Essentials Of Business Law Chapter 8 Consideration McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Essentials of Business LawChapter 8-2 The Nature Of Consideration Promises exchanged by the parties to a contract:  To give up something of value they have a legal right to keep  To do something they are not otherwise legally required to do  Forbearance To refraining from an action Promisor  Party who makes a promise Promisee  Party to whom a promise is made

Essentials of Business LawChapter 8-3 Characteristics Of Valid Consideration Legality of purpose  Cannot be a promise to perform an illegal act  Cannot be a promise to avoid performing an act that is legally required Adequacy of consideration The possibility of performance  Cannot be based on a promise that is impossible to fulfill  Is enforceable even though it may be difficult to perform or more costly than projected

Essentials of Business LawChapter 8-4 Kinds Of Consideration Promise for a promise  A promise of money by one party for a promise of an act by another Most common form of consideration  A promise of an act by one party for a promise of an act by another Exchange of money is not a requirement

Essentials of Business LawChapter 8-5 Kinds Of Consideration Promise of forbearance  Promise of inaction from another party Example: agreements not to compete Pledges or subscriptions  Promise to donate money to a charity Example: pledge made to a hospital

Essentials of Business LawChapter 8-6 Uniform Commercial Code Some circumstances eliminates the requirement for consideration:  A merchant’s written firm offer that provides that the contract is irrevocable  A written discharge of a claim for an alleged breach of contract  Modifications of existing contracts

Essentials of Business LawChapter 8-7 General Release Written statement that gives up claim against another Forbearance  Valid consideration if the parties so intend

Essentials of Business LawChapter 8-8 Agreements That Lack Consideration Barren promise  Something already required to do either by law or by contract  No additional sacrifice Example: a promise to pay an existing debt  Preexisting duty Obligation to perform acts already required to do

Essentials of Business LawChapter 8-9 Agreements That Lack Consideration Gratuitous promise  Promise without requiring some benefit in return  One-sided promise  Generally not enforceable  Lacks consideration  Promise is not binding  Example: a promise to give a gift  When a promised gift is presented or delivered the transfer of ownership is complete Consideration is not required

Essentials of Business LawChapter 8-10 Agreements That Lack Consideration Moral consideration  Obligation to do because of love, friendship, honor, sympathy, conscience  Not legally binding  Sometimes courts justify the enforcement Certain contracts are socially beneficial

Essentials of Business LawChapter 8-11 Agreements That Lack Consideration Past consideration  Promise to repay someone for a benefit after it has been received  Generally not valid consideration  Considered a gratuitous promise