CHAPTER 11
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CHAPTER 11. Consideration. Click your mouse anywhere on the screen when you are ready to advance the text within each slide. .

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Consideration

CHAPTER 11

Consideration


Consideration

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Quote of the day

Quote of the Day

“Promises are the uniquely human way of ordering the future.”

Hannah Arendt,

German-American Political Scientist


Consideration

Consideration

  • Consideration means that there must be bargaining that leads to an exchange between the parties.

  • Consideration can be anything that someone might want to bargain for.

  • A promisor is the person who makes the promise, and promisee, the person to whom the promise is made.


A bargain and an exchange

A Bargain and an Exchange

“Bargaining is obligating yourself in order to induce the other side to agree.”

  • The thing bargained for can be:

    • another promise or action.

    • a benefit to the promisor or a detriment to the promisee.

    • a promise to do something or a promise to refrain from doing something.


Consideration

Bargain

A

B

Which causes...

There is consideration to support a contract between A and B, when they bargain...

A to give B a benefit

B to give A a benefit

and their bargaining causes BOTH parties ...

OR

OR

AND

AND

AND

AND

A to suffer a detriment

B to suffer a detriment

…to either give a benefit to the other or to suffer a detriment themselves.

Consideration supports a contract!


Adequacy of consideration

Adequacy of Consideration

  • Courts seldom inquire into the adequacy of consideration.

  • A previously paid benefit is generally not consideration because it was not meant to induce the other side to agree.

    • Exception: Economic Benefit -- in some cases, courts will enforce consideration that is an economic benefit, given with the expectation of later payment.


Mutuality of obligations

Mutuality of Obligations

  • Illusory Promise

    • If one party’s promise is conditional, the other party is not bound to the agreement.

  • Sales Law: Requirements and Output Contracts

    • In a requirements contract, the buyer agrees to purchase 100% of her goods from one seller.

    • In an output contract, the seller guarantees to sell 100% of its output to one buyer, and the buyer agrees to accept the entire quantity.

    • Section 2-306 of the UCC expressly allows output and requirements contracts in the sale of goods.


Preexisting duty

Preexisting Duty

  • A promise to which the promisor is already obligated is not consideration.

    • Exceptions:

      • If the scope of the promisor’s task increases, that increase is consideration.

      • When unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration.

      • If both parties agree to cancel a contract, then form another one in its place, the new contract is valid.

      • Modification of a sale of goods is allowable without consideration, unless there is a written agreement forbidding such modifications.


Settlement of debts liquidated debt

Settlement of Debts -- Liquidated Debt

  • A liquidated debt is one in which there is no dispute about the amount owed.

    • In cases of liquidated debt, if the creditor agrees to take less than the full amount as full payment, her agreement is not binding.

    • If the debtor offers a different performance to settle the debt and the creditor agrees, the agreement is binding.


Settlement of debts unliquidated debt

Settlement of Debts -- Unliquidated Debt

  • A debt is unliquidated if:

    • (1) the parties dispute whether any money is owed, or

    • (2) the parties agree that some money is owed but dispute how much.

  • The parties may agree to settle for less than what is owed; this “accord and satisfaction” will be enforced if the debtor pays the agreed amount.


Payment by check

Payment by Check

  • Common Law ruling:

    • If a debtor writes “Paid in Full” on a check, and the creditor cashes it, the payment is in full whether or not it was the right amount.

  • UCC §3-311

    • Affirms the Common Law ruling, but adds two exceptions:

      • Organizations may notify debtors that any offers to settle debt for less than the whole amount must be directed to a certain person.

      • The creditor can refund the paid amount within 90 days and then demand the full amount.


Consideration

“The law does not hold us accountable for every promise we make. The doctrine of consideration determines which promises a court must enforce.”


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