Chapter 12 Contracts: Consideration BUSINESS LAW: Text & Cases — Legal, Ethical, International, and E-Commerce Environment 11th Ed. Chapter 12 Contracts: Consideration Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§1: Elements of Consideration Consideration must have “legally sufficient value” and a “bargain-for-exchange.” “Legal Value” can mean: Promise, Performance, or Forbearance. CASE 12.1 Hamer v. Sidway (1891). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Bargain-for-Exchange Second element of consideration: Must provide basis for the bargain. Something of legal value (a promise, or a performance) must be exchanged between the parties. The promise must be either: Legally detrimental to the promisee, or Legally beneficial to the promisor. CASE 12.2 Barfield v. Commerce Bank, N.A. (2007). Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§2: Adequacy of Consideration A Court will not question the fairness of the bargain if legally sufficient. Law does not protect a person from entering into an unwise contract. In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§3: Agreements That Lack Consideration Preexisting Duty. A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. Exceptions: Unforeseen Difficulties. Recession and New Contract. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Consideration Issues Past Consideration is no consideration because the bargained-for exchange element is missing. CASE 12.3 Blackmon v. Iverson (2003). Illusory Promises. Promisor has not definitely promised to do anything (no promise at all). Option-to-Cancel Clauses. Requirements and Output Contracts. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§4: Settlement of Claims Debtor offers to pay a lesser amount than the creditor purports to be owed. Accord and Satisfaction. Liquidated Debt. Amount has been ascertained, fixed, agreed on, settled, or exactly determined. Unliquidated Debt. Parties give up legal right to contest the amount in dispute, and thus consideration is given. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Settlement of Claims Release bars any further recovery beyond the terms stated in the release. Covenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

§5: Exceptions to the Consideration Requirement Promissory Estoppel: Must be clear and definite promise. Promisee must justifiably rely on the promise. Reliance is substantial. Justice will be served by enforcing promise. Promises to pay Debts Barred by Statute of Limitations. Charitable Subscriptions. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

Exceptions to the Consideration Requirement Promises to Pay Debt Barred by a Statute of Limitations. Detrimental Reliance and Promissory Estoppel: Must be definite promise. Promisee must justifiably rely on the promise. Reliance is substantial. Justice will be served by enforcing promise. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.