Consideration

1. Consideration Chapter 8

2. What is Consideration? • Consideration – what a person demands and generally must receive in order to make his or her promise legally binding. • Car Dealership – money or financing • Purchaser – the car

3. 3 Requirements of Consideration • Each party must make a promise, perform an act, or prevent from doing something • Each party’s promise, act, or forbearance must be in exchange for a return promise, act, or forbearance from the other party • What each party is exchanging must have legal value – worth something in the eyes of the law

4. Contractual Promise vs. Gift • Consideration differentiates the two: • A gift is a transfer of ownership without receiving a return • A promise to make a gift is usually not legally binding • A donor (person giving a gift)intentionally transfers the gift to the donee (person receiving the gift) • When the donee accepts the gift, the transaction becomes legally binding

5. Promise, Act, or Forbearance • When looking for consideration, look for LEGAL VALUE in the act that is promised. • If someone promises forbearance (not to do something), look beneath the promise and ask if the forbearance has legal value.

6. Legal Value • Legal Value – means there has been a change in a party’s legal position as a result of the contract. Exchange of 2 benefits. • Examples: • Feed my dog and I’ll pay you $100 • Mom tells you if you don’t have a Sweet 16 party, she’ll buy you a car at 17 • You tell your neighbor you will refrain from buying a dog, if she refrains from building a fence

7. Analyze & Discuss • Jose was talking to his brother about the upcoming graduation of his nephew Kyle. Jose mentioned he was thinking about buying Kyle a motorcycle as a graduation present. Benton’s brother, concerned about the safety of owning a motorcycle, offered Jose $1000 not to do so. Jose, who did not have the money to buy the motorcycle at the present time, accepted. Is there consideration for the brother’s promise to pay $1000. If so, what is it?

8. Section 2 Questionable consideration

9. Circumstantial Consideration • Certain forms of consideration are only legally binding in the proper circumstances. • Illusory Promises – a promise must create a duty or impose an obligation to be legally binding. If a contract creates an escape, it is illusionary. • Termination Clauses – businesses often want the power to withdraw • Termination Clause must be included in original contract • Output Contracts – when a buyer agrees to buy ALL of a product • Requirements Contracts – when a seller may agree to supply ALL of the needs for a particular buyer

10. Circumstantial Consideration • Certain forms of consideration are only legally binding in the proper circumstances. • Existing Duty – when a person promises to do something that they are already obligated to do by law. These CANNOT serve as consideration. • Existing Public Duty – public servants (police, fire, etc.) are expected to serve the public on and off duty • Existing Private Duty – a persona cannot demand additional compensation for carrying out a contract. • Settlement of Liquidated Debts – when a creditor agrees to accept a lesser amount of a debt, they cannot demand more. • Settlement of Unliquidated Debts – when there is a dispute about how much is owed. The agreed amount becomes the new binding amount. • Release- when a tort occurs, financial pressure the injured party will agree to release liability • Composition with Creditors – creditors will agree to accept less if the debtor agrees to not file bankruptcy.

11. False Consideration • Some acts or promises are falsely identified as consideration, but NEVER CAN BE • Mutual Gifts • Past Consideration – an act, promise, or forbearance that has already taken place cannot serve as consideration.