Bellwork:

• Read pages 139 - 141• Copy and define all vocabulary (highlighted) in section 8-1 (p

139) of the text

ConsiderationChapter 8

8-1 Types of Consideration

GOALS:• Identify the three requirements of

consideration• Recognize the various forms of

consideration

Hot Debate

page 138

Focus:

List five promises you have recently made. Beside each promise list what you have received in return. Your list may include all forms of promises from calling a friend to promises to perform work

WHAT'S YOUR VERDICT?

p 139

Think Critically Through Visuals

picture, page 140

Consideration

• Consideration – is what a person legally demands and generally must receive in order to make her or his promise legally binding.

The three requirements of considerations.

• Each party must give an act, forbearance, or promise to the other party.

• Each party must trace what they contribute to the transaction (act, forbearance, or promise) 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.

Possible Types of Consideration

• a promise• an act other than a promise• forbearance• a change in a legal relation of the parties• money• other property

Consideration is what distinguishes a contractual promise from a promise to

make a gift.

Gift

• A gift is a transfer of ownership without receiving anything in return.

• A promise to make a gift is generally not legally enforceable.

• Only after the donor (the person giving the gift) intentionally gives it to the donee (the person getting the gift, and the donee accepts the gift does the transaction become legally binding.

Forebearance

• Forbearance – the promise not to do something.

Trading

• In most cases a contract is made when one party exchanges a promise for the promise of the party on the other side. (Consideration must be mutual)

• Promisor - the person promising an act or forbearance

• Promisee – the person to who the promise is made.

I'll gladly pay you Tuesday for a hamburger today.

http://www.styleofeye.com/images/wimpy-from-popeye.jpg

Legal Value

• Legal value – means there has been a change in a party’s legal position as a result of the contract.

Adequacy of Consideration

• Generally consideration need not be of equal economic value.o Economic value is unimportant as long as there is

genuine agreement.

Think Critically Through Visuals

picture, p 141

In your groups, identify three variables that could be used to determine adequate consideration, or what acceptable consideration to the parties is.

Adequacy of Consideration

Discuss in your groups a time when the consideration you received was not of equal value to the service, money, or product you provided.

Unconscionable

• Sometimes when there is evidence of a mutual mistake, fraud, duress, or undue influence the consideration received by one party is grossly inadequate compared to the consideration received by the other party.

• In a case where consideration is one sided the consideration may be declared unconscionable (grossly unfair or oppressive).

Nominal Consideration

• Nominal consideration – is a token amount of consideration. o For instance you sell a car to a friend to help him or

her out at $1.00.

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8-2 Questionable Consideration

GOALS Describe situations in which consideration is present only

under limited circumstances.• Recognize when what appears to be binding

consideration is not.

Circumstantial Consideration

• Certain forms of consideration are only legally biding in the proper circumstances.

• If these circumstances, in the form of properly worded contract provisions or pattern of behavior are not present, what would appear to be valid consideration is not.

Illusory Promises

• Illusory Promise – when a contract contains a clause that allows you to escape the legal obligation, the promise is said to be illusory.

Termination Clauses

• These are clauses that businesses add into contracts in case business circumstances change.

Output Contract

• When buyers agree to buy all of a particular producer’s production.

Requirements Contract

• When a seller agrees to meet all of the needs of a particular buyer.

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What's Your Verdict?Page 143

Existing Duty

• A person promises to do something that he or she is already obligated to do by law or by prior contract. Such a promise, or act, cannot serve as a consideration to bind the other party to the contract.

Existing Public Duty

• By doing you public duty you cannot use that act as a promise to enter into a contract.

Existing Private Duty

• By doing something that is already your private duty, or obligation, you cannot use the promise of the act to enter into a contract.

Statement of Liquidated Debts

• A liquidated debt is one where the parties agree that the debt exists and on the amount of the debt.

• When a creditor agrees to and releases a debtor

from part or all of the debt that portion is said to be liquidated.

Settlement of Unliquidated Debts

• When there is a dispute between the two parties as to the amount owed, the difference in the debt is referred to as unliquidated.

Accord and Satisfaction

• When the creditor agrees to receive less than full amount owed by the debtor this process is known as accord and satisfaction.

• Accord – The new agreed upon amount of debt.• Satisfaction – The newly agreed upon amount of

debt when it is paid by the creditor.

What do you think?

Ryan owed a friend Darren, $900 for an unpaid debt. The amount owed was undisputed. One day, Darren saw Ryan on the street and asked him for the money. Ryan responded, “I don't have $900, but I'll pay you $500, take it or leave it? Darren agreed to the lesser amount. Can Darren sue Ryan for the unpaid $400?

Release

• A Release is an acceptance of consideration in exchange for a promise not to sue in a case where damages have not yet been determined, aka the damages are unliquidated.

• Releases are usually used in a tort case where one party has suffered damages at the hands of another.

In This Case: Page 145

• What would Grant be able to sue for?• Who would Grant be able to sue?• What would the courts look at in this case?• Do you think Grant will be successful in suing the

lawnmower company? Why or why not?

XYZ Pharmaceuticals

• XYZ Pharmaceuticals contracts with Dyno Labs in Burma to manufacture Goo Great baby formula, which XYZ Pharmaceuticals plans to sell and distribute under their own label in Burma. What type of contract has XYZ Pharmaceuticals and Dyno Labs entered into?

Composition of Creditors

• When creditors cooperate and agree to accept less from a debtor then they are entitled to in exchange for the debtor agreeing not to file bankruptcy.

Checkpoint

 Page 145

What do you think?

Comment in a papragrah of at least three sentences on the following: "Accepting partial payment of a debt as payment in full may be better than going to court to get the full amount due."

What’s Your Verdict: Page 145

What do you think?

Whould you expect to be paid for giving aid?

False Consideration

• Certain acts and promises are falsely identified as consideration by can never be 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

• An act that has already taken place cannot serve as consideration, such an act is called past performance.

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Exceptions to the Requirement of Consideration

• There are exceptions to the rule that consideration is necessary to bind someone to their promise.

A Question of EthicsPage 146

Checkpoint

Page 146

8-3 When Consideration Is Not Required

GOALS:• Distinguish situations where

consideration is not needed.• Recognize when the doctrine of

promisory estoppel can be applied.

What do you think?

Why are acceptions to the doctrine of consideration needed?

What's Your Verdict?Page 147

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Promises to Charitable Organizations

• Courts generally enforce promises for charitable giving provided:o The charity states a specific use for the money.o The charity actually relies on the pledge.

Think Critically Through Visuals

Picture on, p 147

 

Promises Covered by the UCC (Uniform Commercial Code)

• Firm Offers• Modifications

Firm Offers

• A merchant who makes an offer in a signed writing to buy or sell goods or promises to leave the offer own bound for up to three months even when no payment or other consideration have been given for the promise.

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Modifications

• A good-faith agreement that modifies an existing contract for the sale of goods needs no new consideration.

Quick Activity

Draft a written firm offer to buy a large lot of goods from a local retailer. 

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Promises Barred from Collection by Statue

• Certain statues may prevent you from collecting on a promise.

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Statue of Limitations

• Statue of limitations are set by the state and specifies a time limit from brining a lawsuit.

• In many states (not all) for a tort the state of limitations is three (3) years.

• In Pennsylvania in most cases it is two (2) years.• http://www.statutes-of-limitations.com/state/p

ennsylvania

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Debts Discharged by Bankruptcy

• Sometimes even after a debt has been discharged as a result of the debtor declaring bankruptcy, the obligation may be reinstated by a promise of the debtor. o This is most often done when someone close the

debtor cosigns or guarantees payment on the debt.

Law Brief Page 148

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Promissory Estoppel

• Promissory estoppel prevents promissors from stating in court that they did not receive consideration for their promise.

• Promissory estoppel is used to prevent an injustice in the legal system.

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Conditions for Promissory Estoppel

• The promisor should reasonably foresee that the promissee will rely on the promise.

• The promissee 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.

Checkpoint

Page 148

Closing Activity

Make a pledge card for a funraising events sponsored by school groups.   The cards should include:• The name of the organization.• What the funds will be used for.• Spaces for the amount of the pledge.• How and will the pledge will be paid.• The signature of the would-be doner.

Computer ActivitiesActivity #1Find and compare the polices of threeorganizations or institutions as to the collection of pledges. 

Activity #2Use the computer to research and answer the following questions.

• What is Chapter 7 Bankruptcy?• What is Chapter 11 Bankruptcy?• What is Chapter 13 Bankruptcy?• If you were a creditor what chances do you think you would have in

receiving repayment in each of the above types of Bankruptcy?

Activity #3Create two comic strips illustrating a paymentproblem and how its settlement involved either anaccord and satisfaction of other means ofresolution.