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Consideration. 2.01 Understanding elements and characteristics of a contract. CONSIDERATION. Exchange 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)

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consideration

Consideration

2.01 Understanding elements and characteristics of a contract

consideration1
CONSIDERATION

Exchange 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
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
Nominal Consideration
  • Token amount in a written contract where either the parties cannot or do not wish to state the amount
agreements without consideration
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 promises
Illusory Promises

Clause 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 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
Past Performance
  • An act that has already been performed cannot be consideration in a contract.
exceptions to consideration
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 consideration1
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