Chapter 8 Mutual Consideration

Transcription

1 Chapter 8 Mutual Consideration Business Law Ms. Turner

2 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 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

4 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

5 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

6 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

7 What parties give and receive need not be of equal economic value Economic value is not important as long as there is genuine agreement

8 Nominal Consideration Giving a token amount as consideration

9 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

10 Output Contract enforceable buyers agree to buy everything a producer produces Requirements Contract enforceable seller agrees to supply all needs of a buyer

11 Implied Duty of Fair Dealings When termination clauses, output and requirement clauses create illusory promises, this binds the parties by fair dealings

12 Legal Value Issues (cont.) 2) Existing Duty If obligated by law or by prior contract, it is NOT consideration

13 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

14 Settlement of Liquidated Debts Parties agree to the debt and the amount of the debt Ex. Borrow $2, % 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. certain, undisputed If partial payment is made before the due date, this can be considered consideration (early payment) and debt is satisfied if mutual agreement exists

15 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. uncertain, disputed If debtor sends check with In full settlement of all claims outstanding and creditor cashes the check, debt is settled

16 Release After a tort occurs, settlement amount is uncertain; signing a letter of release settles the claim. Consideration is forbearance from suing.

17 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 $

18 Bargained-for Exchange Mutual Gifts Exchange of two gifts not enforceable Past Performance An act that has already been performed cannot serve as consideration

19 Exceptions to Consideration Requirement 1) Promissory Estoppel Containing a promise and forbidding by law a person from contradicting a previous act

20 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.

21 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.

22 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

23 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

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