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LOP Class 14: Consideration
Legal Value
22
Law
Graduate
10/28/2016

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Term
For an agreement to have consideration, that which each party gives in the exchange must be of what?
Definition
"Legal value."
Term
Why is the "legal value" requirement for consideration often called the benefit-detriment test?
Definition
Because it is often said that for there to be consideration each party must either receive a benefit or suffer a detriment from the transaction (the so-called benefit-detriment test).
Term
Any promise, act, or forbearance has "legal value" except for what two situations?
Definition
(1) Promise to perform or performance of a preexisting legal duty; and (2) a promise not to assert an invalid legal claim.
Term
When is a promise to perform, or the performance of, a preexisting legal duty still consideration under the modern rule?
Definition
When, at the time the promise is made, the duty is doubtful or the subject of an honest dispute.
Term
When is a promise to perform, or the performance of, a preexisting legal duty still consideration under the traditional rule?
Definition
When, at the time the promise is made, the duty is doubtful and the subject of an honest dispute.
Term
What does it mean for a legal duty or a claim to be "doubtful"?
Definition
A duty or claim is "doubtful" if, at the time of contract formation, it is uncertain whether it is a legal duty or whether it is valid as a result of either the facts or the law (an objective standard).
Term
What does it mean for a legal duty or claim to be the subject of an honest dispute?
Definition
A duty or claim is "subject to an honest dispute" if, at the time of contract formation, the party with the legal duty or the invalid legal claim actually believes the duty might not exist or the claim might be valid (a subjective standard).
Term
For something to have "legal value," must there be an actual benefit or an actual detriment?
Definition
No, just a "legal" benefit or a "legal" detriment (that is the lesson of Hamer v. Sidway).
Term
The rule that provides that a preexisting duty is not consideration is called what?
Definition
The preexisting-duty rule or the legal-duty rule.
Term
What is the reason for the preexisting-duty rule?
Definition
The suspicion that a promise that is given in exchange for a return promise to perform, or the performance or forbearance of, a legal duty was obtained by an express or implied threat to withhold performance of the legal duty (the "hold-up game").
Term
Is the preexisting-duty rule limited to situations in which there is coercion by the promisee (the "hold-up game")?
Definition
No; motive or apparent motive is irrelevant.
Term
True or false: Under the preexisting-duty rule, the source of the duty must be a contract.
Definition
False. The source of the preexisting duty may be tort law, a contract, a statute, or anything else.
Term
Does a promise to perform, or the forbearance of, a legal duty have legal value if the duty is owed to a third party?
Definition
The majority rule is that it does have legal value. The minority rule is that it does not have legal value.
Term
Most cases involving the preexisting-duty rule involve what situation?
Definition
A promise to modify a contract.
Term
Is a promise to modify a contract automatically binding?
Definition
No.
Term
What is typically necessary to make a contract modification binding?
Definition
New or independent consideration for the modification.
Term
The rule that new or independent consideration is typically required to make a contract modification binding is called what?
Definition
The independent-consideration requirement.
Term
What is the Rule of Foakes v. Beer?
Definition
A creditor's promise to a debtor to forgive the balance of a debt or an agreement for immediate discharge is unenforceable unless there is something extra to make the promise legally binding, usually consideration or reliance along with the other elements of promissory estoppel.
Term
The Rule of Foakes v. Beer is a specific example of what general rules?
Definition
The independent-consideration requirement and the preexisting-duty rule.
Term
What is a "composition"?
Definition
An agreement between a debtor and two or more creditors for the adjustment or discharge of an obligation for some lesser amount; an agreement among the debtor and two or more creditors that the debtor will pay the creditors less than their full claims in full satisfaction of their claims.
Term
Do compositions ordinarily have consideration despite the preexisting-duty rule?
Definition
Yes, because the debtor usually promises to not pay each creditor more than a specified amount, something the debtor is not under a legal duty to do, or the agreement includes promises by each creditor to forgo a portion of their claim in exchange for the other creditors' promises.
Term
Does the Rule of Foakes v. Beer apply even if the agreement is executed in the sense that the debtor handed over the money and the creditored waived a claim for the remaining balance?
Definition
Yes. The waiver or release is treated like a promise and is therefore not effective unless there is consideration or a consideration substitute. The transaction is not considered an executed "gift."
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