Section 06-11
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Section 6
Consideration An obligation is not enforceable against you unless you are “paid” to fulfill it. However, the “payment” to you does not have to be measured in money or money’s worth, and the law frowns on a person who attempts to avoid responsibility for a promise made which has been relied upon by another. “In consideration of the promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows . .”
I.
Doctrine - Background
A.
Definition - whatever is given in exchange for something else (a promise
to do something, or doing something or refraining from doing something -
what does the offer require?)
1.
Bilateral contract - promise given in exchange for another promise
(example – your lease with your landlord)
2.
Unilateral contract - promise given in exchange for an action or
refraining from acting (example – “I will pay you $100 if you find
my lost dog”)
B.
Requirements to have valid consideration
1.
The consideration must be bargained for by the parties – that is, the
parties must have intended to exchange the consideration as the
essence of their bargain (e.g., payment of money by a buyer for a
new computer to be sold by a seller)
2.
The consideration must have legal sufficiency (must have "legal
value") - generally, doing or not doing what you had no obligation
to do or refrain from doing, except for your agreement to do or not
to do something – example, your agreement to pay rent in
exchange the landlord’s agreement to permit you to occupy an
apartment – there must be
a.
Legal detriment to promisee - “Detriment . . . means any
act which occasioned the offeree the slightest trouble or
inconvenience, and which the offeree was not otherwise
obliged to perform or refrain from performing . . .” WIS
JI-Civil 3020; OR
b.
Legal benefit to promisor - “Benefit . . . means anything of
slight or trifling value to the offeror . . .” WIS JI-Civil 3020
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Section 6-1
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Section 6-2
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c.
Generally, both a legal detriment and legal benefit are
present if one is present
d.
Not required that consideration be measured in economic or
financial terms – but often will be (the rent you pay your
landlord)
Restatement (Second) of Contracts § 71. Requirement of Exchange; Types of Exchange (1) To constitute consideration, a performance or a return
promise must be bargained for.
(2) A performance or return promise is bargained for if it is
sought by the promisor in exchange for his promise and is given
by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal
relation.
(4) The performance or return promise may be given to the
promisor or to some other person. It may be given by the
promisee or by some other person.
C.
Adequacy of the consideration, or fairness of the bargain, are irrelevant as
to existence or sufficiency of consideration
It is not a proper function of the jury to determine whether the
consideration is a fair and adequate exchange for the promise.
Fairness and adequacy are for the offeror and offeree to judge
for themselves. Any legal consideration, no matter how slight,
will be sufficient. However, the mere inconvenience of making
or receiving a promise is not itself consideration. WIS JI-Civil
3020
[End of Online Lecture 6-1]
II.
Contract Law Concepts Related to Consideration
A.
Illusory promises - imposes no contractual obligation on promisor and,
therefore, there would be no binding contract
An illusory promise – “one that its maker can keep without
subjecting himself or herself to any detriment or restriction” –
such a promise does not constitute consideration. FN 1
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Section 6-3
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Example: “I agree to hire you as my employee and I will pay you such compensation as I decide on a weekly basis.” Has the employer really promised you any consideration – or is it just an illusion? 1.
Contracts with “option-to-cancel” provisions - the requirement that
notice be given to exercise the cancellation privilege is legal
consideration and the contract is not illusory
Example: “Notwithstanding the 10-year term of this Lease, Tenant may terminate this Lease provided written notice of Tenant’s termination is given to Landlord at least six months prior to the effective date of termination.” 2.
Contracts with “best efforts” provisions - the obligation of a party
to use “best efforts” in performing an obligation is legal
consideration and whether best efforts were exerted will be tested
against a reasonable standard and the contract is not illusory
Example: “I hereby appoint you to be my exclusive agent to market my products in Dane County, Wisconsin and you shall use your best efforts in doing so.” B.
A pre-existing contractual obligation is not consideration supporting
enforcement of new promise (however, was anything new of legal value
given?)
It is an accepted principle of law in this state that when a party
agrees to perform an obligation for another to whom that
obligation is already owed, . . . the second agreement does not
constitute a valid binding contract. The basis of the rule is
generally made to rest upon the proposition that in such a
situation he who promises the additional [work] receives
nothing more than that to which he is already entitled and he to
whom the promise is made gives nothing that he was not already
under legal obligation to give. FN 2
C.
Modification of an existing contract
1.
Common law - consideration required to support the modification
agreement (exception: Wisconsin – however, for purposes of this
class we will follow the majority rule)
Example: Landlord and Tenant have entered into a written lease concerning the rental of commercial space which provides that Tenant will be responsible for snow removal from parking areas. After the Lease is entered into, the parties agree as follows: “Landlord and Tenant hereby agree to amend the Lease to provide that Landlord will be responsible for snow
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Section 6-4
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removal from parking areas.” Will the parties be bound by this amendment (modification)? No, unless the Landlord receives consideration to support the promise to be responsible for snow removal. 2.
UCC 2-209 - no consideration required to support the modification
agreement (but modification must be requested in good faith and
not by coercion)
Example: Buyer and Seller have entered into a contract providing for the sale of an automobile with delivery to take place on March 31. After the contract is entered into, the parties agree as follows: “Buyer and Seller hereby agree to amend their contract to provide that Seller shall include in the deal the Seller’s portable Garmin GPS.” Will the parties be bound by this amendment (modification)? Yes, because this is a sale of good contract and no consideration need be exchanged to support the enforceability of the modification. § 2-209. Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs
no consideration to be binding...
3.
Restatement (Second) of Contracts §89 - modification of an
executory contract is binding without consideration if it is fair and
equitable in light of facts that could not be reasonably anticipated
by the parties (sometimes referred to as the unforeseen difficulties
rule)
Where a contract must be performed under burdensome conditions not anticipated, and not within the contemplation of the parties at the time when the contract was made, and the promisee measures up to the right standard of honesty and fair dealing, and agrees, in view of the changed conditions, to pay what is then reasonable, just and fair, such new contract is not without consideration within the meaning of that term . . . FN 2 [End of Online Lecture 6-2]
D.
Settlement of debts
1.
A creditor is a person who is owed by money by a person who is
referred to as a debtor
2.
Issue - can the creditor sue for the unpaid balance after a partial
payment has been made and a settlement reached? That is, has an
accord and satisfaction (i.e., a binding settlement or compromise)
been entered into by virtue of the partial payment which is
accepted by the creditor?
3.
As to a liquidated (i.e., agreed to sum) and undisputed debt – a
partial payment, even if offered as payment in full, will not
discharge the entire debt; but if additional or different
consideration is given (e.g., paying early, paying in different form,
etc.), debt is discharged (economic equivalency of different
consideration is irrelevant)
Example: If Smith owes Jones $400 and this amount is
not disputed and is liquidated and is due and payable on
June 1, if Smith and Jones agree that the $400
obligation will be satisfied if Smith pays Jones $300 on
April 1, 60 days early, and Smith makes the payment,
Jones cannot thereafter sue Smith for $100 because the
agreement to take the lesser amount was supported by
consideration – Smith paying the lesser amount 60 days
early, something he was not otherwise obligated to do.
4.
As to unliquidated (not an agreed-to amount) and disputed debt (a
legitimate dispute as to what is owed by the debtor), acceptance by
the creditor of a lesser sum discharges the debt if these elements
are present:
a.
The dispute as to what is owed is genuine and not frivolous
b.
The debtor in good faith offers a partial payment as
payment in full (example: “this payment is payment in full
of disputed invoice #4572 . . . .”)
c.
The partial payment accepted by the creditor (e.g., the
check is cashed or the payment is not returned within a
reasonable period of time)
Example: You are involved in a dispute with a painter who you contracted with to paint your house. The price was $3,000. You paid $1,500 down at the time you entered into the contract. The painter has completed the work. You genuinely feel that the work has not been done in a workmanlike manner and you want a price adjustment. The painter genuinely feels that he has met his obligations to you. You send the painter an additional $750 because you believe this to be a fair settlement. You write on the check, or in an accompanying memo or letter, that the $750 payment is “payment in full” (or you use equivalent language). If the painter does not return the check to you within a reasonable period of time, an accord and satisfaction has been entered into (i.e., your offer of settlement for $750 was effectively accepted by the painter) and the painter cannot recover the remaining $750. 5.
Payment-by-check exceptions under UCC Article 3 (Section 3-
311)
– adopted by many but not all states
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Section 6-5
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