LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 8 Consideration Types of Consideration Questionable Consideration When Consideration Is Not Required

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 2 8-1Types of Consideration GOALS Identify the three requirements of consideration Discuss the adequacy of consideration

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Requirements of Consideration Each party must make a promise, perform an act or forbear (refrain from doing something) Each party’s promise, act or forbearance must be in exchange for a return promise, act or forbearance by the other party. What each party exchanges must have legal value; must be worth something in the eyes of the law. Chapter 8 SLIDE 3

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 4 TYPES OF CONSIDERATION Promise, act, or forbearance Have value in the eyes of the law Consideration and a valid contract Contractual exchange Consideration must be mutual

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. TYPES (cont’d) Legal value Act and promise have legal value to each party Exchange of benefits Adequacy of consideration Values placed on property may vary widely. If grossly inadequate, courts will intercede Nominal consideration Token amount Chapter 8 SLIDE 5

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 6 8-2Questionable Consideration GOALS Describe situations in which consideration is present only under limited circumstances Recognize when what appears to be binding consideration is not What's In It For Me?

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 7 CIRCUMSTANTIAL CONSIDERATION Illusory promises Termination clauses Output and requirements contracts Existing duty Existing public duty Existing private duty Settlement of liquidated debts Settlement of unliquidated debts Release Composition of creditors

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 8 FALSE CONSIDERATION Mutual gifts Something of value is given by one to another without demanding anything in return. Past consideration An act that has been performed cannot serve as consideration for a later promise

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 9 8-3When Consideration Is Not Required GOALS Distinguish situations in which consideration is not needed Recognize when the doctrine of promissory estoppel can be applied

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 10 EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises to charitable organizations Church – school - hospital Promises covered by the UCC Firm offers Modifications After sale has been made, seller agrees to give the buyer a valid warranty without further charge.

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exceptions (cont’d) Promises barred from collection by statute Statute of repose and limitations Time limit to bring a lawsuit Debts discharged in bankruptcy Promissory estoppel Courts can take certain actions in the name of basic fairness Chapter 8 SLIDE 11

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 12 PREVENT LEGAL DIFFICULTIES Remember that under contract law... Generally both parties must give and receive consideration if their agreement is to be enforceable as a contract. Adequacy of consideration generally is immaterial to whether or not a contractual promise is enforceable. Continued on the next slide

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 13 PREVENT LEGAL DIFFICULTIES Accepting money in exchange for giving up a legal right constitutes consideration and is binding. Consult a lawyer before making such an agreement in any major dispute. A pledge to a charitable institution is generally binding without consideration and should not be made unless you intend to fulfill it. Continued on the next slide

LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 8 SLIDE 14 PREVENT LEGAL DIFFICULTIES Generally, however, promises to make gifts cannot be enforced by the intended donee. You should use care and good judgment in making contracts. Courts generally will not rescue you from “bad bargains” or unfavorable deals voluntarily made.