Unit 5

Consideration

25-1
 Consideration 对价
 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
 The law does not ask whether the value is fair or equal
 Buyer purchases a house for $1.00. That is consideration.
 Peppercorn rule 胡椒子
 Consideration
 Value
 A contract is considered supported by value if:
 The promisee suffers a detriment
 The promisor receives a benefit
 Most commonly involves
 Payment of money or goods
 performance of an act or service
 forbearance of a legal right
 Consideration
 Bargained-for exchange
 Process of bargaining or inducement that leads to
an enforceable contract
 Naturally present in most commercial transactions
 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
 Examples:
 Bill promises to give Bob $1000 on May 1, 2021
 Bill gave Bob $1000 on May 1, 2020
 Alden v. Presley (TN 1982)
 Facts:
 Elvis Presley became engaged to Ginger Alden. He was generous with
the Alden family.
 When his fiancee's mother sought to divorce her husband, Elvis promis
ed to pay off the remaining mortgage indebtedness on the Alden home.
 Subsequently, Elvis died suddenly, leaving the mortgage unpaid.
 When the legal representative of Elvis' estate refused to pay the mortga
ge, Mrs. Alden brought an action to enforce his promise.
 Issue: Is Presley's promise to pay the mortgage enforceable?
 PRC Gift Contracts

 Definition (Article 185): A gift contract is a contract whereby

the donor conveys his property to the donee without reward
and the donee manifests his acceptance of the gift.
 Prior to the transfer of rights to the gift property, the donor
may revoke the gift, see Article 186.
 In the case of a gift contract the nature of which serves public
interests or fulfills a moral obligation, such as disaster relief,
poverty relief, etc., or a gift contract which has been notarized,
if the donor fails to deliver the gift property, the donee may
require delivery, see Article 188.
 PRC Gift Contracts
 Article 192
 Where the donee is in any of the following circumstances, the donor may
revoke the gift:
 (i) seriously harming the donor or any immediate family member
thereof;
 (ii) failing to perform support obligations owed to the donor;
 (iii) failing to perform the obligations under the gift contract.
 The donor shall exercise his revocation right within one year after he
became, or should have become, aware of the cause for revocation.
 Article 194 requires the donee to return the gift.
 Promises that Lack Consideration
 Illegal consideration
 Illusory promise
 Preexisting duty
 Past consideration
 Promises that Lack Consideration
 Illegal consideration
 A promise to do or not do 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
 Ocean Dunes v. Colangelo (FL 1985)
 Facts:
 The Colangelos entered into a purchase agreement to buy a condominium ( 公
寓 ) unit and paid a deposit to Ocean Dunes.
 The purchase agreement provided that (a) if the builder defaulted, the buyer
may terminate the contract and recover the deposit; and (b) if the buyer default
ed, the builder could retain the buyer's deposit or sue the buyer for damages an
d any other legal or equitable remedy.
 The builder defaulted, the purchasers sued to force the builder to build and
convey the condominium unit (“specific performance”).
 Issue: Is there consideration supporting the purchasers' claim?
 Ct: Contract consideration cannot be illusory. This contract permits the builder to
refuse to perform for any reason and the buyer has no remedy other than to get its
own money back. But if the buyer defaults, the builder can keep the deposit and
sue the buyer for other damages. This only benefits the builder and is not true
consideration. Therefore, the buyer can sue for specific performance.
 Promises that Lack Consideration
 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
 Example: Transport Company contracted with Merchant to
ship 10 “OO” widgets 2000 km distance to Buyer for
RMB70,000. After 1000 km, Transport Company
demanded an additional RMB20,000. Merchant agreed but
then refused to pay Transport. What result?
 Promises that Lack Consideration
 Past consideration
 A prior act or performance that does not support a
new contract
 Problems of past consideration often arise when a
party to a contract promises to pay additional
compensation for work done in the past
 Special Business Contracts
 Output contract ( 输出合同 ): a contract in which
the seller agrees to sell all of its production to a single
buyer
 Purposes
 Assures the seller of a purchaser for all its output
 Assures the buyer of a source of supply for the
goods it needs
 Special Business Contracts
 Requirements contract ( 需求合同 ): a contract in
which a buyer agrees to purchase all of its
requirements for an item from one seller
 Purposes
 Assures the buyer of a uniform source of supply
 Provides the seller with reduced selling costs
 Special Business Contracts
 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
 Not always effective and hard to enforce.
 Settlement of Claims
 Law promotes voluntary settlement of disputed
claims
 Saves judicial resources
 Serves the interests of the parties entering into the
settlement
 Settlement of Claims
 Accord: an agreement whereby the parties agree to
accept something different in satisfaction of the
original contract
 Satisfaction: the performance of an accord
 If the accord is not satisfied, the other party can sue to
enforce either the accord or the original contract
 Equity: Promissory Estoppel
 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
 Equity: Promissory Estoppel
 Elements to be proven
 The promisor made a promise
 The promisor should have reasonably expected that
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 result if the promise were not enforced –
the purpose is to avoid injustice
 Promissory estoppel means that the defendant is “stopped”
from asserting there is no contract.
 Case Study: Hoffman v. Red Owl Stores
 Facts:
 Red Owl Stores, Inc. owned and operated grocery supermarkets and granted franchi
ses 专营权 to franchisees to also operate such stores.
 The representative of Red Owl had numerous conversations with Hoffman. The repr
esentative promised him that his available assets would be sufficient to open a franc
hise.
 Hoffman sold his grocery store and bakery business. However, Red Owl asked Hoff
man to invest more money.
 Hoffman could not raise the additional money and the parties never entered into a
final agreement.
 Issue ： Should the equitable doctrine of promissory estoppel apply in this case?
 Ct: Red Owl could reasonably expect that its promises would cause Hoffman to sell
his business in order to purchase a Red Owl franchise store. Because Hoffman took
action in reliance on the promises of Red Owl, Red Owl is “estopped” from
asserting no contract, and therefore is liable for breach of contract.
 PRC Contract Law
 Article 42, CL
 Where in the course of concluding a contract, a party engaged
in any of the following conducts, thereby causing loss to the
other party, it shall be liable for damages:
 (i) negotiating in bad faith under the pretext of concluding
a contract;
 (ii) intentionally concealing a material fact relating to the
conclusion of the contract or supplying false information;
 (iii) any other conduct which violates the principle of good
faith.
 Does promissory estoppel apply?
 Case 1:
 Seller told Buyer that she could return the widget machine if it did not
meet Buyer’s needs. The machine failed to meet Buyer’s needs. Is
Seller estopped from refusing return of the machine?
 Case 2:
 Sally owns certain land in Garden Forest Village. Sally told Nigel that
he would be able to construct an apartment building on that land.
Nigel purchased the land but then found out that the regulations of
Garden Forest Village prohibited the apartment building.
 Can Nigel obtain damages against Sally?
 What if Nigel is an experienced builder?
 Does promissory estoppel apply?
 Case 3:
 Homeowner told Interior Designer that she wanted to remodel her living
room, two bedrooms, and the kitchen. They discussed details, but did not
sign a contract. The Interior Designer purchased materials, but the day
before work was to begin, the Homeowner told the designer she changed
her mind.
 Can the designer sue for damages? If so, what is the amount of
damages?
 Case 4:
 Before Rupert started college, his uncle promised to give him a job if he
graduated with a 3.8 or higher GPA in finance. Rupert worked very hard
in college and did not engage in many social activities in order to have
more time to study. He graduated from college in finance with a 3.85
GPA, but his uncle refused to hire him.
 Can Rupert sue for damages? If so, what is the amount of damages?