common law contract: consideration
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U.S. Contract Law
Consideration
Overview
GiftCommercialExchange
No K Contract
Consideration Extremes
General Considerations . . .
about consideration:
Why have this doctrine? To allow court differentiate between contracts that
should be enforced and those that should not. Consideration is really concerned with the validity of
outstanding promises.
What is it? An element of an exchange that makes a contract
enforceable.
Two Main Theories
Benefit/Detriment Approach “An act or forbearance of one party, or the promise
thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
See Hamer v. Sidway Bargain Approach
See Restatement 2nd §71 Promises must be bargained for NOTE: Both approaches call for some kind of detriment
and benefit. The difference is whether there must be inducement on both sides.
Elements of Consideration
Detriment – the promisee must be giving up something
Benefit – the promisor must be gaining something.
Bargained For – the parties must have agreed to the exchange
What is Detriment
Detriment is giving something of value or any relinquishment of a legal right. Could take the form of immediate act, or Forbearance, or Partial or complete abandonment of a right.
It could also be a PROMISE to act, forbear or abandon a right.
Detriment Example
Condi Hillary
Condi's flat
Payment of €2000or promise to pay
Condi's detriment
Hillary's detriment
Standard bilateral K, in which the promise by each party is exchanged forand induces the promise by the other.
Legal Right Example:Hamer
Uncle Nephew
Promise to give $5,000
Promise to quit smoking, etc.
Uncle's detriment
detriment?
How Does Benefit Fit In?
Usually, promisee's detriment translates easily into promisor's benefit.
But what about the Hamer case? How did the uncle benefit? Benefit here is defined broadly to mean “to get what
one bargained for”.
Bargained For Exchange
Under Bargain Approach: Promise or performance must be sought by the
promissory and given to the promisee in exchange for a promise or performance. These promises must induce each other! It means nothing if a party suffers a legal detriment unless
the parties agree that it is the price for the promise. Bargain simply means agreement.
Firm Offer/Options
A promise to keep an offer open for a stated period of time.
Consideration must be given in exchange for this promise to keep open. We will discuss consideration later.
An offeror is considered to be in breach if he revokes “firm offer.”
Option w/ Consideration Example
Offeror Offeree
Option (Prelim K)promise to keep offer open
$100
if exercised, will lead to
Offeror Offeror
Underlying Exchange(proposed K)
Farm
$2 million
Option w/out Consideration
There are two instances where an option K can be formed without consideration being given:
Court applies doctrine of Estoppel UCC §2-205
Merchant selling or buying goods offer placed in writing writing contains assurance the offer will be held
open signed by the parties
Estoppel Example
Seller writes to buyer offering to sell farm, stating that offer will be held open until Friday.
No consideration is given, thus not binding. Buyer, intending to accept offer by Friday,
quits his job in the city on Tuesday to devote his full attention to his new farm.
Wednesday, seller revokes Thursday, buyer disregards revocation and
tenders acceptance.
Estoppel Example
Buyer claims reliance on promise not to revoke offer until Friday caused him to quit his job.
If offer is not enforced, buyer claims he will suffer unfair detriment
A court may apply the doctrine of promissory estoppel (to be discussed in more detail later). Seller did promise to keep open the offer It's reasonable to expect that buyer would rely on this. Buyer did in fact rely, to his detriment. Whether buyer's reliance was justified is Q for court.
Consideration Problem Areas
Generally, consideration is not an issue. However, it does arise in a few instances that we call here “problem areas:”
Gifts Promissory Estoppel Pre-Existing Duty Accord and Satisfaction Modification Past/Moral Consideration
Gifts
General Rule - promise to make a gift is NOT enforceable If only it were so simple.
Common law generally does not enforce the promise of a gift because motivated by affection, gratitude or altruism nothing was given in exchange the gift maker should therefore be able to recant
without facing legal liability.
Promissory Estoppel
A promise coupled with detrimental reliance. Sometimes called a substitute for
consideration. Grew from the equitable remedy of estoppel.
Promissory Estoppel
The promisor's conductand intent (objective)
The promisee's reaction
The consequence: Detriment
Limits on relief
Promise does induce action or forbearanceReliance is justified
Injustice can be avoided only by enforcement
A promise+
A reasonable expectation by the promisor that it will induce reliance
Remedy may be limited as justice requires
Consideration?
Alaska Packers' Assnv.
Domenico
Pre-Existing Duty Rule
One does not suffer detriment by doing something or promising to do something that one is already obliged to do or by forbearing to do something that is already forbidden. Pre-existing duty could be legal or contractual.
§ 73. Performance Of Legal Duty Performance of a legal duty owed to a promisor which is
neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
Pre-Existing Duty Example
Flat
$1500
$2000
Condi Hillary
Agreement 1
Agreement 2
Accord & Satisfaction
Process of completely discharging party from prior obligation:
Have the parties gone through a process of offer and acceptance (accord)?
Has the accord been carried out (satisfaction)?
Was the offer and acceptance supported by consideration?
Accord & Satisfaction Example
Don owes Robert $24,000 for past work. (outstanding promise).
Don Robert
Flat for 1 year
discharge of $24.000
bargained for new consideration
NOTE - An accord and satisfaction differs from a modification in that a modification immediately discharges a preexisting duty, whereas an accord and satisfaction does not discharge a preexisting duty until the agreed upon, alternate performance occurs.
Modification of On-Going Transaction
§89. Modification Of Executory Contract
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.
A Different Result?
Manufacturer (M) contracts for sale of 100,000 of these @ $10/pc to lawnmower maker (LM).
Price of metal increase after M has already delivered¼ of the pieces to LM.
OBI agrees to buy 100,000mowers at fixed price from LM
M refuses to sell LMremaining pieces unlessLM agrees to pay $13/pc
Past/Moral Consideration
§ 86. Promise For Benefit Received
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1) (a) if the promisee conferred the benefit as a gift or for
other reasons the promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.
Mills v.
Wyman
Consideration?
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