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Consideration. Chapter 8. What is Consideration?. Consideration – what a person demands and generally must receive in order to make his or her promise legally binding. Car Dealership – money or financing Purchaser – the car. 3 Requirements of Consideration.

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consideration

Consideration

Chapter 8

what is consideration
What is Consideration?
  • Consideration – what a person demands and generally must receive in order to make his or her promise legally binding.
    • Car Dealership – money or financing
    • Purchaser – the car
3 requirements of consideration
3 Requirements of Consideration
  • Each party must make a promise, perform an act, or prevent from doing something
  • Each party’s promise, act, or forbearance must be in exchange for a return promise, act, or forbearance from the other party
  • What each party is exchanging must have legal value – worth something in the eyes of the law
contractual promise vs gift
Contractual Promise vs. Gift
  • Consideration differentiates the two:
    • A gift is a transfer of ownership without receiving a return
      • A promise to make a gift is usually not legally binding
    • A donor (person giving a gift)intentionally transfers the gift to the donee (person receiving the gift)
      • When the donee accepts the gift, the transaction becomes legally binding
promise act or forbearance
Promise, Act, or Forbearance
  • When looking for consideration, look for LEGAL VALUE in the act that is promised.
    • If someone promises forbearance (not to do something), look beneath the promise and ask if the forbearance has legal value.
legal value
Legal Value
  • Legal Value – means there has been a change in a party’s legal position as a result of the contract. Exchange of 2 benefits.
    • Examples:
      • Feed my dog and I’ll pay you $100
      • Mom tells you if you don’t have a Sweet 16 party, she’ll buy you a car at 17
      • You tell your neighbor you will refrain from buying a dog, if she refrains from building a fence
analyze discuss
Analyze & Discuss
  • Jose was talking to his brother about the upcoming graduation of his nephew Kyle. Jose mentioned he was thinking about buying Kyle a motorcycle as a graduation present. Benton’s brother, concerned about the safety of owning a motorcycle, offered Jose $1000 not to do so. Jose, who did not have the money to buy the motorcycle at the present time, accepted. Is there consideration for the brother’s promise to pay $1000. If so, what is it?
circumstantial consideration
Circumstantial Consideration
  • Certain forms of consideration are only legally binding in the proper circumstances.
    • Illusory Promises – a promise must create a duty or impose an obligation to be legally binding. If a contract creates an escape, it is illusionary.
      • Termination Clauses – businesses often want the power to withdraw
        • Termination Clause must be included in original contract
      • Output Contracts – when a buyer agrees to buy ALL of a product
      • Requirements Contracts – when a seller may agree to supply ALL of the needs for a particular buyer
circumstantial consideration1
Circumstantial Consideration
  • Certain forms of consideration are only legally binding in the proper circumstances.
    • Existing Duty – when a person promises to do something that they are already obligated to do by law. These CANNOT serve as consideration.
      • Existing Public Duty – public servants (police, fire, etc.) are expected to serve the public on and off duty
      • Existing Private Duty – a persona cannot demand additional compensation for carrying out a contract.
      • Settlement of Liquidated Debts – when a creditor agrees to accept a lesser amount of a debt, they cannot demand more.
      • Settlement of Unliquidated Debts – when there is a dispute about how much is owed. The agreed amount becomes the new binding amount.
      • Release- when a tort occurs, financial pressure the injured party will agree to release liability
      • Composition with Creditors – creditors will agree to accept less if the debtor agrees to not file bankruptcy.
false consideration
False Consideration
  • Some acts or promises are falsely identified as consideration, but NEVER CAN BE
    • Mutual Gifts
    • Past Consideration – an act, promise, or forbearance that has already taken place cannot serve as consideration.