Consideration is legal value bargained for and given in exchange for an act or a promise - PowerPoint PPT Presentation

Elements of Consideration
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Elements of Consideration. Consideration is legal value bargained for and given in exchange for an act or a promise. Purely gratuitous promises are not enforceable because not supported by consideration. 12 - 1. Legal Value of Consideration.

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Consideration is legal value bargained for and given in exchange for an act or a promise

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Consideration is legal value bargained for and given in exchange for an act or a promise

Elements of Consideration

  • Consideration is legal value bargained for and given in exchange for an act or a promise

Purely gratuitous promises are not enforceable because not supported by consideration

12 - 1


Consideration is legal value bargained for and given in exchange for an act or a promise

Legal Value of Consideration

  • Consideration in the form of an act or promise may have legal value if the person

    • Refrains from doing something the person has the legal right to do

      • Example: Hamer v. Sidway

    • Does something the person had no prior legal duty to do

  • Generally, courts will not examine the adequacy of consideration

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Consideration is legal value bargained for and given in exchange for an act or a promise

Bargained-for Exchange

  • A promisee’s act or promise must have been bargained for and given in exchange for the promisor’s promise

    • Example: Gottlieb v. Tropicana Hotel and Casino in which participating in a promotion that benefited the company was adequate consideration to form a contract

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Consideration is legal value bargained for and given in exchange for an act or a promise

Exchanges That Are Not Consideration

  • Illusory promises

  • Preexisting duties

  • Past consideration

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Consideration is legal value bargained for and given in exchange for an act or a promise

Illusory Promises

  • If the promisee’s promise really does not bind the promisee to do or refrain from doing anything, the promise is illusory and cannot serve as consideration

  • Example:Heye v. American Golf Corporation, Inc. in which an employee successfully claimed lack of consideration for an arbitration clause in a contract because mutual obligation did not exist

    • AGC’s promise to arbitrate was illusory since they could amend the contract at any time

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Consideration is legal value bargained for and given in exchange for an act or a promise

Preexisting Duties

  • As a general rule, performing or agreeing to perform a preexisting duty is not consideration

    • Promisor in such a case has effectively made a gratuitous promise

  • Includes public duties (obey the law) and preexisting contractual duties

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Consideration is legal value bargained for and given in exchange for an act or a promise

Preexisting Duties & Contract Modification

  • General rule is an agreement to modify an existing contract requires new consideration

  • Exceptions to general rule:

    • Modification due to unforeseen circumstances that a party could not reasonably foresee

    • CISG and UCC 2–209(1): agreement to modify a contract for the sale of goods

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Consideration is legal value bargained for and given in exchange for an act or a promise

Preexisting Duties & Settlement Agreements

  • Liquidated debts are debts in which parties have no dispute about the existence or amount of the debt

    • A creditor’s promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable for lack of consideration

  • If there is a dispute about the existence or amount of the debt, the debt is unliquidated

    • Settlement agreements are enforceable

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Consideration is legal value bargained for and given in exchange for an act or a promise

Past Consideration

  • Past consideration is an act or benefit given in the past that was not given in exchange for the promise in question, thus it cannot be consideration

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Consideration is legal value bargained for and given in exchange for an act or a promise

Review

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