CONTRACTSCONSIDERATION Consideration is a bargained for exchange for something of legal value.

A PROMISE is supported by consideration is TWO REQUIREMENTS are met: a. The promisee GAVE UP SOMETHING OF VALUE or CIRCUMSCRIBED HER LIBERTY in some way. suffers a legal detriment. b. The promisor made his promise When is consideration required? **Restatement 75: Consideration for a Promise a. an act b. forbearance c. creation, modification or destruction of legal relation, or d. return promise e. bargained for & given in exchange... to the Promisor or other person or given by the Promisor or other person. Scope & Adequacy of Consideration a. Competent parties are free to make their own bargains and fix the value of their consideration. Absent fraud, misrepresentation, breach of warranty, or mistake, the agreement will be enforced. b. A Competent Party who establishes the value of the consideration to him/herself without fraud, duress, misrepresentation or mistake cannot later be excused from performance by asserting that the consideration was inadequate. c. Inadequacy of Consideration is not a defense. d. A Bargained for Exchange of Consideration requires that the contractual promise be the product of a negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an Act or Forbearance by the other. e. Forbearance from the exercise of an act one is legally entitled to do is sufficient consideration. However, Consideration as essential evidence of the parties intent to create a legal obligation must be something adopted and regarded by the parties as such. f. A Promisee suing for the breach of a promise of an executory benefit (Gift) unsecured by any bargained for consideration from the Promisee suffers no recoverable damage. a. Restated: A promise of the future conferral of a benefit unsecured by consideration (Unbargained for) is promise of a gift and is not enforceable. Characteristics of Consideration: a. Bargained for Exchange: a. As long as there is valid consideration, there is no additional requirements that the things exchanged be equal in value.

b. In EXTREME CASES where consideration is mre pretence and that fact is known by BOTH PARTIEES, courts will not enforce a K. c. Courts generally do not inquire about the ADEQUACY of considerationmust only meet the requirement of something given to the promisee by the promisor in exchange for the promise (does not have to equal, but there must be a direct exchange). Hardesty v. Smith: The sale of a useless invention was valid consideration so long as it was made in good faith. RULE: Parties of sufficient mental capacity have a right to make their own bargains. The owner of thing has the right to fix the price at which he will part with it, and the buyers own judgment should be his best guide as to what he should give to obtain it. **The parting of a right, which one possesses, to another, at his request, may constitute a good consideration. When a party gets all the consideration he honestly contracted for, he cannot say he got no consideration. b. Consideration as a Motive or inducing cause a. The fact that what is bargained for does not itself induce the making of a promise DOES NOT prevent it from being CONSIDERATION for such. (1) Simply put: the fact that a promise does not itself induce a performance or a return promise does not prevent it from being consideration for the promise. **Unless both parties realize that consideration is a mere pretense, it is immaterial that the promisors desire for consideration is incidental to other objectives and even that the other parties knows this to be so. **The promisee need not inquire into the motives of the promisor. Maughs v. Porter: D put an ad in the paper stating that there would be an auction of 50 new Fords. One person would be the winner of a new Ford. After a drawing, P was adjudged the winner. She paid the auctioneer $3. D ordered the car but refused to pay for it when it arrived and has refused to pay P the value of the car ($461). RULE: A gift is a contract without consideration and to be valid must be executed a. valid gift: a contract executed b. plaintiff cannot recover unless the defendant is bound by a promise which is supported by a consideration sufficient to support the action. **Attendance to an advertised lottery sale of goods is valid consideration for a prize won at the lottery. Court held that the promise was unenforceable because the LOTTERY was illegal. A contract with consideration is still unenforceable if it violates public policy.

Maughs takeaway: Conditional promise of a gift will be enforceable where the happening of the condition will benefit the Promisor. Dougherty v. Salt: P received a note from his aunt for $3,000 payable at her death or before. On the note was written value received. At aunts death, executrix refused to pay, claiming it was a gift and unenforceable. RULE: Nothing is consideration that is not regarded as such by both parties. ** A promise of a gift from one relative to another in form of a promissory note does not constitute valid consideration. The not was voluntary and therefore unenforceable. c. Contract or Conditional Gift? a. Tramp Hypo: Man promises a new coat to a tramp if she will walk to the store to retrieve it. The walk is not considerationit is a condition for receiving a gift. It would be a weak argument that the Tramps walk was sought by the promissor in EXCHANGE for the coat. The Promissor should receive benefit in order for there to be consideration (though this is not always necessary). b. When considering whether there is a contract or there is just a condition gift ask: (1) Did the promisor BENEFIT from acts of the promisee? 1. If yes, then it is more likely that consideration was established. (However, lack of a benefit will not preclude an act from being consideration.) (2) Was the promisees act a CONDITION to the promise of the cost of the promise? 1. If the act is only to enable the promissory to receive a gift, it is merely a CONDITION. d. Forbearance as consideration: Forbearance from exercising a legal right is sufficient consideration. Hamer v. Sidway Nephew promises his uncle that if he will abstain from drinking, gambling, swearing, and using tobacco until the age 21 if uncle gives him 5000 bucks. RULE: a valuable consideration in the sense of the law may consist in some right interest, profit or benefit for one party or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other party. **a waiver of any legal right at the request of another party is SUFFICIENT consideration for a promise. No consequence whether the performance was of benefit to the promisor. Baehr v. Penn-o-tex Kemp was heavily indebted to Defendant. Defendant assisted Kemp in keeping his business going. Plaintiff sought to recover unpaid rent from Kemp. Defendant promised to pay the rent

Kemp owed Plaintiff. RULE: The fact that a promise was given does not necessarily mean that a contract was made. a. Consideration requires that a contractual promise be the product of a bargain. b. Bargain means negotiation resulting in voluntary assumption of an obligation by one party upon condition of an act or forbearance of an act by the other. **Consideration must be regarded by all parties as such. **A promise without consideration does not create an enforceable contract. Takeaways: a. Consideration is the common law test for determining the enforceability of promises. b. Consideration requires that the contractual promise be the product of a bargain. c. Forbearance to sue may be considred valid considerationnot here, however, because evidence only shows that the plaintiff FAILED to sue. There is no evidence of an actual agreement. Springstead v. Nees Plaintiffs and Defendants were children of deceased, who died intestate. Nees was owner of Sackett street and Atlantic avenue which was held in trust for his children. Discovered that Atlantic Ave was only held for two of his children. They said they would give them their share in the sackett street property if they were not bothered about the Atlantic Ave property. RULE: Forbearance to assert legal claim is not sufficient consideration. **Not essential that the claim should be valid, it is enough it could regarded as plausible. -Hamer v. Sidway RULE: It is not necessary for their to be detriment or benefit to either party Baehr: RULE: Forbearance in not bringing a lawsuit may be valid consideration. a. Objective Test based on the person bringing suit as having REASONABLE GROUNDS to believe a the claim to be valid. Springstead v. Nees:

b. Subjective Test Compromise of a doubleful right asserted in Good faith is sufficient consideration. If the claimant had an honest belief in claim, there ned not be an inquiry In order for there to be consideration, the forbearance MUST be given in EXCHANGE for the promise (1) fact that a promise was given does not necessarily mean a contract was made (2) Ask: Did the promisor seek the forbearance at issue? 1. If the answer is yes Is it likely that the forbearance would be ADEQUATE CONSIDERATION? (tramp hypo) (3) Ask: Did the promisee forbear BEACUASE the promise was made? 1. If the answer is yes likely valid consideration MUTUALITY OF OBLIGATION: GENERAL RULE: When parties attempt to make a contract where promises are exchanged as the consideration, the promises must be mutual in obligation. **Consists in the obligation of each party to do, or permit something to be done, in consideration of the act or promise of the other. Mutuality is absent when only one of the contracting parties is bound to perform and the rights of the parties exist at the option of one only. 1. Bilateral K 2. Reciprocity or symmetry of obligation is NOT REQUIRED 3. Not adequacy of consideration (restatement 79 each side must be bound to do something, but not necessarily equal in weight. However, courts are typically unwilling to enforce extremely onesided contracts) 1. Illusory Contractsan agreement which depends on the wish or will of just one of the parites Unenforceable. GENERAL RULE: In order for a K to be valid, there must be mutuality of obligation. IF one partys performance is based on a whim, an if he feels like it will be unenforceable. De Los Santos v. Great Western Sugar Co. Plaintiffs and defendants enter into a hauling contract stating that the plaintiff would trans port in their trucks such tonnage of beets as may be loaded by the defendant. And unload the beets at designated factories. Compensation that the plaintiff was to receive was based solely on the amount of beets that he transported varying with length of the haul. RULE: A contract which depends on the wish will, or pleasure of one of the parties is unenforceable **Mutuality of obligation is an essential element of every enforceable agreement.

2. Employment Contracts: GENERAL RULE Mutuality in the general sense of the requiring reciprocity is not always necessary when a promisor receives other valuable consideration. Weiner v. McGraw Hill, Inc Plaintiff quits job relying on an offer of employment elsewhere. Later the plaintiff is fired without just cause despite there being a statement on the application that employee can only be fired with JUST CAUSE. Though there is no MUTUALITY OF OBLIGATION, there is consideration because there is a unilateral contract. Thus, the plaintiff coming to work for the defendant alone was sufficient consideration. **Employment is a special context and courts will often struggle to find consideration. RULE: Mutuality is not always essential to a binding contract, but consideration is a fundamental requisite. Mutuality in the sense of requiring reciprocity is not necessary when a promisor receives other valid consideration. 3. Real Estate Contracts: RULE: Deposit receipts are binding and enforceable contracts. Satisfaction clauses are valid if they obligate both parties in some waythere are two categories: a. satisfaction as to COMMERCIAL VALUE: promisee cannot claim dissatisfaction arbitrarily. Discontent must been the ordinary reasonable person standard. b. Satisfaction involving fancy taste or judgment --promisee can only make a good faith claim to dissatisfaction. Mattei v. Hopper The defendant agreed to convey property to the plaintiff subject to the plaintiffs satisfaction wit hteh lease. Although it is the case that there MUST be mutuality of obligation, it appears that the plaintiff in this case is free to back out of the agreement because there is an implication that satisfaction will be based on GOOD FAITH. But satisfaction clause does not remove consideration. Thus in determining whether the contract was voided due to the clause stating leases satisfactory to the plaintiff must be obtained (satisfaction clause), the answer was NO. The K was neither illusory nor lacking in mutuality of obligation. Instead the parties inserted into the contract a provision that MADE the plaintiffs performance DEPENDANT on his satisfaction with the leases. RULE: When parties attempt to make a contract where promises are exchanged as consideration, the promises must be mutual in obligation in order for the contract to bind either party, both must have assumed some legal obligations. Without this mutuality of obligation, the agreement lacks consideration. **Satisfaction Clauses: (1) In those contracts where the condition calls for satisfaction as to commercial value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed arbitrarily,

unreasonably or capriciously and the standard of the reasonable person is used in determining whether satisfaction has been received. (2) Satisfaction clauses dealing with fancy, taste or judgment. Where the question is one of judgment, promisors determination that he is not satisfied, when made in good faith has been held to be a defense to an action on the contract. A promisors duty to exercise his judgment in good faith is an adequate consideration to support the contract. 4. Exclusivity GENERAL RULE: Where the terms of a contract do not specify duties, the court may infer a good faith duty to perform The K speaks for itself. UCC 1-203 Every contract or duty within this act imposes an obligation of good faith in its performance and enforcement. UCC 2-306(2) a lawful agreement by either the seller or buyer for exclusive dealings in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to promote their sale. Wood v. Lady Duff-Gordon The plaintiff was to have exclusive rights to market design of defendant in exchange for the plaintiffs help in marketing designs. The defendant received consideration in form of GOOD FAITH EFFORT by plaintiff to market designs. Rule: A contract for exclusive dealing imposes an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. UCC 2-306(2): Exclusivity, good faith on both sides; UCC 1-203: Good faith in contracts.