Contracts Consideration

Consideration is legal value given in return for a promise or performance.

• Must have something of legal value or sufficiency.
• Must be a bargained-for exchange.

Elements of Consideration

Consideration for a promise must be either: Legally detrimental to the promisee, or legally beneficial to the promisor.
Legal Value:

• Promise,
• Performance, or
• Forbearance.

Case 11.1: Hamer v. Sidway (1891).

Adequacy of Consideration

A Court will not question the fairness of the bargain if legally sufficient.

• Law does not protect a person for entering into an unwise contract.
• In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.

Case 11.2: Powell v. MVE Holdings (2001).

Agreements That Lack Consideration

Preexisting Duty.
Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. Exceptions:

• Unforeseen Difficulties.
• Recession and New Contract.

Past Consideration is no consideration because the bargained-for exchange element is missing.

Problem Areas Concerning Consideration

• Uncertain Performance.
• Settlement of Claims.
• Promises enforceable without consideration.
• Uncertain Performance
• Illusory Promises.
• Promisor has not definitely promised to do anything (no promise at all).
• Option-to-Cancel Clauses.
• Requirements and Output Contracts.

Settlement of Claims

Debtor offers to pay a lesser amount than the creditor purports to be owed. Accord and Satisfaction.
Liquidated Debt.
Amount has been ascertained, fixed, agreed on, settled, or exactly determined.
Unliquidated Debt.
Parties give up legal right to contest the amount in dispute, and thus consideration is given. Release bars any further recovery beyond the terms stated in the release.
Case 11.3: Mills v. Berlex Laboratories (1999).
Convenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim.

Promises Enforceable Without Consideration

• Promises to Pay Debt Barred by a Statue of Limitations.
• Detrimental Reliance and Promissory Estoppel:
• Must be definite promise.
• Promisee must justifiably rely on the promise.
• Reliance is substantial.
• Justice will be served by enforcing promise.