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LAW 1101 (13)
Chapter 12

LAW 1101 Chapter 12: Chapter 12

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LAW 1101
Paula Walter

Chapter 12: Consideration, Capacity, and Legality Courts generally want contracts to be enforceable and much of the law is devoted to aiding the enforceability of contracts Consideration • A party that made a promise does not necessarily mean that the promise is enforceable • Under the common law, primary basis for the enforcement of promises is consideration • Consideration is defined as the value given in return for a promise o Something of legally sufficient value must be given in exchange for the promise o There must be a bargained-for exchange A. Legally Sufficient Value 1. To be “something of legally sufficient value” it may consist of the following a. A promise to do something that one has no prior legal duty to do b. The performance of an action that one is otherwise not obligated to undertake c. The refraining from an action that one has a legal right to undertake (called a forbearance) 2. Consideration in bilateral contracts normally consists of a promise in return for a promise 3. Unilateral contracts involve a promise in return for a performance B. Bargained-for Exchange 1. The second element of consideration; must provide the basis for the bargain struck between the contracting parties 2. The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise or performance C. Adequacy of Consideration • Adequacy of consideration involves “how much” consideration is given 1. The General Rule a. A court will not question the adequacy of consideration based solely on the comparative value of the things exchanged b. Under the doctrine of freedom of contract, courts leave it up to the parties to decide what something is worth and parties are usually free to bargain as they wish c. THEREFORE, the determination of whether consideration exists does NOT depend on the values of the things exchanged 2. When Voluntary Consent May be Lacking a. Occasionally an exception may be made b. A large disparity in the amount or value of the consideration exchanged may raise a red flag for a court to look more closely c. Shockingly inadequate consideration can indicate that fraud, duress, or undue influence was involved D. Agreement That Lack Consideration • Sometimes, one or both parties of a contract, may think that they have exchanged consideration when in fact they have not 1. Preexisting Duty • Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration a. Unforeseen Difficulties i. The preexisting duty rule is intended to prevent extortion and the so- called holdup game ii. Nonetheless, if, during performance of a contract, extraordinary difficulties arise that were totally unforeseen at the time the contract was formed, a court may allow an exception to the rule b. Rescission and New Contract
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