Chapter 12

Consideration

 

Objectives:
1. Define consideration

2. Describe illusory contracts, output contracts, requirements contracts, exclusive dealing contracts, conditional contract

3. Preexisting obligations and consideration

4. Bargained for exchange, and past consideration and third party beneficiaries

5. Enforceable contracts lacking consideration

 

I. Consideration, inducement to make a bargain. Compare gratuitous promises or gifts.

          A. Legal sufficiency (both sides must get something and give something)

          Look for detriment and benefit on both sides

          Pearsall, p.221.

          Facts: Two friends had tradition of sharing a "package" including half pint vodka, two cups, orange juice, and two scratch and win lottery tickets. One day, one of the tickets was a $20k winner. They refused to share winnings.

          Issue: Was there consideration supporting a contract to share winnings?

          Holding: Yes. Conduct indicated intention to be bound. Both sides got benefit that if either ticket one, then both would be a winner.

          Criticism: Some of their conduct indicates winnings would be separate. Ex., why buy two tix?

          B. Adequacy of consideration. Court will only set aside if consideration given is totally worthless. No inquiry into fairness.

          C. Unilateral and bilateral contracts. See charts on p. 222

          D. Illusory promises. Look for weasel words like "desires," "wishes to buy," "wants". Problem, not definite enough

                   a. Output and requirement contracts

                   b. Exclusive dealing contracts

                   c. Conditional promises

                   d. Preexisting obligation

                   Denney, p. 225

                   Three armed men try to rob a bank in Kentucky. Four employees of the bank, two state policemen, and one deputy sheriff from a neighboring county stopped the robbery. They tried to claim a reward. Lower court said only the out of county deputy could claim the reward of $1500.

                   Issue: Did the preexisting duty of the various claimants defeat their claim to the reward?

                   Holding: Yes. Only the off duty out of state sheriff had no preexisting obligation to catch the robbers.

                   e. Modification of a preexisting contract. Generally, consideration rules still apply. Both must give and get something. UCC modifies rule to allow good faith modification without new consideration.

                   New England Rock Services, p. 227.

                   Facts: City street project. General hired sub to provide drilling and blasting services. General was responsible for keeping water out of the way. Water was causing lots of problems. Sub tried other means to control water, but city would not allow. Sub used more costly means to complete their contract. Sub then renegotiates for a time and materials K with general. General then refuses to pay.

                   Issue: Was there consideration to support modification of the contract?

                   Holding: Modification was proper because of unforeseen circumstances. General's failure to control the water was the unforeseen circumstance.

                   f. Substituted contract

                   g. Settlement of an undisputed debt

                   h. Settlement of a disputed debt

                   Mathis, p. 229.

                   Facts: P sues hospital for wrongful death. Expert witness for P says not hospital's fault. P and hospital agreed that P would release hospital if hospital promised not to pursue sanctions for bringing meritless suit. P sues again anyway, arguing that there was no right to sanctions and therefore no consideration.

                   Issue: Is the settlement enforceable?
                   Holding: Yes. When someone foregoes a disputed claim, the court only looks at whether there is a good faith claim, not whether the claim was actually any good. Because the only expert said that hospital was not at fault, hospital had a good faith claim for sanctions.

 

II. Bargained for Exchange (both sides must negotiate to get and give something)

          A. Past consideration is no consideration

          B. Third parties

 

III. Contracts without Consideration

          A. Promise to pay debt barred by statute of limitations

          B. Promise to pay debt discharged in bankruptcy

          C. Voidable promises (example, minor reaches adulthood)

          D. Moral obligation (example, payment of relative's obligation)

          E. Promissory Estoppel

                   1. Gratuitous promise coupled with detrimental reliance sometimes leads to enforceable promise

                   (example, charitable pledge for construction project)

                   Feinberg, p. 232.

                   Facts: Company promises to long time employee a $200/month pension, out of gratitude. They wanted her to work longer, but she retired after two more years. After 7 years of payments, company decided not to pay anymore.

                   Issue: Was the promise to pay the pension binding?

                   Holding: Yes. Court rejects argument that continued work was consideration. However, she might not have quit her job when she did but for the promise of payment. She gave up her future career.