Contracts Outline
I. Consideration- was there a bargain?
Old rule: benefit/detriment rule. It’s a subjective rule we’ve moved away from.
Detriment: giving up something you were privileged to retain or doing something you were privileged not to have to do.
Functions of Consideration Requirement:
Evidentiary function: evidence that parties intended to make a binding agreement.
Cautionary function: Parties may act more carefully/rationally and less impulsively; will be less likely to make bad bargains or mistakes. Also they can negotiate more freely because they won’t be bound. This reduces transaction costs. Gifts can be losses, but under this model, exchanges won’t be.
Bargained for requirement
Promise must be bargained for: S71(2): Sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
Man tells a tramp he can buy a coat on his credit if you go around the corner to the store. Tramp’s walking around the corner is not consideration. It is instead a condition of a gratuitous promise. Also Kirksey v. Kirksey. Gift promises not enforceable.
Test: Look at benefit to promisor, if it has value to him then probably bargained for.
Batsakis v. Demotsis: Despite falsity of recital of consideration (said $2,000, really $25, still bargained for since D needed $25 badly)
Promisee must be aware of the promise (fulfilling conditions when not aware is not consideration because it is not “given by promisee in exchange for the promise.” Ex. No consideration for reward you weren’t aware of. (Also can’t accept offer you weren’t aware of). Prof. says reward promises often enforced through. Some courts stretch consideration, others enforce it despite lack of consideration, others don’t enforce.
Side notes: Whether consideration actually paid is not dispositive evidence as to whether there was a bargain.
Partial bargain is ok: selling car below market value.
Adequacy Doctrine v. Nominal Consideration
Adequacy Doctrine (S79):Consideration does not have to be equal to be valid, just bargained for. Peppercorn is enough.
BUT
Nominal consideration or sham consideration is not valid (Gift dressed up as consideration is not considerati
son was 25, so even further from any benefit and not enforceable under material benefit rule, SEE INFRA).
Mutuality of Obligation: both parties are bound or neither is bound. If one side’s promise is illusory, then other side isn’t bound. If you have consideration already, mutuality of obligation is not necessary.
Release of legal claims: Release of claims is valid consideration.
S74: Forbearance to assert or the surrender of a claim or defense which proves to be invalid is NOT consideration unless: 1)
a) (Objective): claim is doubtful because of uncertainty as to the facts or the law
b) (Subjective): Forbearing or surrendering party believes claim may be fairly determined to be valid
2) Or, if bargained for, a written instrument surrendering a claim or defense by who is under no duty to do so is consideration even if he believes no valid claim or defense exists.
