Consideration

Consideration
1. Courts will enforce a promise as a contract only if it is supported by consideration or a
substitute for consideration
2. Elements of Consideration: 2 elements are necessary to constitute consideration (1) a
bargained for exchange between the parties, and (2) legal value, meaning that which
is bargained for must be considered of legal value - it must constitute a benefit to the
promisor or a detriment to the promisee
a. Georgia Distinction: In Georgia, the existence of a seal raises a prima facie
presumption of consideration which is rebuttable
b. Bargained for Exchange: This element of consideration requires that the
promise induce the detriment and the detriment induce the promise. There is no
bargain involved (meaning no consideration) when one party gives a gift to
another
i. Act or Forbearance by Promisee Must Be of Benefit to Promisor: An
act or forbearance by the promisee (or a promise to act or forbear) is
sufficient consideration to form a contract if it benefits the promisor
1. The benefit need not be economic, the gratification of influencing
the mind of another is sufficient
ii. Past or Moral Consideration: A promise given in exchange for
something already done does not satisfy the bargain requirement
1. Exceptions: Where a past obligation is enforced because of a
technical defense (i.e., SoL) that obligation will be enforceable if a
new promise is made in writing or is partially performed. Under
the modern trend, if a past act benefited the promisor and was
performed by the promisee at the promisor’s request or in
response to an emergency, a subsequent promise to pay for that
act will be enforceable
2. Exam Tip: Beware of questions that use the word consideration to
refer to something already done “In consideration for your having
done X, I promise” Under the general rule, this promise is not
enforceable because the promise is given in exchange for past acts
c. Legal Value
i. Adequacy of Consideration: In general courts do not inquire into the
adequacy or fairness of consideration
1. But if something is entirely devoid of value (token consideration),
it is insufficient
2. Sham consideration (insignificant sum recited in the contract) is
also insufficient if not paid
 3. Note: If there a possibility of value in the thing bargained for,
consideration will be found even if the value never comes into
existence
ii. Legal Benefit and Legal Detriment:
1. Legal detriment results if the promisee does something they are
not legally obligated to do or refrains from doing something they
have a legal right to do
2. Legal benefit: Forbearance or performance of an act that the
promisor was not legally entitled to demand or expect
iii. Preexisting Legal Duty Not Consideration: Traditionally performing or
promising to perform an existing legal duty is insufficient consideration
1. Exceptions: The preexisting legal duty is riddled with exceptions.
There is consideration if:
a. New or different consideration is promised
b. The promise is to ratify a voidable obligation
i. Example: A promise to ratify a minor’s contract
after reaching majority or a promise to go through
with a contract despite the other party’s fraud
c. The preexisting duty is owed to a third person rather than to
the promisor
d. There is an honest dispute as to the duty
e. There are unforeseen circumstances sufficient to
discharge a party (such as impracticability) or under the
modern view, if the modification is fair and equitable in
view of circumstances anticipated when the contract was
made
2. A good faith agreement modifying a contract subject to the UCC
needs no consideration to be binding
3. Exam Tip: Although payment of a smaller sum than due on an
existing debt is generally not sufficient consideration for a promise
by the creditor to discharge the debt, courts will attempt to avoid
this result by apply the exceptions above. Thus, you should check
for facts for new or different consideration given (for example,
payment earlier than required or payment in stock instead of cash)
this change in performance could make the payment of a smaller
amount sufficient consideration
iv. Modification of Contracts: Under general contract law, a contract can’t
be modified unless the modification is supported by new consideration
1. Modern view permits modification without consideration if: (1)
The modification is due to circumstances that were unanticipated
 by the parties when the contract was made and (2) it is fair and
equitable
2. Under the UCC, consideration isn’t necessary to modify. All
the parties need are good faith promises of new and different
terms
3. Exam Tip: For MBE purposes, the examiners have indicated that
they have adopted the modern view. However on any non-UCC
essay question that involves modification, you should discuss the
traditional view and any relevant state exceptions, including the
modern Restatement view where it is relevant
v. Discharge of Debts: A debt can be discharged through an accord and
satisfaction
1. An accord must be supported by consideration. Even if the
consideration is of lesser value than the originally bargained for
consideration in the prior contract, it is sufficient if the new
consideration is of a different type or if the claim is to be paid to a
third party
2. A debtor’s offer to make a partial payment on an existing debt
will suffice for an accord and satisfaction if there is some bona
fide dispute as to the underlying claim or there is otherwise some
alteration, even if slight, in the debtor’s consideration
vi. Forbearance to Sue: A promise to refrain from suing on a claim
constitutes consideration if the claim is valid or the claimant in good faith
believed the claim was valid
3. Mutual and Illusory Promises - Requirement of Mutuality: Consideration must exist
on both sides of a contract. If only one party is bound to perform, the promise is
illusory and will not be enforced. Courts often supply implied promises (for example a
party must use their best efforts) to infer mutuality
a. Examples: The following are common examples of contracts that satisfy the
mutuality requirement:
i. Requirements and output contracts
ii. Conditional promises, unless the condition is entirely within the
promisor’s control
iii. Contracts where a party has the right to cancel, if that right is somehow
restricted
iv. Exclusivity agreements because the court will find an implied promise to
use best efforts
v. Voidable promises
vi. Unilateral and option contracts
vii. Gratuitous suretyship promises made before or at the same time that
consideration flows to the principal debtor
 viii. Exam Tip: Closely analyze the wording of contract terms, language can
make a big difference here. For example, a valid requirements or output
contract term will say “all the widgets I require” or “all that you produce’
but a term such as “all the widgets I want” or “all you want to sell me” is
illusory
b. Right to Choose Alternative Courses: A promise to choose one of several
alternative means of performance is illusory unless every alternative involves
legal detriment to the promisor
i. The promise will NOT be found illusory if:
1. At least one alternative involves legal detriment and the power to
choose rests with the promisee or a third party
2. A valuable alternative (one involving legal detriment) is actually
selected
4. Promissory Estoppel or Detrimental Reliance: Consideration is not necessary if the
facts indicate that the promisor should be estopped from not performing
a. A promise is enforceable if necessary to prevent injustice if: (1) The promisor
should reasonably expect to induce action or forbearance and (2) Such action
or forbearance is in fact induced
b. If the elements for promissory estoppel are present, some jurisdictions will award
expectation damages (what was promised under the contract) but the Second
Restatement provides that remedy may be limited as justice requires
i. A court following the Second Restatement might award reliance damages
(whatever the promisee spent in reliance on the promise) which is usually
less than expectation damages, but could exceed them
c. Exam Tip: A valid contact is better than an agreement that can be enforced only
by promissory estoppel because some states limit recovery under promissory
estoppel to that which justice requires. Thus in a question asking whether a party
can prevail based on an agreement, always check first to see if there is a valid
contract. Only if there isn’t should you consider promissory estoppel as a proper
choice