1. Mutual Consideration

2. What is Consideration?

3.  Main purpose to distinguish between social promises and more serious transaction where one thing is exchanged for something else.  Gift-transfer or ownership without receiving anything in return  Promise of gift (generally) not enforceable  After donor (person giving) transfers possession to donee (receiver) ownership changes

4.  Three requirements for consideration 1. Each party must give an act, forbearance (promise not to be something), or promise 2. Each party must trade 3. What is traded must have legal value (worth something)

5. Trading  Promisor-person promising action or forbearance  Promisee-person to whom promise is made  Consideration must be mutual ◦ Can be given by conferring a benefit or by incurring a detriment

6.  Legal Value-a change in the party’s legal position as a result of the contract ◦ Most common is the exchange of two benefits ◦ Can be the exchange of a benefit for a detriment (by promising forbearance).  Forbearance is refraining from doing something you have a right to do ◦ Can be the exchange of two detriments

7.  Adequacy of consideration-need not be of equal value but a big difference may be evidence of mutual mistake, duress, undue influence, or fraud.  If grossly inadequate and shocks the conscience of the court, contract will be declared unconscionable

8.  Nominal Consideration- “one dollar and other good and valuable consideration”. Used when cannot state exact amount or do not want to publicize it.

9. Legal Value and Bargained-For Exchange

10.  Legal value-change in the legal position of the party as a result of the contract

11.  Illusory Promise-clause in the contract which allows you to escape the legal obligation (…if you have time) ◦ To be consideration, a promise must be binding  Termination clause-if one party can terminate for any reason, it is illusory. If only allowed after a change in defined circumstances or passage of time…not illusory

12.  Output and requirement contracts ◦ Output contract-agreement to purchase all of a producer’s production ◦ Requirement contract-agreement to supply all of the needs of a buyer (all that they require). Stopping production does not terminate contract

13.  Implied duty or fair dealing- if clauses seem to be illusory, many states find implied duty of fair dealings. (can’t be arbitrary…must be a fair dealing)

14.  Existing duty-something must be already do based on law or prior contract is not consideration  Existing public duty-based on law  Existing private duty-based on consideration from prior contract. Must provide new, additional consideration. (Employment contract)

15.  Settlement of liquidated debts  Liquidated debt-parties agree that debt exists and amount of debt ◦ Creditor-person to whom debt is owed ◦ Debtor-person who owes money  Debtor can settle claim by paying less if additional consideration is given. Must be mutual agreement ◦ Paying smaller amount earlier ◦ Something else of value

16.  Settlement of unliquidated debts ◦ Unliquidated debt-Genuine dispute between debtor and creditor regarding amount owed  Settlement may include a partial payment offered in full settlement (accepted by creditor) ◦ Accord and satisfaction- consideration is found in mutual forbearance from litigating amount owed Check marked “in full settlement of all claims outstanding”

17.  Release-signed agreement not to sue  Most torts are unliquidated because amount of damage is uncertain  Composition of creditors-group of creditors that agree to accept less than full payment in exchange for debtor agreeing not to file bankruptcy.

18.  Mutual gifts-not consideration unless they arise from a bargain for exchange.  Past performance-an act that has already been performed is not consideration

19. When is consideration not required?

20.  A promise of a gift (no consideration) may be enforced under promissory estoppel (estopped means barred) if: ◦ Promisor should reasonably foresee that promisee will rely on promise ◦ Promisee acts in reliance of promise ◦ Promisee would suffer a substantial loss if promise is not enforced ◦ Enforcing promise avoids injustice

21.  Promises to charitable organizations ◦ Pledges are enforceable if charity states a specific use for funds and acts in reliance of pledge  Statute of limitations-time limit for bringing a lawsuit ◦ Torts-many states it is 3 years ◦ Some states will waive the statute of limitations if promise is in writing ◦ Illinois statute of limitations Illinois statute of limitations

22.  Uniform Commercial Code ◦ Option contracts-requires additional consideration to keep an offer open ◦ Firm Offers-offer must remain open up to 3 months ◦ Modifications-usually require additional consideration  UCC allows a good faith agreement that modifies a contract for the sale of goods to be enforced without additional consideration