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Consideration. Something of Legal Value. Differentiate between social vs. legal transactions. Your grandparents promise to send you on a world cruise as long as you graduate high school. Is this agreement an enforceable contract?. Gift- Transfer of ownership for nothing in return.

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Something of Legal Value

differentiate between social vs legal transactions
Differentiate between social vs. legal transactions
  • Your grandparents promise to send you on a world cruise as long as you graduate high school.
  • Is this agreement an enforceable contract?
gift transfer of ownership for nothing in return
Gift- Transfer of ownership for nothing in return
  • Donor- giving the gift
  • Donee- receiving the gift
  • Generally not enforceable until actually transferred
3 elements of consideration
3 elements of consideration:
  • 1. Both parties give one of the following:
    • Promise
    • Act (performance)
    • Forebearance
  • 2. Both parties trade their consideration
  • 3. Trade must have legal value
      • Benefit/detriment
  • Stephanie promises her friend John $5,000 to paint her house. John replies: "I promise that I'll do that if I get around to it." Does a contractual obligation exist?
illusory promise
Illusory Promise:
  • An escape clause that does not create a legal obligation
  • Non-binding, unenforceable
  • Marc and Christina negotiated and signed a three-year lease in which the tenant, Christina, reserved the right to cancel, with 60 days notice, at any time after one-year’s occupancy. Is this a legal contract?
termination clause
Termination Clause:
  • Not illusory if there is a change in defined circumstances.
  • Example: the right to cancel after one year
adequacy of consideration
Adequacy of consideration:
  • Generally courts do not declare a trade fair or not
  • However, contract could be declared “unconscionable”---shocks the conscious of the court
  • Nominal consideration is sometimes given as a token amount to prove the validity of a contract
  • Wannabe Manufacturing uses coal to operate and heat its plant. Wannabe agrees to purchase from Black Rock Coal Company all the coal that Black Rock can produce for one year at a set price per ton. Does a contract exist?
output contract
output Contract:
  • A contract in which a buyer agrees to purchase from a supplier all the goods the supplier can produce.
  • Legal consideration, not illusory, based on implied duty of fair dealings
  • U.S. Steel agrees to sell to Bowing Aircraft all the I-beams it requires to build it’s product during the month of March at an agreed upon price per beam.
requirements contract
Requirements contract:
  • A contract in which a seller agrees to supply all a buyer requires.
  • Legal consideration, not illusory, based on implied duty of fair dealings
implied duty of fair dealings
Implied duty of fair dealings:
  • Precedence determined through past transactions. Although may appear to be illusory, it is enforceable by Uniform Commercial Code (UCC)
existing duty
Existing duty:
  • A promise to do something can not act as consideration if one is already obligated to perform.
  • Ex. If on your 18th birthday, your aunt promised to give you $10,000 if you promised to not buy alcohol for 3 years.
  • Ex. Smith, Inc. began construction on an office building. After 3 months Smith demanded an extra $75,000 or else they will stop work.
liquidated debt
Liquidated Debt:
  • Debt amount is agreed upon by both parties. Lender can expect full payment.
  • Exception: if the lender accepts less than the full amount along with additional consideration, the debt is seen as “paid in full”.
unliquidated debt
Unliquidated Debt:
  • Debt amount is unclear
  • Any reasonable amount accepted by the lender will be viewed as “paid in full”. (This is known as ACCORD and SATISFACTION)
  • The agreed upon settlement of a claim for the promise not to sue.
composition of creditors
Composition of Creditors:
  • Creditors collectively agree to accept less than what is owed in return for the debtors promise not to file for bankruptcy.
when consideration is not required to be enforceable
When consideration is not required to be enforceable:
  • Promises to charitable organizations
    • Ex. Alex notifies his church that he intends to donate $1 million for renovations and expansion.
  • Promises covered by the UCC
    • Firm offers
  • Promissory estoppel- an enforceable gift
promissory estoppel
Promissory estoppel:
  • The promisor should reasonably foresee the promisee will rely on the promise
  • The promisee does, in fact, rely on the promise
  • The promisee will suffer a significant economic loss of the promise is not enforced
  • Injustice can be avoided only by enforcement of the promise