cheeseman6e_ch11

8/3/2019 cheeseman6e_ch11

1/21

11 - 1 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Chapter 11

Consideration and Equity


2/21


Consideration

Consideration

something oflegal value given inexchange for a promise.

Consideration is a necessaryelement for the existence ofa contract.

Common types of

consideration are: A tangible payment (money or

property); or

Performance of an act (e.g.,

providing legal services).


3/21


Consideration (continued)

Consideration consists oftwo elements:

1. Something of legal value

must be given; and2. There must be a bargained-

for exchange.


4/21


Legal Value

Something of legal valuemust be given.

Under the modern law ofcontracts, a contract isconsidered supported bylegal value if:

1. The promisee suffers a legal

detriment; or2. The promisorreceives a legal

benefit.


5/21


Bargained-for Exchange

To be enforceable, acontract must arise from abargained-for exchange.

Exchange that parties engage

in that leads to an enforceablecontract.

Gift or gratuitous promise an unenforceable promisebecause it lacksconsideration.


6/21


The Use of Output and RequirementsContracts in Business There are two special types

of business contracts thatspecifically allow a greaterdegree of uncertainty

concerning consideration:

Output Contracts

Requirements Contracts


7/2111 - 7Prentice Hall, 2001 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 7

Contemporary BusinessEnvironment

NominalConsideration

Best EffortsContracts


8/2111 - 8 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Contracts Lacking Consideration

IllegalConsideration Illusory

Promise

MoralObligation

PreexistingDuty

PastConsideration



Illegal Consideration

Illegal consideration apromise to refrain from doingan illegal act.

Such a promise will notsupport a contract.



Illusory Promise

Illusory promise

a contractinto which both parties enter,but one or both of the partiescan choose not to perform

their contractual obligations.

Thus, the contract lacksconsideration.

Such promises areunenforceable.



Moral Obligation

Promises made out of asense of moral obligation orhonor lack consideration.

Moral consideration is nottreated as legalconsideration.

Such promises are

unenforceable in most states.



Preexisting Duty

Preexisting duty

a promiselacks consideration if aperson promises to performan act or do something he or

she is already under anobligation to do.

The promise is unenforceable

because no newconsideration has beengiven.



Preexisting Duty (continued)

The preexisting duty rulearises when one of theparties to an existingcontract seeks to change

the terms of the contractduring the course of itsperformance.

Such midstream changes areunenforceable.

The parties have apreexisting duty to perform

according to the original



Preexisting Duty (continued)

Sometimes a party to acontract runs into substantialunforeseen difficulties whileperforming his or her

contractual duties.

The contract can bemodified and enforced

without new considerationbeing given.



Past Consideration

Problems of pastconsideration often arisewhen a party to a contractpromises to pay additional

compensation for work donein the past.

Past consideration (e.g., prior

acts) will not support a newcontract.

New consideration must begiven.


16/2111 - 16

2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Concept Summary: Promises LackingConsideration

Type ofConsideration

Description of Promise

Illegal

consideration

Promise to refrain from doing an illegal act.

Illusory promise Promise where one or both parties can

choose not to perform their obligation.

Moral obligation Promise made out of a sense of moral

obligation or honor or love or affection.

Some states enforce these types of

contracts.

Preexisting duty Promise based on the preexisting duty of

the promisee to perform. The promise is

enforceable if (1) the parties rescind the

contract and enter into a new contract, or

(2) there are unforeseen difficulties.

Past Promise based on the past performance of


17/2111 - 17


Settlement of Claims

The law promotes thevoluntary settlement ofdisputed claims.

Settlement:

Saves judicial resources, and

Serves the interests of theparties entering into thesettlement


18/2111 - 18


Settlement of Claims (continued)

Accord

an agreementwhereby the parties agree toaccept something differentin satisfaction of the original

contract.

Satisfaction theperformance of the accord.

If the accord is not satisfied,the other party can sue toenforce either the accord orthe original contract.


19/2111 - 19


Promissory Estoppel

Promissory estoppel(detrimental reliance)

A doctrine that prevents the

withdrawal of a promise by apromisor if it will adversely

affect a promisee who has

adjusted his or her position in

justifiable reliance on thepromise.


20/2111 - 20


Promissory Estoppel (continued)

For the doctrine ofpromissory estoppel to beapplied, the followingelements must be shown:

1. The promisor made apromise.

2. The promisor should have

reasonably expected toinduce the promisee to relyon the promise.


21/2111 21


Promissory Estoppel (continued)

3. The promisee actually reliedon the promise andengaged in an action orforbearance of a right of a

definite and substantialnature.

4. Injustice would be caused if

the promise were notenforced.

Date post:	06-Apr-2018
Category:	Documents
Upload:	amreen-khan
View:	219 times
Download:	0 times

cheeseman6e_ch11

Documents