Consideration Chapter 8

Consideration – what a person demands and generally must receive in order to make a contract legally binding

3 Requirements of Consideration 1. Each party must give an act, forbearance, or promise to the other party Forbearance – refraining from doing something you have the right to do

3 Requirements of Consideration 2. Each party must trade what they contribute to the transaction 3. What each party trades must have legal value must have legal value

** Consideration distinguishes a contractual promise from a promise to give a gift **

Gift – transfer of ownership without receiving anything in return  generally not legally enforceable Donor – gives Donee – receives  After gift exchange occurs, transaction becomes binding

Nominal Consideration – token amount identified in a written contract when parties either cannot or do not wish to state the amount specifically Ex. $1 and other valuable consideration in exchange for a car

Questionable Consideration

I llusory Promises  A contract clause that allows you to escape legal obligation Ex. I promise to paint your house…if I have time.

Termination Clauses  Gives power to withdraw from a contract if certain circumstances change, or after the passage of a certain length of time  Exceptions must be defined

Output and Requirement Contracts Output Contract – A buyer’s agreement to purchase all of a particular producer’s production Requirements Contract – A seller’s agreement to supply all of the needs of a buyer

Existing Duty A promise to do something that you are already obligated to do by law or prior contract does not serve as consideration This is called… Existing Public/Private Duty

Liquidated Debt Where an agreement is made that a debt and the true amount of that debt exists and must be repaid  All debt must be recovered

Unliquidated Debts Where an agreement cannot be reached as to the amount of debt owed  Accord and Satisfaction - a compromise must be - a compromise must be made made

Once an agreement is reached concerning unliquidated debt, this is called a release

Composition of Creditors When a group of creditors cooperatively agree to accept less than what they are entitled to in exchange for the debtor not filing bankruptcy

Past Performance  An act that has already been performed cannot serve as consideration for an immediate or future contract  This is known as past consideration

When is Consideration not Required?

1. Promises to Charitable Organizations 2. Promises covered by the UCC  Firm Offers  Modifications

3. Promises barred from Collection by Statute Statute of Limitations  A specific time limit for bringing a lawsuit Debts Discharged in Bankruptcy  Some debt lost in bankruptcy can still be reinstated by a promise of the debtor

4. Promissory Estoppel  Prevents a promisor from stating in court that they did not receive consideration for their promises

Requirements for P.E. 1.Must forsee reliability on the promise 2.Promisee does act in reliance of the promise

3. Promisee would suffer economic loss 4. Injustice can be avoided only by enforcement of the promise