Something of legally sufficient value may consist of a promise to do something that one has no

3. Possible search terms: Consideration, past consideration, option-to-cancel, accord, satisfaction, release, promissory estoppel 4. Here is the situation: Andrea, the president of Standard Corporation, announces to Standard employees, “ If you work hard, and profits remain high, you’ll get a bonus, if management thinks it’s warranted.” Profits remain high, but no bonus is paid. If the employees sue, would a court enforce the promise?

The fact that a promise has been made does not mean the promise can or will be enforced. Under the common law, a primary basis for the enforcement of promises is consideration. Consideration usually is defined as the value (such as cash) given in return for a promise (in a bilateral contract) or in return for a performance (in a unilateral contract)

Something of legally sufficient value may consist of a promise to do something that one has no prior legal duty to do. The performance of an action that one is otherwise not obligated to undertake, or the refraining from an action that one has a legal right to undertake called a forbearance.

Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained for exchange is missing. Past consideration is no consideration. The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise, performance, or promise of performance. This helps distinguish contracts from gifts.

A court would not enforce the promise. If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory – without consideration and unenforceable. A promise is illusory when it fails to bind the promisor. This is an illusory promise or no promise at all because performance depends solely on the discretion of the president. There is no bargained for consideration. The statement indicates only that management may or may not do something in the future. The president is not obligated now or later.

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ELEMENTS OF CONSIDERATION [4316]

•    Consideration, which must be given in order to make a contract legally binding, is legally sufficient and bargained-for value, given by the promisor in return for the promisee performing or refraining from performing some act which results in a detriment to the promisee and/or a benefit to the promisor. “ A bargained for exchange in which there is a legal determinant to the promisor or legal benefit to the promise.”

•     Legally Sufficient Value may be established by: [4316.08]

(1)   promising to do something that the promisor has no prior legal duty to do (e.g., promising to pay money for the promisor’s goods);

(2)   performing an action that the promisor is not otherwise obligated to undertake; or

(3)   refraining from exercising a legal right which the promisor is otherwise entitled to exercise.

•     In a bargained-for exchange, the consideration given by the promisor must induce the promisee to incur a legal detriment and/or provide a legal benefit to the promisor, either or both of which are sufficient to induce the promisor to make the promise.

INSUFFICIENT CONSIDERATION [4316.07]

•    Pre-Existing Legal Duty: Under most circumstances, a promise to do (or refrain from doing) what one already has a legal duty to do (or refrain from doing) does not constitute legally sufficient consideration.

•     A commonly-recognized exception to the foregoing rule is the so-called “unforeseen difficulties” doctrine, which permits an existing contract to be modified to account for unforeseen difficulties that arise during the course of performance.

•     Past Consideration: Promises made in return for acts or events that have already taken place are unenforceable for lack of sufficient consideration.

•     Illusory Promises: If the terms of a contract call for performance in such uncertain terms that the promisor has not definitely promised to dQ (or refrain from doing) anything, the promise is unenforceable for lack of sufficient consideration.

·        Moral obligation: while you may feel morally obligated, it doesn’t mean there is a legal obligation….

RESCISSION AND NOVATION

•      The unmaking of an existing contract and making of a new contract between the same parties (e.g., to account for unforeseen difficulties) are known, respectively, as rescission and novation.

•     Rescission: Canceling an existing contract, and returning the parties to their pre-contract states (i.e., stopping it before it goes further and going back to where you were before the contract.)

•     Novation: Replacing an existing contract with a new, superseding contract between the same partie (continuing)

ACCORD AND SATISFACTION 4326.06

•      Accord and Satisfaction: An agreement between an obligor (debtor) and obligee (creditor), by which the obligor agrees to pay the obligee some amount owed under the contract (generally less than the amount in dispute) in exchange for a discharge of all obligations owed by the obligor to the obligee.

•     For accord and satisfaction to occur, the amount of the obligor’s debt to the obligee must be in dispute, or unliquidated.

•      Liquidated Debt: A debt whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.

•      Unliquidated Debt: A debt whose amount may be disagreed on by reasonable persons.

RELEASES AND COVENANTS NOT TO SUE 4326.08/.09

•     Release: An agreement whereby one party forfeits its rights to pursue a legal claim against another party.

•     Releases are generally binding if they are:

(1)   given in good faith,

(2)   stated in writing, and

(3)   accompanied by consideration.

•     Covenant Not to Sue: An agreement to substitute a contractual obligation for some other type of legal action based on a valid claim.

PROMISSORY ESTOPPEL

•       Promissory Estoppel: When a promisor makes a clear and definite promise on which the promisee justifiably relies, the promisor is bound by the promise, even if it was insufficient to form the basis of a valid, legally binding contract.  This is equitable relief.

•     For the doctrine of promissory estoppel to be applied, the following elements must be established:

(1)   the promise was clear and definite;

(2)   the promisee justifiably relied on the promise;

(3)   the promisee’s reliance was substantial and of a definite character; and

(4)   enforcing the promise will serve the best interests of justice.

•     Other Promises Enforceable Without Consideration:

Courts may also enforce, despite the lack of consideration,

(1)   promises to pay a debt, otherwise barred by limitations, made after limitations have run, and, in rare cases,

(2)   promises to charitable institutions.