Consideration

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Section 8.1
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Chapter
8
Consideration
Section 8.1 Consideration Section
8.2 Agreements without Consideration
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What Youll Learn

• How to explain the legal concept of consideration
  (p. 164)
• How to explain the types of consideration (p. 166)

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What Youll Learn

• How to identify certain problems regarding
  consideration (p. 169)
• How to identify the principles that apply to
  consideration in everyday life (p. 172)

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Why Its Important
By understanding the concept of consideration,
you will be able to avoid problems that
frequently result when agreements lack this
important contractual element.
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Legal Terms

• gratuitous (p. 164)
• consideration (p. 164)
• benefit (p. 164)
• detriment (p. 164)
• forbearance (p. 164)

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Legal Terms

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

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Section Outline
Requirements of Consideration
The Legal Concept of Consideration The
Characteristics of Consideration
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Section Outline
Types of Consideration
Money as Consideration Property and Services as
Consideration A Promise Not to Sue Charitable
Pledges
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Section Outline
Problems with Consideration
Disputed Amounts Undisputed Amounts
Consideration in Your Everyday Life
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Pre-Learning Question
Why is consideration one of the six elements of a
legally binding contract?
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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.

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

• A benefit is something that a party was not
  previously entitled to receive.
• A detriment is any loss suffered.

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8.1
Consideration
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The Nature of Consideration
There are three types of consideration.

1. Giving up or promising to give up something that
   you have the legal right to keep.

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The Nature of Consideration

1. Doing something or promising to do something that
   you have the legal right not to do.
2. Not doing something that you have the legal right
   to do, which is known as forbearance.

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The Characteristics of Consideration
Consideration must involve these key
characteristics

1. Bargained-for exchange
2. Something of value
3. Legal benefits and detriments

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What is the difference between a benefit and a
detriment?
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ANSWER
A benefit is something that a party was not
previously entitled to receive, and a detriment
is any loss suffered.
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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.
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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.

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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.

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Legality of Consideration
The courts require that the consideration
involved in an agreement be legal. If the
consideration is illegal, the contract is invalid.
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Pre-Learning Question
Name one type of consideration.
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Types of Consideration
These include

• Money
• Property
• Services
• Promises not to sue
• Charitable pledges

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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.
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Property and Services as Consideration
Before money was accepted as a medium of
exchange, it was common to use property and
services as consideration.
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Property and Services as Consideration
Some parties still prefer to engage in barter
agreements that involve goods and services.
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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.
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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.
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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.
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Pre-Learning Question
What do you think happens when the parties to a
contract cannot agree as to the actual amount of
money owed?
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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.
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Disputed Amounts
If the parties to a contract cannot agree as to
the actual amount owed, the amount is said to be
in dispute.
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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.
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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.

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Disputed Amounts
The dispute must be real, must occur in good
faith, and must not be trivial.
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Undisputed Amounts
If the parties have mutually agreed to a set
amount of money in the contract, then the amount
cannot be disputed.
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Pre-Learning Question
How does contractual consideration affect your
everyday life?
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Consideration in Your Everyday Life

• Consideration distinguishes a legally binding
  agreement from all other types of agreements.
• Consideration must be legal.

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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.

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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.

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Consideration in Your Everyday Life

• Usually, a party will offer money in exchange for
  another partys promise or performance.
• Some people prefer to barter goods and services.

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Consideration in Your Everyday Life

• Generally, courts do not get involved in
  determining how much consideration is enough.

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Consideration in Your Everyday Life

• Forbearance involves promising not to do
  something that you are legally entitled to do.

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Section 8.1 Assessment
Reviewing What You Learned

1. What is consideration?

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Section 8.1 Assessment
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.
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Section 8.1 Assessment
Reviewing What You Learned

1. What are the types of consideration?

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Section 8.1 Assessment
Reviewing What You Learned
Answer
Money, property, services, promises not to sue,
and charitable pledges.
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Section 8.1 Assessment
Reviewing What You Learned

1. What problems can arise regarding consideration?

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Section 8.1 Assessment
Reviewing What You Learned
Answer
Disagreement as to the amount of money that the
debtor owes the creditor.
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Section 8.1 Assessment
Reviewing What You Learned

1. What are the principles that apply to
   consideration in everyday life?

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Section 8.1 Assessment
Reviewing What You Learned
Answer
Answers will vary, but may include consideration
binds the agreement it must be bargained for
charitable pledges are enforced as if they were
contracts
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Section 8.1 Assessment
Reviewing What You Learned
Answer
promises not to sue are usually evidenced by a
release money or services are offered as
consideration for another partys promise or
performance.
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Section 8.1 Assessment
Critical Thinking Activity Is Enough Really
Enough?
Why do the courts usually refuse to get involved
in disputes over the adequacy of consideration?
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Section 8.1 Assessment
Critical Thinking Activity Answer Is Enough
Really Enough?
The law usually refuses to get into disputes over
the adequacy of consideration because the value
of consideration is a matter of opinion.
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Section 8.1 Assessment
Legal Skills in Action Accord and Satisfaction
Your older sister is about to be married. She
purchased her wedding dress at the Duquesne
Department Store. Later, she had the dress
altered and added a special lace trim.
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Section 8.1 Assessment
Legal Skills in Action Accord and Satisfaction
Today she saw the same dress at another store for
245 less than the price she paid. When she pays
Duquesnes, she intends to subtract 245 from the
bill.
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Section 8.1 Assessment
Legal Skills in Action Accord and Satisfaction
In a small team setting, discuss whether your
sister is entitled to use accord and satisfaction
in this case.
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Section 8.1 Assessment
Legal Skills in Action Answer Accord and
Satisfaction
Duquesnes is not likely to agree to accept a
lesser payment because the parties had mutually
agreed to a set amount of money. Also, the
alteration changed the value of the dress.
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End of Section 8.1