2. Types of Consideration

3. Aim: Define consideration and determine when there is no consideration.
Do Now:
Take out your HW, the answers to the questions and the cases from Tuesday.

4. Consideration
…what a person demands and generally must receive in order to make her or his promise legally binding.
Consideration is a key element for an enforceable contract.

5. Three Requirements of Consideration
Each party must perform an act, forbearance, or promise to the other party.
Each party’s promise, act or forbearance must be in exchange for a return promise, act or forbearance by the other party.
What each party trades must have legal value that is, must be worth something in the eyes of the law.
*Warm, fuzzy feeling doing something good –
NOT CONSIDERATION*

6. Bargain Test Benefit for a Benefit Benefit for a Detriment
Legal Value - There has been a change in a party’s legal position as a result of the contract
Bargain Test
Benefit for a Benefit
Sunoco will fix your car for $250
Benefit for a Detriment
Forbearing of a legal right (promise to refrain from doing what you have a right to do)
Mom asks you not to drive until your 23 and she will give you $5,000
Detriment for a Detriment
John forbears from buying dog if Larry will not build a fence
Who is promisor who is promisee?

7. Contractual Exchanges
Promisor - person promising an action or forbearance
Promisee - the person to whom the promise is made
Consideration must be mutual
The promisor and promisee must mutually agree to the consideration.

8. Adequacy of Consideration
What the parties give and get as consideration need not be of equal value.
Values that different people place on the same property may vary widely.
Economic value is unimportant as long as there is genuine agreement.
A parent can transfer title of land to the child for as little as $1. This transaction will avoid inheritance taxes in the future.
However, if the consideration received by one party is grossly inadequate this could be a sign of misrepresentation, mistake, duress or undue influence.
If so, the contract could be declared unconscionable.

9. Consideration vs. Gift
Gift - transfer of ownership without receiving anything in return
Promise to make a gift – generally not legally enforceable
Donor - person giving the gift
Donee - person receiving the gift
When Donor intentionally transfers the gift to the donee, transaction becomes binding
A gift is not consideration. A promise to give a gift is not enforceable by law.

10. Nominal Consideration
In some written contracts such as Deeds -- one party may state $1 as the consideration.
Party cannot state specific value
Parties do not wish to publicize
Ex. $1 and other valuable consideration in exchange for a car

11. John, a writer, gets a call from his editor and, consequently, has to leave immediately on a research trip to Hudson Bay and Newfoundland in Canada.
As the trip should take a couple of weeks, he leaves a note offering to pay his neighbor, Jordan, $100 to watch his house and feed and walk his dog during the absence.
John then leaves without ever speaking to Jordan. Jordan gets the note and complies.
Is this an enforceable contract? What is the consideration for each party?

12. Homework
For a high school graduation present, your aunt promised to give you 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 your aunt gave you a kiss instead and said, “The stock market is down, Sorry, darling!”
State two reasons why you think you should be able to recover the value of the trip from your aunt.
State two reasons why you think your aunt should not have to pay.

13. Two reasons aunt is legally obligated to provide tickets
You should be able to recover the value of the trip b/c of basic fairness.
You may have passed up other opportunities b/c the trip was already on her schedule, such reliance, if reasonably anticipatable, may legally bind your Aunt to her promise.

14. Two reasons why you think the aunt should not have to pay
Your aunt simply made a promise to make a gift; this was not a binding contract
The trip would have been a luxury for you. Your Aunt would not be harming you by declining to give you a luxury item.

15. Assignments Independent Practice Assignments
Examine the following three case studies and determine the outcome of each case as to the legality of each case:
1. Traveling the 48 After Graduation Case
2. Band Aid Case
3. Finder’s Keeper Case

16.   Hamer v. Sidway
Yes. Judgment reversed. Valuable consideration may consist either in some right, interest, profit, or benefit accruing to one of the parties or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other party. Here, the court found that it is sufficient that P restricted his lawful freedom of action within certain prescribed limits upon the faith of D’s agreement. Furthermore, the court found nothing in the record that would permit a determination that D was not benefited in the legal sense.
Discussion. Under the bargain test for consideration, P’s forbearance was arguably both a benefit to D and a detriment to P. D benefited by having his nephew refrain from certain conduct and P suffered a detriment by denying himself the enjoyment of that conduct.

17. Kirksey v. Kirksey
No. Defendant’s promise was gratuitous, and as such cannot be enforced due to lack of consideration. Although the Justice writing the opinion would consider Plaintiff’s inconvenience valid consideration to enforce Defendant’s promise, the Court finds that the promise is merely gratuitous and lacks consideration. The Court finds Defendant’s promise to be gratuitous and will not enforce it due to lack of consideration. It may be that the court was reluctant to interfere in a family dispute.

18. Homework In your textbook, read pages 149 – 152
Complete the Legal Vocabulary on page 149.

19. Which promise lacks consideration:
Aim: Describe situations in which consideration is present only under limited circumstances.
Do Now:
Take out your HW & place it on my desk
Copy the Aim
Under the Aim answer:
Write TWO examples of agreements you will enter within the next five years.
Describe the agreement and note the consideration involved in both agreements.
Which promise lacks consideration:
“I promise to give you a puppy for your birthday.”
“I promise to speak at your conference for $50.”

20.   Hamer v. Sidway
Yes.
Here, the court found that it is sufficient that P restricted his lawful freedom of action within certain prescribed limits upon the faith of D’s agreement.
Under the bargain test for consideration, P’s forbearance was arguably both a benefit to D and a detriment to P.
D benefited by having his nephew refrain from certain conduct and P suffered a detriment by denying himself the enjoyment of that conduct.

21. Kirksey v. Kirksey
No. Defendant’s promise was gratuitous, and as such cannot be enforced due to lack of consideration.

22. Illusory Promises
To be consideration, a promise must be binding. It must create a duty or impose an obligation.
If a contract contains a clause that allows you to escape the legal obligation, your promise is illusory.
“I promise to paint the house, if I have time.”
You may never have time
This does not change your legal position
An illusory promise is unenforceable because the terms express such uncertainty of performance that it is actually no promise at all.

23. Example
Bob and Sam enter into a contract that requires Sam to appear at Bob’s ice cream stand each day and pay $1.00, for which Bob will give Sam as much ice cream as he wants to.
While this agreement binds Sam to paying $1.00 every day, Bob does not appear to be bound to do anything, as he has committed only to providing ice cream if he feels like it.

24. Illusory Promises
This type of agreement is not enforceable in court, as it does not specifically detail performance required by one party, appearing to bind only the other party to perform or pay. 

25. Termination Clauses (aka convenience clause)
The power to withdraw from a contract if business circumstances change
If the clause gives one party the power to terminate the contract for any reason, the promise to perform is illusory (not enforceable).
The promise is NOT illusory if the termination clause states:
Termination is allowed only after a change in defined circumstances of the contract
The passage of a certain length of time
After a set period after a notice of termination is given (30 days)

26. There are two types of business contracts that are generally enforceable even though there is some uncertainty as to the amount of performance legally required.

27. Illusory Promises
Output contract - contracts in which the seller agrees to sell to the buyer, and the buyer agrees to purchase from the seller, all of something the seller produces.
Ex. steel company may buy all of the output of a nearby coal mining company.
Requirements contract – contracts in which the buyer agrees to purchase from the seller and the seller agrees to sell to the buyer, all of some good the buyer needs or requires.
Ex. carburetor manufacturer may agree to supply all the carburetors needed for the production of a certain make of vehicle.
Termination clauses are good for uncertain economic conditions. Output and requirements contracts will ensure business for companies involved in the agreements.
Two types of business contracts that are generally enforceable even though there is some uncertainty as to the amount of performance legally required

28. Duty of Fair Dealing
Courts recognize these contracts as supported by consideration because they impose a duty of fair dealing on the parties.
No business should be required to go bankrupt by staying in an output or requirements contract that has become unprofitable through no fault of the termination party.
In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract.

29. Assignment Create a scenario for each of the following:
Promise with consideration (enforceable)
Promise that is illusory (unenforceable)
Contract with a termination clause that will make it enforceable
An output OR requirement contract agreement

30. Which promise lacks consideration:
Aim: Describe situations in which consideration is present only under limited circumstances. Recognize when what appears to be binding consideration is not.
Do Now:
Take out your HW (4 scenarios)
Take out your notebook and copy down the Aim.
Which promise lacks consideration:
“I promise to give you a puppy for your birthday.”
“I promise to speak at your conference for $50.”

31. Forms of Consideration that are Legally Binding in Certain Circumstances
Agreement contains a Termination Clause
Cannot allow party to withdraw at anytime for any reason
MUST STATE:
Only after a change in the circumstances
After passage of a certain length of time
After a set period of termination notice

32. *No specific amount stated Still enforceable
Forms of Consideration that are Legally Binding in Certain Circumstances
Output Contract: Buyer agrees to purchase all of a producer’s production
Requirements Contract: Seller agrees to supply all of the needs to a particular buy
*No specific amount stated
Still enforceable

33. Duty of Fair Dealing
Courts recognize these contracts as supported by consideration because they impose a duty of fair dealing on the parties.
No business should be required to go bankrupt by staying in an output or requirements contract that has become unprofitable through no fault of the termination party.
In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract.

34. Existing Duty
A person sometimes promises to do something that he or she is already obligated to do by law or in a prior contract.
These promises are Not Enforceable
You cannot make a promise to do or not to do something that is already required by law.

35. Existing Duty Existing Private Duty
When a duty already exists, a person cannot come back demanding more compensation.
Ex. You have worked at a law firm for 5 years for $40,000. Your boss’s competitor offers you a job for $50,000. You cannot demand this money, you are still bound to the prior contract your signed with your boss.
Existing Public Duty
If the law creates a duty to do (or not do) a certain thing, this duty cannot be the basis of consideration in a contract.
Ex. A police officer apprehends an escaped convict. Cannot collect the reward.
Ex. If you make an agreement not to drink alcohol when you are not of age to drink, there is no binding agreement.
You cannot make a promise to do or not to do something that is already required by law.

36. Settlement of Liquidated Debts
Liquidated debts: The parties agree that the debt exists and on the amount of the debt.
A debtor can settle by paying less than the full amount owed if there is additional consideration.
Must be mutual
Ex. I’ll pay you $500 instead of $600 one month earlier than stated.
Unliquidated debts: Dispute between the parties as to how much is owed.
When an individual owes money and a settlement is reached with creditors, the individual must pay the new agreed upon amount of money.

37. Settlement of Unliquidated Debts
Accord and satisfaction - a payment offered in full settlement by the debtor (accord) and accepted by a creditor settles the claim (satisfaction).
Ex. You say you owe $50 to the creditor, they say you owe $100. You both agree to $75 to settle the debt.
-Binding contract
-Consideration is found because there is mutual forbearance from suing for the amount owed.
Parties that dispute the dollar amount of an agreement can put closure to the issue by agreeing/accepting an amount.

38. Case Study:
Alex owed Keith $5,000 which was due in one year. There was no dispute about the amount. Keith needed the money after two months, so Alex offered to pay $4,000 early in full settlement of the debt.
If Alex pays the $4,000 early, will Keith be able to successfully sue and collect the $1,000 later?

39. Release When a tort occurs the liability is unliquidated – Why?
because the extent of damages is uncertain.
It is called release if a party settles a claim.
Paying money is sufficient consideration for the promise not to sue.
Injuries suffered from a tort can release a person from an agreement.

40. When Credit Gets Out of Personal Control Assignment
Assignments
When Credit Gets Out of Personal Control Assignment
Credit card debt has gotten out of control in America.
Research “Credit Card Debt” on the Internet
Describe the current credit situation in the U.S, binding contracts related to credit card, advantages and disadvantages of credit, bankruptcy, and composition with creditors (exists in bankruptcy cases where creditors are happy to accept a percentage of debt owed by the debtor).
This can be hand written or typed.
Due Friday in class.

41. Aim: Recognize when what appears to be binding consideration is not.
Do Now:
Take out your HW and place it on my desk
Take the “Liquidated Debts” article from my desk and read
Which promise lacks consideration:
“I promise to give you a puppy for your birthday.”
“I promise to speak at your conference for $50.”

42. False Consideration
Mutual Gifts - when something of value is given by one party to another without demanding anything in return, the something of value is not consideration for anything later promised or provided.
“I gave you those flowers last month, now pay for my lunch.” – NOT ENFORCEABLE
Past Performance - an act that has already been performed cannot serve as consideration
“I washed your car last week, you have to clean my house.” – NOT ENFORCEABLE
Gifts are not consideration. Individuals cannot keep bringing up past performances for future commitments.

43. Exceptions to the Requirements of Consideration
Promises to Charitable Organizations
Pledges (promises to pay future amounts)
Party who makes the Pledge/Gift receives nothing in return.
Courts enforce promises (pledges) when the charity states a specific use for the money and acts in reliance on the pledge.
Ex. You make a financial pledge to your church, the court can hold you accountable to the amount if the church has specifically indicated the project the money was going to be used for.
When individuals make financial promises to their churches or pledges for charities and receive nothing in return for their consideration, they are not bound by the agreement. Individuals must realize that the churches and charitable organizations are counting on the pledges for their finances.

44. Exceptions to the Requirements of Consideration
Common law -modification of a contract needs consideration
Modifications
UCC (Uniform Commercial Code) good-faith agreement that modifies an existing contract for the sale of goods needs no new consideration
Ex. After a sale has been made, a seller could agree to give the buyers a valid warranty for no extra charge.
Firm Offers – A merchant that agrees to keep an offer open
Contracts must involve good faith. Both parties must be certain about the agreement. Firm offers are open for a stated period of time or three months.

45. Promises Barred from Collection by Statute
Statute of Limitations - states a time limit for bringing a lawsuit (for breach of contract - three years)
If a person is planning to sue for damages, they must be aware of the statute of limitations to make sure their case is not thrown out due to time elapsed.
Debts Discharged in Bankruptcy
Creditors can no longer contact you after filing for bankruptcy.
If a person files bankruptcy with the intention of paying some of the listed creditors in the future, they must list the debts they plan to pay in the future with the bankruptcy court.
The Statute of Limitations put time limits on bringing a lawsuit for a breach of contract. Once the time has expired, no lawsuit is relevant. Debtors may reaffirm or promise to pay their debts discharged in bankruptcy.

46. Assignments Case Studies: Complete the case study worksheet
Being working on your Chapter 8 Exam Review Sheet

47. Promissory Estoppel
When someone intends a gift but consideration is not present, a promise may be enforced under the doctrine of promissory estoppel.
These conditions must be met:
The promisor should reasonably foresee that the promisee will rely on the promise.
The promisee does, in fact, act in reliance on the promise.
The promisee would suffer a substantial economic loss if the promise is not enforced
Injustice can be avoided only by enforcement of the promise.
This doctrine protects the innocent person who depends on the promise.
Ex. If a high school agrees to shovel snow from a 90 year old person’s sidewalk, when there is doubt, promissory estoppel will enforce the promise.
Promises are made in good faith. When an agreement is made between two people, both individuals must realize the serious nature. Promissory estoppel is necessary when a promise is not enforced and the promisee could suffer a large economic loss.