Elements of Consideration Consideration is legal value bargained

Elements of Consideration • Consideration is legal value bargained for and given in exchange for an act or a promise Purely gratuitous promises are not enforceable because not supported by consideration 12 - 1

Legal Value of Consideration • Consideration in the form of an act or promise may have legal value if the person – Refrains from doing something the person has the legal right to do • Example: Hamer v. Sidway – Does something the person had no prior legal duty to do • Generally, courts will not examine the 12 - adequacy 2 of consideration

Bargained-for Exchange • A promisee’s act or promise must have been bargained for and given in exchange for the promisor’s promise – Example: Gottlieb v. Tropicana Hotel and Casino in which participating in a promotion that benefited the company was adequate consideration to form a contract 12 - 3

Exchanges That Are Not Consideration • Illusory promises • Preexisting duties • Past consideration 12 - 4

Illusory Promises • If the promisee’s promise really does not bind the promisee to do or refrain from doing anything, the promise is illusory and cannot serve as consideration • Example: Heye v. American Golf Corporation, Inc. in which an employee successfully claimed lack of consideration for an arbitration clause in a contract because mutual obligation did not exist 12 - 5

Preexisting Duties • As a general rule, performing or agreeing to perform a preexisting duty is not consideration – Promisor in such a case has effectively made a gratuitous promise • Includes public duties (obey the law) and preexisting contractual duties 12 - 6

Preexisting Duties & Contract Modification • General rule is an agreement to modify an existing contract requires new consideration • Exceptions to general rule: 12 - 7 – Modification due to unforeseen circumstances that a party could not reasonably foresee – CISG and UCC 2– 209(1): agreement to modify a contract for the sale of goods

Preexisting Duties & Settlement Agreements • Liquidated debts are debts in which parties have no dispute about the existence or amount of the debt – A creditor’s promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable for lack of consideration • If there is a dispute about the existence or amount of the debt, the 12 - 8 debt is unliquidated

Past Consideration • Past consideration is an act or benefit given in the past that was not given in exchange for the promise in question, thus it cannot be consideration 12 - 9

Review 12 - 10