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Chapter 8
Mutual ConsiderationBusiness Law
Ms. Turner
Gift• Transfer of ownership without receiving
anything in return
Donor transfers ownership with intent to
donee.
A promise to make a gift is not enforceable.
3 Requirements of Consideration
1) Each party must give an act, forbearance, or
promise to the other party.
Act – doing something
Forbearance – not doing something
Promise – something in the future
3 Requirements of Consideration(continued)
2) Each party must trade what they contribute to the transaction (act, forbearance, promise) for the other party’s contribution
Promisor – person making the promise
Promisee – person to whom promise is made
If either party does not give consideration, other party has no duty to perform
3 Requirements of Consideration(continued)
3) What each party trades must have legal
value
Legal Value – change in a party’s legal position as a
result of a contract; may mean an increase in legal
rights or duties
Types of Exchanges
1) Exchange of two benefits
– Getting money, fixing roof
2) Exchange of benefit for detriment
– “If you don’t smoke until you’re 25, I’ll give you $25,000”
3) Exchange of two detriments
– Forbear from buying a dog in return for forbearance to build a fence
What parties give and receive
need not be of equal economic
value
Economic value is not
important as long as there is
genuine agreement
Nominal Consideration
• Giving a token amount as
consideration
Legal Value Issues
1) Illusory Promises – unenforceable – uncertainty
of performance
Termination Clauses –unenforceable if clause
gives one party the power to terminate for any
reason; enforceable if change is specified or if
time limit is included
Output Contract – enforceable – buyers agree to buy everything a producer produces
Requirements Contract – enforceable –seller agrees to supply all needs of a buyer
Implied Duty of Fair Dealings
• When termination clauses, output and
requirement clauses create illusory
promises, this binds the parties by fair
dealings
Legal Value Issues(cont.)
2) Existing Duty
– If obligated by law or by prior contract,
it is NOT consideration
Existing Public Duty
– Obligated by law (purchasing alcohol
before 21)
Existing Private Duty
– If consideration
for another
contract, cannot
act as
consideration for
a new contract
Ex.
Borrow $2,000 + 10%
interest = $2,200; on due
date, $2,000 is paid.
Check is endorsed, but
can later sue for balance
because no new
consideration was given
Ex.
If partial payment is made
before the due date, this
can be considered
consideration (early
payment) and debt is
satisfied if mutual
agreement exists
certain,
undisputed
Settlement of Liquidated Debts –Parties agree to the debt and the amount of the debt
Settlement of Unliquidated Debts –When dispute exists about amount of debt
Ex.If one thinks $1,000, the
other thinks $500—agree on $750—it is binding; consideration is forbearance from litigating-----ACCORD AND SATISFACTION
Ex.If debtor sends check with
“In full settlement of all claims outstanding” and creditor cashes the check, debt is settled
uncertain,
disputed
Release
• After a tort occurs, settlement amount is
uncertain; signing a letter of release
settles the claim. Consideration is
forbearance from suing.
Composition of Creditors
• Occurs when creditors cooperate to take
less than amount owed to them as
settlement – debtor agrees not to file for
bankruptcy.
Creditor – person/business to whom $
is owed
Debtor – person/business that owes $
Bargained-for Exchange
Mutual Gifts
– Exchange of two
gifts – not
enforceable
Past Performance
– An act that has
already been
performed cannot
serve as
consideration
Exceptions to Consideration Requirement
1) Promissory Estoppel
– Containing a promise and forbidding by
law a person from contradicting a
previous act
4 Conditions that must be met
1) Promisor can reasonably foresee that the
promisee would rely on the promise;
2) Promisee does rely on the promise;
3) Promisee would suffer economic loss if
promise is not enforced; and
4) Injustice can only be avoided if promise is
enforced.
Exceptions to Consideration Requirement(cont.)
2) Promises to Charitable Contributions
(Pledges)
– Courts will enforce a pledge if the charity
states specific use of the money.
Exceptions to Consideration Requirement(cont.)
3) Statute of Limitations
– Specifies time limit to bring a lawsuit
• Breach of contract or torts = 3 years
• Some states will enforce promise to pay if in
writing
Exceptions to Consideration Requirement(cont.)
4) UCC (Uniform Commercial Code)
Option Contract – giving $ to keep offer open
Firm Offer (merchants) – signed writing keeping offers
open up to 3 months
Modifications – after sale of goods, modifications can be
made without consideration
If this were the opera, it would be over now. . .