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Consideration Lecture

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Lecture given as part of the University of Osnabrück's Foreign Law Program.

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Consideration Lecture

  1. 1. U.S. Contract Law Consideration
  2. 2. Overview Consideration Extremes
  3. 3. General Considerations . . . about consideration: <ul><li>Why have this doctrine? </li><ul><li>To allow court differentiate between contracts that should be enforced and those that should not.
  4. 4. Consideration is really concerned with the validity of outstanding promises. </li></ul></ul><ul><li>What is it? </li><ul><li>An element of an exchange that makes a contract enforceable. </li></ul></ul>
  5. 5. Two Main Theories <ul><li>Benefit/Detriment Approach </li><ul><li>“An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.”
  6. 6. See Hamer v. Sidway </li></ul><li>Bargain Approach </li><ul><li>See Restatement 2nd §71 </li><ul><li>Promises must be bargained for
  7. 7. NOTE: Both approaches call for some kind of detriment and benefit. The difference is whether there must be inducement on both sides. </li></ul></ul></ul>
  8. 8. Elements of Consideration <ul><li>Detriment – the promisee must be giving up something
  9. 9. Benefit – the promisor must be gaining something.
  10. 10. Bargained For – the parties must have agreed to the exchange </li></ul>
  11. 11. What is Detriment <ul><li>Detriment is giving something of value or any relinquishment of a legal right. </li><ul><li>Could take the form of immediate act , or
  12. 12. Forbearance , or
  13. 13. Partial or complete abandonment of a right . </li></ul><li>It could also be a PROMISE to act, forbear or abandon a right. </li></ul>
  14. 14. Detriment Example Condi's flat Payment of € 2000 or promise to pay Condi's detriment Hillary's detriment Standard bilateral K, in which the promise by each party is exchanged for and induces the promise by the other.
  15. 15. Legal Right Example:Hamer Promise to give $ 5,000 Promise to quit smoking, etc. Uncle's detriment detriment?
  16. 16. How Does Benefit Fit In? <ul><li>Usually, promisee's detriment translates easily into promisor's benefit.
  17. 17. But what about the Hamer case? How did the uncle benefit? </li><ul><li>Benefit here is defined broadly to mean “to get what one bargained for”. </li></ul></ul>
  18. 18. Bargained For Exchange <ul><li>Under Bargain Approach: </li><ul><li>Promise or performance must be sought by the promissory and given to the promisee in exchange for a promise or performance. </li><ul><li>These promises must induce each other!
  19. 19. It means nothing if a party suffers a legal detriment unless the parties agree that it is the price for the promise. </li></ul></ul><li>Bargain simply means agreement. </li></ul>
  20. 20. Consideration Problem Areas Generally, consideration is not an issue. However, it does arise in a few instances that we call here “problem areas:” <ul><li>Gifts
  21. 21. Promissory Estoppel
  22. 22. Pre-Existing Duty
  23. 23. Modification
  24. 24. Past/Moral Consideration </li></ul>
  25. 25. Gifts <ul><li>General Rule - promise to make a gift is NOT enforceable </li><ul><ul><li>If only it were so simple. </li></ul></ul><li>Common law generally does not enforce the promise of a gift because </li><ul><li>motivated by affection, gratitude or altruism
  26. 26. nothing was given in exchange
  27. 27. the gift maker should therefore be able to recant without facing legal liability. </li></ul></ul>
  28. 28. Promissory Estoppel <ul><li>A promise coupled with detrimental reliance .
  29. 29. Sometimes called a substitute for consideration.
  30. 30. Grew from the equitable remedy of estoppel. </li></ul>
  31. 31. Promissory Estoppel The promisor's conduct and intent (objective) The promisee's reaction The consequence: Detriment Limits on relief
  32. 32. Half Truths? ALLEGHENY COLLEGE v. NATIONAL CHAUTAUQUA COUNTY BANK OF JAMESTOWN
  33. 33. Modern Approach Post-Allegheny <ul><li>§ 90. Promise Reasonably Inducing Action Or Forbearance </li><ul><ul><li>(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
  34. 34. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. </li></ul></ul></ul>
  35. 35. Consideration? Alaska Packers' Assn v. Domenico
  36. 36. Pre-Existing Duty Rule <ul><li>One does not suffer detriment by doing something or promising to do something that one is already obliged to do or by forbearing to do something that is already forbidden . </li><ul><li>Pre-existing duty could be legal or contractual. </li></ul><li>§ 73. Performance Of Legal Duty </li><ul><ul><li>Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. </li></ul></ul></ul>
  37. 37. Pre-Existing Duty Example Agreement 1 Agreement 2
  38. 38. Modification of On-Going Transaction §89. Modification Of Executory Contract <ul><ul><li>A promise modifying a duty under a contract not fully performed on either side is binding </li><ul><li>(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or
  39. 39. (b) to the extent provided by statute; or
  40. 40. (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. </li></ul></ul></ul>
  41. 41. A Different Result? Manufacturer (M) contracts for sale of 100,000 of these @ $10/pc to lawn mower maker (LM). Price of metal increase after M has already delivered ¼ of the pieces to LM. OBI agrees to buy 100,000 mowers at fixed price from LM M refuses to sell LM remaining pieces unless LM agrees to pay $13/pc
  42. 42. Past/Moral Consideration <ul><li>§ 86. Promise For Benefit Received </li></ul><ul><ul><li>(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
  43. 43. (2) A promise is not binding under Subsection (1) </li><ul><li>(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
  44. 44. (b) to the extent that its value is disproportionate to the benefit. </li></ul></ul></ul>
  45. 45. Mills v. Wyman Consideration?
  46. 46. Different Results? <ul><li>Compare Harrington v. Taylor and Webb v. McGowin . </li><ul><li>Aren't these facts basically the same? If so, don't these decision conflict? </li></ul></ul>
  47. 47. Exceptions <ul><li>Promise to correct mistakes </li><ul><li>Example - A is employed by B to repair a vacant house. By mistake A repairs the house next door, which belongs to C. The subsequent promise by C to pay A the value of the repairs is binding. </li></ul><li>Promise to pay for past emergency services or necessaries. </li><ul><li>Webb v. McGowin is classic example. </li></ul></ul>

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