Mutual Consideration Mrs. A Business Law 9-1What Is Consideration? 9-2Legal Value and Bargained-For Exchange 9-3When Is Consideration Not Required? 1 CHAPTER 9

What is Consideration? CONSIDERATION IS: What is given or received in a contract Gifts are not consideration. DonorDoneePromisorPromisee Chapter 9 2

THREE REQUIREMENTS OF CONSIDERATION 1. Each person must give an act, forbearance (a promise not to do something), or promise to the other person. 2. Trade of considerations 3. What each person trades must have legal value  Worth something in the eyes of the law  Changes the legal position of each person Chapter 9 3

CONSIDERATION  Adequacy of consideration (Equal Worth?)  Nominal consideration (The Client) Chapter 9 4

LEGAL VALUE  Benefit for a Benefit  Benefit for a Detriment  Detriment for a Detriment  Forbearance=Detriment something you won’t do Chapter 9 5

Questionable Consideration Illusory (false) promises  Termination clauses (…terminate for any reason) Existing duty  Existing public duty  Existing private duty Chapter 9 6

Questionable Consideration  Settlement of Liquidated Debts  Creditor  Debtor  No dispute on the amount  Pay less than amount owed before due date  Settlement of Unliquidated Debts  Accord and Satisfaction  “You owe me $1000.” “No it is $500.”  Compromise on the amount - $750  Consideration: Won’t sue each other Chapter 9 7

False Consideration  Mutual gifts after  If the promise is made after the act there is no consideration.  Ethics??  Past performance (an act in the past cannot be consideration for a current contract) Chapter 9 8

9 When Consideration is NOT required Promissory Estoppel “reasonably” foresee rely 1.Promisor should “reasonably” foresee that the promisee will rely on the promise. act and relies 2.Promisee does act and relies on the promise. suffer a substantial economic loss $$$$ 3.Promisee would suffer a substantial economic loss $$$$ if the promise is not enforced. 4.Injustice can be avoided only by enforcement of the promise. Rich Uncle and trip to Europe

When Consideration Is NOT Required: 1. Promises to charitable organizations  Red Cross, Diabetes Foundation, Cancer Society, etc… 2. Uniform Commercial Code - UCC  Firm offers – merchant makes an offer in writing to buy/sell goods and promises to leave the offer open  Modifications to a contract Chapter 9 10