Types of Consideration in Contracts: A Comprehensive Analysis

1. CHAPTER 8Consideration 8-1 Types of Consideration 8-2 Questionable Consideration 8-3 When Consideration Is Not Required

2. 8-1 Types of Consideration • GOALS • Identify the three requirements of consideration • Discuss the adequacy of consideration Chapter 8

3. 3 Requirements of Consideration Each party must make a promise, perform an act or forbear (refrain from doing something) Each party’s promise, act or forbearance must be in exchange for a return promise, act or forbearance by the other party. What each party exchanges must have legal value; must be worth something in the eyes of the law. Chapter 8

4. TYPES OF CONSIDERATION • Promise, act, or forbearance • Have value in the eyes of the law • Consideration and a valid contract • Contractual exchange • Consideration must be mutual Chapter 8

5. TYPES (cont’d) • Legal value • Act and promise have legal value to each party • Exchange of benefits • Adequacy of consideration • Values placed on property may vary widely. • If grossly inadequate, courts will intercede • Nominal consideration • Token amount Chapter 8

6. 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 • What's In It For Me? Chapter 8

7. CIRCUMSTANTIAL CONSIDERATION • Illusory promises • Termination clauses • Output and requirements contracts • Existing duty • Existing public duty • Existing private duty • Settlement of liquidated debts • Settlement of unliquidated debts • Release • Composition of creditors Chapter 8

8. FALSE CONSIDERATION • Mutual gifts • Something of value is given by one to another without demanding anything in return. • Past consideration • An act that has been performed cannot serve as consideration for a later promise Chapter 8

9. 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

10. EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION • Promises to charitable organizations • Church – school - hospital • Promises covered by the UCC • Firm offers • Modifications • After sale has been made, seller agrees to give the buyer a valid warranty without further charge. Chapter 8

11. Exceptions (cont’d) • Promises barred from collection by statute • Statute of repose and limitations • Time limit to bring a lawsuit • Debts discharged in bankruptcy • Promissory estoppel • Courts can take certain actions in the name of basic fairness Chapter 8

12. PREVENTLEGALDIFFICULTIES • 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 Chapter 8

13. PREVENTLEGALDIFFICULTIES • 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 Chapter 8

14. PREVENTLEGALDIFFICULTIES • 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. Chapter 8