ELEMENTS OF CONSIDERATION

 Consideration: Usually defined as the value given in return for

a promise (in a bilateral contract) or in return for a performance
(in a unilateral contract).

 It is the inducement, price, or motive that causes a party to

enter into an agreement.

 Legally sufficient consideration may take the form of:

(1) promising to do something that the promisee has no prior

legal duty to do (e.g., promising to pay money for the
offeror’s goods);

(2) performing an action that the promisee is not otherwise

obligated to undertake (e.g., painting the offeror’s house);
or

(3) refraining from exercising a legal right that the promisee is

otherwise entitled to exercise (a forbearance).

 Consideration is bargained for if promisor sought it in

exchange for his promise or commitment and the promisee gave
it in exchange for the promisor’s promise or commitment.

 Courts generally do not inquire into the value of bargained-for

consideration—although some courts will make an exception for
grossly inadequate consideration.

Ch. 13: Consideration- No. 1

 AGREEMENTS THAT LACK CONSIDERATION
(1 of 3)

 Adequacy of Consideration: How much consideration is given,

or the fairness of the bargain.

 The General Rule: Normally, a court will not question

the adequacy of consideration based solely on the
comparative value of the things exchanged. The items do
not need to be of direct economic or financial value to be
considered legally sufficient consideration.

 Under the doctrine of freedom of contract, courts

leave it up to the parties to decide what something is
worth, and parties are usually free to bargain as they
wish.

 When Voluntary Consent May Be Lacking: When there

is a large disparity in the amount or value of the
consideration exchanged, a court may look more closely at
the bargain.

 Shockingly inadequate consideration can indicate that

fraud, duress, or undue influence was involved.

Ch. 13: Consideration- No. 2

 AGREEMENTS THAT LACK CONSIDERATION
(2 of 3)

 Preexisting Duty: A promise to do (or refrain from doing) what

one already has a legal duty to do (or refrain from doing)
generally does not constitute legally sufficient consideration.

 However, under the “unforeseen difficulties” doctrine, an

existing contract may be modified to account for
unforeseen difficulties that arise during the course of
performance. In such a case, the promisee’s obligation
under the modified contract is new consideration.

 Rescission and New Contract: Rescission is the

unmaking of a contract that returns the parties to the
positions they occupied before the contract was made.

 If the parties agree to replace an existing contract with

a new, superseding contract, the promise to perform
the new contract is a new promise and, thus, not a
promise to perform a preexisting legal duty.

 Past Consideration: Promises made in return for acts or events

that have already taken place are unenforceable for lack of
consideration.

Ch. 13: Consideration- No. 3

AGREEMENTS THAT LACK CONSIDERATION
(3 of 3)

 Illusory Promise: If the terms of a contract call for

performance in such uncertain terms that the promisor has
not definitely promised to do (or refrain from doing)
anything, the contract is unenforceable for lack of
sufficient consideration.

 Option-to-Cancel Clause: If the terms of a contract give

one party the option to cancel at any time—including
before the other party begins to perform—for any reason
and without prior notice, the contract is unenforceable for
lack of sufficient consideration.

 Requirements Contract: A contract in which a buyer and

a seller agree that the buyer will purchase from the seller all
of the goods of a designated type that the buyer needs or
requires. Requirements contracts are not illusory, despite
the uncertainty of whether the buyer will actually require
any of the designated goods.

 Output Contract: A contract in which the buyer and seller

agree that the buyer will purchase from the seller all of
what the seller produces, or the seller’s output. Output
contracts are not illusory, despite the uncertainty of
whether the seller will actually produce any of the
designated goods.

Ch. 13: Consideration- No. 4

 SETTLEMENT OF CLAIMS (1 of 2)

 Accord and Satisfaction: An agreement between an

obligor (debtor) and obligee (creditor), by which the
obligor agrees to pay the obligee some amount owed under
the contract (generally less than the amount in dispute) in
exchange for a discharge of all obligations owed by the
obligor to the obligee.

 For accord and satisfaction to occur, the amount of the

obligor’s debt to the obligee must be in dispute, or
unliquidated.

 Liquidated Debt: A debt the amount of which

the parties have ascertained, fixed, agreed on,
settled, or exactly determined.

 Unliquidated Debt: A debt that is not settled,

fixed, agreed on, ascertained, or determined and
reasonable persons may differ over the amount
owed.

Ch. 13: Consideration- No. 5

 SETTLEMENT OF CLAIMS (2 of 2)
 Release: An agreement whereby one party forfeits its rights
to pursue a legal claim against another party.

 Releases are generally binding if they are:

(1) given in good faith,

(2) written, and

(3) accompanied by consideration.

 Covenant Not to Sue: An agreement to substitute a

contractual obligation for some other type of legal action
based on a valid claim.

Ch. 13: Consideration- No. 6

 EXCEPTIONS TO THE CONSIDERATION
REQUIREMENT (1 of 2)

 Doctrine of promissory estoppel (or detrimental

reliance): If a promisor makes a clear and definite promise
on which the promisee justifiably relies, the promisor may
be bound by the promise, even if it was insufficient to form
the basis of a binding contract.

 Promissory estoppel requires the following elements:

(1) There must be a clear and definite promise.

(2) The promisor should have expected that the

promisee would rely on the promise.

(3) The promisee reasonably relied on the promise

by acting or refraining from some act.

(4) The promisee’s reliance was definite and resulted

in substantial detriment.

(5) Enforcement of the promise is necessary to avoid

injustice.

Ch. 13: Consideration- No. 7

 EXCEPTIONS TO THE CONSIDERATION
REQUIREMENT (2 of 2)
 Application of the doctrine: Promissory estoppel was
initially applied to situations involving the promise of
gifts or donations to a charity on which the charity
detrimentally relies—particularly by undertaking a
project for which it specifically solicited the promise
—may bind the promisor, even if it was insufficient to
form the basis of a binding contract.
 Promises to Pay Debts Barred by a Statute of
Limitations: Statutes of limitations in all states require a
creditor to sue within a specified period to recover a debt. If
the creditor fails to sue in time, recovery of the debt is
barred by the statute of limitations.

 A debtor who promises to pay a debt even though

recovery is barred by the statute of limitations makes
an enforceable promise that needs no consideration.

 Charitable Subscriptions: A charitable subscription is a

promise to make a donation to a religious, educational, or
charitable institution.

 Traditionally, such promises were unenforceable

because they are not supported by legally sufficient
consideration. But the modern view is to make
exceptions to the general rule by applying the doctrine
of promissory estoppel.

Ch. 13: Consideration- No. 8