Six Major Requirements

Six Major Requirements
Offer and acceptances Genuine assent Legality Consideration Capacity Writing Remember the six major requirements that had to exist in order for the courts to treat a contract as legally enforceable. Last chapter we focused on offers and acceptances. This chapter we will focus on Genuine assent.

CHAPTER 8 Consideration
5/14/2018 CHAPTER 8 Consideration 8-1 Types of Consideration 8-2 Questionable Consideration 8-3 When Consideration Is Not Required

8-1 Types of Consideration
Chapter 8 5/14/2018 8-1 Types of Consideration GOALS Identify the three requirements of consideration Recognize the various forms of consideration Chapter 8

FOCUS List five promises you have recently made.
Chapter 8 5/14/2018 FOCUS List five promises you have recently made. Include all promises such as calling a friend or promises to perform work. Beside each promise list what you received in return. Review the list and place a check by the promise(s) that you believe would be legally binding on you if the promisee pursued the issue in court. Assume you were of legal age and had sufficient mental capacity to contract. HOLD ON TO THAT PAPER and we will review Chapter 8

Chapter 8 5/14/2018 What is Consideration? What a person demands and generally must receive in order to make her or his promise legally binding. There are three requirements of consideration: Each party must give an act, forbearance, or promise to the other party. Each party must trade what they contribute to the transaction for the other party’s contribution. What each party trades must have legal value, that is, it must be worth something in the eyes of the law. Consideration simply means ‘something for something’ In a contract, something is given and something is received. Money is given for services (if you pay me $50, I will provide landscaping service). Money for a promise (if you pay me now, I will not foreclose on your house). Services for services (I’ll watch your kids on Tuesday if you watch my kids on Friday) There are 3 requirements. READ We’ll talk about each one separately. Chapter 8

CONSIDERATION: Contractual promises vs. promises to make a gift
Chapter 8 5/14/2018 CONSIDERATION: Contractual promises vs. promises to make a gift A gift is a transfer of ownership without receiving anything in return. A promise to gift is generally not enforceable. A Donor is the person giving the gift A Donee is the person receiving the gift Only after a donor intentionally transfers the gift to the donee and the donee accepts it does the transaction become legally binding. Consideration distinguishes a contractual promise from a promise to make a gift. Uncle tells you that he’s going to give you a gift of a new car for your graduation. Who’s the donor? (UNCLE) Who’s the donee? (YOU) What is the gift? (the car) Is the contract legally binding? When does the transaction become legally binding? When you receive the car In other words, you can’t take him to court if he NEVER gives you the car, cause it was a promise to give and is generally not enforceable. By the same token, after the uncle gives you the car, he can’t take you to court to get it back either ‘cause now its yours. Chapter 8

ACT, FORBEARANCE, OR PROMISE
Chapter 8 ACT, FORBEARANCE, OR PROMISE 5/14/2018 Act Do something Forbearance Refraining from doing what one has a right to do. Promise When looking for consideration, look for legal value in the underlying act that is promised. We stated that there were three requirements of consideration. QUESTION – What is consideration? How many requirements of consideration are there? What is the first requirement? The first requirement is that each party must give an act, forbearance or promise to the other party. READ ACT – simply means to do something – Each party of the contract must give an act – therefore each party of the contract must DO SOMETHING. READ FORBEARANCE You here this term a lot when it comes to collecting debt and specifically what is done when someone fall behinds in payments You can promise forbearance (or patience). Because someone is not current in their payments, let’s say for a house, and given the housing situation a lot of people might fall in this category, the mortgage company might promise forbearance. This means that they will probably set up a re-payment plan with you to bring the account current in exchange for not proceeding with the foreclosure process. Foreclosure is the legal process in which the bank or whomever you have your mortgage with begins to take the house from you because you are not current with payments. A forbearance is a type of promise. The homeowner promised to keep the payment agreement and the mortgage company promises not to take the house. READ PROMISE- With a promise, you want to look for legal value in the underlying act that is promised. We will talk more about legal value in a minute. Chapter 8

TRADING “If you do this for me, I shall do that for you.”
Chapter 8 5/14/2018 TRADING “If you do this for me, I shall do that for you.” A person promising an action or forbearance is the promisor. The person to whom the promise is made is the promisee. So what is the first requirement of consideration. The first requirement is that each party must give an act, forbearance or promise to the other party. What is the second requirement of consideration? Each party must trade what they contribute to the transaction for the other party’s contribution. In a typical contract one party in effect says this to another “If you do this for me, I shall do that for you” If you pick up my mail for a week while I am vacationing, I’ll give you $50. I’ll trade you money for services A few slides back we talked about the DONOR and the DONEE. Let’s define the PROMISOR and the PROMISEE Who is the promisor Who is the promisee in the pick up the mail example. In most contracts, trading means that one party exchanges a promise for the promise of the party on the other side. When this happens there has been a bargaining or trading of one promise for the other. Chapter 8

Chapter 8 5/14/2018 TRADING Consideration must be mutual - This means that each party must give consideration, and each must receive consideration. Confer= to give something to somebody Consideration can be given by conferring, or promising to confer, a benefit. Incur = acquire burden such as debt Consideration also can be given by incurring, or promising to incur, a detriment, or harm. If either party does not give consideration, the other has no duty to perform as promised. CONFER In the pick up mail example, a contract was created when there was mutual consideration. Consideration was given by one party promising to pay $50 and the other’s acceptance by promising to pick up the mail. Both parties gave consideration by conferring or promising to confer a benefit. Pick up mail in exchange for money. INCUR When you buy a house, you incur the debt of the house. Mutual consideration is shown by the mortgage company/bank loaning you the money to buy the house and you incurring the debt of repaying the loan with interest. Chapter 8 Slide 9 9

LEGAL VALUE Legal value
Chapter 8 5/14/2018 LEGAL VALUE Legal value 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. Can also be found in the exchange of a benefit for a detriment So what is the first requirement of consideration. The first requirement is that each party must give an act, forbearance or promise to the other party. What is the second requirement of consideration? Each party must trade what they contribute to the transaction for the other party’s contribution. If you pick up my mail for a week while I am vacationing, I’ll give you $50. And what is the third requirement of consideration. What each party trades must have legal value, that is, it must be worth something in the eyes of the law. The term legal value is very broad. It involves rights, freedoms and privileges in property, person future alternatives. In it’s simplest form, it means that the contract resulted in something of legal value. In the pick up my mail – one value was a benefit to the person for whom the mail was picked up The other value was to the person who received the $50 for picking up the mail. What’s your verdict page 139 there was an exchange of two benefits. Jordan performed acts of walking the dog and watching the house as a benefit to his neighbor. This is known as legal value because it changed the neighbors legal position. Johns benefited Jordans legal position by promising $100 Legal value is most commonly found in the exchange of two benefits as described with the pick up mail example Legal value can also be found in the exchange of a benefit for a detriment. Detriment is the giving up of a legal right, as with forbearance (refraining from doing what you have a right to do). For example, you uncle says to you on your 18th birthday, if you refrain from driving until your 21st birthday I’ll give you $25K. If you respond yes, then what you have promised is not a benefit to your uncle, but a detriment to you as you have given up legal right to drive until you are 21. This is a change in your legal position and is valid consideration. Chapter 8

ADEQUACY OF CONSIDERATION
Chapter 8 5/14/2018 ADEQUACY OF CONSIDERATION Generally, what the parties give and get as consideration need not be of equal economic value. “The courts do not inquire into the adequacy of consideration.” The values that different people place on the same property may vary widely. Economic value is unimportant as long as there is genuine agreement. Tree Revolver 3:30 & 7:30 However, a big difference in economic value of what one gives and receives may be evidence of mutual mistake, duress, undue influence, or fraud. If the consideration received by one of the parties is so grossly inadequate so as to shock the conscience of the court, the contract will be declared unconscionable (grossly unfair or oppressive) and may not be enforceable. The values that different people place on the same property may vary widely. For example one person might gladly pay $60K for an original and exclusive high fashion gown. Others would not be interested in owning such a gown for $60 You might be willing to pay higher prices for some products at different times. For example if you are sitting outside at a baseball game and it is blazing hot outside, you might pay 3 times as much for a cold drink. Chapter 8

NOMINAL CONSIDERATION
Chapter 8 5/14/2018 NOMINAL CONSIDERATION Token amount ($) identified in a written contract when parties either cannot or do not wish to state the amount precisely. May be stated as “one dollar ($1) and other good and valuable consideration” Parties either cannot state the amount precisely or do not want to publicize it. Review the five promises that you listed. Chapter 8

8-2 Questionable Consideration
Chapter 8 5/14/2018 8-2 Questionable Consideration GOALS Describe situations in which consideration is present only under limited circumstances (Circumstantial Consideration) Recognize when what appears to be binding consideration is not (False Consideration) Chapter 8

Chapter 8 5/14/2018 FOCUS Scenario Ms. Miller tells her students: “You have worked hard, and if you continue to perform at this high level, I'll pay for a pizza party at the end of the year—if I think it is warranted.” The students continue to work hard, and class grades are high, but no party is given. Question Can the students enforce the promise? Chapter 8

Chapter 8 5/14/2018 FOCUS ANSWER This is an illusory promise or not promise at all because performance depends solely on the decision of the teacher. There is no bargained-for exchange and the teacher is not obligated to provide the party. Chapter 8

Circumstantial Consideration
Certain forms of consideration are only legally binding in the proper circumstances. If the circumstances are not present, then there is no valid consideration. Illusory promises Existing duty Mutual Gifts Past Performance

Chapter 8 Circumstantial Consideration 5/14/2018 (continued) Illusory promises If a contract contains a clause that allows you to escape the legal obligation, the promise is said to be illusory. “Paint the house – if you have time” Termination clauses Businesses often want the power to withdraw from a contract if business circumstances change. The clause gives one party the power to terminate the contract for any reason The promise is not illusory if termination is allowed only after a change in defined circumstances, after the passage of a certain length of time, or after a set period after a notice of termination is given To be consideration, a promise must be binding In other words, the promise must create a duty or impose an obligation. Read the first bullet. Paint the house if you have time – this does not increase your legal obligation because you may never have time to paint the house. READ Termination clause – Move, go bankrupt, lose money Chapter 8

Chapter 8 Circumstantial Consideration 5/14/2018 (continued) Output and requirements contracts Output contract Agreement to purchase all of a particular producer’s production Requirements Contract Seller agrees to supply all of the needs of a particular buyer Fair Dealings Courts recognize these contracts as supported by consideration because they imply a duty of fair dealing READ Output requirements – steel company may buy all of the output of a nearby coal mining company READ Requirements contract – a Carburetor manufacturer may agree to supply all the carburetors needed for the production of a certain make of vehicle When these types of contracts exist, one party can not simply NOT fulfill the requirement and get out of the contract. It implies the duty of fair dealing This is a form of consideration and the contract is legally binding. Chapter 8 Slide 18 18

Chapter 8 Circumstantial Consideration 5/14/2018 (continued) Existing duty - A person sometimes promises to do something that he or she already is obligated to do by law or by prior contract Existing public duty Existing private duty Settlement of liquidated debts Settlement of un-liquidated debts Release Composition of creditors READ EXISTING DUTY- We’ll talk about each separately Chapter 8 Slide 19 19

Circumstantial Consideration: Existing duty
Chapter 8 5/14/2018 (continued) Circumstantial Consideration: Existing duty Existing public duty Ex. Promise to pay money for a 16 year old not to purchase alcohol. Existing private duty If a contract creates a duty, this duty cannot be the basis of consideration in a different contract READ EXISTING PUBLIC DUTY- An example of this would be having an existing duty not to purchase alcohol until you are of legal age. So if on your 16th birthday, an Aunt promises to give your $10K if you promise to not purchase alcohol for two years and you sad ok, this would not be a contract. Why? Because in two years you will only be 17 or 18 and you still can not purchase alcohol You have an existing public duty to NOT purchase alcohol at that age. While the agreement creates a benefit for you, you don’t incur a detriment because you are not giving up a legal right. This can not serve as consideration. READ EXISTING private duty So if I have to perform a service in order to fulfill a contract, once that duty is fulfilled, that contract must end. A new contract can not be created (or new terms added) . If a buy a house and enter into a contract to pay the house in 15 years. If I’ve done that, the bank must give me the deed to the house. They can’t say, now you have to give use $3000 more dollars before we let you have the house or you have to build a fence. Chapter 8

Chapter 8 5/14/2018 (continued) Circumstantial Consideration: Existing duty Settlement of liquidated debts Liquidated debts is one where the parties agree that the debt exists and on the amount of the debt. When a creditor (a person to whom a debt is owed) agrees to accept less than the total amount due in full settlement from a debtor (a person who owes money to a creditor) there is no consideration if the debt is liquidated. Read page 144, second column, second paragraph under ‘Settlement of liquidated debts. Assume that Shawver… Just because the creditor accepts the money, does not mean that that is consideration to ‘waive’ the amount. The debt is liquidated because both parties agree that there is a debt and they agree on the amount of the debt. (Shawver send a check and an note so he wasn’t disputing the debt) . The subsequent paragraphs go on to say that a debtor can settle a claim by paying less than the full amount if additional consideration is given and there is mutual agreement between the creditor and the debtor. E.g. payment of less than the full amount by the due date. Chapter 8

Chapter 8 5/14/2018 (continued) Circumstantial Consideration: Existing duty Settlement of unliquidated debts When there is a genuine dispute between the parties about how much is owed, the debt is referred to as unliquidated. In such case, a payment offered in full settlement by the debtor and accepted by the creditor settles the claim. This process is called an accord and satisfaction. READ SLIDE Read page. 145, first column, under settlement of unliquidated debts, about seven lines down, starting at “For example…. So again, since both the creditor and the debtor disagree on the amount due, this is called an unliquidated debt. In our example the debtor (person who owes the money) says the amount is $500. The creditor says it was $1000. Unliquidated debt. They compromise on $750 and this agreement becomes the ACCORD. Consideration (something for something) for the agreement or the accord was the mutual forbearance from going to court. When the compromised amount of $750 is paid, this act is called the SATISFACTION. Chapter 8 Slide 22 22

Chapter 8 5/14/2018 (continued) Circumstantial Consideration: Existing duty Release At the time most torts occur, the liability is unliquidated because the extent of damages is uncertain If a party settles a claim at this point, this is called a release Composition of creditors Agreement by a group of creditors to accept something less than the total amount of their claims as full payment In return, the creditor agrees not to file for bankruptcy This is called a composition of creditors. READ RELEASE The payment of money is sufficient consideration for the promise not to sue Many people are hurt financially by signing releases too soon. READ “in this case’ page 145. READ ‘Composition of creditor” Why would this be a good idea for creditors. Chapter 8

FALSE CONSIDERATION Mutual gifts Past performance
Chapter 8 5/14/2018 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 performance Contractual bargaining takes place in the present, for immediate or future performance by both parties. Therefore, an act that has already been performed cannot serve as consideration. Such act is called past consideration. Also under questionable consideration Along with circumstantial consideration (depending on the circumstances) is False Consideration (can never be consideration) Certain acts or promises are falsely identified as consideration but can never be. One example is Mutual gifts. Read What’s your verdict on page 145, left column. For the answer, read the paragraph under , MUTUAL GIFTS. Past performance: Read A question of ethics on page 146. This is an excellent example of past performance. You already performed the act. therefore this cannot be used as consideration and she is not legally bound to keep her promise. You did not say “I’ll jump your car for $25. You performed it out of the kindness of your heard. Chapter 8

8-3 When Consideration Is Not Required
Chapter 8 5/14/2018 8-3 When Consideration Is Not Required GOALS Distinguish situations in which consideration is not needed Recognize when the doctrine of promissory estoppel can be applied Chapter 8

EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION
Chapter 8 5/14/2018 EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises to charitable organizations Courts generally enforce promises (pledge) to charities provided the charity states a specific use for the money and actually acts in reliance on the pledge Promises covered by the UCC Firm offers Under the UCC, a merchant who makes an offer in a signed writing to buy or sell goods and promises to leave the offer open is bound for up to three months even when no payment or other consideration has been given for the promise. Modifications Under the UCC, a good-faith agreement that modifies an existing contract for the sale of goods needs no new consideration. Chapter 8

Chapter 8 5/14/2018 EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises barred from collection by statute Statute of limitations State laws setting time limits for bringing a lawsuit In many states, that statute of limitations for breach of contract or torts is three years Debts discharged in bankruptcy Sometimes, even after a debt has been discharged as a result of the debtor declaring bankruptcy, the obligation may be reaffirmed or reinstated by a promise of the debtor. This is often done when someone close to the debtor cosigned or guaranteed payment on the debt. Promissory estoppel Promise is enforced even though no consideration is given for it Chapter 8

Chapter 8 5/14/2018 EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promissory estoppel Promise is enforced even though no consideration is given for it Under the doctrine of consideration, if a person cannot claim they did not get what they demanded in return for being bound to their promises, then those promises can be enforced against them. For the courts to invoke promissory estoppel, the following conditions must be met: The promisor should reasonably foresee that the promisee will rely on the promise. The promisee does, in fact, act in reliance on the promise. The promisee would suffer a substantial economic loss if the promise is not enforced Injustice can be avoided only by enforcement of the promise Chapter 8

THINKING CRITICALLY ABOUT EVIDENCE
Chapter 8 5/14/2018 THINKING CRITICALLY ABOUT EVIDENCE Laura wanted to go to graduate school after college and she knew it would be very expensive. Her dad told her that if she would major in math instead of history, he would pay tuition in graduate school for a master’s degree. Laura majored in Math but her dad refused to pay for her graduate school tuition. Can Laura compel her father to pay? Chapter 8

Chapter 8 5/14/2018 ANSWER Laura can compel her father to pay under the doctrine of promissory estoppel if she has already enrolled and has a substantial bill that would cause her an economic loss if her father does not pay. Chapter 8

Six Major Requirements

Similar presentations

Presentation on theme: "Six Major Requirements"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Six Major Requirements

Similar presentations

Presentation on theme: "Six Major Requirements"— Presentation transcript:

Similar presentations

About project

Feedback