Consideration - Law - Lecture Slides, Slides for Law. Birla Institute of Technology and Science
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Consideration - Law - Lecture Slides, Slides for Law. Birla Institute of Technology and Science

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This is the Lecture Slides of Law and its key important points are: Consideration, Purpose of Contract Law, Bilateral Contract Situation, Promisor’s Promise, Rules Relating to Consideration, Adequacy of Consideration, Mo...
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9-1

Chapter Twelve

Consideration

12

What is consideration ? • Consideration is the price paid for the promisor’s promise and

is the benefit received under the contract. • the purpose of contract law is to enforce private bargains:

promises not "supported by" consideration are generally unenforceable at common law

• It must be present in every simple contract and may be:- – something the promisee gives the promisor; or – the carrying out of some act; or – not doing something that the promisee had a legal right to do.

• in a bilateral contract situation both parties are promisors (each made a promise to the other) and promisees (each received a promise from the other in return).

9-2

Class Excercise • Ace Painting Company agrees to paint Steve Smith's house for

$2,000, payable upon completion. – a. Ace refuses to honor the agreement, having received a more

lucrative contract. Smith files suit for breach of contract. • 1) Which promise is at issue? • 2) Who is the promisee? • 3) Has Smith given consideration?

– b. Smith tries to cancel the contract, having received an offer from Budget Painting Company to paint his house for $1,500.

• 1) Which promise is at issue? • 2) Who is the promisee? • 3) Has Ace given consideration?

9-3

Class Excercise • Ace Painting Company agrees to paint Steve Smith's house for $2,000, payable

upon completion. – a. Ace refuses to honor the agreement, having received a more lucrative contract. Smith

files suit for breach of contract. • 1) Which promise is at issue? Ace's promise to paint Smith's house. • 2) Who is the promisee? Smith. • 3) Has Smith given consideration? Yes. He has promised to pay Ace $2,000;

something he had no legal duty to do (legal value) and what Ace asked for in exchange for making its promise to paint (bargained for and given in exchange).

– b. Smith tries to cancel the contract, having received an offer from Budget Painting Company to paint his house for $1,500.

• 1) Which promise is at issue? Smith's promise to pay Ace $2,000 to paint his house. • 2) Who is the promisee? Ace. • 3) Has Ace given consideration? Yes. As the previous example illustrates, Ace has

agreed to do something it had no legal duty to do (paint Smith's house) in exchange for Smith's promise of payment.

9-4

Rules relating to consideration

9-5

Consideration

Present (executed) (act for a promise)

Future (executory) (exchange of promises)

Past (promise after an act)

Generally not good consideration

Rules relating to consideration

• Note that consideration can be either an act (unilateral contract) or a promise (bilateral contract).

• the general rule that courts will not inquire into the adequacy of consideration = hands off

• Past, present or future consideration: – Consideration must be:

• present (executed), i.e., an act done in return for a promise;or

• future (executory), i.e., where the parties exchange promises; but not

• past, i.e., the promise is given after the act

9-6

Rules relating to consideration

• Consideration must move from the promisee • Consideration must have some value • Consideration must be sufficient, i.e., have some

legal value. • The following have been held to be insufficient

consideration: – repeating an existing duty imposed by the law – repeating an existing duty owed to the promisor – performing an existing legal duty for a third party – part-payment of a debt

9-7

Rules relating to consideration

• Moral obligations: – Moral obligations are not good Consideration – the general rule that promises made to satisfy a

preexisting moral obligation are unenforceable for lack of consideration

• Consideration must be possible of performance. • Consideration must be legal. • Consideration must be definite. • Consideration must be referable to the other party’s

promise

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Rules relating to consideration

• To give consideration, a promisee must do or agree to do something he had no duty to do, or not do or agree not to do something he had a legal right to do.

• Preexisting public duties. How would it be handled if a police officer claimed a reward for apprehending a felon when the police officer was on duty?

• Preexisting contractual duties. • Note how the preexisting duty rule forms the basis of

the traditional common law rule that an agreement to modify an existing contract must be supported by some new consideration to be binding.

9-9

Class Excercise • Nora agrees to buy Aziz's house for $55,000. Their contract

provides that Mike may take all appliances with him. • Three weeks before she is due to move in, Nora calls Aziz,

tells him her refrigerator has broken down, and asks him if he will leave his.

• He agrees to do so, but when she moves in she finds that he has taken the refrigerator.

1. Is Aziz's promise to leave the refrigerator enforceable against him?

2. What if Nora agreed to pay $75 extra for the refrigerator? In this case Aziz's promise is enforceable.

9-10

Class Excercise • Is Aziz's promise to leave the refrigerator enforceable

against him? • No. Nora has given nothing to support his

promise--by paying the purchase price she has only done what she had a preexisting duty to do.

• What if Nora agreed to pay $75 extra for the refrigerator? In this case Aziz's promise is enforceable.

• Nora has agreed to do something she had no legal duty to do (pay $75 extra) in exchange for Aziz's promise. This is consideration.

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Bargained for Exchange.

• to serve as consideration, legal value must be bargained for and given in exchange for the promisor's promise

• to amount to consideration, the value given by the promisee must have been the promisor's "price" for making his promise.

9-12

Exceptions to the Consideration Requirement. Promissory estoppel

• The equitable principle of promissory estoppel may provide relief to the promisee.

• The doctrine of promissory estoppel will allow a promise to be enforced even though the promisee has not provided consideration for that promise.

• It can be used as either a shield to defend an action or a sword to commence an action and can apply: – in the absence of pre-contractual obligations; and – negates the requirement that consideration is required in

simple contracts. • Application of the doctrine is limited to a suspension of the

promisor’s rights, not a termination of them. • Note that the promisor can withdraw their promise at any time

but that it will only be effective in relation to the future. 9-13

Calabro v. Calabro (p.289) • A father promised his daughter that if she got $10,000 in

scholarships, he would finance a “distinguished, private university” education for her.

• The daughter was eligible for admission and a full scholarship at a state school, but because of her father’s promise, she applied for and was admitted to several private universities, and enrolled at Vanderbilt in 1991.

• In 1992, the father told his daughter he was no longer willing to finance her education beyond the tuition that he had paid for 1993.

• The daughter continued to attend Vanderbilt, financing her own education through loans, and graduated in 1995.

• She then sued her father for breach of contract.

9-14

Calabro v. Calabro (p.289) • Part of the court’s opinion is devoted to a discussion of

whether there was consideration to support the father’s promise.

• The question is whether the father bargained for the daughter’s going to Vanderbilt in exchange for his promise.

• Because more factual development was necessary to determine that issue, the court held that the granting of a summary judgment was an error.

• The court went on to analyze the applicability of promissory estoppel in this case and remanded for consideration of whether the parties’ conduct fulfilled the elements of promissory estoppel.

9-15

• Chapter 11, Page 275 1. Problem Case 2 2. Problem Case 8 3. Problem Case 9

9-16

Problem Case 2

• No. The court held that because Maki had a pre-existing duty to disburse the earnest money upon written notice, it gave no legal value in exchange for Johnson’s promise to release it from liability.

• The release was not, therefore, supported by consideration and was not enforceable.

Johnson v. Maki and Associates, Inc., 682 N.E.2d 1196 (Ill. Ct. App. 1997).

9-17

Problem Case 8

• No. Adequacy of consideration is not required, so long as the parties have given legal value that was bargained for.

• This contract was supported by consideration because the minister agreed to assist a new pastor and occasionally preached and served in other capacities.

Brads v. First Baptist Church of Germantown, 624 N.W. 2d 737 (Ohio Ct. App. 1993).

9-18

Problem Case 9 • Yes. Accord and satisfaction involves “a settlement in which

one party agrees to pay and the other to receive a different consideration or smaller sum than the latter is entitled.

• There must be a disputed amount and a consent to accept less than the amount in settlement of the whole before acceptance of the lesser amount can be an accord and satisfaction.”

• Here, the Cunninghams did pay the $10,000 toward the outstanding bills, as they had promised. Thus, an accord and satisfaction was reached as to the builder’s fee.

Cunningham v. Crites, 2001 Ark. App. LEXIS 676 (Ark. Ct. App. 2001).

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