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Chapter 12
Consideration
See Separate Lecture Outline System
INTRODUCTION
Your students should now understand that not every promise is binding. Continuing the discussion of when a promise
is binding, this chapter focuses on consideration.
The first concept students should understand about consideration is that it means something of legal value. They may
find it difficult to understand that a promise has legal value as consideration, distinct from the economic value (if any) of the
thing promised. The thing of legal value may be goods, money, performance, or a return promise. If it is performance, that
performance may be an act (other than a promise), a forbearance (refraining from doing something that one has a legal right to
do), or the creation, modification, or destruction of a legal relation.
The second concept that should be explained is that consideration must be bargained for. Performance or a promise is
bargained for if the promisor seeks it in exchange for his or her promise and the promisee gives it in exchange for that promise.
It is not enough that the promise induces the conduct of the promisee or that the conduct of the promisee induces the making
of the promise. They must induce each other, or the bargained-for exchange element does not exist.
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ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 12.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Ask the Instructor
Agreement and Consideration—What is Consideration?—Consideration is defined as “legal value, bargained for
and given in exchange for an act or promise.” Legal value, in turn, consists of doing or promising to do something one
has no legal obligation to do, or not doing or promising not to do something that one has a legal right to do.
ADDITIONAL BACKGROUND—
Restatement (Second) of Contracts, Section 71
Consideration is something exchanged for something else. Often, the concept of consideration is broken into the
two elements that are discussed above and in the text. These elements are also discussed in the Restatement (Second)
of Contracts, Section 71. The following is the text of that section with selected Comments and Illustrations.
§ 71. Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
and the value received as consideration. But the social functions of bargains include the provision of opportunity for
free individual action and exercise of judgment and the fixing of values by private action, either generally or for
purposes of the particular transaction. Those functions would be impaired by judicial review of the values so fixed.
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the
promisee or by some other person.
Comment:
* * * *
b. “Bargained for.” In the typical bargain, the consideration and the promise bear a reciprocal relation of motive or
inducement: the consideration induces the making of the promise and the promise induces the furnishing of the
consideration. Here, as in the matter of mutual assent, the law is concerned with the external manifestation rather
than the undisclosed mental state: it is enough that one party manifests an intention to induce the other’s response
and to be induced by it and that the other responds in accordance with the inducement. * * * But it is not enough
that the promise induces the conduct of the promisee or that the conduct of the promisee induces the making of the
promise; both elements must be present or there is no bargain. Moreover, a mere pretense of bargain does not suf-
fice, as where there is a false recital of consideration or where the purported consideration is merely nominal. In such
cases there is no consideration and the promise is enforced, if at all, as a promise binding without consideration * * * .
Illustrations:
l. A offers to buy a book owned by B and to pay B $10 in exchange therefore. B accepts the offer and delivers the book
to A. The transfer and delivery of the book constitute a performance and are consideration for A’s promise. See
Uniform Commercial Code §§ 2-106, 2-301. This is so even though A at the time he makes the offer secretly intends to
pay B $10 whether or not he gets the book, or even though B at the time he accepts secretly intends not to collect the
$10.
2. A receives a gift from B of a book worth $10. Subsequently A promises to pay B the value of the book. There is no
for it. As to the enforcement of such promises, see § 86.
3. A promises to make a gift of $10 to B. In reliance on the promise B buys a book from C and promises to pay C $10 for
4. A desires to make a binding promise to give $1000 to his son B. Being advised that a gratuitous promise is not
binding, A writes out and signs a false recital that B has sold him a car for $1000 and a promise to pay that amount.
There is no consideration for A’s promise.
5. A desires to make a binding promise to give $1000 to his son B. Being advised that a gratuitous promise is not
binding, A offers to buy from B for $1000 a book worth less than $1. B accepts the offer knowing that the purchase of
the book is a mere pretense. There is no consideration for A’s promise to pay $1000.
c. Mixture of bargain and gift. In most commercial bargains there is a rough equivalence between the value promised
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open for 24 hours. B makes the requested offer and forbears to revoke it for 24 hours, but C does not accept. The
creation of a power of acceptance in C is consideration for A’s promise.
Ordinarily, therefore, courts do not inquire into the adequacy of consideration, particularly where one or both of the
values exchanged are difficult to measure. * * * Even where both parties know that a transaction is in part a bargain
and in part a gift, the element of bargain may nevertheless furnish consideration for the entire transaction.
may be no bargain so long as the agreement is entirely executory, but performance may furnish consideration or the
agreement may become fully or partly enforceable by virtue of the reliance of one party or the unjust enrichment of
the other. * * *
Illustrations:
6. A offers to buy a book owned by B and to pay B $10 in exchange therefore. B’s transfer and delivery of the book are
consideration for A’s promise even though both parties know that such books regularly sell for $5 and that part of A’s
motive in making the offer is to make a gift to B. * * *
7. A owns land worth $10,000 which is subject to a mortgage to secure a debt of $6,000. A promises to make a gift of
the land to his son B and to pay off the mortgage, and later gives B a deed subject to the mortgage. B’s acceptance of
the deed is not consideration for A’s promise to pay the mortgage debt.
8. A and B agree that A will advance $1000 to B as a gratuitous loan. B’s promise to accept the loan is not
consideration for A’s promise to make it. But the loan when made is consideration for B’s promise to repay.
d. Types of consideration. Consideration may consist of a performance or of a return promise. Consideration by way of
Consideration by way of return promise requires a promise as defined in § 2 [of the Restatement]. Consideration may
consist partly of promise and partly of other acts or forbearances, and the consideration invited may be a performance
or a return promise in the alternative. Though a promise is itself an act, it is treated separately from other acts. * * *
Illustrations:
10. A says to B, the owner of a garage, “I will pay you $100 if you will make my car run properly.” The production of
this result is consideration for A’s promise.
11. A has B’s horse in his possession. B writes to A, “If you will promise me $100 for the horse, he is yours.” A
promptly replies making the requested promise. The property in the horse at once passes to A. The change in
ownership is consideration for A’s promise.
12. A promises to pay B $1,000 if B will make an offer to C to sell C certain land for $25,000 and will leave the offer
13. A mails a written order to B, offering to buy specified machinery on specified terms. The order provides “Ship at
once.” B’s prompt shipment or promise to ship is consideration for A’s promise to pay the price. See * * * Uniform
Commercial Code § 2-206(1) (b).
CHAPTER OUTLINE
I. Elements of Consideration
Consideration is the value given in return for a promise. As noted above, there are two elements—
CASE SYNOPSIS—
Case 12.1: Hamer v. Sidway
William Story, Sr., was the uncle of William Story II. Story, Sr., promised to pay Story II $5,000 if he would refrain
from drinking, using tobacco, swearing, and playing cards or billiards for money until he was twenty-one. Story II
agreed, performed his part of the bargain, and consented for the money to remain with Story, Sr., accruing interest.
After Story, Sr.’s death twelve years later, Sidway, the executor of the estate, did not want to pay the $5,000 (with
interest) to Hamer, a third party to whom Story II had transferred his rights in the money. Sidway claimed that there
had been no valid consideration for the promise. From a judgment for Sidway, Hamer appealed.
up smoking, drinking, swearing, and gambling until he was twenty-one. Sidway argued that Story II had suffered no
detriment, because what he had done was in his own best interest. “In general a waiver of any legal right at the
request of another party is a sufficient consideration for a promise. . . . [I]t is of no moment whether such
…………………………………………………………..……………………………………………………………………
Notes and Questions
Few contract law books fail to mention this classic case. It is an excellent introduction to the question of what
promises should be binding.
Contract law held a special fundamental place in American law in the nineteenth century. The basic principle of
contract law was that what people voluntarily agreed on, the courts would enforce. Legal philosophers believed that
through free voluntary agreements, individuals made their own “law.” The Constitution guaranteed that states could
not enact laws that would impair the obligations of contracts. After 1868, the right to enter freely into contracts was
302 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
considered to be protected under the new Fourteenth Amendment. Contract law became one of the basic building
blocks of legal study. Contract doctrines came to be applied to most economic transactions. At the same time, how-
ever, contract law as it was applied in cases was not a vital part of the economy because businesses tended to settle
their own contract disputes themselves. Thus, while the general philosophy of freedom of contract might have
influenced the resolution of many disputes, what came into the courts were special situations and unique cases.
Many promises relating to personal (as opposed to business) relationships are not legally enforceable. Is Story’s
promise of a financial reward for five years of good behavior on the part of his nephew an appropriate subject for
contract law? Not all important promises are commercial promises. Thus it is well settled that the scope of contract
law is not limited to “commercial” promises.
What if William Story agrees to pay his dangerously obese nephew $5,000 if he loses fifty pounds within one year?
Hamer v. Sidway? Probably—because the nephew has the legal right to eat and refrain from exercise as much as he
wants.
ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 12.1
If the nephew had not had a legal right to engage in the behavior in which he agreed not to indulge, would the
result in this case have been different? Explain. Most likely, yes, because if Story had not had a legal right to engage in
the behavior in which he agreed not to partake that behavior would have been illegal and hence not “something of
legal value,” which is a requirement of the legal sufficiency of consideration.
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases considering the sufficiency of consideration include the following.
• Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir. 2002) (a mandatory arbitration provision in an employee
handbook was supported by “adequate” consideration: “[w]hen both parties have agreed to be bound by arbitration,
adequate consideration exists and the arbitration agreement should be enforced”).
• Mona Electric Group, Inc. v. Truland Service Corp., 193 F.Supp.2d 874 (E.D.Va. 2002) (“the mere continuation of
employment does not furnish consideration for a non-competition agreement” not to solicit an employer’s customers).
occurs when an employer agrees to consider hiring or agrees to hire an applicant for employment, was sufficient
consideration to uphold an arbitration agreement contained in the employment application).
• Oscar v. Simeonidis, 352 N.J.Super. 476, 800 A.2d 271 (A.D. 2002) (a modification to a commercial lease, which
changed the method for determining rent during the lease renewal period, was supported by consideration: “the
parties adopted a formula that would permit them and any other interested person to determine the rental upon
renewal of the lease by reference to objective, readily ascertainable criteria. This is itself valuable consideration
CHAPTER 12: CONSIDERATION 303
sufficient to sustain the modification because the mutual agreement to abide by such a formula has the capacity to
remove an element of uncertainty from the parties’ future legal relationship”).
• England v. O’Flynn, __ Ohio App.3d __, __ N.E.2d __ (2 Dist. 2002) (a physician’s breach of an obligation in an
agreement with another physician caused a failure of consideration, which excused the non-breaching physician from
reimbursing the breaching physician for the amount of a promissory note).
B. BARGAINED–FOR EXCHANGE
II. Adequacy of Consideration
Adequacy of consideration refers to the fairness of the bargain.
A. COURTS TYPICALLY WILL NOT CONSIDER ADEQUACY
Ordinarily, courts will not evaluate the adequacy of consideration, regardless of the comparative economic value
of the things exchange. Parties are generally free to bargain as they will.
B. INADEQUATE CONSIDERATION MAY CAUSE A COURT TO EXAMINE WHETHER VOLUNTARY CONSENT WAS LACKING
A court will evaluate the adequacy of consideration if it is so grossly inadequate as to “shock the conscience” of
the court—if, in terms of its amount or worth, it indicates fraud, duress, or undue influence. The contract may be
declared unconscionable.
III. Agreements That Lack Consideration
A. PREEXISTING DUTY
Under most circumstances, a promise to do what one already has a legal duty to do is not legally sufficient
consideration. There are exceptions—
1. Unforeseen Difficulties
When a party to a contract runs into unforeseen and substantial difficulties that could not have been
2. Rescission and New Contract
Two parties can agree to rescind their contract, at least to the extent that it is executory. When rescission
and the making of the new contract take place at the same time, some courts may find a the preexisting
Case 12.2: Access Organics, Inc. v. Hernandez
Hernandez sold organic produce for Access Organics, Inc., in Montana. During his employment, he signed a non–
compete agreement. Later, Hernandez and another employee began to sell organic produce on their own in
competition with Access. Access filed a suit in a Montana state court against Hernandez to enforce the non-compete
agreement. The court ruled in the plaintiff’s favor. Hernandez appealed.
The Montana Supreme Court reversed, holding that the non-compete agreement lacked consideration. Because
Hernandez signed it when he was working for Access, his employment did not constitute consideration—past
consideration is not sufficient to support a promise—and he received no new benefit from it.
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Notes and Questions
If Access had promoted Hernandez to sales manager on his signing the non-compete agreement, would the court
have been more likely to enforce it? Yes, according to the court’s reasoning. In the circumstance stated in the question,
and that the promotion thus served as consideration.
Unless employees have access to trade secrets or other proprietary information, is it ethical to require them to
sign non-compete agreements as a condition of employment? Explain your answer. In some states, this case would
have gone the other way, as many courts view continued employment as consideration, but in Montana and other
states that take the opposite view, there would likely need to be a payment, such as $100, for there to be
consideration. To give $1, which some contracts state, is generally, alone not seen by the courts as real consideration,
so it would be better to offer a larger amount.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 12.2
How could Access Organics have obtained a non-compete agreement from Hernandez that would have been
enforced? Some employers use such forms all the time, even when there is no purpose in so doing because some
employees pose no competitive threat. The non-compete clause can, however, serve as a barrier to other employers
who are afraid of hiring a person and then possibly facing litigation. Even if the suit by the former employer is not
successful, other employers may not want to risk such expense so they simply do not hire such persons. Thus
widespread usage not related to trade secrets, customer lists, or other valuable information that deserves protection,
is a business tactic hard to justify, but used frequently nonetheless.
CHAPTER 12: CONSIDERATION 305
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 12.2
Would an economic recession and global financial crisis excuse a former employee from having to comply with a
that are outside the control of the business would be unfair.
C. ILLUSORY PROMISES
If a contract expresses such uncertainty of performance that the promisor has not actually promised to do
anything, the promise is illusory—without consideration and unenforceable.
1. Option-to-Cancel Clauses
2. Requirements and Output Contracts
Problems of consideration may arise in these circumstances because of the uncertainty of performance.
IV. Settlement of Claims
A. ACCORD AND SATISFACTION
For an accord and satisfaction, the amount of the debt must be in dispute.
1. Liquidated Debts
2. Unliquidated Debts
An unliquidated debt can serve as the basis for an accord and satisfaction because, as consideration, the
parties give up the right to contest the amount
B. RELEASE
A release, is binding if: (1) it is secured and given in good faith; (2) it is in a signed writing (not required in all
states); and (3) consideration is given (not required under the UCC). A release, bars further recovery.
V. Exceptions to the Consideration Requirement
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A. PROMISSORY ESTOPPEL
1861 to agree to a release or a covenant not to sue.
1. Requirements to State a Claim
Reasonable reliance on a promise may form a basis for enforceable contract rights and duties under the
2. Application of Promissory Estoppel
Originally applied to gifts and charitable donations, this doctrine is now applied in other situations, including
business transactions, to prevent unfairness when a promise might otherwise be unenforceable.
CASE SYNOPSIS—
Case 12.3: 1861 Group, LLC v. Wild Oats Markets, Inc.
Wild Oats Markets, Inc., ran a grocery in space leased in a shopping center that was owned by 1861 Group, LLC.
Interested in expanding its operation, Wild Oats promised to negotiate a new lease for more space in good faith.
During the negotiations, 1861 relocated other tenants, reconfigured rental spaces, terminated other leases, and
forgave other tenants’ unpaid rent in efforts to accommodate Wild Oats. When, more than two years later, the parties
had not signed a new lease, 1861 filed a suit in a federal district court against Wild Oats on the basis of promissory
estoppel, seeking damages of at least $1.35 million. The defendant filed a motion to dismiss, contending that the
promise to negotiate a new lease in good faith was not definite enough to support the plaintiff’s theory.
space available and was aware that plaintiff’s actions were in response to defendant’s promise; and (4) plaintiff would
the court found it to be sufficiently definite.
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Notes and Questions
What is the likely next step in this case? The parties are most likely to attempt to arrive at a mutually agreeable
308 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ANSWER TO QUESTIONS AT THE END OF CASE 12.3
1. The defendant argued that the promise to renew the lease was not sufficiently definite to support a claim for
promissory estoppel. How did the court respond to this argument? The court stated in its opinion that the
defendant’s promise that it would enter into a new lease if the plaintiff made the new space available obligated the
defendant to make a good faith effort to reach an agreement on the terms of the lease. The court found that, in these
circumstances, the promise was sufficiently definite to support a claim for promissory estoppel.
2. Suppose that the plaintiff’s costs in accommodating the defendant’s request had been $5,000 instead of
$1,350,000. Would the outcome of this case have been any different? Why or why not? The amount to be recovered
would not have altered the court’s legal reasoning in this case, but very likely there would have been no case to begin
with. Weighing the potential costs of the litigation against the possibility of recovering only $5,000, the plaintiff
probably would have decided not to sue the defendant.
ADDITIONAL BACKGROUND—
In What Circumstances Does Promissory Estoppel Apply?
1. A, knowing that B is going to college, promises B that A will give him $5,000 on completion of his course. B goes to
college, and borrows and spends more than $5,000 for college expenses. When he has nearly completed his course, A
of the course without regard to whether his performance was “bargained for” * * *.
2. A promises B not to foreclose, for a specified time, a mortgage which A holds on B’s land. B thereafter makes
3. A sues B in a municipal court for damages for personal injuries caused by B’s negligence. After the one year statute
of limitations has run, B requests A to discontinue the action and start again in the superior court where the action can
harm to A will result bars B from asserting the statute of limitations as a defense.
4. A has been employed by B for 40 years. B promises to pay A a pension of $200 per month when A retires. A retires
5. A holds a mortgage on B’s land. To enable B to obtain a loan, A promises B in writing to release part of the land from
6. A executes and delivers a promissory note to B, a bank, to give B a false appearance of assets, deceive the banking
authorities, and enable the bank to continue to operate. After several years B fails and is taken over by C, a
7. A and B, husband and wife, are tenants by the entirety of a tract of land. They make an oral promise to B’s niece C to
give her the tract. B, C and C’s husband expend money in building a house on the tract and C and her husband take
possession and live there for several years until B dies. The expenditures by B and by C’s husband are treated like
8. A applies to B, a distributor of radios manufactured by C, for a “dealer franchise” to sell C’s products. Such franchises
are revocable at will. B erroneously informs A that C has accepted the application and will soon award the franchise,
that A can proceed to employ salesmen and solicit orders, and that A will receive an initial delivery of at least 30 radios.
A expends $1,150 in preparing to do business, but does not receive the franchise or any radios. B is liable to A for the
$1,150 but not for the lost profit on 30 radios. * * *
9. The facts being otherwise as stated in Illustration 8, B gives A the erroneous information deliberately and with C’s
approval and requires A to buy the assets of a deceased former dealer and thus discharge C’s “moral obligation” to the
11. A is about to buy a house on a hill. Before buying he obtains a promise from B, who owns adjoining land, that B will
not build on a particular portion of his lot, where a building would obstruct the view from the house. A then buys the
house in reliance on the promise. B’s promise is binding, but will be specifically enforced only so long as A and his
successors do not permanently terminate the use of the view.
12. A promises to make a gift of a tract of land to B, his son-in-law. B takes possession and lives on the land for 17
years, making valuable improvements. A then dispossesses B, and specific performance is denied because the proof of
the terms of the promise is not sufficiently clear and definite. B is entitled to a lien on the land for the value of the
13. A, a bank, lends money to B on the security of a mortgage on B’s new home. The mortgage requires B to insure the
property. At the closing of the transaction A promises to arrange for the required insurance, and in reliance on the
promise B fails to insure. Six months later the property, still uninsured, is destroyed by fire. The promise is binding.
14. A sells an airplane to B, retaining title to secure payment of the price. After the closing A promises to keep the
airplane covered by insurance until B can obtain insurance. B could obtain insurance in three days but makes no effort
to do so, and the airplane is destroyed after six days. A is not subject to liability by virtue of the promise.
310 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
B. PROMISES TO PAY DEBTS BARRED BY A STATUTE OF LIMITATIONS
A debtor who promises to pay a debt barred by a statute of limitations makes an enforceable promise. The
promise can be implied if the debtor acknowledges the debt by making a partial payment.
TEACHING SUGGESTIONS
1. When explaining that a promise may itself be of legal value as consideration, it might be helpful to draw a
continuum with “economic value” at one end and “moral obligation” at the other. Include at appropriate points on the
2. Students should be encouraged to note situations in which the common law alone applies and situations in which
the UCC applies. Also noteworthy are those principles on which the common law and the UCC diverge. To call
attention to the divergences, students might be asked whether they think the courts should use the UCC as a guide
even in non–UCC cases.
Of importance to the subject discussed in this chapter is UCC 2–209 (“An agreement modifying a contract within
this Article needs no consideration to be binding.”) If no consideration is necessary, what is to stop an individual from
setting a low price to get a contract and later insisting on an increase? What of a situation in which a party bargains in
good faith, but a cost later rises and the party insists on an increase in the contract price? Sometimes it might seem
cheaper to breach and wait to be sued than to perform. According to UCC 1–203, “Every contract or duty within this
act imposes an obligation of good faith in its performance or its enforcement.” The section on unconscionability (UCC
2–302) might also apply. Under the common law, some promises to pay additional amounts for the same
consideration are binding when certain conditions occur—unforeseen difficulties, for example—but an increase in price
due to a decrease in supply or an increase in demand is not enough.
Students might also be asked to read UCC 1–207 (“A party who with explicit reservation of rights performs . . . in a
manner demanded or offered by the other party does not thereby prejudice the rights reserved.”). Under that section,
if there is a disputed debt, and a check is sent for a lesser amount than the payee wants to accept, but the check is
marked “Paid in Full,” what should the payee do? If he or she crosses out “Paid in Full” and writes “all rights reserved,”
the check can be cashed without discharging the checkwriter’s obligation under the contract.
3. As noted in the TEACHING SUGGESTIONS in the previous chapter, students may find it helpful, when confronted with
difficult points of law, to reduce the points into short statements. Here is an example of an abbreviated statement of
the requirements for consideration:
• The promise must be made to induce current performance by the promisee (this is the bargained-for
exchange element).
• The promisor must suffer legal detriment, and
CHAPTER 12: CONSIDERATION 311
• The promise must be binding, not illusory.
Cyberlaw Link
Does the requirement of consideration apply to contracts agreed to over the Internet? Are there any reasons why
it should not? Are there any reasons why consideration should be eliminated as a requirement for entering into a
contract (over the Internet or in any other situation)?
DISCUSSION QUESTIONS
1. What is consideration? Consideration is the inducement exchanged to enter a contract. It must be (1) legally sufficient
2. In most circumstances, parties are free to make whatever promises they wish, but only those promises made with
consideration may be enforced as contracts. What is the purpose of this requirement? Legal rules exist not for their own sake
3. The courts generally do not weigh the sufficiency of consideration according to the comparative economic value of
what is exchanged. Should they? Why or why not? The legal sufficiency of a consideration for a promise does not depend on the
4. Can a preexisting duty satisfy the requirements of consideration? Under most circumstances, a promise to do what
5. What are some of the exceptions to the preexisting duty rule? Rescission and new contract. Rescission is the
unmaking of a contract, in which the parties are returned to the positions they held before the contract was made. Preexisting
duties are discharged by rescission. Parties can agree to rescind a contract, at least to the extent that it is executory, and they
can agree to make a new contract. In that situation, there are three separate agreements—the initial one, the rescission, and
6. What is an illusory promise? If a contract calls for such uncertain performance that the promisor has not really
7. Discuss agreements to settle claims or discharge debts. Accord and satisfaction. An accord occurs when a debtor
offers to pay and a creditor agrees to accept a lesser sum than the creditor claims was originally owed; satisfaction occurs when
the accord is executed. The amount of the debt must be unliquidated (unsettled). If so, accepting a check on which is written
and (3) consideration is given (not required under the UCC).
8. Discuss the doctrine of detrimental reliance, or promissory estoppel. The doctrine of detrimental reliance, or
promissory estoppel, (not available in some jurisdictions) involves a promise given by one party that induces another party to
rely on it to his or her detriment. When the promisor can reasonably have expected the reliance, the promise will be enforced if
injustice cannot otherwise be avoided. The promisee’s reliance must have been justified, and generally the act must have been
of a substantial nature. The promisor is estopped from asserting the lack of consideration as a defense—that’s how the
promise is enforced.
ACTIVITY AND RESEARCH ASSIGNMENT
In discussing the use of accord and satisfaction as a means of settling a disputed debt, ask students who work with
EXPLANATION OF A SELECTED FOOTNOTE IN THE TEXT
Footnote 5: Jamil Blackmon became friends with Allen Iverson in 1987 when Iverson was a promising high school
athlete. Blackmon provided financial and other support to Iverson and his family. One evening in 1994, Blackmon suggested that
Iverson use “The Answer” as a nickname. Later that night, Iverson said that he would give Blackmon 25 percent of any proceeds
from the merchandising of products that used “The Answer” as a logo or slogan. In 1996, just before Iverson was drafted by the
CHAPTER 12: CONSIDERATION 313
“The Answer” as a marketing tool occurred before the formation of a promise to pay for the use of the idea. “[T]he suggestion
that the defendant use ‘The Answer’ as a nickname and for product merchandising [occurred] one evening in 1994. This was
Could the facts of the Blackmon case support an action based on unjust enrichment? No. The court explained that
there is no “allegation that the plaintiff expected payment if the defendant used the nickname ‘The Answer.’ The plaintiff’s facts
show that he wanted and intended the defendant to use the nickname in summer league basketball tournaments, starting in
1994, without expecting any payment for that use. The plaintiff cannot make out a claim that the defendant was unjustly en–
riched by the use of a nickname that the plaintiff freely offered.” Besides, “the use of the nickname on products came years
after the defendant began using the nickname. . . . Any benefit to the defendant from the marketing of products with ‘The
Answer’ on them comes from his fame as a basketball player and the investment in marketing the products by Reebok.”
Suppose that only five minutes had elapsed between Blackmon’s suggestion that Iverson use “The Answer” as a
marketing slogan and Iverson’s promise to give Blackmon a percentage of the proceeds. Would the court’s ruling in this case
have been any different? Why or why not? The court might have been more willing to rule in Blackmon’s favor under this set of
facts. In this situation, too, whatever occurred between the times of the suggestion and the promise might have influenced the
court’s decision. For example, did the parties separate and meet later or did they remain together, talking about the nickname
and its potential?
What might Blackmon have done to secure payment for Iverson’s use of “The Answer” as a nickname before that use
became valuable? The court pointed out that “[t]he plaintiff’s facts show that he wanted and intended the defendant to use the
314 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
1. When is consideration legally sufficient? Consideration is the inducement exchanged to enter a contract.
2. What are the circumstances in which a court will question whether consideration is adequate? Adequacy of
consideration refers to the fairness of the bargain. Ordinarily, courts will not evaluate the adequacy of consideration, unless it is
so grossly inadequate as to “shock the conscience” of the court, because under the doctrine of freedom of contract parties are
normally free to bargain as they wish. In general, a court of law will not question the adequacy of consideration if it is legally
REVIEWING—
CONSIDERATION
John operates a motorcycle repair shop from his home but finds that his business is limited by the small size of his
garage. Driving by a neighbor’s property, he notices a for-sale sign on a large, metal-sided garage. John contacts the
neighbor and offers to buy the building, hoping to dismantle it and move it to his own property. The neighbor accepts
John’s payment and makes a generous offer in return: if John will help him dismantle the garage, which will take a
he originally promised. Ask your students to answer the following questions, using the information presented in the
1. Are the basic elements of consideration present in the neighbor’s promise to help John reassemble the garage?
Why or why not? Yes, there was an offer that was accepted with consideration. The parties agreed to the terms of the
deal, which included cash for the building and the labor to take the building down and put it back together.
2. Suppose that the neighbor starts to help John but then realizes that, because of the layout of John‘s property, it
will take much more work to put the building back together than it did to take it down. Under which principle discussed
3. What if John’s neighbor made his promise to help reassemble the garage at the time he and John were moving it
to John property, stating “since you helped me take it down, I will help you put it back up.” Would John be able to
enforce this promise? Why or why not? No, John cannot enforce the promise because it is a gift being offered.. At this
4. Under what doctrine discussed in the chapter might John seek to recover the profits he lost when he declined to
do repair work for one week? Assuming the neighbor knew about the income John was losing by counting on the deal
as discussed, John might recover under the doctrine of promissory estoppel, which is when one has reasonably relied
on the promise of another..
DEBATE THIS:
Courts should not be able to decide on the adequacy of consideration. A deal is a deal. Courts should not accept
to rule on the adequacy of consideration because in so doing, they create a moral hazard situation for anyone who,
after the fact, doesn’t think she or he “got a good deal.” In other words, if those who enter into agreements know
Sometimes people are tricked into entering into agreements for which they receive grossly unfair consideration.