25-1

Chapter 11Consideration 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 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

Case 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

11-19