Chapter 8

Consideration

Gratuitous: Free Agreements

Consideration: The exchange of benefits and detriments by the parties to an agreement.

Benefit: Something that a party was not previously entitled to receive.

Detriment: Any loss suffered

Forbearance: Not doing something that you have the legal right to do

Characteristics of Consideration

Must involve a bargain for exchange

Must involve something of value

Benefits and detriments promised must be legal

Bargained-for Exchange

When a promise is made for another promise, act, or promise not to act

Something of Value

There are no specific requirements on consideration

Unconscionable: When a great inequity in bargaining power exists between parties

Types of Consideration

Money: Any amount may be negotiated

Some transactions may be regulated such as minimum wage and fuel/oil prices.

Property and Services: Bartering is exchanging one service for another

Types of Consideration Cont.

Promise Not to Sue:One party gives up their right to sue in exchange for something of value…they then sign a release

Can be negotiated at any time, even during trial

Charitable Pledges:These organizations rely on pledges; therefore the courts will enforce them as if they were contracts

Problems With Consideration

Disputed Amounts

If parties cannot agree as to the actual amount…

Accord and Satisfaction: When the creditor accepts a payment that is less than the amount as full payment.

The dispute must be real, occur in good faith, and must not be trivial.See Example 4 p. 170

Undisputed Amount

If the parties have mutually agreed to a set amount of money in the contract, then the amount cannot be disputed.

Regret is not a valid reason not to pay

In Everyday Life…Must be legal and not involve any violation of the law

You can pay a debt in advance, but are not legally bound to do so

Past performances do not equal consideration for a new promise

To constitute consideration, an act or promise must be bargained for.

See p. 172 for full list

Agreements Without Consideration

Promises Under Seal Seal: A mark or an impression placed on a written contract indicating that the instrument was executed and accepted

Not required in Sales of Goods under UCC, but some states require it for real property sales.

Promises After DischargeIn Bankruptcy

It is possible for a person who has had his or her debts discharged in bankruptcy to decide to pay such debts voluntarily.

Debts Barred by Statutes of Limitations

Establishes a time frame in which debts must be paid

Partial payment of debt will result in affirmation (good faith)

Promissory Estoppel Promissory = containing/consisting of a promise

Estoppel = restraint on a person to prevent him or her from contradicting a previous act

A promise may be enforceable without consideration

See Figure 8.2 on p. 176 for Elements

See Example 6 p. 176

Option Giving consideration to keep an offer open for a specific period of time

UCC Exception: When a merchant makes a written offer stating the period of time during which an offer will remain open; consideration is not needed. (Must be <3 months)

Unenforceable Agreements Without Consideration

Illusory Promise (False Appearance)

Both parties must be under an obligation to do something, otherwise neither is bound by contract.

Some agreements appear to be contracts, but turn out to be hollow.

See example 7 p. 177

Future Gifts

A person promises to give a gift in the future or in a will – not enforceable if there is no consideration

Past Consideration

Benefits and detriments must be exchanged when a contract is made

Consideration that took place in the past is over and not regarded as legal by the courts

See example 8 p. 177

Preexisting Duties

If a person is already under a legal obligation to do something, a promise to do that same thing is not consideration.

For example: Police officers cannot receive a reward for doing their job.

Promise to Attend a

Social Engagement

All contracts are agreements but not all agreements are contracts.