Contracts: Defenses: [C] Lack of Consideration

  • MBE Alert!Lack of Consideration
    • Consideration – bargained-for legal detriment/benefit. Can take the form of a promise, performance, or forbearance.
      • Promise for promise exchange is norm.
    • “Past consideration” is not consideration at all.
      • Can’t bargain for something that’s already been done.
    • The adequacy of consideration is irrelevant.
    • Pre-Existing Duty Rule (PEDR) and Contract Modifications
      • CL/A2Common Law: Must have consideration to modify a contract (PEDR)
        • Ashlee Simpson contracts to sing at Owner’s club for $25,000. On arrival, she demands $30,000 instead. Owner agrees to pay her $30,000. After Ashlee performs, Owner refuses to pay her the extra $5,000. Is there consideration for Owner’s promise to pay Ashlee the extra $5,000? No. Ashley only did what she was already obligated to do. There’s no consideration for owner’s promise to pay the extra money.
        • If Owner’s promise to pay the extra $5,000 was in writing…it would not matter on MBE.
        • If Ashlee agrees to sign autographs for an hour in exchange for the extra $5,000, then there is consideration. Ashley is promising to do something else in exchange for the money.
        • PEDR cannot be raised as a defense by a 3rd party—it is only available as a defense to a party to the original contract.
      • Article 2: don’t need consideration to modify a contract (no PEDR under Article 2), but you must show good faith.
    • Part payment is consideration for promise to forgive the rest of a disputed debt.
      • You owe Visa $2,500. The debt is due and undisputed. You and Visa orally agree that if you pay $2,000 immediately, Visa will forgive the other $500 of debt. You pay Visa $2,000, but Visa sues you for the other $500. Was your payment of $2,000 consideration for Visa’s promise? No, There’s no new benefit to Visa, and no detriment to you.
      • If your agreement with Visa was in writing, it wouldn’t matter on the MBE.
      • If the debt was in dispute, then there’s consideration—the law favors consideration of disputed claims. The release of $500 is enforceable.
    • A written promise to pay a debt, collection of which is barred by statute of limitations, is enforceable even without consideration.
      • You owe Visa $2,500. Collection of the debt is barred by the statute of limitations. Nonetheless, you write Visa: “I know I owe you money. I will pay you $1,500. “Your promise to pay Visa is legally enforceable on this fact pattern only. The signed writing is a substitute for consideration on MBE.
    • If there is no consideration, promissory estoppel can serve as a substitute [promise + foreseeable, detrimental reliance on the promise]
      • Promissory estoppel is a fall back position. It will always be a second choice answer. If there’s consideration, promissory estoppel does not apply.
      • T lease expires next month. L promises T to renew the lease for another year. In reliance on that promise, T paints the apartment. L refuses to renew the lease. T’s painting the apartment was not consideration for L’s promise to renew it. L was not asking for anything in return. Must have a bargain.
      • Can T enforce L’s promise to renew on any other ground? Yes. On ground of promissory estoppel. T’s foreseeable detrimental reliance on L’s promise makes the promise enforceable.
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