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Chapter 2 The Law of Contract

Consideration

对价

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Facing a Legal Problem

Antonio says to his son, “When you finish painting the garage, I will pay you $100.” Antonio’s son paints the garage. The act of painting the garage is the consideration that creates the contractual obligation of Antonio to pay his son $100. If, instead, Antonio had said to his son, “In consideration of the fact that you are not as wealthy as your brothers, I will pay you $500,” would this promise have been enforceable?

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Definition of Consideration

Something of legal value given in exchange for a promise

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Requirements of Consideration

(1) something of legal value must be given (e.g., either a legal benefit must be received or legal detriment suffered)

(2) there must be a bargained-for exchange.

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Gift Promise

An unenforceable promise because it lacks consideration

To change a gift promise into an

enforceable contract, the promisee must offer to do sth. in exchange---consideration---for the promise.

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Case 2-2Alden v. Presley

Elvis Presley, a singer of great renown and a man of substantial wealth, became engaged to Ginger Alden. He was generous with the Alden family, paying for installing a swimming pool, … and

making other gifts.

When his fiancee’s mother, Jo Laverne Alden, sought to divorce her husband, Presley promised to pay off the remaining mortgage indebtedness of the Alden home, which Mrs. Alden was to receive in the divorce settlement.

On August 16, 1977, Presley died suddenly, leaving the mortgage unpaid. When the legal

representative of Presley’s estate refused to pay the $39,587 mortgage, Mrs. Alden brought an

action to enforce Presley’s promise, the trial court denied recovery. Mrs. Alden appealed.

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Key question:

Was Presley’s promise to pay the mortgage enforceable?

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Under contract law, gift promises are unenforceable because they lack

consideration. The court found that plaintiff Alden had not given any

consideration in exchange for Presley’s promise. The court also

found that the gift promise had not been completed by Presley. Therefore, the unexpected gift promise could not be enforced against Presley’s estate.

COURT’S

REASONING

COURT’S DECISION The supreme court held that

Presley’s promise was a gratuitous 无偿的，免费的 executory

promise that was not supported by consideration. As such, it was

unenforceable against Presley’s estate. The court dismissed the

case and assessed costs against the plaintiff.

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Promises Lacking Consideration(1)

• Illegal consideration---promise to refrain from doing an illegal act.

• Illusory consideration---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.

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Promises Lacking Consideration(2)

• 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 consideration ---promise based on the past performance of the promisee.

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Example 2-8

Bauman-Bache, Inc. begins construction on a

seven-story office building and after three months demands an extra $75,000 on its contract. If the extra $75,000 is not paid, it will stop working. The owner of the land, having no one else to complete construction, agrees to pay the extra $75,000.

If the owner later refuses to pay the extra money, could Bauman-Bache successfully sue to enforce the agreement?

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Example 2-9

Ellen, a nurse, spent many years living with, and looking after, her parents. Shortly after her parents died, her brother told her, in the presence of several other people, that he was so grateful to her for the care she gave their parents that he would take care of her for the rest of her life. When her brother fails to keep his promise, Ellen brings an action to have the promise enforced.

Will the court hold that a contract exists?

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Settlement of Claims (1)

An accord 和解 --- an executory contract to perform some act in order to satisfy an existing contractual duty. The duty is not yet discharged.

A satisfaction 清偿 --- is the performance of the accord. An accord and its satisfaction (performance) discharge the original contractual obligation.

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Settlement of Claims (2)

Release 放弃文书 ---An agreement in which, for consideration, a party is barred from further recovery beyond the terms specified in the release.

Covenant not to sue 保 证 不 起 诉 ---An agreement not to sue on a present, valid claim.

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Example 2-10

Suppose that you are involved in an automobile accident caused by Paul’s negligence. Paul offers to give you $1,000 if you will release him from further liability resulting from the accident. You believe that this amount will cover your damages, so you agree to the release. Later you discover that it will cost $1,200 to repair you car. Can you collect the balance from Paul ?

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Legal Sufficiency of Consideration

To be legally sufficient, consideration for a promise must be leally beneficial to the promisor or detrimental to the promisee.

Detriment means that in return for the promise, the promisee has

(1) done, or promised to do, something that he or she had no prior legal duty to do or

(2) refrained from, or promised to refrain from, doing something that he or she had no prior legal duty to refrain from doing .

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Example 2-11

In the 1850s when the age of majority was considerably younger than twenty-one, William Story, Sr., promised his fifteen-year-old nephew, William Story II, that if the nephew refrained from alcohol, tobacco, and gambling until the age of twenty-one, he would pay him $5,000. The nephew agreed. Following his twenty-first birthday, the nephew wrote to his uncle that he had performed his part of the bargain and was thus entitled to the $5,000. They agreed that the uncle would invest the money for the nephew. Four years later, when the uncle died, the executor of the uncle’s estate refused to pay the nephew, contending that the contract was invalid. The executor argued that there was no consideration, and therefore no contract, because the uncle had received nothing, and the nephew had actually benefited by fulfilling the uncle’s wishes.

Did the uncle and nephew have an enforceable contract?

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Adequacy of Consideration

Adequacy of consideration: The court usually do not inquire into adequacy of consideration. Thus, nominal consideration (e.g. $ 1 ) is usu. sufficient.

Inadequacy of consideration: In some cases, a party is permitted to escape from an contract if the consideration received is so inadequate as to “shock the conscience of the court”.

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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.

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Promissory Estoppel(continued)

1. The promisor made a promise.2. The promisor should have reasonably

expected to induce the promisee to rely on the promise.

3.The promisee actually relied on the promise and engaged in an action or forbearance of a right of a definite and a substantial nature.

4. injustice would be caused if the promise were not enforced.