Mutual Consideration
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9-1 What is Consideration?
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9-2 Legal Value and Bargained-For Exchange
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9-3 When is Consideration Not Required?
What is a Consideration?
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Consideration- 3 Requirements
-Each party must give an act, forbearance, or
promise to the other party.
- Each party must trade what they contribute to the
transaction(act, forbearance, or promise) for the
other party's contribution.
What each party trades must have legal value.
Legal Value and Bargained-For
Exchange
Legal Value means there is a change in the legal position of the
party as a result of the contract.
To be consideration, a promise must be binding(must create a duty
or impose an obligation).
- If a contract contains a clause that allows you to escape the legal obligation,
it is said to be illusory
Existing Duty- A person promises to do something they are already
obligated by law to do. This cannot serve as a consideration.
When Is Consideration Not Required?
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Promissory Estoppel
-Promisor should reasonably forsee that the promisee will rely on promise.
-Promisee does, in fact, act in reliance on the promise.
-Promisee would suffer substantial economic loss if the promise is not
enforced.
-Injustice can be avoided only by enforcement of the promise.
Statute of limitations specifies the time limit for bringing a
lawsuit.
Uniform Commercial Code
Vocabulary
Gift- transfer of ownership without receiving anything in return
Forbearance- promise to not do something
Promisor- person promising action or forbearance
Promisee- person whom promise is made to
Legal Value- change in a party's legal position as a result of contract
Nominal Consideration- amount of consideration that the parties cannot state or don't want public
Output contract- agreement to purchase all of a particular producer's production
Requirements contract- seller agrees to supply all of the needs of a particular buyer
Liquidated debt- debt for which the parties agree that the debt exists and on the amount of the debt
Accord and satisfaction- parties' agreement to change the obligation required by original contract
Release- party settles a claim at the time the tort occurs, and liability is unliquidated because extent of damages is
uncertain
Composition of creditors- agreement by all creditors to accept a smaller amount as full payment
Promissory estoppel- promise is enforced even though no consideration is given for it
Vocabulary Continued
Statute of Limitations- state laws setting time limit for bringing a law suit
Option contract- underlying contract to keep an option open
Firm offer- binding offer stating in writing how long it is to be held open