Chapter 15 Consideration Chapter 15: Consideration Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Overview LO15-1: What is consideration? LO15-2: What are the rules regarding consideration? LO15-3: What is promissory estoppel, and when can it be used? LO15-4: What is an illusory promise? LO15-5: What is the difference between a liquidated debt and an unliquidated debt? LO15-6: What is an accord and satisfaction?

Chapter 15 Hypothetical Case 1 Elizabeth Tate is 86 years old and in failing health. A widow, Tate is fast losing the ability to successfully live alone and take care of herself. Last Tuesday, the elderly lady's adult grandson, Joe Boatwright, said he would come today and pick her up, take her to his house, and allow her to live in his spare bedroom for as long as she needed. Tate eagerly consented to the arrangement. Today has come and gone, with Boatwright a no-show. Tate is upset and angry with her grandson. When he was a child, Boatwright's father had left when he was a baby and his mother became an alcoholic, neglecting Boatwright to the point that Social Services had investigated on several occasions. Tate had come to her grandson's rescue, taking legal custody of Boatwright, and rendering to him the precious care of a loving, doting grandmother from the age of four until he reached eighteen. Has Joe Boatwright breached a contractual obligation owed to his grandmother, Elizabeth Tate? Chapter 15 Hypothetical Case 1: Elizabeth Tate is 86 years old and in failing health. A widow, Tate is fast losing the ability to successfully live alone and take care of herself. Last Tuesday, the elderly lady's adult grandson, Joe Boatwright, said he would come today and pick her up, take her to his house, and allow her to live in his spare bedroom for as long as she needed. Tate eagerly consented to the arrangement. Today has come and gone, with Boatwright a no-show. Tate is upset and angry with her grandson. When he was a child, Boatwright's father had left when he was a baby and his mother became an alcoholic, neglecting Boatwright to the point that Social Services had investigated on several occasions. Tate had come to her grandson's rescue, taking legal custody of Boatwright, and rendering to him the precious care of a loving, doting grandmother from the age of four until he reached eighteen. Has Joe Boatwright breached a contractual obligation owed to his grandmother, Elizabeth Tate? [Instructor: See Rules of Consideration in Chapter 15]

Chapter 15 Hypothetical Case 2 Seattle Shoestring Sales, Inc. arranged to sell shoestrings to Victory, Inc., a tennis shoe manufacturer. According to the terms of the deal, Seattle Shoestring Sales committed to sell Victory whatever number of shoestrings it will produce next year, at $.75 per pair. Since entering into their agreement, the price of cotton has skyrocketed by 500 percent. To produce shoestrings, Seattle Shoestring Sales's cost alone will be approximately $1.50 per pair. Seattle Shoestring Sales has informed Victory that it cannot and will not honor the deal. Is there an enforceable contract between Seattle Shoestring Sales, Inc. and Victory, Inc.? Is the failure to include a quantity term in the agreement fatal to its enforceability? What about the fact that the price of cotton dramatically increased after the companies reached their agreement? Should a court or other arbiter increase the per-pair contract price to account for the increase in the price of cotton, and then enforce the agreement? Chapter 15 Hypothetical Case 2: Seattle Shoestring Sales, Inc. arranged to sell shoestrings to Victory, Inc., a tennis shoe manufacturer. According to the terms of the deal, Seattle Shoestring Sales committed to sell Victory whatever number of shoestrings it will produce next year, at $.75 per pair. Since entering into their agreement, the price of cotton has skyrocketed by 500 percent. To produce shoestrings, Seattle Shoestring Sales's cost alone will be approximately $1.50 per pair. Seattle Shoestring Sales has informed Victory that it cannot and will not honor the deal. Is there an enforceable contract between Seattle Shoestring Sales, Inc. and Victory, Inc.? Is the failure to include a quantity term in the agreement fatal to its enforceability? What about the fact that the price of cotton dramatically increased after the companies reached their agreement? Should a court or other arbiter increase the per-pair contract price to account for the increase in the price of cotton, and then enforce the agreement? [Instructor: See Rules of Consideration in Chapter 15]

What Is Consideration? Definition: Examples: Something of value, given in exchange for something else of value, that is the product of a mutually bargained-for exchange Examples: Benefit to promisee Detriment to promisor Promise to do something Promise to refrain from doing something Consideration is defined as something of value, given in exchange for something else of value, that is the product of a mutually bargained-for exchange. To support the enforceability of a contract, mutual consideration is required, meaning that both parties must give consideration. Examples of consideration include a benefit to the promisee, a detriment to the promisor, a promise to do something, or a promise to refrain from doing something.

Rules of Consideration For a promise to be enforced legally, there must be consideration Exceptions: Promissory estoppel Contracts under seal Court rarely considers adequacy of consideration Illusory promise does not constitute consideration Past consideration does not constitute consideration for purposes of present contract Promise to do something you are already legally obligated to do is not valid consideration (pre-existing duty rule) There are several important rules concerning the contractual requirement of consideration. First, as a general rule, there must be consideration given for a promise in order to legally enforce the promise. Exceptions are promissory estoppel and contracts under seal. Courts rarely consider the adequacy of consideration; in other words, so long as the parties have given mutual consideration, a court will not weigh the relative value of the consideration given to determine whether they are equal in value. An illusory promise does not constitute consideration, and past consideration does not constitute consideration for the purposes of a present contract. Finally, according to the pre-existing duty rule, a promise to do something you are already legally obligated to do is not valid consideration.

Partial Payment of Debt Liquidated debt: No dispute as to amount of money owed Unliquidated debt: Parties, in good faith, either dispute fact money owed, or dispute amount owed Accord and satisfaction requirements ("accord" represents agreement, "satisfaction" represents payment; accord and satisfaction means partial payment of disputed debt discharges remaining balance allegedly owed): Unliquidated debt Creditor agrees to accept, as full payment, less than creditor claims owed Debtor pays agreed-upon amount Several terms apply to a partial payment of debt situation. A liquidated debt exists when there is no dispute as to the amount of money owed. In an unliquidated debt scenario, the parties, in good faith, either dispute the fact that money is owed, or dispute the amount of money owed. An accord and satisfaction occurs when the debtor and creditor agree that the debtor will pay a portion of a disputed debt, an amount less than the creditor claims is owed. The "accord" represents the agreement, and the "satisfaction" represents part payment. An accord and satisfaction discharges the remaining balance allegedly owed. These three requirements must be met to be enforceable: the debt is unliquidated, the creditor agrees to accept as full payment less than it claims is owed, the debtor pays the amount they have agreed on.

Chapter 15 Hypothetical Case 3 John Harrington, Jr. ("Junior") is a 24-year-old, 3-pack-per-day smoker. John Harrington, Sr. ("Senior") is a very concerned parent. On January 1, father announces to son, "Junior, if you will stop smoking for the entire year, I will pay you $5,000." Senior believes that if Junior will stop smoking for one year, he will kick the habit. Junior reluctantly accepts his father's terms, and extinguishes his half-smoked cigarette with the heel of his boot. On January 1 of the following year, Junior approaches Senior and says, "Dad, time to pay up." Senior has no reason to doubt that Junior has refrained from smoking for an entire year, but states, "Son, this was for your benefit. The gift I have given you is the gift of life, and you are now likely to enjoy that gift longer, because you are now much less likely to contract cancer. Health statistics show that non-smokers live ten years longer than smokers. Enjoy your newfound life, but I will not pay you the $5,000." Does Senior owe Junior the $5,000? Is there an enforceable contract between father and son? If there is not an enforceable contract, does Junior have any other legal or equitable theory of recovery? Is Senior ethically obligated to pay Junior the $5,000? Chapter 15 Hypothetical Case 3: John Harrington, Jr. ("Junior") is a 24-year-old, 3-pack-per-day smoker. John Harrington, Sr. ("Senior") is a very concerned parent. On January 1, father announces to son, "Junior, if you will stop smoking for the entire year, I will pay you $5,000." Senior believes that if Junior will stop smoking for one year, he will kick the habit. Junior reluctantly accepts his father's terms, and extinguishes his half-smoked cigarette with the heel of his boot. On January 1 of the following year, Junior approaches Senior and says, "Dad, time to pay up." Senior has no reason to doubt that Junior has refrained from smoking for an entire year, but states, "Son, this was for your benefit. The gift I have given you is the gift of life, and you are now likely to enjoy that gift longer, because you are now much less likely to contract cancer. Health statistics show that non-smokers live ten years longer than smokers. Enjoy your newfound life, but I will not pay you the $5,000." Does Senior owe Junior the $5,000? Is there an enforceable contract between father and son? If there is not an enforceable contract, does Junior have any other legal or equitable theory of recovery? Is Senior ethically obligated to pay Junior the $5,000? [Instructor: See Rules of Consideration in Chapter 15]

Chapter 15 Hypothetical Case 4 Richard Clifton agreed to sell Serena Davis a boat, with a contract stating that she would make regular payments over eight years. Davis kept up the payments on the boat for a while, but after five years, she was unable to continue. At that point, Davis still owed $3,000 on the boat. Davis offered Clifton a $2,500 watch instead of the remaining $3,000 she owed him. Clifton accepted the offer and the watch, but later changed his mind and said he still wanted the money. Can Clifton change his mind at this point? Is the debt settled? Chapter 15 Hypothetical Case 4: Richard Clifton agreed to sell Serena Davis a boat, with a contract stating that she would make regular payments over eight years. Davis kept up the payments on the boat for a while, but after five years, she was unable to continue. At that point, Davis still owed $3,000 on the boat. Davis offered Clifton a $2,500 watch instead of the remaining $3,000 she owed him. Clifton accepted the offer and the watch, but later changed his mind and said he still wanted the money. Can Clifton change his mind at this point? Is the debt settled? [Instructor: See Partial Payment of a Debt in Chapter 15]