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Essentials of Business Law for a New Century
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Essentials of Business Law for a New Century
11
Quote of the Day
“Promises are the uniquely human way
of ordering the future.”
Hannah Arendt,
German-American Political Scientist
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Essentials of Business Law for a New Century
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.
Essentials of Business Law for a New Century
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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.
Essentials of Business Law for a New Century
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A
Bargain
B
Which
There is consideration
to support a contract
causes...
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
A to suffer a
detriment
AND
B to suffer a
detriment
…to either give a benefit to the other or to
Consideration
suffer a detriment supports
themselves.a contract!
Essentials of Business Law for a New Century
11
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.
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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
• See Ch. 10 for definitions of these
contracts.
• Section 2-306 of the UCC expressly allows
output and requirements contracts in the
sale of goods.
Essentials of Business Law for a New Century
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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.
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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.
Essentials of Business Law for a New Century
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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.
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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.
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“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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Essentials of Business Law for a New Century