What is the main purpose of consideration?
To distinguish between social promises and serious transactions
(D) gift
the transfer of ownership without receiving anything in return
Is a promise to make a gift enforceable?
Generally not
(D) donor
the person giving the gift
(D) donee
the person receiving the gift
When does the ownership irrevocably transfer from donor to donee?
When the donor gives to gift to donee with the intent to transfer ownership
(D) Consideration
that which is given or received in a contract
What are the 3 requirements for consideration?
1) Each party must give an ACT, FORBEARANCE, or PROMISE to the other party
2) Each party must TRADE what they contribute to the transaction for the other party's transaction
3) What each party trades must have LEGAL value
When is consideration necessary?
To make a promise binding
What may consideration consist of?
A promise, and act, or a forbearance
(D) forbearance
refraining from doing what one has a right to do
(D) promisor
A person promising an action or forbearance
(D) promisee
The person to whom the promise is made
What is a test of the existence of a contract?
When consideration is mutually traded; can be given by (promising to) confer/incur benefit/detriment
What happens if either of the parties does not give consideration?
The other has no duty to perform as promised
(D) Legal value
Change in the legal position of a party as a result of a contract
What form is legal value most commonly found in?
Exchange of two benefits
Where can legal value be found in?
Exchange of two benefits;
Exchange of benefit for a detriment (forbearance);
Exchange of two detriments
What does "The courts do not inquire into the ADEQUACY of consideration" mean?
The parties give and get as consideration generally need not be of equal economic value
As long as there is _____________ economic value is unimportant.
Genuine agreement
When is the adequacy, equality, or fairness of the consideration given and received immaterial?
the consideration has some value and is voluntarily agreed to by both parties
What can a big difference in economic value of what one gives and receives be evidence for?
Mutual mistake, duress, undue influence, fraud
When will a contract be declared unconscionable?
If consideration received is so grossly inadequate as to shock the conscience of the court. The contract/unconscionable clause may not be enforceable
(D) nominal consideration
token amount identified in a written contract when parties either cannot or do not wish to state the amount precisely
When will courts enforce contracts supported by nominal consideration?
If circumstances indicate that, in fact, consideration was given
What must a promise be in order to be consideration?
It must be binding; must create a duty or impose an obligation
When is a promise said to be illusory?
If a contract contains a clause that allows you to escape the legal obligation
Why do businesses include termination clauses in their contracts?
Often want the power to withdraw from a contract if biz circumstances change
Regarding termination clauses in contracts, when would a promise be illusory and when would it not be?
Illusory- power to terminate the contract for any reason
promise- Allowed only after a change in defined circumstances, after passage of a certain length of time
(D) output contract
agreement to purchase all of a particular producer's production
(D) Requirements contract
seller agrees to supply all of the needs to a particular buyer
How do courts recognize output and requirement contracts?
Supported by consideration, and cannot eliminate the obligation
Is performing or promising to perform an existing obligation consideration?
No
If you are not giving up a legal right, do you incur a detriment?
No, it is an existing public duty
If a contract creates a duty, can this duty be the basis of consideration in a different contract?
No. (Same rule holds true when a person demands further compensation for carrying out a contract already made)
(D) liquidated debt
debt for which the parties agree that the debt exists and on the amount of the debt
What is a creditor?
A person to whom a debt is owed
When a creditor agrees to accept less than the total amount due in full settlement from a debtor, is there consideration if the debt is liquidated?
No
When can a debtor settle a claim by paying less than the full amount?
When additional consideration is given
Can the payment of less than the full amount before the due date consideration?
Yes, with a mutual agreement between the creditor and the debtor
How can a case where there is a genuine dispute between the parties about how much is owed be settled?
Partial payment offered in full settlement by the debtor and accepted by a creditor
(D) accord and satisfaction
parties' agreement to change the obligation required by their original contract and the performance of the new obligation
How would the disputed claim for an unliquidated debt be settled?
If the creditor cashed the debtor's check bearing a clear notation: In full settlement of all claims outstanding
(D) release
party settles a claim at the time the tort occurs, and the liability is unliquidated because the extent of damages is uncertain
In a release, what is sufficient consideration for the promise not to sue?
The payment of money
How are many people affected because of signing releases too soon?
Many are hurt financially
(D) composition of creditors
agreement by all creditors to accept something less than the total amount of their claims as full payment
What will the debtor do in return for composition of creditors?
Agrees not to file for bankruptcy
In a case of composition of creditors, where is consideration for the promise of each creditor to release the debtor from full payment found?
The reciprocal promises of the other creditors to refrain from suing for the entire amounts due to them
Even where the gifts have legal value, they must arise from a __________________ to be consideration.
Bargained-for exchange
Past performance is?
Not consideration for a promise given now or in the future; Bargaining takes place in the present, for immediate/future performance by both parties
What is past consideration?
An act that has already been performed (cannot serve as consideration)
(D) promissory estoppel
promise is enforced even though no consideration is given for it
Under special circumstances, how are promises of gifts enforceable?
Under the doctrine of promissory estoppel
What 4 conditions must be met for promissory estoppel?
1) Te promisor should reasonably foresee that the promisee will rely on the promise
2) Promisee relies on the promise
3) Promisee would suffer a substantial economic loss if the promise is not enforced
4) Injustice can be avoided only by enforcement of th
Are pledges to pay money to charitable organizations enforceable?
Usually, even though no consideration was given to the pledgers for their promises
What are pledges?
Outright promises to pay in the future
(D) statute of limitations
state laws setting time limit for bringing a lawsuit
What is the statute of limitations for breach of contract or a tort?
3 years for most states, afterwards you lose right to sue
What do the states that will enforce a promise to pay a claim after the passage of the statute of limitations even though there is no consideration for the promise require?
For the promise to be in writing
(D) option contract
underlying contract to keep an option open
(D) firm offer
binding offer stating in writing how long it (an offer) is to be held open
In a firm offer, if a merchant who makes an offer in a signed writing to buy or sell goods and promises to leave the offer open, what rules apply?
Merchant is bound for up to 3 months even when no payment or other consideration has been given for the promise
Do agreements modifying contracts for the sale of goods need consideration to be binding?
No, (UCC:) good-faith agreement that modifies an existing contract for SoG needs no new consideration