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. Chapter 8 SLIDE 3 CONSIDERATION Three Requirements for Consideration 1.Promise, act, or forbearance 2.Contractual exchange 3.Legal value

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. Consideration Adequacy of consideration Economic value is unimportant as long as there is genuine agreement. The values that different people place on the same property may vary widely. Nominal consideration In certain written contracts, such as publicly recorded deeds, consideration from one party may be identified as one dollar ($1.00), and other good and valuable consideration. In such situations the actual consideration may be substantially more. However, the parties either cannot state the amount precisely or do not want to publicize it. Chapter 8 SLIDE 4

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. What’s your verdict? John a writer, gets a call from his editor and consequently has to leave immediately on a research trip to Hudson Bay and Newfoundland in Canada. As the trip should take a couple of weeks, he leaves a note offering to pay his neighbor, Jordan, $100 to watch his house, feed and walk his dog. John then leaves without ever speaking to Jordan. Jordan gets the note and complies. 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. What is your verdict Is there an enforceable contract? What was the consideration for each party. Chapter 8 SLIDE 6

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. Consideration When looking for consideration, look for legal value in the underlying act that is promised. If someone promises forbearance—or not to do something. Look beneath the promise and ask if the forbearance has legal value. Chapter 8 SLIDE 7

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 CHECKPOINT List the three requirements of consideration. 1.Promise, act, or forbearance 2.Contractual exchange 3.Legal value     

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 8-2Questionable Consideration GOALS Describe situations in which consideration is present only under limited circumstances Recognize when what appears to be binding consideration is not

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 CIRCUMSTANTIAL CONSIDERATION Illusory promises – if a contract contains a clause that allows you to escape the legal obligation Termination clauses Output and requirements contracts Existing duty – a person promises to do something that he or she already is obligated to do by law or by prior contract. Cannot serve as consideration. 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. Release – example David was entering an intersection in his car when a garbage truck ran a red light and hit him. The garbage truck company’s insurer paid the property damage immediately. However, the insurer refused to pay for David’s personal injuries due to the inability to get a definitive MRI of David’s neck and spine. David, claiming to be unable to work at his previous well-paying job as a fork-lift operator, sued. Three years after filing suit, David’s financial situation was desperate. Knowing this, the insurer offered a settlement of $10,000. David took it and signed a release discharging the garbage truck company from further liability. 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 CHECKPOINT Why is consideration not binding in illusory contracts?     

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 FALSE CONSIDERATION Mutual gifts - when something of value is given by one party to another without demanding anything in return, the something of value is not consideration for anything later promised or provided Past consideration – an act that has already been performed cannot be consideration for later.

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. What’s your verdict? Using an extremely strong and lightweight composite material, Databuster Inc., created the Slice, a notebook computer weighing less than one pound with a 17” screen. The Slice immediately grabbed a majority share of the notebook computer market. To ensure a steady supply of microprocessors for the production of the Slice, Databuster contracted to buy computer chips form the Chipshop. Chapter 8 SLIDE 14

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. What’s your verdict? The Chipshop in turned geared up two new production lines to meet Databuster’s demand. Barely eight months later, Databuster learned of a new company offering a chip that produced twice the speed—and cost half the price—of the Chipshop’s chip. Databuster started buying all the chips it needed to manufacture the Slice from this new company. The Chipshop brought suit for breach of contract. Did they win? Chapter 8 SLIDE 15

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 16 CHECKPOINT What distinguishes a gift from a valid contract?     

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 When 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 18 EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises to charitable organizations Promises covered by the UCC Firm offers – merchant who makes an offer to buy goods and services. Modifications – need consideration. Under the UCC, however, a good-faith agreement hat modifies an existing contract for the sale of goods, needs no new 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. EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises barred from collection by statute Statute of repose and limitations – specifies a time limit for bringing a lawsuit once you become aware of a legal claim. In many states the term of the statue repose is 12 years Breach of contract – 2 years Debts discharged in bankruptcy Chapter 8 SLIDE 19

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 TO THE REQUIREMENT OF CONSIDERATION Promissory estoppel – prevents promisors from stating in court that they did not receive consideration for their promises. Chapter 8 SLIDE 20

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 TO THE REQUIREMENT OF CONSIDERATION For the courts to enforce promissory estoppel the following conditions must be met. 1.The promisor should reasonably foresee that the promise will rely on the promise 2.The promisee does, in fact, act in reliance on the promise. 3.The promise would suffer a substantial economic loss if the promise is not enforced 4.Injustice can be avoided only by enforcement of the promise Chapter 8 SLIDE 21

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 22 CHECKPOINT Name four exceptions to the requirement of consideration. Promises to Charitable Organizations Promises Covered by the UCC Promises Barred from Collection by Statute Promissory Estoppel     

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 23 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 24 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 25 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.