Chapter 11 Consideration and Promissory Estoppel

Consideration Consideration: something of legal value given in exchange for a promise Necessary for the existence of a contract Elements: Something of legal value must be given There must be a bargained-for exchange 11-2

Consideration Legal value A contract is considered supported by legal value if: The promisee suffers a legal detriment The promisor receives a legal benefit Most commonly involves tangible payment or performance of an act 11-3

Consideration Bargained-for exchange Process of bargaining or inducement that leads to an enforceable contract Naturally present in most commercial transactions 11-4

Case 11.1: Consideration Case In The Matter of Wirth Issue 14 A.D.3d 572, 789 N.Y.S.2d 69, Web 2005 N.Y. App. Div. Lexis 424 (2005) Supreme Court of New York, Appellate Division Issue Is the pledge agreement supported by consideration and therefore enforceable against the estate of Wirth? 11-5

Gift Promise Gratuitous promises Unenforceable due to lack of consideration Promise freely given and not induced by promise of some benefit Completed gift promises are not revocable 11-6

Case 11.2: Gifts and Gift Promises Cooper v. Smith 800 N.E.2d 372, Web 2003 Ohio App. Lexis 5446 (2003) Court of Appeals of Ohio Issue Can Cooper recover the gifts or the value of the gifts he gave to Julie and Janet Smith? 11-7

Promises that Lack Consideration Illegal consideration Illusory promise Preexisting duty Past consideration 11-8

Promises that Lack Consideration Illegal consideration A promise to refrain from doing an illegal act Illusory promise A contract that both parties enter, but one or both of the parties can choose not to perform their contractual obligations 11-9

Promises that Lack Consideration Preexisting duty A promise to do something the party is already under an obligation to do arises when one party to an existing contract seeks to change the terms of the contract during the course of its performance 11-10

Promises that Lack Consideration Past consideration A prior act or performance that does not support a new contract Problems of past consideration often arise when a party to a contract promises to pay additional compensation for work done in the past 11-11

Special Business Contracts Output contract: a contract in which the seller agrees to sell all of its production to a single buyer Purposes Assuring the seller of a purchaser for all its output Assuring the buyer of a source of supply for the goods it needs 11-12

Special Business Contracts Requirements contract: a contract in which a buyer agrees to purchase all of its requirements for an item from one seller Purposes Assuring the buyer of a uniform source of supply Providing the seller with reduced selling costs 11-13

Special Business Contracts Best-efforts contract: A contract which contains a clause that requires one or both of the parties to use their best efforts to achieve the objective of the contract 11-14

Settlement of Claims Law promotes voluntary settlement of disputed claims Saves judicial resources Serves the interests of the parties entering into the settlement 11-15

Settlement of Claims Accord: an agreement whereby the parties agree to accept something different in satisfaction of the original contract Satisfaction: the performance of an accord If the accord is not satisfied, the other party can sue to enforce either the accord or the original contract 11-16

Equity: Promissory Estoppel Promissory estoppel: An equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise Also known as detrimental reliance 11-17

Equity: Promissory Estoppel Elements to be proven The promisor made a promise The promisor should have reasonably expected that promisee would rely on the promise The promisee actually relied on the promise and engaged in an action or forbearance of a right of a definite and substantial nature Injustice would result if the promise were not enforced 11-18

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