Chapter 11 Consideration and Promissory Estoppel
25-1 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