1. Business Law: Ch 8
Consideration

2. Consideration
Consideration – What a person demands and generally must receive in order to make promise legally binding.

3. Consideration Three Requirement of Consideration
Each party must make a promise, perform an act, or forbear (refrain from doing something)
Each parties promise, act, or forbearance must be in exchange for a return promise, act, or forbearance by the other party
What each party exchanges must have legal value (must be worth something in the eyes of the law)

4. Consideration
Consideration distinguishes a contractual promise from a promise to make a gift.
Gift – Transfer of ownership without receiving anything in return.
Gifts are not generally not legally enforceable
Gift only becomes legally binding once the gift is exchanged.
Donor – person giving the gift
Donee – Person receiving the gift

5. Promise, Act, or Forbearance
Forbearance – to not do something

6. Contractual Exchange
Promisor – Person promising an action or forbearance
Promisee – Person to whom promise is made to.
Consideration must be mutual

7. Legal Value
Legal Value – Means there has been a change in a party’s legal position as a result of the contract
Most commonly found in the exchange of two benefits.
Can also be found in the exchange of benefit for a detriment (forbearing of a legal right)
Example – If you refrain from driving until you are 25, I will give you $25,000.
Not a benefit but a detriment to you (giving up your legal right)

8. Adequacy of Consideration
Economic value is unimportant as long as there is genuine assent
However, if the economic value is evidence of mutual mistake, duress, undue influence, or fraud, the contract could be declared unconscionable (grossly unfair or oppressive) and may not be enforceable

9. Nominal Consideration
Nominal Consideration – token amount stated

10. 8-1 Assessment
Turn to page 144 and complete 8-1 Assessment

11. 8-1 Answers
False
Gift
Adequacy or economic value
A (nominal)

12. 8-1 Answers The parties are bound. Given up the right
The neighbors did receive consideration
Yes. The adequacy of consideration will not be questioned.

13. Circumstantial Consideration
Illusory Promises – Clause in contract that allows you to escape the legal obligation
Termination Clauses – Power to withdraw from a contract if business circumstances change.
Output Contract – Buyers agree to purchase all of a particular producer’s production
Requirements Contract – Seller agrees to supply all of the needs of a particular buyer.

14. Circumstantial Consideration
Existing Duty – A person sometimes promises to do something that he or she already is obligated to do by law or contract
Such a promise or act, cannot serve as consideration

15. Existing Duties
Existing Public Duty – Agreement creates a benefit for you, but you don’t incur a detriment because you are not giving up a legal right
Example: Aunt promises to pay you $10,000 if you promise to not purchase alcohol for two years and you say “OK”. No contract

16. Existing Duties
Existing Private Duty – A person cannot demand further compensation for carrying out a contractual promise already made
Settlement of Liquidated Debts (is where the parties agree that the debt exists and on the amount of the debt)
When a creditor (person to whom the debt is owed) agrees to accept less than the total amount due in full settlement from the debtor (person who owes money) there is no consideration if the debt is liquidated

17. Existing Duties Settlement of Liquidated Debts
Assume Frank borrows $1000 from Carrie. The loan is to be paid back in one year with interest at 10% per year, or a total payment of $1,100. Frank sends a check to Carrie on the due date for $1,000 and a note saying “Sorry, I’m strapped for cash. You will have to accept this in full payment.” Carrie endorses and cashes the check.

18. Existing Duties Settlement of Liquidated Debts
A debtor can settle a claim by paying less than the full amount if additional consideration is given.
Must be mutual agreement

19. Existing Duties Settlement of Unliquidated Debts
When there is a genuine dispute between the parties about how much is owed is referred to as unliquidated.
Accord and Satisfaction - Payment offered in full settlement by the debtor and accepted by the creditor settles the claim
Accord – New agreement on the sum

20. Existing Duties
Release – An agreement, due to financial pressures, an injured party in a tort will agree to discharge another from liability for the tort in return for a monetary payment or other consideration
Composition with Creditors – Group a creditors will cooperatively agree to accept less than what they are entitled to, in full satisfaction of their claims against a debtor.
Debtor agrees not to file for bankruptcy
Creditors agree not to sue for the entire amount

21. False Consideration
Mutual Gift – Something of value given by one party to another without demanding anything in return
Past Performance – Act already performed cannot serve as consideration

22. 8-2 Assessment
Turn to page 148 and complete the 9 questions

23. Exceptions to the Requirement of Consideration
Promises to Charitable Organizations
Gift is enforceable providing the charity states a specific use for the money and actually acts in reliance on the pledge
Promises Covered by the UCC
Modifications made in good-faith needs no new consideration

24. Exceptions to the Requirement of Consideration
Promises Barred from Collection by Statute
Statute of Limitations – Time limit to bring a lawsuit
Once you become aware of a legal claim, you must sue before statute of limitations passes or you lose the right to litigate
Debts Discharged in Bankruptcy
Even after a debt has been discharged as a result of bankruptcy, the obligation may be reinstated by a promise of the debtor. This is done by cosignor

25. Exceptions to the Requirement of Consideration
Promissory Estoppel
Prevents promisors from stating in court that they did not receive consideration for their promises
4 conditions to invoke Promissory Estoppel
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