Consideration Chapter 8. Consideration – what a person demands and generally must receive in order to make a contract legally binding.

ConsiderationConsiderationChapter 8Chapter 8

ConsiderationConsideration – what a – what a person demands and person demands and generally must receive generally must receive in order to make a in order to make a contract legally contract legally bindingbinding

3 Requirements of Consideration3 Requirements of Consideration

1.1.Each party must give an Each party must give an act, forbearance, or act, forbearance, or promise to the other partypromise to the other party

ForbearanceForbearance – refraining – refraining from doing something you from doing something you have the right to dohave the right to do

3 Requirements of Consideration3 Requirements of Consideration

2.2. Each party must trade Each party must trade what they contribute to the what they contribute to the transactiontransaction

3.3. What each party trades What each party trades

must have legal valuemust have legal value

** Consideration ** Consideration distinguishes a distinguishes a

contractual promise contractual promise

from a promise to from a promise to

give a gift **give a gift **

GiftGift – transfer of ownership without – transfer of ownership without receiving anything in returnreceiving anything in return

generally not legally enforceablegenerally not legally enforceable

Donor – givesDonor – gives

Donee – receivesDonee – receives

After gift exchange occurs, After gift exchange occurs, transaction becomes bindingtransaction becomes binding

Nominal ConsiderationNominal Consideration – – token amount identified in a token amount identified in a written contract when parties written contract when parties either cannot or do not wish either cannot or do not wish to state the amount to state the amount specificallyspecifically

Ex.Ex. $1 and other valuable $1 and other valuable consideration in exchange for a carconsideration in exchange for a car

QuestionableQuestionableConsiderationConsideration

IIllusory Promisesllusory PromisesA contract clause that A contract clause that

allows you to escape legal allows you to escape legal obligationobligation

Ex.Ex. I promise to paint your I promise to paint your house…house…ifif I have time. I have time.

Termination ClausesTermination Clauses

Gives power to withdraw from Gives power to withdraw from a contract if certain a contract if certain circumstances change, or after circumstances change, or after the passage of a certain length the passage of a certain length of timeof time Exceptions must be definedExceptions must be defined

Output and Requirement ContractsOutput and Requirement Contracts

Output ContractOutput Contract – A buyer’s – A buyer’s agreement to purchase agreement to purchase allall of a of a particular producer’s productionparticular producer’s production

Requirements ContractRequirements Contract – A – A seller’s agreement to supply seller’s agreement to supply allall of the needs of a buyerof the needs of a buyer

Existing DutyExisting DutyA promise to do something that A promise to do something that

you are already obligated to do you are already obligated to do by law or prior contract does by law or prior contract does notnot serve as consideration serve as consideration

This is called…This is called…

Existing Public/Private DutyExisting Public/Private Duty

Liquidated DebtLiquidated Debt

Where an agreement is made Where an agreement is made that a debt and the true that a debt and the true amount of that debt exists and amount of that debt exists and must be repaidmust be repaid

All debt must be recoveredAll debt must be recovered

Unliquidated DebtsUnliquidated DebtsWhere an agreement cannot Where an agreement cannot

be reached as to the be reached as to the amount of debt owedamount of debt owed

Accord and SatisfactionAccord and Satisfaction

- a compromise must be- a compromise must be mademade

Once an agreement is Once an agreement is reached concerning reached concerning unliquidated debt, this unliquidated debt, this is called a is called a releaserelease

Composition of CreditorsComposition of Creditors

When a group of creditors When a group of creditors cooperatively agree to cooperatively agree to accept less than what they accept less than what they are entitled to in exchange are entitled to in exchange for the debtor not filing for the debtor not filing bankruptcybankruptcy

Past PerformancePast Performance

An act that has already been An act that has already been performed performed cannotcannot serve as serve as consideration for an consideration for an immediate or future contractimmediate or future contractThis is known as This is known as past past

considerationconsideration

When is When is Consideration Consideration not Required?not Required?

1.1.Promises to Charitable Promises to Charitable OrganizationsOrganizations

2.2.Promises covered by the Promises covered by the UCCUCC Firm OffersFirm Offers ModificationsModifications

3.3. Promises barred from Collection Promises barred from Collection by Statuteby Statute

Statute of LimitationsStatute of LimitationsA specific time limit for bringing a A specific time limit for bringing a

lawsuitlawsuit

Debts Discharged in BankruptcyDebts Discharged in BankruptcySome debt lost in bankruptcy can Some debt lost in bankruptcy can

still be reinstated by a promise of still be reinstated by a promise of the debtorthe debtor

4.4. Promissory Estoppel Promissory Estoppel

Prevents a promisor from Prevents a promisor from stating in court that they stating in court that they did not receive did not receive consideration for their consideration for their promisespromises

Requirements for P.E.Requirements for P.E.

1.1.Must forsee reliability Must forsee reliability on the promiseon the promise

2.2.Promisee does act in Promisee does act in reliance of the promisereliance of the promise

3. Promisee would suffer 3. Promisee would suffer economic losseconomic loss

4. Injustice can be avoided 4. Injustice can be avoided only by enforcement of only by enforcement of the promisethe promise