CONSIDERATION

1
Chapter 11

• CONSIDERATION

2
Consideration - Definition

• A basic requirement of a contract is legally
  sufficient consideration
• A promise unsupported by consideration can not be
  enforced.
• Consideration is something of value it must be
  legally sufficient (either the promisor incurs
  some beneftit OR the promisee incurs a detriment)
  there must be a bargained-for exchange

3
Legal Detriment

• By legal detriment, we mean creating, modifying,
  or giving up a legal right, which is not the same
  as an economic, or actual detriment.
• Example - Andy promises to pay Bill 15 if he
  delivers a book to Carl. Andys promise is
  binding because Bill incurred a legal detriment
  by delivering the book to Carl, as Bill was under
  no prior obligation to do so. Andy and Bill have
  bargained for this transaction.

4
Gratuitous Promises - Gift Promises

• Purely social or gratuitous gift promises are
  not legally enforceable
• To change a gift promise into a legally
  enforceable promise, the promisee must do
  something in exchange. (Mrs. Colbys promise to
  give her niece 10,000 is unenforceable UNLESS
  niece does something in exchange, i.e, get
  straight As)
• EXCEPTION, Promissory Estoppel (Jim pledges to
  donate 10 million to university. The university
  begins construction. Jim cant retract pledge.)

5
Illusory Promises

• A contract that provides the parties only have to
  perform if they choose to. The parties can
  choose not to perform their contractual
  obligations.
• Illusory promises are without consideration and
  are unenforceable
• All I wish or All I desire is illusory
• BUT, output and requirement contracts are NOT
  illusory (All I need, All I require, All I
  produce). They are enforceable.

6
Pre-Existing Duty Rule

• A promise to do what one already has a legal duty
  to do does not constitute legally sufficient
  consideration (police catch thief)
• The pre-existing duty rule is designed to prevent
  extortion a hold-up of contracts.
• EXCEPTIONS
• Unforeseen difficulties the contract can be
  modified.
• Good faith oral modification of a contract for
  the sale of goods.
• B

7
Past Consideration

• Promises made after the promisee has already done
  something, are unenforceable (i.e., Toms promise
  to pay Cindy 25 after Cindy has already found
  his wallet, is legally unenforceable)
• Remember, consideration must be a bargained-for
  exchange Consideration is required to support a
  promise and to induce performance (which you
  cant have for an act already performed)
• Exception - Promises made after past acts
  rendering emergency services may be enforced.

8
Liquidated and Unliquidated Debts

• Unliquidated debts - Amount of debt is genuinely
  disputed. These debts may be COMPROMISED by the
  payment of a smaller amount due under an existing
  obligation, called an accord and satisfaction
  (100,000 computer system does not work as
  promised. To settle the dispute the parties agree
  that 700,000 will be paid in full and final
  payment for the system X writes payment in
  full on back of check).
• Liquidated debts - Debts that are undisputed, due
  and certain, may not be compromised. Partial
  payment of liquidated debts are NOT consideration
  for a promise by the creditor to accept a lesser
  amount (because the debtor has a pre-existing
  duty to pay). But,a smaller payment can be made
  if there was new consideration OR the agreement
  to pay the smaller sum was made before the debt
  actually became due.

9
(No Transcript)