Chapter 11 Consideration and Promissory Estoppel

1. Chapter 11 Consideration and Promissory Estoppel

2. 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

3. 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

4. Consideration • Bargained-for exchange • Process of bargaining or inducement that leads to an enforceable contract • Naturally present in most commercial transactions 11-4

5. 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

6. 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

7. 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

8. Promises that Lack Consideration • Illegal consideration • Illusory promise • Preexisting duty • Past consideration 11-8

9. Promises that Lack Consideration • Illegal consideration • A promise to refrain from doing an illegal act • Illusory promise • Acontract that both parties enter, but one or both of the parties can choose not to perform their contractual obligations 11-9

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

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