Let's say you backed into your neighbor's golf cart and damaged it. This agreement provides adequate consideration for the contract, because each party is giving up something in the exchange -- you're giving up some of your money while your neighbor is giving up the right to sue you. In some situations, courts will step in and declare that a contract is unenforceable because it lacks consideration.
Let's look at some of these scenarios. One of the parties was already legally obligated to perform. For example, a police officer cannot claim the reward for capturing a wanted suspect, because the officer is already legally obligated to capture and arrest people who break the law.
The promise amounts to a gift, not a contract. If your rich uncle promises to give you money to buy a house, without any strings attached, that is a promise to make a gift. If he changes his mind, you can't force him to come up with the cash because his promise was one-sided; you have not done or promised to do anything in exchange. On the other hand, if you make a down payment on a house in reliance on his promise, and your uncle knows about it, a court may enforce his original promise.
Although it still isn't a true contract, the law recognizes that it's necessary to hold people to their promises once others take action on the assumption that the promise will be kept. This legal theory -- called "promissory estoppel"-- treats promises as contracts if the promise was reasonably relied upon.
The exchange is for "past consideration. You did it without knowing that someone would come along later and offer to pay for it. The bargained-for promise is illusory. For example , the laws in Maria's state prohibit firing an employee for refusing to sign a noncompete agreement. Maria signs one anyway, under threat of losing her job. The agreement is unenforceable because Maria's employer cannot do what it promised or threatened to do.
A better approach would have been to provide Maria with some benefit or compensation if she signed the agreement, rather than threatening to fire her if she didn't. In hindsight, many deals seem unfair "You paid how much for that dress?
However, courts rarely pass judgment on the value of the consideration exchanged unless the two promises are so disproportionate in value as to demonstrate bad faith or "unconscionability" in the bargaining process. Not amenable to settlement by an accord and satisfaction is the situation where a party has a preexisting duty and he or she is offered a benefit to discharge it. When the only consideration offered the promisor is an act or promise to act to carry out a preexisting duty, there is no valid contract.
As Denney v. Reppert Section Where a person is promised a benefit not to do that which he is already disallowed from doing, there is no consideration. The promise is not enforceable: legally, David already must refrain from smoking, so he has promised to give up nothing to which he had a legal right. As noted previously, the difficulty arises where it is unclear whether a person has a preexisting obligation or whether such unforeseen difficulties have arisen as to warrant the recognition that the parties have modified the contract or entered into a novation.
What if Peter insists on additional payment for him to remove one wheelbarrow full of quicksand from the excavation?
Not every promise is a pledge to do something. Juliette promises to mow the lawn if she feels like it. May Juliette enforce the contract? No, because Juliette has incurred no legal detriment; her promise is illusory, since by doing nothing she still falls within the literal wording of her promise. The doctrine that such bargains are unenforceable is sometimes referred to as the rule of mutuality of obligation: if one party to a contract has not made a binding obligation, neither is the other party bound.
The illusory promise presents a special problem in agreements for exclusive dealing, outputs, and needs contracts.
In an exclusive dealing agreement A contract—as between buyer and seller—where the parties agree only to deal with each other.
In return, the store promises to pay a certain percentage of the sales price to the designer. The franchisor-designer may therefore attempt to back out of the deal by arguing that because the franchisee is not obligated to do anything, there was no consideration for her promise to deal exclusively with the store.
Courts, however, have upheld exclusive dealing contracts on the theory that the franchisee has an obligation to use reasonable efforts to promote and sell the product or services. This obligation may be spelled out in the contract or implied by its terms. In the classic statement of this concept, Judge Benjamin N.
Cardozo, then on the New York Court of Appeals, in upholding such a contract, declared:. We think, however, that such a promise is fairly to be implied. The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today.
Otis F. Wood v. Lucy, Lady Duff-Gordon , N. The UCC follows the same rule. A similar issue arises with outputs contracts and needs contracts. Has it really agreed to produce and sell any coal at all? The law imposes upon the seller here a duty to produce and sell a reasonable amount.
No, it is required to take a reasonable amount. Courts do not inquire into the adequacy of consideration, but with some exceptions do require the promisor to incur a legal detriment the surrender of any legal right he or she possesses—to give up something in order to receive the bargained-for benefit.
The surrender of the right to sue is a legal detriment, and the issue arises in analyzing various kinds of dispute settlement agreements accord and satisfaction : the obligation to pay the full amount claimed by a creditor on a liquidated debt, an unliquidated debt, and a disputed debt.
Where unforeseen difficulties arise, an obligor will be entitled to additional compensation consideration to resolve them either because the contract is modified or because the parties have entered into a novation, but no additional consideration is owing to one who performs a preexisting obligation or forbears from performing that which he or she is under a legal duty not to perform.
If a promisor gives an illusory promise, he or she gives no consideration and no contract is formed; but exclusive dealing agreements, needs contracts, and outputs contracts are not treated as illusory.
Previous Section. Table of Contents. Consideration can be currency or property, but it can also be a promise to either do or refrain from doing a legal act. Past consideration involves something that was already given before the contract was signed.
It's sometimes called executed consideration. The return of the wallet thus constitutes past consideration. Present consideration, most commonly cash in exchange for goods, is given at the time the promise is made.
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