Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 15 Contracts: Consideration Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Consideration Defined Consideration is what each party gives up to the other in the making of the agreement; it is the “price” of the contract for each side. –That price may be doing an act, refraining from an act, or merely promising to do or to refrain. –A promise to do what one is already obligated to do is usually not valid consideration. –Because consideration is the price given to obtain the promise, past benefits already conferred on the promisor usually cannot be consideration.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Consideration Defined Consideration is defined as a detriment to one party while also being a benefit to the other. A promise is not binding if there is no consideration for the promise. –In a bilateral contract, the promise of each party must be supported by consideration. If either promise is not supported, it is not a contract.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Consideration Defined Although consideration is required to make a promise binding, the unsupported promise is not illegal. The parties are free to perform their agreement, but the courts will not help either of them because there is no contract.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 A gift does not have consideration, so a promise to make a gift is not enforceable. A completed gift, however, cannot be rescinded for lack of consideration. Promise of a gift of Ford Torino by Tom Irvin to his sister Becky. Tom IrvinBecky Irvin benefitdetriment No consideration Promise of Ford Torino benefit detriment Gifts

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Adequacy of Consideration When the promisor obtains the consideration specified for the promise, the law is not ordinarily concerned with the value or adequacy of that consideration. Exceptions are sometimes made in the case of fraud or unconscionability and under consumer protection statutes.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Special Situations Forbearance: refraining to do an act that a person has a right to do. Illusory Promises: no binding obligation. Pre-existing Legal Obligations: Promising to do what has already been agreed to is not consideration. Past Consideration. Moral Obligations.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Exceptions to Consideration Charitable Subscriptions. –Pledges to Churches. Uniform Commercial Code. –Abolishes consideration. Promissory Estoppel/Detrimental Reliance.