Consideration CHAPTER EIGHT

8 | 2 Copyright © Houghton Mifflin Company. All rights reserved. Consideration A contract must be supported by consideration. A promise to make a gift is unenforceable because there is no exchange of consideration –A gift is given with nothing expected in return The exchange of consideration can be: –Property: car, cash, house, etc. –Service: CPA, doctor, lawyer, etc. –Giving up the right to do something you are legally entitled to do (forbearance)

8 | 3 Copyright © Houghton Mifflin Company. All rights reserved. Adequacy of Consideration Does the exchange made by the parties need to be equal? NO. Generally, courts will not look to see whether consideration is adequate, unless: –Assent is lacking. (The concern is with issues of fraud, duress, undue influence, and certain mistakes.) –The contract is unconscionable. (The issue is one of legality.) The idea is that you are responsible for making your own best deal.

8 | 4 Copyright © Houghton Mifflin Company. All rights reserved. Past Consideration When performance of the act is completed before the contract is formed, a later promise to pay for the act is unenforceable.

8 | 5 Copyright © Houghton Mifflin Company. All rights reserved. Preexisting Contractual Agreement Once the parties have agreed to a contract, the parties are expected to perform as they agreed. When one party to the contract seeks to obtain additional payment without providing additional consideration, the courts will deny that party recovery of the additional payment.

8 | 6 Copyright © Houghton Mifflin Company. All rights reserved. Preexisting Duty to Pay a Debt Liquidated Debt: the amount of money that is owed has been established and cannot be disputed. The debtor (the person who owes money) must pay the full amount owed.

8 | 7 Copyright © Houghton Mifflin Company. All rights reserved. Preexisting Duty to Pay a Debt (continued) Unliquidated Debt: the value of the consideration can be honestly disputed. Partial payment of the debt can cancel the debt if the creditor (person owed the money) accepts and cashes a check marked “payment in full.” –Some states will allow the creditor to accept and cash a partial payment and preserve the right to sue for the balance of the debt by marking the check “under protest” prior to cashing.

8 | 8 Copyright © Houghton Mifflin Company. All rights reserved. Promises Enforceable Without Consideration In the interest of fairness, courts will enforce certain promises made without consideration: –Promises to Charitable Organizations Courts will often enforce a promise of a charitable gift, often under the theory that charitable organizations in reliance on the pledge will commit themselves to various contracts. –Promissory Estoppel Courts will enforce promises where it would be grossly unfair to one of the parties to not enforce the promise. Courts will enforce the promise even where there is no consideration.