to buy all that I will require
ii. Output contracts - promises
to sell all that I manufacture
1. If you fail to state qty under the UCC (2-201) then the contract
will fail for indefiniteness; the exception is requirements and output contracts. However, the
quantities subject to these contracts may not be unreasonably disproportionate to what is expected.
iii. McMichael
v. Price (sand, requirement K)
–Buyer
will buy all that seller can sell, provided good quality (output K). Although there is some discretion,
buyer has a good faith obligation so would still be liable for breach. If both parties can be held liable for breach
of contract, then mutuality of obligation exists and the contract is enforceable (UCC
§2-306(2).
1.
UCC § 2-306 (2): A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes
unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts
to promote their sale.
iv. Wood
v. Lucy, Lady Duff-Gordon
(fashions) – K
where P has “exclusive right” to make profit for D. K doesn’t specify P’s duties. A contract does
not necessarily have to explicitly state the duties of the parties that are needed for mutuality, as long as you can imply
a duty of good faith from terms of the contract (exclusivity), and from the parties’ actions (UCC §2-306(2)).
v. Omni
Group, Inc. v. Seattle-First National Bank (Feasibility report) – K where sale of property conditional
on a P’s satisfaction based on feasibility report. Although K conditional on P’s discretion, Omni is acting in
good faith (can only cancel K if not satisfactory- can be determined through evidence), if not will be in breach.
Making
a promise dependant on a condition does not necessarily make it illusory (unless discretion is absolutely
reserved to promisor), because the promisor is assumed to be acting in good faith.
V. Moral Obligation: Promise
plus Antecedent Benefit - Past
or Moral Consideration is not sufficient to satisfy the “bargain” requirement. It was not
given in exchange for the promise when made.
a. Restatement §86 – (1) promise made for past benefit (CS) binding only to extent necessary to prevent injustice, (2) A promise
is not binding if (a) intended to be a gift or promisor hasn’t been unjustly enriched, or (b) to extent that value is
disproportionate to the benefit.
b. Mills v. Wyman (sick son)
– Father
only has moral obligation to pay for, but no legal duty. Father had only a moral obligation to pay, no legal duty.
Moral obligation in the absence of material benefit to the promisor is not sufficient consideration.
i. A moral obligation may
only form consideration for an express promise in three cases (none of these were the case here, so cannot be used):
1. Debts barred by statute
of limitations
2.
Debts
incurred by kids (son was 25)
3. Debts previously discharged by bankruptcy
c.
Manwill v. Oyler (free land) – P paid for D’s land, and gave D land.
P later promised to pay. Past or moral CS not sufficient to support a K, and no other CS existed. Also, P failed to prove
he reasonably expected to be compensated, so it looks like a gift.
d. Harrington v. Taylor (my
hand! axe) – P
butted her nose (or hand) into domestic fight. Injured hand. D promises to pay P. A voluntarily performed humanitarian
act is not a legally recognized consideration for a later promise.
e. Webb
v. McGowin
(hero employee) – P
saves employer, who later promises to pay P. A
moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material
benefit, although there was no original duty or liability resting on the promisor.
i. Use of the “material
benefit” rule: if you get a direct antecedent benefit, it is sufficient consideration for a subsequent
agreement to pay for the service.
ii. Direct material (antecedent)
benefit + moral obligation + Subsequent promise = consideration.
f. Exceptions:
i. If a past obligation
would be enforceable except for some technicality (like statute of limitations), the courts will enforce a new promise if
it is in writing or has been partially performed.
ii. If acts have been previously
performed by promisee, at the promisor’s request, a new promise will be enforceable. Also, sometimes unrequested acts
ok if rendered during an emergency
iii. Most courts will apply
the terms of the new promise, not the original.
VI. Promissory Estoppel:
Promise plus Unbargained-For Reliance – Promise
w/ no CS, but reliance. The
greater the strength of commitment by promisor, the greater the reliance of the promisee.
a. Restatement §90 –
(1) a promise is enforceable to the extent necessary
to prevent injustice if:
1.
The promisor would reasonably expect to induce action or forbearance
2. the promisee reasonably relied
on the promise; and
3.
the promise induced such action or forbearance
(2)
A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance.
b. Ricketts v. Scothorn
(grandfather)
– Promise to pay
induced P to quit her job. A promise can be enforceable without consideration, if the promisee
has acted in reliance to their detriment.
c. Feinberg v. Pfeiffer Co. (sick old lady) – Promise to pay pension (gift) for past loyalty.
Induces detriment to P (she retired early & didn’t look to work anywhere else, then she got sick & couldn’t
work). Reasonable reliance, promissory estoppel.
d. Grouse v. Group Health Plan, Inc. (interview)
– The promise (for
a job) induces reliance (P quit job; declined another; lost $). Promissory estoppel – P’s
reliance reasonable & foreseeable, and induced detriment. Note: “at will” so he could be fired
at any time, but employer must have given him an opportunity.
e. Cohen v. Cowles Media Co. (candidate) - Promise
of confidentiality induced P’s disclosure. EP. The reporters expected to and did induce Cohen’s disclosure, and
some remedy is necessary to avoid injustice. Even though there’s no intention to K, there’s
an intention to induce reliance.
f. All-Tech Telecom, Inc. v. Amway Corporation (telecharge warranty) – There
was a K, no warranty though (mere puffing). Cannot go with EP b/c a K exists.
g. Alleghany College v. National Chautauqua
Bank of Jamestown (charity) – Promise to give to charity. There was CS (college had to name in her honor),
and college had a duty b/c already partially paid. Don’t need EP here, but R2K§ 90(2)
– a charitable subscription is binding without proof that a promise induced a detriment.