Chapter 8

Consideration

Section 1

Types of

Consideration

Types of Consideration

• A promise

• Forbearance

• A change in a legal relation of the

parties

• Money

• Other property

Consideration

What a person

demands and

generally must receive

in order to make

her/his promise legally

binding.

John, a writer, gets a call from his editor has

to leave immediately on a research trip to

Newfoundland in Canada. As the trip should

take a couple of weeks, he leaves a note

offering to pay his neighbor, Jordan, $100 to

watch his house and feed and walk his dog

during John’s absence. John then leaves

without ever speaking to Jordan. Jordan gets

the note and complies.

Is there an enforceable contract?

What is the consideration for each party?

3 Requirements of Consideration

1. Each party must give an act,

forbearance, or promise to the

other party.

2. Each party must trade what they

contribute to the other party.

3. What they trade MUST be of legal

value (in the law’s eye) .

Gift(not consideration)

Transfer of

ownership

WITHOUT

receiving

anything in

return**A promise to make a gift is

usually NOT legally enforceable

To not do something

Legal Value

• Definition: Changing a party’s legal

position as a result of a contract.*Buying a ring for $500. Both people have

changed their legal position as a result of

this contract.

*Detriment (injury/harm/loss) arises when

you promise forbearance. Your uncle says

he will give you 1 million if you don’t get

your drivers license until you are 21. When

you agree, you give up (lose) a legal right.

Because you needed money urgently, you

offered to sell a friend your $600 stereo for

$200. Your friend accepted the offer and

you delivered the stereo. A short time later

you demanded that the stereo be returned

because the consideration was too small.

Since your friend legally accepted your offer

and gave the consideration you requested,

you are bound by the agreement even

though the stereo is worth $600.

Nominal Consideration

• Definition: $1 or other small sum of

money used to bind a contract.

This is done, because the actual

parties does NOT want to publicize

the real consideration amount.

Section 2

Questionable

Consideration

Ms. Miller, a high school government

teacher, says to her students. ―All of

you have worked hard, and if you

continue to perform at this high level,

I’ll pay for a pizza party for the class at

the end of the year—if I think it is

warranted.‖ The students continued to

work hard, and class grades are high,

but no pizza party is given.

Can the students enforce the promise?

Illusory Promises

Making a promise that allows you to

escape the legal obligation.

―If I have time, I’ll take out the trash‖

Output Contract

Purchasing all

of a particular

product.

Requirements Contract

Supplying as much as

you can make.

Existing Duty

A person sometimes promises to do

something that he/she already is

obligated to do by law or prior contract

• Existing Public Duty

• Existing Private Duty

• Creditor:

A person to

whom money is

owed

• Debtor:

A person who

owes money

Liquidation Debt

You paid off most the debt,

but both parties agree that

you still owe the remaining

amount.*No consideration

Unliquidated Debt - disagreement

about how much is owed.

Accord and Satisfaction –

compromising on the

unliquidated debt. *Creditor says

$1000, Debitor says $500. You

both agree on $750 and Debitor

pays the amount.

Composition of Creditors

• Companies accept some of what

you owe as full payment, so you

won’t file bankruptcy.

Frank, a pedestrian, saw a car pulled over by the side of the road with a flat tire. He came to the driver’s aid, replacing the flat with a spare tire. Then he accompanied the driver, Betty. To the nearest gas station where her flat tire was repaired. She thanked him and said she would give him $100 for his kindness. Later she changed her mind, and Frank sued.

Can Frank win the $100?

False Consideration

• Mutual Gifts – *see story

• Past consideration – NOT

consideration. The offeror is

not bound by a promise to pay

money for an act performed

prior to the promise

Section 3

When Consideration is

NOT REQUIRED

In memory of their father who passed away

from cancer, the Cole children promised to

pay for the local hospital’s purchase of new

cancer-fighting equipment. As a

consequence, the board of directors of the

facility entered into a contract for more than

$450,000 worth of advanced devices. When

presented with the bill, the Cole children,

refused to pay saying they weren’t

contractually obligated.

Can they be held to their pledge?

YES

Court generally enforce promises provided the charity states a specific use for the money and actually acts in reliance on the pledge.

4 Exceptions to the

requirement of consideration

• Promises to charitable

organizations

• Promises covered by the UCC

• Promises barred from collection by

statute

• Promissory Estoppel

Promises covered by the

Uniform Commercial Code

UCC

• Firm Offers • Modifications

Promises Barred from collection

by Statute

Statute of Limitations –

Specifies a time limit for

bringing a lawsuit.

Torts expire in

3 yrs.

Promise is

enforced even

though no

consideration is

given

Promissory Estoppel

Conditions• The promisor should reasonably

foresee that the promisee will rely on the promise.

• The promisee does, in fact, act in reliance on the promise.

• The promisee would suffer a substantial economic loss if the promise is not enforced

• Injustice can be avoided only by enforcement of the promise.