Section 8.1

1. Section 8.1

2. Chapter 8 Consideration Section 8.1 Consideration Section 8.2 Agreements without Consideration

3. What You’ll Learn • How to explain the legal concept of consideration (p. 164) • How to explain the types of consideration (p. 166)

4. What You’ll Learn • How to identify certain problems regarding consideration (p. 169) • How to identify the principles that apply to consideration in everyday life (p. 172)

5. Why It’s Important By understanding the concept of consideration, you will be able to avoid problems that frequently result when agreements lack this important contractual element.

6. Legal Terms • gratuitous (p. 164) • consideration (p. 164) • benefit (p. 164) • detriment (p. 164) • forbearance (p. 164)

7. Legal Terms • bargained-for exchange (p. 164) • unconscionable (p. 166) • release (p. 169) • accord and satisfaction (p. 170)

8. Section Outline Requirements of Consideration The Legal Concept of Consideration The Characteristics of Consideration

9. Section Outline Types of Consideration Money as Consideration Property and Services as Consideration A Promise Not to Sue Charitable Pledges

10. Section Outline Problems with Consideration Disputed Amounts Undisputed Amounts Consideration in Your Everyday Life

11. Pre-Learning Question Why is consideration one of the six elements of a legally binding contract?

12. Requirements of Consideration • The law has always refused to enforce most gratuitous, or free, agreements. • Parties to an agreement must surrender something of value in exchange for something else of value.

13. Requirements of Consideration This exchange, or the promise to exchange things of value, is what binds the parties to each other in a contractual relationship. This binding element is known as consideration.

14. Requirements of Consideration Consideration distinguishes a legally binding agreement from other types of agreements, such as social agreements that contain an offer and an acceptance.

15. The Nature of Consideration Consideration is the exchange of benefits and detriments by parties to an agreement.

16. The Nature of Consideration • A benefit is something that a party was not previously entitled to receive. • A detriment is any loss suffered.

17. 8.1 Consideration

18. The Nature of Consideration There are three types of consideration. • Giving up or promising to give up something that you have the legal right to keep.

19. The Nature of Consideration • Doing something or promising to do something that you have the legal right not to do. • Not doing something that you have the legal right to do, which is known as forbearance.

20. The Characteristics of Consideration Consideration must involve these key characteristics: • Bargained-for exchange • Something of value • Legal benefits and detriments

21. What is the difference between a benefit and a detriment?

22. ANSWER A benefit is something that a party was not previously entitled to receive, and a detriment is any loss suffered.

23. Bargained-for Exchange An agreement involves a bargained-for exchange when a promise is made in return for another promise, an act, or a promise not to act.

24. Something of Value • The law has no specific value requirements on consideration. • All that matters is that the parties agreed freely on the value and the price.

25. Something of Value • Usually the courts will not even consider whether the value of the consideration is adequate. • However, a contract may be deemed unconscionable, when the courts believe the consideration is completely out of line.

26. Legality of Consideration The courts require that the consideration involved in an agreement be legal. If the consideration is illegal, the contract is invalid.

27. Pre-Learning Question Name one type of consideration.

28. Types of Consideration These include: • Money • Property • Services • Promises not to sue • Charitable pledges

29. Money as Consideration Unless price limits have been placed on certain transactions by administrative regulations, legislative fiat, or executive ruling, parties to a contract are free to exchange any amount of money that they negotiate.

30. Property and Services as Consideration Before money was accepted as a medium of exchange, it was common to use property and services as consideration.

31. Property and Services as Consideration Some parties still prefer to engage in barter agreements that involve goods and services.

32. A Promise Not to Sue If one party has the right to sue another party but gives up that right in exchange for something of value, the court will generally uphold the exchange as valid consideration.

33. A Promise Not to Sue Pending lawsuits are frequently settled in this manner. When a person accepts an offer and agrees not to sue, he or she is asked to sign an agreement, which is called a release.

34. Charitable Pledges Charitable organizations and nonprofit institutions often depend upon contributions. This dependency has led the court to enforce charitable pledges just as if they were contracts.

35. Pre-Learning Question What do you think happens when the parties to a contract cannot agree as to the actual amount of money owed?

36. Problems with Consideration When parties disagree about the amount of money that the debtor owes the creditor, a problem has arisen over the consideration involved.

37. Disputed Amounts If the parties to a contract cannot agree as to the actual amount owed, the amount is said to be in dispute.

38. Disputed Amounts A dispute can be settled by accord and satisfaction if the creditor accepts a payment that is less than the amount due as full payment.

39. Disputed Amounts • The acceptance by the creditor of less than what has been billed to the debtor is accord. • The agreed-to settlement as contained in the accord is the satisfaction.

40. Disputed Amounts The dispute must be real, must occur in good faith, and must not be trivial.

41. Undisputed Amounts If the parties have mutually agreed to a set amount of money in the contract, then the amount cannot be disputed.

42. Pre-Learning Question How does contractual consideration affect your everyday life?

43. Consideration in Your Everyday Life • Consideration distinguishes a legally binding agreement from all other types of agreements. • Consideration must be legal.

44. Consideration in Your Everyday Life • Paying a debt in advance is consideration for settling the debt for a lesser amount. • To be consideration, the act or promise must be bargained for.

45. Consideration in Your Everyday Life • Because charities depend on contributions, pledges are enforced like contracts. • A promise by one party not to sue another party is generally proven by evidence of a release.

46. Consideration in Your Everyday Life • Usually, a party will offer money in exchange for another party’s promise or performance. • Some people prefer to barter goods and services.

47. Consideration in Your Everyday Life • Generally, courts do not get involved in determining how much consideration is enough.

48. Consideration in Your Everyday Life • Forbearance involves promising not to do something that you are legally entitled to do.

49. Section 8.1Assessment Reviewing What You Learned • What is consideration?

50. Section 8.1Assessment Reviewing What You Learned Answer Exchange or the promise to exchange things of value in a contract; binds parties to each other in the contractual relationship.