Section 8.1
Consideration
Pre-Learning Question
Why is consideration one of the six elements of a legally binding contract?
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Requirements of Consideration
The law has always refused to enforce most gratuitous , or free, agreements.
Parties to an agreement must surrender something of value in exchange for something else of value.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Requirements of Consideration
This exchange, or the promise to exchange things of value, is what binds the parties to each other in a contractual relationship.
This binding element is known as consideration.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Requirements of Consideration
Consideration distinguishes a legally binding agreement from other types of agreements, such as social agreements that contain an offer and an acceptance.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The Nature of Consideration
Consideration is the exchange of benefits and detriments by parties to an agreement.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The Nature of Consideration
A benefit is something that a party was not previously entitled to receive.
A detriment is any loss suffered.
Understanding Business and Personal Law Consideration

Consideration
Consideration
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The Nature of Consideration
There are three types of consideration.
1.
Giving up or promising to give up something that you have the legal right to keep.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The Nature of Consideration
2.
Doing something or promising to do something that you have the legal right not to do.
3.
Not doing something that you have the legal right to do, which is known as forbearance .
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The Characteristics of
Consideration
Consideration must involve these key characteristics.
1.
bargained-for exchange
2.
something of value
3.
legal benefits and detriments
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
What is the difference between a benefit and a detriment?
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
A benefit is something that a party was not previously entitled to receive, and a detriment is any loss suffered.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
An agreement involves a bargainedfor exchange when a promise is made in return for another promise, an act, or a promise not to act.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The law has no specific value requirements on consideration.
All that matters is that the parties agreed freely on the value and the price.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Usually the courts will not even consider whether the value of the consideration is adequate.
However, a contract may be deemed unconscionable , when the courts believe the consideration is completely out of line.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
The courts require that the consideration involved in an agreement be legal. If the consideration is illegal, the contract is invalid.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Pre-Learning Question
Name one type of consideration.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Types of Consideration
These include: money property services promises not to sue charitable pledges
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Money as Consideration
Unless price limits have been placed on certain transactions by administrative regulations, legislative fiat, or executive ruling, parties to a contract are free to exchange any amount of money that they negotiate.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Property and Services as
Consideration
Before money was accepted as a medium of exchange, it was common to use property and services as consideration.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Property and Services as
Consideration
Some parties still prefer to engage in barter agreements that involve goods and services.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
A Promise Not to Sue
If one party has the right to sue another party but gives up that right in exchange for something of value, the court will generally uphold the exchange as valid consideration.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
A Promise Not to Sue
Pending lawsuits are frequently settled in this manner.
When a person accepts an offer and agrees not to sue, he or she is asked to sign an agreement, which is called a release .
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Charitable Pledges
Charitable organizations and nonprofit institutions often depend upon contributions.
This dependency has led the court to enforce charitable pledges just as if they were contracts.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Pre-Learning Question
What do you think happens when the parties to a contract cannot agree as to the actual amount of money owed?
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Problems with Consideration
When parties disagree about the amount of money that the debtor owes the creditor, a problem has arisen over the consideration involved.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Disputed Amounts
If the parties to a contract cannot agree as to the actual amount owed, the amount is said to be in dispute.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Disputed Amounts
A dispute can be settled by accord and satisfaction if the creditor accepts a payment that is less than the amount due as full payment.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Disputed Amounts
The acceptance by the creditor of less than what has been billed to the debtor is accord .
The agreed-to settlement as contained in the accord is the satisfaction .
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Disputed Amounts
The dispute must be real, must occur in good faith, and must not be trivial.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Undisputed Amounts
If the parties have mutually agreed to a set amount of money in the contract, then the amount cannot be disputed.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Pre-Learning Question
How does contractual consideration affect your everyday life?
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Consideration distinguishes a legally binding agreement from all other types of agreements.
Consideration must be legal.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Paying a debt in advance is consideration for settling the debt for a lesser amount.
To be consideration, the act or promise must be bargained for.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Because charities depend on contributions, pledges are enforced like contracts.
A promise by one party not to sue another party is generally proven by evidence of a release.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Usually, a party will offer money in exchange for another party’s promise or performance
Some people prefer to barter goods and services.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Generally, courts do not get involved in determining how much consideration is enough.
Understanding Business and Personal Law Consideration

Section 8.1
Consideration
Consideration in Your
Everyday Life
Forbearance involves promising not to do something that you are legally entitled to do.
Understanding Business and Personal Law Consideration