1. Consideration 2.01 Understanding elements and characteristics of a contract

2. 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

3. 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

4. Nominal Consideration Token amount in a written contract where either the parties cannot or do not wish to state the amount

5. 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

6. 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.

7. 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.

8. Past Performance An act that has already been performed cannot be consideration in a contract.

9. 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

10. Exceptions to Consideration Promises barred from collection Promissory Estoppel******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