Contracts - Parole Evidence
Consideration
The general rule of law regarding contracts is that each party must "give up" something in "exchange" for something else. Legal folk speak of this in terms as a, bargained for exchange.
- I give up something in exchange for something else.
- The two things involved in an exchange must be connected to each other.
- The two things involved must be mutually inducing. They must cause you to want to give up something in exchange.
There is no bargain unless you gave something up. You need to have weight on both sides of the equation. If the scale is tipped to one direction and all of the weight is on one side; that's called a gift and courts treat gifts differently. More importantly, tax law treat gifts differently. If consideration seems lacking, odds are someone is attempting to disguise a gift. The same goes for future gifts. If you are only giving something up in the future, that is not sufficient consideration.
ALWAYS TALK ABOUT CONSIDERATION IN TERMS OF A BARGAINED FOR EXCHANGE
Courts use bargained for exchange as the law, but the way they understand the law is based on precedent.
If a performance has value it can be any kind of performance. For example, if you forbear (abstain from doing, as in forbearance only education) something you have the legal right to do then that has value to you.
So what are the rules for promises?
Basically, if you exchange only promises it doesn't work. You have to look at what the promises actually are. What is their substance? What would the actual performance be? If the promise is a performance or something that gives up money then it can be considered consideration.
Remember R.2d §71(4)? Up there? Yeah? Think of it this way:
Illustration for 71(4)
A bank agrees to lend money to a student but the student has no assets and needs a co-signer.
The performance of return promise may be given to promisor or to some other person. The benefit can go to a third party even though there is technically no benefit to you, so long as the benefit goes to somebody.
What about gifts again?
Condition on a gift?
I will give you my Tesla if you drive to Colorado Springs to pick it up. Professor Corrada
Are these mutually inducing? How is your driving to Colorado Springs inducing me to give you a Tesla? My Tesla? You're not really giving anything up by driving to The Springs to pick up a free car, are you? Not really.
Let's flip it.
I propose to you, Tesla owner, that I will drive to Colorado Springs and pick up your Tesla if you, in return for my driving to and from Colorado Springs, give me the Tesla. Clever Student
Give me the Tesla! See. It doesn't work. Driving to get the car is simply a condition on the gift of the Tesla.
Hamer v. Sidway
How many uncle stories must one endure for billiard money?
Wealthy uncle, in an attempt to hold something over his nephew and purchase good behavior, promises nephew the sum of $5000 if he will abstain from alcohol, tobacco, and playing billiards for money until he turned 21. The nephew consents and abstains until his birthday. When the $5000 is requested in accordance to their agreement the uncle harps on the value of a dollar and nephew agrees to keep his money with the uncle. Uncle dies and people want to be paid. Was there sufficient consideration?
Is there weight on both sides of the scales? The nephew was willing to forego many things, thus making the money an inducement to forego. In a sense the uncle is getting something. Their two promises are connected. They induce each other.
Court says contract. Introduces idea of inducement.
Hamer v. Sidway is a unilateral contract The nephew could only accept by a full and complete performance.
Legal Sufficiency
There are some things that the law says are not sufficient consideration.
If any of these things are on one side of the exchange then it is not enforceable:
- Love an affection - legally insufficient.
- Illegal things - you can't complain about a contract for illicit drugs.
- A mere idea - an idea isn't sufficient unless it is novel or you own it.
There a lot of cases that mention the concept of ideas. Ideas are not copyrightable. You cannot copyright the idea for a screenplay. You must write the screenplay for it to be copyrightable. Because you can't copyright ideas the only way to protect them is by contract. You can be contracted, a bargain for exchange, but it has to be a new idea. You can't come up with clever ways of repackaging something that already exists. That's existing is not sufficient.
Mainly love and affection and illegality are not sufficient consideration. They are valuable but the courts have determined that they are not legally sufficient.
Case Law
Batsakis v. Demotsis
Courts don't consider adequacy.
Batsakis sues Demotsis for recovery of $2000 plus 8% interest on contract made in WWII Greece. Essentially payment of $25 now in return for $2000 plus interest when I make it to the US. Court rules in favor of Batsakis and upheld the instrument, declaring it a bargained for exchange.
Rule: Mere inadequacy of consideration will not void a contract.
As long as there is some weight on one side and some weight on the other, that is enough. The court doesn't consider the consideration as far as value, merely that it is there and legally sufficient.
Schnell v. Nell
$.01 consideration is not adequate, which is of course the exception to the previous rule. Normally inadequacy would not factor but this doesn't apply to exchange of coin of fixed value. Any exchange of like kind that can be valued makes adequacy a relevant element. Love and affection are not legally sufficient consideration and are not enforceable. Same as promised gifts.
In situations where the consideration is 1 cent or 1 dollar it is likely that the consideration is disguising a gift. In most cases this 1 cent or 1 dollar is considered a nominal consideration. They are not viewed as adequate consideration.1 cent or 1 dollar consideration is enforceable if it secures the promise of an options contract
A moral consideration will not support a promise, i.e. when you are going to pay for the debt of your loved one because you made a promise, arguably you are violating a moral code by not paying
AS A MATTER OF LAW, moral obligation is not enough to make a contract enforceable. The children agreed not to sue but because there was nothing to give after the mother's death they would not have had a claim. A groundless claim has no value
Wood v. Lucy, Lady, Duff-Gordon
This is situation where it is not a gift disguised as a bargained for exchange, this is more of a bargained for exchange disguised as a gift. What happens if something looks like a commercially viable exchange but if you peel back things and there is no promise on one side. How do you enforce things?
Exclusivity of relationship is important here whats missing that changes what the result of the case might be, for example
It's always about intent and the meeting of the minds, how do we measure intent, we look at objective mesaures to measure intent, usually it is talking about intentn objectively measured
There are a couple of places where the law does deviate and subjective intent is part of the test
mainly focus on the fact that the dude was obligated, we are assuming, with the exclusivity, that he will make some sort of efforts, that is a requirement of consideration, there must be reasonable effort made