Chapter 8

Mutual ConsiderationBusiness Law

Ms. Turner

Gift• Transfer of ownership without receiving

anything in return

Donor transfers ownership with intent to

donee.

A promise to make a gift is not enforceable.

3 Requirements of Consideration

1) Each party must give an act, forbearance, or

promise to the other party.

Act – doing something

Forbearance – not doing something

Promise – something in the future

3 Requirements of Consideration(continued)

2) Each party must trade what they contribute to the transaction (act, forbearance, promise) for the other party’s contribution

Promisor – person making the promise

Promisee – person to whom promise is made

If either party does not give consideration, other party has no duty to perform

3 Requirements of Consideration(continued)

3) What each party trades must have legal

value

Legal Value – change in a party’s legal position as a

result of a contract; may mean an increase in legal

rights or duties

Types of Exchanges

1) Exchange of two benefits

– Getting money, fixing roof

2) Exchange of benefit for detriment

– “If you don’t smoke until you’re 25, I’ll give you $25,000”

3) Exchange of two detriments

– Forbear from buying a dog in return for forbearance to build a fence

What parties give and receive

need not be of equal economic

value

Economic value is not

important as long as there is

genuine agreement

Nominal Consideration

• Giving a token amount as

consideration

Legal Value Issues

1) Illusory Promises – unenforceable – uncertainty

of performance

Termination Clauses –unenforceable if clause

gives one party the power to terminate for any

reason; enforceable if change is specified or if

time limit is included

Output Contract – enforceable – buyers agree to buy everything a producer produces

Requirements Contract – enforceable –seller agrees to supply all needs of a buyer

Implied Duty of Fair Dealings

• When termination clauses, output and

requirement clauses create illusory

promises, this binds the parties by fair

dealings

Legal Value Issues(cont.)

2) Existing Duty

– If obligated by law or by prior contract,

it is NOT consideration

Existing Public Duty

– Obligated by law (purchasing alcohol

before 21)

Existing Private Duty

– If consideration

for another

contract, cannot

act as

consideration for

a new contract

Ex.

Borrow $2,000 + 10%

interest = $2,200; on due

date, $2,000 is paid.

Check is endorsed, but

can later sue for balance

because no new

consideration was given

Ex.

If partial payment is made

before the due date, this

can be considered

consideration (early

payment) and debt is

satisfied if mutual

agreement exists

certain,

undisputed

Settlement of Liquidated Debts –Parties agree to the debt and the amount of the debt

Settlement of Unliquidated Debts –When dispute exists about amount of debt

Ex.If one thinks $1,000, the

other thinks $500—agree on $750—it is binding; consideration is forbearance from litigating-----ACCORD AND SATISFACTION

Ex.If debtor sends check with

“In full settlement of all claims outstanding” and creditor cashes the check, debt is settled

uncertain,

disputed

Release

• After a tort occurs, settlement amount is

uncertain; signing a letter of release

settles the claim. Consideration is

forbearance from suing.

Composition of Creditors

• Occurs when creditors cooperate to take

less than amount owed to them as

settlement – debtor agrees not to file for

bankruptcy.

Creditor – person/business to whom $

is owed

Debtor – person/business that owes $

Bargained-for Exchange

Mutual Gifts

– Exchange of two

gifts – not

enforceable

Past Performance

– An act that has

already been

performed cannot

serve as

consideration

Exceptions to Consideration Requirement

1) Promissory Estoppel

– Containing a promise and forbidding by

law a person from contradicting a

previous act

4 Conditions that must be met

1) Promisor can reasonably foresee that the

promisee would rely on the promise;

2) Promisee does rely on the promise;

3) Promisee would suffer economic loss if

promise is not enforced; and

4) Injustice can only be avoided if promise is

enforced.

Exceptions to Consideration Requirement(cont.)

2) Promises to Charitable Contributions

(Pledges)

– Courts will enforce a pledge if the charity

states specific use of the money.

Exceptions to Consideration Requirement(cont.)

3) Statute of Limitations

– Specifies time limit to bring a lawsuit

• Breach of contract or torts = 3 years

• Some states will enforce promise to pay if in

writing

Exceptions to Consideration Requirement(cont.)

4) UCC (Uniform Commercial Code)

Option Contract – giving $ to keep offer open

Firm Offer (merchants) – signed writing keeping offers

open up to 3 months

Modifications – after sale of goods, modifications can be

made without consideration

If this were the opera, it would be over now. . .