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CHAPTER 8 Consideration

CHAPTER 8 Consideration. 8-1 Types of Consideration 8-2 Questionable Consideration 8-3 When Consideration Is Not Required. 8-1 Types of Consideration. GOALS Identify the three requirements of consideration Recognize the various forms of consideration.

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CHAPTER 8 Consideration

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  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 • Recognize the various forms of consideration Chapter 8

  3. The 3 Elements To Qualify As Consideration: • Act, forbearance, or promise to the other party • Trading contributions • Legal value-it must be worth something in the eyes of the law Chapter 8

  4. New Law Terms • Donor- person giving gift • Donee-person receiving gift • Promisor-a person promising an action or forbearance • Promisee-persom to whom the promise is made Chapter 8

  5. Adequacy of Consideration- need not be of equal value exchanged. Nominal Consideration- the old $1 trick……….. 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 Chapter 8

  7. FOCUS Scenario- an illusory promise • 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

  8. DEFINITION: • If a contract contains a clause which allows a party to escape the legal obligation, the promise is said to be • ILLUSORY from the word illusion Chapter 8

  9. CIRCUMSTANTIAL CONSIDERATION • Illusory promise is an escape clause • Types of Illusory clauses • Termination clauses in business contracts are illusory because they give an out. • Output and requirements contracts- • Buy all of one’s output is an output contract • Supply all you need is requirements contract. Chapter 8

  10. CIRCUMSTANTIAL CONSIDERATION (continued) • Existing duty- one that is already required by law page 144 • Existing public duty • Existing private duty • Settlement of liquidated debts-parties agree to amount of debt • Settlement of unliquidated debts-disagree Leads to accord and satisfaction of debt • Release-payment for promise not to sue. • Composition of creditors-page 145 Chapter 8

  11. FALSE CONSIDERATION -two types to know: • Mutual gifts-page 145 • Past performance- is not considered consideration because it is an act already done in the past. Chapter 8

  12. What distinguishes a gift from a valid contract? The lack of consideration for the gift. Chapter 8

  13. 8-3 When Consideration Is Not Required and you are still legally bound!!!! GOALS • Distinguish situations in which consideration is not needed • Recognize when the doctrine of promissory estoppel can be applied Chapter 8

  14. FOCUS • Why are exceptions to the doctrine of consideration needed? • Because people make promises that others tend to rely upon, such as charitable organizations, hospitals, etc. Chapter 8

  15. EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION • Promises to charitable organizations • Promises covered by the UCC • Firm offers-affects merchants for 3 months • Modifications-warranties after the fact. • Promises barred from collection by statute • Statute of limitations-for debt mostly 3 years • Debts discharged in bankruptcy- but then repromised by the debtor • Promissory estoppel-read page 148 Chapter 8

  16. What is Promissory Estoppel? • Promissory estoppel is a legal doctrine used in American law. Promissory estoppel allows a party to recover on a promise even though that promise was made without consideration. Essentially it prevents, or estops, a person from arguing that his or her promise should not be upheld. It also requires that reliance on the promise was reasonable, and that the person trying to enforce the promise actually relied on the promise to his or her detriment. Chapter 8

  17. Example of Estoppel • An example of promissory estoppel is where an employer orally promises to pay an employee a monthly amount for the remainder of her life as retirement. If the employee reasonably relies on the promise and retires, the employer will likely be estopped, because based on the doctrine of promissory estoppel, from reneging on his promise to pay a monthly retirement payment. Chapter 8

  18. Name four exceptions to the requirement of consideration. 1-charitable organizations 2-those covered by the UCC 3-Statute of Limitations 4-Promissory Estoppel Chapter 8

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