Chapter Five. Consideration After reading this chapter, you will be able to: Describe the distinction between a promise that is enforceable as a contract and an unenforceable “gift” promise. Define consideration Identify what makes a contract conditional Describe what it means for consideration to be “bargained-for” List ways of modifying existing contracts Explain ways of settling disputes

Consideration Each party to a contract must get something to which that party was not legally entitled before entering the contract and each party must give up something to which that party was legally entitled before the contract.

Inequitable Consideration Consideration cannot be illusory. The parties must incur some real obligation. A court can impose a duty of “reasonable” behavior on an agreement that has the appearance of being illusory. Illusory - imaginary

Conditional Contracts Each party must get/give something, but the parties may not know, at the outset, what that “something” is. Many contracts are conditional. A condition precedent is something that must happen before the contemplated transaction occurs. A condition subsequent is an event that might “undo” the contract.

UCC Approach Output contract: contract under which buyer agrees to purchase all that seller produces; court may impose requirement of reasonable performance. Needs contract: contract under which buyer agrees to purchase all of buyer’s needs from seller; court may impose requirement of reasonable performance. Exclusive dealing: contract under which parties agree to deal only with each other with respect to particular needs.

Bargained-For Consideration must be “bargained-for,” which is another way of saying that each party gets something that he was not entitled to “before the contract” and that each party is induced to “give” by what he will “get.” A contract cannot normally be “inflicted” on a party by the delivery of consideration that party did not seek.

Accord and Satisfaction Agreement to accept and give payment or performance different from that originally required by contract.

Rescind To terminate a contract before all of its terms are completely performed.

Settlement of Disputes Liquidated debt: debt that is not in dispute Unliquidated debt: debt, the amount of which is in dispute; settlement of an unliquidated debt can constitute consideration.