CONSIDERATION

1
CONSIDERATION

• Bargained-for Exchange
• One of the four elements of a K

2
Theory

• The price paid to make a promise enforceable
• Ensures that promises are enforced only when the
  law says they have exchanged something of value

3
Theory

• Something of value
• goods
• money
• another promise
• performance
• act
• forbearance
• creation, modification, destruction of legal
  relationship

4
Gratuitous Promises

• There is no consideration...
• ... and therefore are not legally enforceable...
• ... except in certain circumstances described
  later.

5
Questions to Aid our Understanding

• Hamer v. Sidway case in the book
• Contracts require consideration
• What was the consideration in this case?
• i.e., what was the something of value
• Given by the Uncle/received by the Nephew
• Given by Nephew/Received by the Uncle?
• Was the consideration legally sufficient?

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Consideration Requirements

• Legal Sufficiency
• detrimental to the promisee, or,
• beneficial to the promisor
• ... i.e.., the something of value

• Bargained-for Exchange
• given legal sufficiency, was exchange bargained
  for.... was there an exchange?
• gratuitous promises arent normally bargained for

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Legal Sufficiency

• Both parties will receive a legal benefit and
  incur a legal detriment
• legal benefits?
• something you had no prior legal right to receive
• legal detriments?
• promise to do something you had no prior legal
  obligation to do
• promise not to do something you had a legal right
  to do

8
Legal Sufficiency

• Why do both parties get both a legal detriment
  and a legal benefit?
• but note how courts analyze (Hamer v. Sidway)
• Does legal benefit necessarily mean economic
  benefit?
• Does legal detriment necessarily mean economic
  detriment?

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Inducement

• Promise must induce the legal detriment
• Legal detriment must induce the promise
• If detriment is not a legal benefit to the
  promisor, it probably didnt induce the promise
• Huh?
• Example Gratuitous promises...

10
Hamer v. Sidway

• Issue? whether refraining from behavior is
  sufficient legal consideration to require
  enforcement of the promise
• Issue? whether nephews refraining from
  behavior is adequate legal benefit to the Uncle
  such to require enforcement of the promise

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Adequate Consideration?

• Refers to how good the deal was
• Generally, courts wont question whether
  consideration is adequate, as long as its legally
  sufficient..... Why?
• Freedom of parties to enter into K...
• courts dont normally want to judge whether or
  not you made a good deal
• some exceptions unconscionable, shocking

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Adequacy of Considerationv.Legal Sufficiency

• Dont even think of confusing them...

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Unilateral v. Bilateral

• Review in terms of consideration and exchanges
  of
• Promises for Performance Promises for Promises

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Unilateral v. Bilateral

• Unilateral
• promise for an act
• the performance is the consideration on the one
  side...
• the promise is the consideration on the other...

• Bilateral
• promise for promise
• the promise is the consideration, on both sides
• both parties are promisors, both are promisees

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Some problems...

• Is it consideration because I say it is?
• What about a buck?
• How does the court decide when to intervene and
  say that its shocked, or that something is
  unconscionable?

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Illusory Promises

• A statement in the form of a promise, but it
  imposes no legal obligation on the maker of the
  statement
• Ill sell you as many widgets as youd like to
  buy for ten bucks each... illusory or not?
• Look for wishy-washy language...
• want, wish, desire...etc.
• tough to define

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But....

• Uncertain language may not be enough to render
  all these kinds of Ks invalid...
• Uncertainty doesnt always mean illusory...
• Consider Output and Requirement Ks

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Output and Requirement Ks

• Output Contracts
• agreement by seller to sell entire production to
  a particular purchaser, who agrees to buy entire
  production
• seller has sure and certain market for product

• Requirement Contract
• agreement by buyer to purchase all that the buyer
  needs from the seller
• buyer has ready and reliable source of inventory
• e.g., ND Power Plant

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Exclusive Dealing Contracts

• It is what it says it is...
• e.g., Hammes Notre Dame Bookstore on the campus
  and Adidas products...
• Sidelines and Champion tops
• Uncertain language in that quantities arent
  specified, but certainty is found in terms of
  agreement....
• what kind of language?

20
Conditional Promises

• Performance depends upon the happening or
  non-happening of an event which is not certain to
  occur or not occur
• Huh?
• The happening of an event in the future is the
  condition upon which the promise is based... one
  way or the other...

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Conditional Promise

• Ill buy your Honda Nighthawk motorcycle from
  you for 3000 provided that Notre Dame gives me a
  bonus at the end of this calendar year.
• Problems?
• ND doesnt give bonuses!
• Im the promisor, and I know the condition wont
  occur

22
Preexisting Obligations

• The law does not regard the performance of, or
  the promise to perform, a preexisting legal duty,
  public or private, as either a legal detriment or
  a legal benefit.
• Public duty... obey the criminal law... e.g.,
  Calvin pays Hobbes 100 not to pummel him...
• Private duty... fulfilling K duty...

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Preexisting Duty Rule

• Owner to Nomar Garciapara
• I know we have a K, but Ill give you a 50,000
  bonus if you give it the best that youve got.

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Preexisting Duty Rule

• Where is the bargaining?
• parties already have a K that says Nomar will
  play his hardest and do everything in his power
  to win
• Nomar has a preexisting duty!
• albeit a private K duty, that probably said he
  would play his hardest...

25
Preexisting Duty Rule

• Ill pay you 500 not to park in that tow-away
  zone.

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Preexisting Duty Rule

• Do you have the legal right to park in the
  tow-away zone?
• Do you incur any legal benefit or detriment by
  agreeing not to park in an illegal spot?

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Consideration

• Remember, the parties must have entered into a
  bargained exchange...
• mutually agreed-upon for promise or
  performance...
• what do you give to someone who promises to do
  something for you for nothing?
• they dont want anything!
• Why?

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Past Consideration

• A promise made in exchange for an act already
  done...
• If the act is already done, where is the
  exchange?
• Past consideration is no consideration!!!
• dont confuse with an executory K

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Any Exceptions?

• Out with the old, in with the new
• Whod a thunk it
• The UCC... again...

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Rescinding the old K?

• rescission unmaking the old K, return to status
  quo...
• Rescission and New K?
• Requires three separate agreements
• initial K
• rescission agreement
• new K

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Rescinding the old K, making new?

• Can only take place when both promises are
  executory
• So, unless initial K rescinded, bonus as K would
  fail for lack of consideration
• Before season, Nomar and owner renegotiate

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Unforeseen Difficulties

• Nomar gets hurt... agrees after bonus offer to
  play hurt...
• Extra compensation for overcoming unforeseen
  difficulties that could not have been anticipated
  at time of making of original K
• is it anticipated that a player would play with
  an injury?

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Unforeseen Difficulties

• Renovation of Kitchen
• Contract entered into, promises exchanged
• Wall demolition
• Uh oh! Toilet drain runs through where the bar
  was supposed to be... whod a thunk it?
• Do I have to pay for additional costs to reroute
  pipes?

34
The UCC

• Sale of goods - modification
• ... an agreement modifying a K within this
  article needs no consideration to be binding
• UCC 2-209(1) -
• more later in chapter 21 (Sales Ks their
  formation)

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Problems with Consideration

• Already noted uncertainty of performance
• illusory promises are not promises
• Disagreements and the settlement of claims
• releases, liquidation of claims, bankruptcy
• covenants not to sue
• Some promises that will be enforced even w/o
  consideration...

36
Settlement of Claims

• Releases and Covenants Not to Sue
• Same requirements
• secured in good faith
• signed writing
• consideration
• A covenant substitutes a K action for some
  other action (usually a tort action)
• remedy sue for breach of k rather than tort
  action
• what is the benefit?
• Doesnt always bar further recovery

37
Accord and Satisfaction

• Devereaux and the Dentist
• Requirements
• amount must be unliquidated (i.e., in dispute)
• creditor must have notice that payment is
  intended to satisfy the debt
• creditor cant negate notice
• acceptance accord

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Creditors Composition Agreements

• A k between the debtor and creditors whereby the
  debtors debts are discharged by payment of a sum
  less than that owed in the original debt.
• Agreement must be supported by consideration
• What is the consideration?

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Creditor Composition Agreements

• Fifty cents on the dollar
• But there already exists a legal obligation to
  pay? Why doesnt an agreement like this fail for
  lack of consideration on both sides?
• Agreement by creditor to accept a lesser amount
  (proportionate share) is the consideration for
  the creditors
• Foregoing right to file for a bankruptcy petition
  is the debtors consideration

40
Statute of Limitations

• SOL sets a time limit on ability to pursue a
  legal claim...c.f. kryptonite example...
• If creditor doesnt pursue debtor w/in certain
  time, hes out of luck
• What about a new promise by the creditor (in the
  hopes of getting more credit in the future)....do
  we need to follow the rules for consideration?

41
Statute of Limitations

• Promise to pay already exists, and the debtor
  doesnt really have anything left to give...
  wont new agreement fail for lack of
  consideration?...
• ... by statute, many states say that a new
  promise by debtor to pay does not need
  consideration

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Problem 1

• Inflation.... Martin ends up losing money...
• What is annual rate of inflation?
• what is unforeseen about rising prices
• what might be more unforeseen?
• Inflation is part and parcel of doing business

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Problem 1

• General Rule Preexisting Duty
• promise to do what one already has a legal or
  contractual obligation to do is not legally
  sufficient consideration...
• Why? Because there is no legal benefit to the
  promisor or legal detriment to the promisee
• But, note UCC exception
• an agreement modifying a K for sale of goods
  needs no consideration to be binding...
• check for unfair advantage...

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Problem 3

• Past consideration is no consideration
• where is the bargaining?
• Father has no legal duty to care for his son (an
  adult and recent college graduate)
• but what kind of obligation may remain?
• are these obligations enforceable under the law?

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Problem 7

• What did the confidentiality agreement say?
• Was there an exchange of promises?
• Is this an example of past consideration?
• Arguments for valid, present consideration?
• Cornwells duties as an employee?

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Todays Class

• Quick Review
• What is consideration?
• Why do we need it?
• Problems with Consideration
• Uncertain consideration
• Pre-existing Duty
• Past Consideration
• The Contract
• Introduction to Capacity