Consideration2.01 Understanding elements and characteristics of a contract

CONSIDERATIONExchange of benefits and detriments by the parties to an agreements• Requirements of consideration:

▫ Must involve a bargained-for exchange (promise made in return for another promise)

▫ Must involve something of value▫ Benefits and detriments must be legal

• Benefits▫ Something that a party was not previously entitled to receive

• Detriments▫ Any loss suffered; anything given up

• Forbearance▫ Not doing something that you have the right to do

Adequacy of Consideration

•Courts don’t look at adequacy or value of an agreement unless it is “unconscionable”

•Unconscionable▫So grossly unfair or oppressive that it

would shock the conscience of the court▫So lop-sided that the average person would

not agree to terms

Nominal Consideration

•Token amount in a written contract where either the parties cannot or do not wish to state the amount

Agreements without Consideration

•Promise to make a gift▫Gifts have no consideration▫Cannot be enforced

•Gift that has been given▫Doesn’t have to be returned▫Donor – Gives the gift▫Donee – Accepts the gift

Illusory PromisesClause or wording that allows party to escape from legal obligation• Termination clause

▫ Illusory – clause to allow termination of contract for any reason

▫ Not illusory – termination only allowed after a change in defined circumstances

• Output Contracts▫ Agreement to purchase all of a specific producer’s product

• Requirements Contracts▫ Agreement to supply all of the needs of a specific buyer

• Output & Requirements contracts are recognized by the courts as having consideration by implying fair dealing.

Existing Duty

•Existing Public Duty▫No detriment▫Obligation to obey the law

•Existing Private Duty▫If a person is already under legal duty to do

something, another promise to do that same thing does not furnish consideration for a new contract.

Past Performance

•An act that has already been performed cannot be consideration in a contract.

Exceptions to Consideration

•Promises to charitable organizations▫Gift or Pledge for future contribution

Enforceable as consideration if organization identifies the pledge for a specific use and acts in reliance on the pledge

•Promises covered by the UCC▫Firm offers ▫Good faith modification of contract

•Promises discharged in bankruptcy

Exceptions to Consideration•Promises barred from collection•Promissory Estoppel******

▫Rely on what a person said ▫Elements:

Promise must bring action or forbearance One who gave no consideration must have

relied on the promise Injustice can be avoided only enforcing the

promise