BUSINESS

LAW

Chapter 11
Consideration and
Promissory
Estoppel

Learning Objectives
Define consideration and describe the
requirements of consideration.
Define gift promise and identify whether
gift promises are enforceable.
Describe contracts that lack consideration,
such as those involving illegal
consideration, an illusory promise, a
preexisting duty, or past consideration.

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Learning Objectives (cont.)

Define accord and satisfaction of a
disputed claim.
Define and apply the equitable doctrine of
promissory estoppel.

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Consideration
Something of legal value given in
exchange for a promise
Necessary for the existence of a contract
Elements
Something of legal value must be given
There must be a bargained-for exchange

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Consideration (cont.)
Legal value
A contract is considered supported by legal
value if:
Promisee suffers a legal detriment
Promisor receives a legal benefit

Bargained-for exchange
Process of bargaining or inducement that
leads to an enforceable contract
Naturally present in most business
contracts
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Gift Promise
Gratuitous promises
Unenforceable due to lack of consideration
Promise freely given and not induced by
promise of some benefit

Completed gift promises are not revocable

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Case 11.1: Gifts and Gift Promises

Case
Cooper v. Smith
800 N.E.2d 372, Web 2003 Ohio App. Lexis
5446 (2003)
Court of Appeals of Ohio

Issue
Can Cooper recover the gifts or the value of
the gifts he gave to Julie and Janet Smith?

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Promises that Lack Consideration

Illegal consideration
A promise to refrain from doing an illegal
act

Illusory promise
A contract that both parties enter, but one
or both of the parties can choose not to
perform their contractual obligations
Contract lacks consideration

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Promises that Lack Consideration

(cont.)
Preexisting duty
A promise to do something the party is
already under an obligation to do
Arises when one party to an existing
contract seeks to change the terms of the
contract during the course of its
performance

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Promises that Lack Consideration

(cont.)
Past consideration
A prior act or performance that does not
support a new contract
Problems of past consideration arises when
a party to a contract promises to pay
additional compensation for work done in
the past

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Case 11.2: Lack of Consideration

Case
Noohi v. Toll Brothers, Inc.
708 F.3d 599, 2013 U.S. App. Lexis 4188
(2013)
United States Court of Appeals for the
Fourth Circuit

Issue
Was there consideration for the arbitration
agreement?
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Special Business Contracts

Output contract: Contract in which seller
agrees to sell all of its production to a
single buyer
Purposes
Assuring the seller of a purchaser for all its
output
Assuring the buyer of a source of supply for
the goods it needs

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Special Business Contracts (cont.)

Requirements contract: Contract in which a
buyer agrees to purchase all of its
requirements for an item from one seller
Purposes
Assuring the buyer of a uniform source of
supply
Providing the seller with reduced selling costs
Best-efforts contract: A contract which
contains a clause that requires one or both of
the parties to use their best efforts to achieve
the objective of the contract
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Settlement of Claims
Attempt by a party to reach compromise
with another party when he or she did not
receive what he or she was due
When both parties agree on a
compromise, settlement of claims has
been reached

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Settlement of Claims (cont.)

Accord: Agreement whereby the parties
agree to accept something different in
satisfaction of the original contract
Satisfaction: Performance of an accord
If the accord is not satisfied, the other
party can sue to enforce either the accord
or the original contract

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Equity: 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
Also known as detrimental reliance

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Equity: Promissory Estoppel (cont.)

Elements
The promisor made a promise
The promisor should have reasonably

expected that the promisee would rely on

the promise
The promisee actually relied on the promise
and engaged in an action or forbearance of
a right of a definite and substantial nature
Injustice would be caused if the promise
were not enforced
2016 by Pearson Education, Inc. All rights reserved

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 2016 by Pearson Education, Inc. All rights reserved

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