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Consideration

Consideration. The 5 th Element of Contracts. Requirements of Consideration Section 8.1. The law has always refused to enforce most gratuitous , or FREE, agreements. The terms of an agreement must be bargained for if they are to be binding on the parties.

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Consideration

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  1. Consideration The 5th Element of Contracts

  2. Requirements of ConsiderationSection 8.1 • The law has always refused to enforce most gratuitous, or FREE, agreements. The terms of an agreement must be bargained for if they are to be binding on the parties. • Consideration distinguishes a legally binding agreement from other types of agreements. Many agreements are NOT legally binding because they lack consideration.

  3. The Legal Concept of Consideration • Consideration is the exchange of benefits and detriments by parties to an agreement. • Benefit is something that a party was not previously entitled to receive. • Detriment is any loss suffered.

  4. The Characteristics of Consideration Consideration has 3 key characteristics: Promises must involve the concept of a bargained-for exchange. Something of value must be involved. The benefits and detriments promised MUST be legal.

  5. Characterisitic #1“bargained-for exchange” • An agreement involves this when a promise is made in return for another promise, and act, or a promise not to act. • An example is on the next slide.

  6. Bargained-For Exchange • Legal Detriment: The promise to give up the $3500 • Benefit: The right to receive money I’ll sell you my car for $3500 I’ll buy it for that price. Legal Detriment: The promise to give up the car. Benefit: The right to receive the car

  7. Characteristic #2“something of value” • The law has no specific value requirements on consideration • Consequently, a promise to help a friend clean her room can be considered something of value promised. • All that matters is that the parties agreed freely on the value and the price.

  8. Characteristic #3“Legality of consideration” • The courts require that the consideration be legal • Illegal = invalid • A party cannot agree to something that he or she does not have the legal right to do • Nor can they agree to give up something that they do not legally own

  9. Types of consideraton • Money as Consideration – usually, one party will offer money in exchange for another's promise or performance • Property & Services as Consideration – some parties still prefer to engage in barter agreements that involve goods & services • A Promise Not to Sue – one party can give up the right to sue in exchange for something of value; this is a clear example of forbearance

  10. Types continued….. • Charitable Pledges – non-profit organizations depend on contributions—courts have been enforcing these pledges as if they were contracts

  11. Problems with Consideration • Disputed Amounts – if parties cannot agree to the actual amount—a dispute can be settled by accord and acceptance • Accord – the acceptance by the creditor of less than what was billed • Satisfaction – agreement to the settlement

  12. Problems continued…. • Undisputed Amounts – if the parties have mutually agreed to the set amount of money in the contract, then the amount cannot be disputed—problem would be living with the decision afterwards even if there is a better deal. Boo Hoo!!

  13. Enforceable agreements without consideration There are some agreements in which the requirement of consideration is eliminated. Some courts have chosen to eliminate the requirement of consideration in certain kinds of agreements. Note that different states have different rules—so check them out before you enter a contract.

  14. examples • Promises Under Seal – a mark or impression placed on a written contract • Promises After Discharge in Bankruptcy – state laws vary, but most debt discharged in a bankruptcy that is reaffirmed(person decides to pay), the courts will not require a new consideration for that contract • Debts Barredby Statute of Limitations – different states set different time limits for collection of debt; can run from 3 to 10 years

  15. Examples Continued… • Promises Enforced by Promissory Estoppel – the doctrine is used to prevent injustice when a person changes his or her position significantly in reliance on another person’s promise, and the promise is not fulfilled • Option – an offeree will give consideration to an offeror in exchange for a promise from the offeror to keep an offer open for a specific period of time

  16. Questions?

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