Chapter 9 Consideration

On a sheet of scrap paper please list 5 things you made agreements to buy, sell, or do over the vacation. Are any of these things legally binding? Why / Why Not?

Consideration The purpose of consideration is to distinguish between social promises and more serious transactions where one thing is being exchanged for something else.

Vocab: Gift Donor Donee Act Forbearance Promise Gift – the transfer of ownership without receiving anything in return, a promise to make a gift is generally not enforceable. Only after the DONOR actually transfers possession of the gift to the DONEE with the intent to transfer ownership does the transaction irrevocably shift owner ship to the donee. Act, Forbearance, or Promise Act is physically doing something, promise is if you do this then I will pay you x amount of dollars, and the forbearance is the promise not to do something.

3 Requirements to Consideration Each party must give an act, forbearance, or promise to the other party. Each party must trade what they contribute to the transaction ( Act, Forbearance, or Promise) for the other parties contribution What each party trades must have legal value, that is it must be worth something in the eyes of the law.

Trading A typical contract, if you do this for me (baby sit my child while I go out to dinner) I will do that for you (pay you $5.00 an hour) Consideration must be Mutual. Consideration must be Mutual. This means that each part must both give and receive consideration. If either of the parties does not give consideration the other has no duty to perform as promised.

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. But may be found in a benefit for forbearance or the exchange of two detriments. Look at page 142 read aloud

Adequacy of Consideration – What parties give and get as consideration need not be of equal economic value. People value different things differently some one may be willing to pay 10,000 for a picture that would only be worth 10 to another. How ever if the consideration received by one party is so grossly inadequate as to shock the conscience of the court the contract will be declared unconscionable.

Nominal Consideration A token amount of consideration offered in certain written contracts when the parties simply cannot state the precisely or do not want to publicize the amount of consideration.

9-2 Legal Value and Bargained-For Exchange This is VERY confusing!!!!

Legal Value A change in the legal position of the party as a result of the contract. A change in legal value may mean an increase in legal rights or duties.

Example If you promise to paint the neighbors house for $3,000, you have increased the neighbors legal value to include painting his house

Illusory Promises To be consideration a promise must be binding. It must create a duty or impose an obligation. If the promise contains a clause that allows you to escape the legal obligation it is said to be Illusory

Example I will paint the neighbors house, if I have time. Well, you may never have time so it does not increase legal position

Termination Clause Businesses often want the power to withdraw from a contract if circumstances change. If the clause gives the power of one of the parties to terminate the contract for any reason then the promise to perform is illusory. If however the termination is only allowed after a defined circumstance like 30 days there is clearly change in one party’s legal obligations.