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Business Law
Chapter 4: Consideration
(Bargained for Exchange)
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Introduction Consideration is often defined as some
right, interest, profit or benefit accruing
to one party or the loss, detriment or
responsibility assumed by another party
to the contract.
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Consideration is also a requirement of a
legally valid contract.
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What is consideration? The basic reason for a contract; a
person gives up something of value in
exchange for receiving something of
value through the contract.
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Why is consideration
required? Consideration is required for the
formation of a valid contract for the
simple reason that it shows the parties
intent to be bound.
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A one-sided promise does not put the
other party in any different footing than
he or she had prior to the promise.
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Types of Consideration A right
A profit
An interest
A physical object
A responsibility undertaken A legal detriment
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Legal Detriment
Consideration can also be satisfied
through actions.
When a person assumes a legal
detriment, this can also satisfy the
requirement of a consideration.
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Detriment The bargained for exchange" in a
contract, where the parties take on
some responsibility that they are not
legally obligated to undertake
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Proving Consideration
When the consideration for a contract is
under dispute, the parties involved must
devote time and energy in proving (or
disproving) the existence of
consideration.
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Many times, the contract itself will recite
the actual consideration.
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In many jurisdictions, there are legal
presumptions that may also help to
establish the existence of consideration.
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Written contracts, for example, are often
presumed to have consideration,
although the other party can rebut thispresumption.
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As a general rule, there is no
requirement that consideration for a
contract be recited or expressed in thewriting.
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Quid
ProQ
uo The phrase quid pro quo is a Latin
term that is usually translated as
something for something.
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Quid pro quo and
Consideration Quid pro quo is a general term;
consideration is a specific, legal term.
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Inadequate or Insufficient
Consideration Courts often refrain from determining
the value of the consideration.
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Parties are free to negotiate any
contract terms that they choose, as long
as the contract does not involve fraud,duress or undue influence over one
party, or a contract that is void for public
policy reasons.
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Inadequate consideration is not
considered insufficient consideration
and therefore will not automatically voida contract.
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Grossly Inadequate
Consideration Grossly inadequate consideration is
often a feature of unconscionable
contracts.
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An unconscionable contract is one in
which the terms or bargain is so
obviously one-sided that the contractshould be voided for public policy
reasons.
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Contracts Under Seal Seals are rare in modern contracts.
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Under the common law, a contract
under seal was presumed to have
consideration and therefore noadditional evidence or testimony about
the consideration was required.
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Legal doctrines that affect
consideration Courts have created several legal
doctrines that affect the analysis of
consideration in a contract.
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Promissory Estoppel
The basic idea behind estoppel is that
when person A makes a statement that
person B relies upon, A is preventedfrom denying the truth of his statement.
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What is Estoppel?
When a person is barred by prior
actions from claiming a right or a duty
against another person who relied, ingood faith, on those actions.
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Promissory Estoppel and
Consideration Under the theory of promissory
estoppel, when Party B suffers some
legal detriment as a result of thecontract, Party A cannot claim that there
was no consideration for the contract.
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The Elements ofPromissory
Estoppel 1) there was a clear and definite
promise; 2) the promisor intended to
induce reliance, and that relianceoccurred; and 3) the only way to avoid
injustice is to enforce the contract.
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Waiver
When a person gives a waiver, he or
she surrenders a right, requirement or
obligation.
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Accord and Satisfaction When parties change the terms of their
contracts, or negotiate entirely new
contracts based partly on a previouslyexisting contract.
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Contracts for an Illegal
Purpose A contract that contemplates an illegal
purpose, such as a criminal act, will not
become enforceable simply because itis supported by consideration.