Contracts
What is Consideration?
Consideration – the exchange
of benefits and detriments
between the parties. OR What
a person gets and gives up in
a contract
A benefit is something a party
was previously not entitled to
receive. A detriment is a loss
suffered.
Three Requirements of
Consideration
1.
Each party must make a promise,
perform an act, or forbear (not do)
2.
The above needs to be in exchange for
a return promise, an act, or
forbearance by the other party
Promise of a Gift
Gift: giving something without receiving
anything in return
Promise of gift is generally not
enforceable because nothing is given in
return. Once the gift has been given, it
can’t be taken back.
Promise/Act/Forbearance
Examples
Promises : promising to give money,
promising to do a job, promising to dog sit
Act: dog sitting, roofing a house, giving
money
Forbearance: not suing when there is a
A note about release
Promise not to sue – You could give up your
right to sue in exchange for something of
value.
Ex: Food poisoning occurs, you sue but the
Adequacy of Consideration
What the parties give and get don’t
need to be of equal economic value
generally
We value things differently (“One
man’s trash is another man’s
treasure”)
Big differences though may be
evidence of lack of genuine
agreement (fraud, etc.)
If consideration is “so grossly
inadequate as to shock the
Problems with Consideration
Sometimes what looks like adequate consideration
is not. A few problems:
1. Illusory promises - Generally, contracts with an
escape clause are not binding promises and
therefore, not contracts.
Termination clause examples:
“we can cancel this agreement at any time.”
(illusory)
“we can cancel this agreement after this time period,
Problems with Consideration
cont’d.
2. Existing Duty - A promise to do something you already are required to do.
Existing public duty (public servants)
Ex: Police can’t cash in a reward for finding a murderer. They have a
duty to do this already.
Existing private duty
Companies with contracts to do a job for a certain amount can’t stop
working and ask for more money.
Even if the client of the company agrees to pay more, it’s not
enforceable because they had a preexisting duty to complete the job.
May be exception if there are “extraordinary unforeseen difficulties”.
However, if the debtor gave something in exchange for more
Problems with Consideration
cont’d.
3. Past Consideration
a promise to repay someone for a
benefit (gift) after it has been received.
There is no bargained-for exchange. Ex:
Situations where
Consideration is not Required
1. Promissory Estoppel- Sometimes people rely on promises that someone makes to them, which may be enforced because of the reliance. Here, three conditions must be met to enforce a
promise without mutual consideration.
A. There must be a clear and definite promise.
B. This person must have relied upon the promise and made a change/taken on a burden.
C. Enforcing the promise is the only way to avoid an injustice.
Example: Uncle promises to give you $10,000 to buy a car. You
Situations where
Consideration is not Required
2. Charitable Pledges
While these look like
promises of gifts, courts often
find these promises binding
The charity should state a
Capacity
Capacity is the legal ability to enter a
contract.
Not just anyone can enter a contract.
Maturity and mental capacity are required
Minors
Those under 18 may make contracts but
cannot be forced to carry out their promises and may cancel or refuse to
honor their contracts (voidable). This is to protect minors.
Usually must return any goods or
Capacity Continued
If a minor lies about their age, they have
committed fraud and can be sued. It may also be
a crime.
Businesses may require a parent or other adult
cosign any major contract for a minor.
In contracts between minors and a competent
person, except for contracts of necessaries, (food,
shelter, clothing, and medical care) the minor has
the privilege of disaffirmance, or avoidance of the
contract. The other party is bound if the minor
Capacity Continued
In most states, a minor who continues making payments
on a contract after reaching the age of majority (usually
age 18) is considered to have ratified the contract.
Once ratified it can no longer be cancelled.
If a minor is emancipated, no longer under the control of
their parents, they are given the legal rights of an adult,
they are responsible for their own contracts and give up
the rights of minors.
In addition to minors, those who are intoxicated or don't
have the capacity to know what they are doing, may not
be able to form enforceable contracts. (Insane,
