Chapter 11

Consideration and
Equity

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Consideration
Consideration something of
legal value given in exchange
for a promise.
Consideration is a necessary
element for the existence of a
contract.
Common types of
consideration are:
A tangible payment (money or
property); or
Performance of an act (e.g.,
providing legal services).

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Consideration

(continued)

Consideration consists of
two elements:
Something of legal value
must be given; and
2. There must be a bargainedfor exchange.
1.

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Legal Value

Something of legal value

must be given.
Under the modern law of
contracts, a contract is
considered supported by
legal value if:
The promisee suffers a legal
detriment; or
2. The promisor receives a
legal benefit.
1.

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Bargained-for Exchange
To be enforceable, a
contract must arise from a
bargained-for exchange.
Exchange that parties engage
in that leads to an enforceable
contract.

Gift or gratuitous
promise an
unenforceable promise
because it lacks
consideration.
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The Use of Output and Requirements

Contracts in Business
There are two special types
of business contracts that
specifically allow a greater
degree of uncertainty
concerning consideration:
Output Contracts
Requirements Contracts

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Contemporary Business
Environment

Nominal
Consideration

Best Efforts
Contracts

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Contracts Lacking Consideration

Illegal
Consideration

Illusory
Promise
Moral
Obligation

Past
Consideration
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Preexisting
Duty

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Illegal Consideration
Illegal consideration a
promise to refrain from
doing an illegal act.
Such a promise will not
support a contract.

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Illusory Promise
Illusory promise a
contract into which both
parties enter, but one or
both of the parties can
choose not to perform their
contractual obligations.
Thus, the contract lacks
consideration.
Such promises are
unenforceable.
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Moral Obligation
Promises made out of a
sense of moral obligation
or honor lack consideration.
Moral consideration is not
treated as legal
consideration.
Such promises are
unenforceable in most
states.

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Preexisting Duty
Preexisting duty a
promise lacks consideration
if a person promises to
perform an act or do
something he or she is
already under an obligation
to do.
The promise is
unenforceable because no
new consideration has been
given.
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Preexisting Duty

(continued)

The preexisting duty rule arises

when one of the parties to an
existing contract seeks to
change the terms of the
contract during the course of its
performance.
Such midstream changes are
unenforceable.
The parties have a preexisting
duty to perform according to
the original terms of the
contract.
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Preexisting Duty

(continued)

Sometimes a party to a
contract runs into
substantial unforeseen
difficulties while performing
his or her contractual
duties.
The contract can be
modified and enforced
without new consideration
being given.
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Past Consideration
Problems of past
consideration often arise
when a party to a contract
promises to pay additional
compensation for work done
in the past.
Past consideration (e.g., prior
acts) will not support a new
contract.
New consideration must be
given.
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Concept Summary: Promises Lacking

Consideration

Type of
Consideration

Description of Promise

Illegal
consideration

Promise to refrain from doing an illegal act.

Illusory promise

Promise where one or both parties can

choose not to perform their obligation.

Moral obligation Promise made out of a sense of moral

obligation or honor or love or affection.
Some states enforce these types of
contracts.
Preexisting duty Promise based on the preexisting duty of
the promisee to perform. The promise is
enforceable if (1) the parties rescind the
contract and enter into a new contract, or
(2) there are unforeseen difficulties.
Past
Promise based on the past performance of
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Hall, Business Law,
consideration
the promise.

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Settlement of Claims
The law promotes the
voluntary settlement of
disputed claims.
Settlement:
Saves judicial resources, and
Serves the interests of the
parties entering into the
settlement

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Settlement of Claims

(continued)

Accord an agreement
whereby the parties agree to
accept something different in
satisfaction of the original
contract.
Satisfaction the
performance of the accord.
If the accord is not satisfied,
the other party can sue to
enforce either the accord or
the original contract.
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Promissory Estoppel
Promissory estoppel
(detrimental reliance)
A 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.
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Promissory Estoppel

(continued)

For the doctrine of

promissory estoppel to be
applied, the following
elements must be shown:
1. The promisor made a
promise.
2. The promisor should have
reasonably expected to
induce the promisee to
rely on the promise.
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Promissory Estoppel

(continued)

3. The promisee actually

relied on the promise and

engaged in an action or
forbearance of a right of a
definite and substantial
nature.
4. Injustice would be caused
if the promise were not
enforced.

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