Chapter 8 Consideration

For a graduation present, a wealthy aunt promised to give Maureen two round-trip tickets for a cruise for her and a friend. The promised trip was to be along the “Mexican Riviera” from Long Beach, California to Acapulco, Mexico. At the graduation exercises, however, her aunt gave her a kiss instead and said, “The stock market is down. Sorry darling.”

Consideration Questions Is the aunt is legally obligated to provide the tickets? Why do you think the aunt should/should not have to pay? Consideration Questions

What a person demands and generally must receive in order to maker his/her promise legally binding Three Requirements to consideration Each party must give an act, forbearance, or promise to the other party Each party must trade what they contribute to the transaction for the other party’s contribution What each party trades must have legal value, that is, it must be worth something in the eyes of the law Consideration

Consideration Types of consideration: Promise, act other than a promise, forbearance, change in legal relation of the parties, money, and other property Promisor – promising act Promisee – promise is made for Consideration must be mutual! Consideration

Means there has been a change in the party’s legal position as a result of the contract Most commonly found in the form of the exchange of two benefits Or it can be an exchange of benefit for a detriment For example, on your 16th birthday, your uncle says “Look, if you refrain from driving until your 21st birthday, I’ll give you $25,000.” Or, exchange of a detriment for a detriment You will forbear buying a dog if neighbor does not put up a fence Legal Value

Adequacy of Consideration What parties give and get as consideration need not be of equal economic value Also during different times you may place higher value on a product or service water after sitting in sun for three hours If consideration received by one of the parties is so grossly inadequate so as to shock the conscience of the court, the contract will be declared unconscionable This person may void the contract Adequacy of Consideration

Consideration is NOT Required Promises to Charitable organizations – courts will enforce provided the charity states a specific use and acts in reliance of this promise Firm Offer – merchant who makes an offer in signed writing to buy or sell goods and promises to leave the offer open is bound for up to three months Modifications – a good-faith agreement that modifies an existing contract for sale of goods needs no new consideration (seller could agree to give an extended warranty without further charge) Consideration is NOT Required

Consideration is NOT Required Statute of Limitations – specifies a time limit for bringing a lawsuit Time from product purchase to injury from defect Debts discharged in bankruptcy Promissory Estoppel – due to injustice occurring, courts take some instances in basic fairness Prevents promisors from stating in court that they did not receive consideration for their promises Consideration is NOT Required

Working in pairs, create a poster illustrating one of the 6 types of consideration: Promise, act other than a promise, forbearance, change in legal relation of the parties, money, and other property Make sure your poster addresses the specific type of consideration assigned to your group Tomorrow you will present your consideration poster to the class Consideration

Glenn contracted to provide the labor for an addition to Reid’s home for $10,000. When Glenn was partially through, he realized that the job was more time-consuming than anticipated. Therefore he refused to continue until Reid promised to pay an additional $2,000. Reid did so. Is Glenn legally entitled to the extra $2,000? No. Glenn is not entitled to the extra money. Glenn already has an existing private duty to provide the labor. p. 157 #18

Glenn contracted to provide the labor for an addition to Reid’s home for $10,000. When Glenn was partially through, he realized that the job was more time-consuming than anticipated. Therefore he refused to continue until Reid promised to pay an additional $2,000. Reid did so. Is Glenn legally entitled to the extra $2,000? p. 157 #18

Jericha promised to lease the Gnosters an unimproved store in Jericha’s newly constructed shopping center. The Gnosters, in reliance on Jericha’s promise, installed the drywall, electrical and plumbing systems, and flooring in the storefront. When Jericha realized the value of the Gnosters’ efforts, she changed her mind about entering into a lease with them. What will the court invoke to compel Jericha to lease the property as promised? The court will invoke the doctrine of promissory estoppel to prevent Jericha from using the claim of lack of consideration to defend against the enforcement of her promise to the Gnosters. p. 157 #19

Jericha promised to lease the Gnosters an unimproved store in Jericha’s newly constructed shopping center. The Gnosters, in reliance on Jericha’s promise, installed the drywall, electrical and plumbing systems, and flooring in the storefront. When Jericha realized the value of the Gnosters’ efforts, she changed her mind about entering into a lease with them. What will the court invoke to compel Jericha to lease the property as promised? p. 157 #19

Mary received a diamond lapel pin from the estate of her maternal grandmother. It was appraised at $7,500. Because it did not fit in with her sports-oriented lifestyle, Mary sold the pin to a jeweler who told her, “The setting is old fashioned, but the diamond is forever the same. I’ll give you $3,500 cash.” Later Mary wondered if she received legally sufficient consideration. Did she? Can she rescind the transaction if she can prove that she received less than the pin was worth? Yes. Mary received legally sufficient consideration. Courts do not look at the adequacy of consideration. Mary could rescind the transaction only if the transaction were unconscionable. p. 157 #20

Mary received a diamond lapel pin from the estate of her maternal grandmother. It was appraised at $7,500. Because it did not fit in with her sports-oriented lifestyle, Mary sold the pin to a jeweler who told her, “The setting is old fashioned, but the diamond is forever the same. I’ll give you $3,500 cash.” Later Mary wondered if she received legally sufficient consideration. Did she? Can she rescind the transaction if she can prove that she received less than the pin was worth? p. 157 #20

When Bob began college at 21, his godmother promised to give him $1,000 at the end of each of the following four years if he remained in school and refrained from smoking and/or chewing tobacco. She also promised a bonus of $1,000 if and when he received his bachelor of science degree. Are the godmother’s promises legally enforceable? What are the ethical implications of her promises? Yes. The godmother’s promises are enforceable. Bob has bargained to make a promise to forbear exercising his legal right to smoke or quit school in exchange for money. p. 157 #21

When Bob began college at 21, his godmother promised to give him $1,000 at the end of each of the following four years if he remained in school and refrained from smoking and/or chewing tobacco. She also promised a bonus of $1,000 if and when he received his bachelor of science degree. Are the godmother’s promises legally enforceable? What are the ethical implications of her promises? p. 157 #21