Section 8.1
Consideration
Section
8.1
Chapter 8Consideration
Consideration
Section 8.1
Consideration
Section 8.2
Agreements without Consideration
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
What You’ll Learn
How to explain the legal concept of
consideration (p. 164)
How to explain the types of
consideration (p. 166)
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
What You’ll Learn
How to identify certain problems regarding
consideration (p. 169)
How to identify the principles that apply to
consideration in everyday life (p. 172)
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Why It’s Important
By understanding the concept of
consideration, you will be able to avoid
problems that frequently result when
agreements lack this important contractual
element.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Legal Terms
gratuitous (p. 164)
consideration (p. 164)
benefit (p. 164)
detriment (p. 164)
forbearance (p. 164)
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Legal Terms
bargained-for exchange (p. 164)
unconscionable (p. 166)
release (p. 169)
accord and satisfaction (p. 170)
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section Outline
Requirements of Consideration
The Legal Concept of Consideration
The Characteristics of Consideration
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section Outline
Types of Consideration
Money as Consideration
Property and Services as Consideration
A Promise Not to Sue
Charitable Pledges
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section Outline
Problems with Consideration
Disputed Amounts
Undisputed Amounts
Consideration in Your Everyday Life
Understanding Business and Personal Law
Consideration
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
8.1
Section
8.1 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
ANSWER
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
Bargained-for Exchange
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
Something of Value
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
Something of Value
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
Legality of 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
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
1. What is consideration?
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
Answer
Exchange or the promise to exchange
things of value in a contract; binds parties
to each other in the contractual
relationship.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
2. What are the types of
consideration?
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
Answer
Money, property, services, promises not to
sue, and charitable pledges.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
3. What problems can arise regarding
consideration?
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
Answer
Disagreement as to the amount of money
that the debtor owes the creditor.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
4. What are the principles that apply to
consideration in everyday life?
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
Answer
Answers will vary, but may include:
consideration binds the agreement; it must
be bargained for; charitable pledges are
enforced as if they were contracts;
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Reviewing What You Learned
Answer
promises not to sue are usually evidenced
by a release; money or services are offered
as consideration for another party’s
promise or performance.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Critical Thinking Activity
Is Enough Really Enough?
Why do the courts usually refuse to get
involved in disputes over the adequacy of
consideration?
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Critical Thinking Activity Answer
Is Enough Really Enough?
The law usually refuses to get into disputes
over the adequacy of consideration
because the value of consideration is a
matter of opinion.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Legal Skills in Action
Accord and Satisfaction
Your older sister is about to be married.
She purchased her wedding dress at the
Duquesne Department Store. Later, she
had the dress altered and added a special
lace trim.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Legal Skills in Action
Accord and Satisfaction
Today she saw the same dress at another
store for $245 less than the price she paid.
When she pays Duquesne’s, she intends to
subtract $245 from the bill.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Legal Skills in Action
Accord and Satisfaction
In a small team setting, discuss whether
your sister is entitled to use accord and
satisfaction in this case.
Understanding Business and Personal Law
Consideration
Section 8.1 Consideration
Section 8.1 Assessment
Legal Skills in Action Answer
Accord and Satisfaction
Duquesne’s is not likely to agree to accept
a lesser payment because the parties had
mutually agreed to a set amount of money.
Also, the alteration changed the value of
the dress.
Understanding Business and Personal Law
Consideration
End of Section 8.1
Consideration