Bargained for Exchange
In addition to meeting
the above test, consideration must arise in the context of a bargained
for exchange. This means that the promise must induce the detriment and
the detriment must induce the promise. Stated another
way, the act or forbearance must have been bargained for and given in exchange
for that very promise for legal consideration to be present. Receipt of unrequested benefits creates no legal obligation. If a subsequent promise is made to pay for these benefits the promise is unenforceable. (Mills v. Wyman, 3 Pick 207 (Mass.1825).) Therefore,
promises made in recognition of a benefit previously received fail the
"bargained for exchange" test and are considered to be merely gratuitous
promises. In other words, past consideration is no consideration!
Past Consideration - Modern Trend
A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. (Webb v. McGowin, 27 Ala.App. 82, 168 So. 196 (1935); Cal.Civ.Code §1606.)
Promissory Estoppel - A Substitute for Consideration
Reasonably expected reliance may under some circumstances make binding a promise for which nothing has been given or promised in exchange. (Earhart v. William Low Co. (1979) 25 Cal.3d 503, 600 P.2d 1344.) Where legal consideration
is lacking courts sometimes enforce gratuitous promises under the theory
of "Promissory Estoppel" (Rest.2d
§90)
Three elements must
exist in order to invoke promissory estoppel:
1) Was there a promise
which the promisor reasonably expected to induce action or forbearance?
(foreseeability)
2) Did the promise actually
induce such action or forbearance? (reliance)
3) Can injustice be
avoided only by enforcement of the promise? (injustice)
Rest.2d § 87 does not impose the requirement that the promise giving rise to the cause of action must be so comprehensive so as to meet the requirements of an offer. Promissory estoppel can sustain a cause of action despite the absence of an intent to be bound. Promissory estoppel
is more than an equivalent of or a substitute for consideration. (Hoffman v. Red Owl Stores 26 Wis.2d 683, 133 N.W.2d 267 (1965).)
Illusory Promises
A promise which is conditioned upon the whim of the promisor is not consideration. (See, Rest.2d § 77(1).) Such a promise is called an illusory promise.
The trend of the courts is to avoid construing promises as illusory by, whenever possible, implying conditions of good faith and best efforts in the absence of express language in the contract. An example of this would be found in the case of Wood v. Lucy, Lady Duff-Gordon. In that case, Lady Duff Gordon, argued that she was free to break a contract because the other party's promise to perform was illusory resulting in a lack of mutual obligation. The Court of Appeal of New York implied a condition of good faith and an obligation to use best efforts and held the contract to be binding.
Contract Modification
A modification of a contract is a change in an obligation by a modifying agreement. With the exception of contracts for the sale of goods, (see UCC 2-209) to be effective the modifying agreement must be supported by additional consideration.
Accord and Satisfaction
An accord and satisfaction is the offering of some performance different from that originally called for and the acceptance of the different performance as a full and complete performance. However, California Civil Code section 1526 provides that a payment in full check does not operate as an accord and satisfaction if the creditor strikes out the restrictive words or can prove that she cashed the check without knowledge of the restriction.
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