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MGMT 212
Contract Law: Consideration (ch 12)
17
Management
Undergraduate 2
06/16/2009

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Term
Legally sufficient consideration consists of (3 things)
Definition
1.) A promise to do something that one has no prior legal duty to do. 2.) The performance of an action that one is not otherwise obligated to undertake. 3.) The refraining from an action that one has a legal right to undertake (forebearance).
Term
Hamer v. Sidway
Definition
Uncle promised to pay nephew $5k for his forebearance of alcohol and stuff. Nephew fully performed and uncle left it in bank account for him (to accrue interest). Uncle died and his estate's executor refused to pay nephew, saying there was no consideration. Court disagreed. Forebearance is sufficient consideration.
Term
Adequacy of consideration
Definition
Because of the doctrine of freedom to contract, the courts generally don't care if you get a good deal unless fraud/duress/undue influence, incompetency or unconscionable transaction.
Term
Pre-existing duty rule
Definition
Doing something that one already has a legal duty to do is not legally sufficient consideration for another person's promise. Also, if it's illegal to do something, refraining from that illegal act is not sufficient consideration. // Also, if party is already bound by a contract to perform a certain duty, that duty cannot serve as consideration for a second contract (contractor extorting $ from customer to finish building).
Term
2 times the pre-existing duty rule doesn't apply
Definition
1.) Unforeseen difficulties: Additional consideration or compensation is enforceable if unknown, unanticipated, unforeseen difficulties arise causing the burden of performance to increase greatly (neither party could have anticipated this). 2.) Rescission and new contract: if a contract is completely executory b/c neither party has performed, the parties may mutuall agree to rescind the contract. Thereafter, the parties are free to enter into a new contract.
Term
Past consideration
Definition
A promise to perform an act that is already performed cannot be consideration for a current contract.
Term
Uncertain performance (two types)
Definition
1.) Illusory promise. 2.) Requirements and Outputs contracts.
Term
Illusory promise
Definition
Looks like a promise, but isn't really. A promise that solely depends upon the discretion, whim, or wish of the promisor. An unconditional "option to cancel" clause. If the right to cancel is absolute and unconditional, the contract is illusory. If the right to cancel is conditioned upon the happening of some event (passage of 30 days), the contract is enforceable.
Term
Requirements and Outputs contracts
Definition
Requirements: buyer buys all that they require (whatever they need, but quantity is unknown). Outputs: Buyer buys all the seller produces. These contracts are used in dealing with uncertainty as to future market conditions and are not treated as illusory contracts.
Term
Settlement of Claims
Definition
A promise to pay or actual payment of part of a mature, liquidated, undisputed debt is not consideration to pay the remaining balance.
Term
Accord and satisfaction
Definition
An accord provides that the debtor promises to give something (other than what was originally agreed upon), in exchange for the creditor's acceptance of the debtor's performance in full satisfaction of the original debt. Satisfaction occurs when the accord is executed. // A debtor and creditor may settle an outstanding obligation by entering into an accord and satisfaction if the debt is UNLIQUIDATED and the obligation to pay or the amount of the debt is disputed.
Term
unliquidated debt
Definition
the amount of the debt is not ascertained, fixed, agreed-on, settled or reasonable persons may differ over the amount owed.
Term
liquidated debt
Definition
the amount of the debt is ascertained, fixed, agreed-on, and settled and is an exact sum of money or a sum that is capable of being made definite by computation
Term
Release (and 3 rules for a binding release)
Definition
a relinquishment of a right or discharge of an obligation or claim that one person has against another person. Bars any further recovery beyond the terms of the release. // Binding if: 1.) the release was obtained and given in good faith. 2.) in some states, signed in writing. 3.) Consideration is given for the release.
Term
Covenant not to sue
Definition
an agreement to substitute a contractual obligation for some other type of legal action. Must be supported by consideration. Does not always bar further recovery (if a party breaches). Example: A causes accident with B. B says he won't sue if A give $500 for dents on B's car. If A pays and B tries to sue later, A is breaching the Covenant not to sue.
Term
Detrimental Reliance/Promissory Estoppel. 4 elements P must prove
Definition
1.) Clear and definite promise. 2.) The promisee must justifiably rely upon promise. 3.) Promisee must reasonably rely upon promise in a definite and substantial manner. 4. Justice would be better served by enforcement of the promise.
Term
Charitable Subscriptions
Definition
Often enforced using promissory estoppel theory. Based upon traditonal contract law, promises to make gifts to nonprofit organizations are not supported by legally sufficient consideration. TODAY, such charitable subscriptions are enforced based upon promissory estoppel and public policy theories.
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