8
CHAPTER
Consideration
8-1 Types of Consideration
8-2 Questionable Consideration
8-3 When Consideration Is Not
Required
Law for Business and Personal Use
© Thomson South-Western
8-1 Types of Consideration
GOALS
 Identify the three requirements of
consideration
 Recognize the various forms of
consideration
Chapter 8
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FOCUS
 John, a writer, gets a call from his editor and,
consequently, has to leave immediately on a research
trip to Hudson ay and Newfoundland in Canada. As the
trip should take a couple of weeks, he leaves a note
offering to pay his neighbor, Jordan, $100 to watch his
house and feed and walk his dog during the absence.
John then leaves without ever speaking to Jordan.
Jordan gets the note a complies. Is there a enforceable
contract? What is the consideration for each party.
Yes and John promised to pay $100 and Jordan
walked the Dog. Both consideration. Prior to
Jordan’s performance no one is bound by the
contract.
Chapter 8
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CONSIDERATION
 Is what a person demands and
generally must receive in order to make
the promise legally binding.
Chapter 8
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Three requirements of
Consideration
 Each party must give an act, forbearance, or
promise to the other party. (Consideration)
 Each party must trade what they contribute to the
transaction for the other party’s contribution. (Must
actually change hands)
 What each party trades must have legal value, that
is, it must be worth something in the eyes of the law.
(Has Value)
Chapter 8
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Types of Consideration
 A promise
 Includes promisor and promisee.
 You can promise to incur a detriment –referring to
the act of doing that which the promisee was
under no prior legal obligation to do or the
refraining from doing that which he was
previously under no legal obligation to refrain
from doing.
 An Act other than a promise
 Forbearance (not to do something)
 A Change in legal relation of the parties
 Money
 Other Property
Chapter 8
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A Gift is not Consideration
 Gift – transfer of ownership without getting anything
in return.
 Donor – Gift giver
 Donee – Gift receiver.
 Whole transaction not legally binding until donee
actually receives the gift.
Chapter 8
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Legal Value
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
Usually found in the exchange of two benefits.
Change in your legal position.
Can exchange a benefit for a detriment.
If you don’t drive until your 22, I’ll pay you the
money I save on insurance. $10,000 (You have
the legal right to drive)
 Can exchange 2 detriments.
Chapter 8
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Consideration
Does not have to be equal as long as the
agreement is genuine.
Unconscionable Contract – if the court finds
that the difference in consideration is
grossly unfair (evidence of duress, fraud)
courts can find it unconscionable and
void the contract.
Chapter 8
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Consideration
Nominal consideration – a token amount of
consideration. (Mostly on public
documents)
Chapter 8
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List the three requirements of
consideration.
Chapter 8
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8-2 Questionable Consideration
GOALS
 Describe situations in which
consideration is present only under
limited circumstances
 Recognize when what appears to be
binding consideration is not
Chapter 8
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Scenario
 Ms. Miller tells her students: “You have
worked hard, and if you continue to perform
at this high level, I'll pay for a pizza party at
the end of the year—if I think it is warranted.”
The students continue to work hard, and
class grades are high, but no party is given.
Question
 Can the students enforce the promise?
No. This is a illusory promise. No consideration . Who
would be the one to decide if they continued to perform?
Chapter 8
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CIRCUMSTANTIAL
CONSIDERATION
 Illusory promises
 Promises are illusory (or unenforceable) if
they can terminate for any reason.
 Reason there is no contract is they are
hard to enforce because the terms are
uncertain.
 For a promise to be considered
consideration it must create an obligation
or create a duty.
Chapter 8
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Enforceable Termination Clause
 Defined circumstances.
 After the passage of certain length of time.
 After a set period after a notice of
termination is given.
In each instance there is a change in the party’s
legal obligations.
Chapter 8
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Enforceable Contracts with
some uncertainty.
 Output Contracts – Contract where the
buyer agrees to purchase all of a
particular producer’s production.
 Requirement Contract - Contract where
a seller may agree to supply all the
needs of a particular buyer.
 If any party does not live up to these
contracts then you have a breech of
contract. It is in breech of “fair dealings”
Chapter 8
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What is not Consideration in a
contract
 Existing duty
 Existing public duty - laws
 Existing private duty – already made contract
 Settlement of liquidated debts – agreed upon
amount of debt by both parties, where the debtor
pays less to creditor (without creditors ok). Even
if creditor takes the payment the remaining debt
is still owed.
 Paying less is okay if both agree and the debtor
gives additional consideration. (Ex. Payment
early)
Chapter 8
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What is not Consideration in a
contract
 Existing duty
 Settlement of unliquidated debts – amount
of debt in dispute. Considered
unliquidated. Debtor makes offer and
Creditor accepts pmt. in full.
 Accord and Satisfaction
 Accord – The new consideration agreement
 Satisfaction – Payment or act of the new
consideration.
Chapter 8
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What is not Consideration in a
contract
 Existing duty
 Release – Settlement of an unliquidated
debt.
 Composition of creditors – a group of
creditors cooperatively agree to accept
less then full payment. They debtor
receives consideration of them not to sue.
Chapter 8
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FALSE CONSIDERATION
 Mutual gifts – giving something to one
party without getting anything in return.
 Past performance – consideration is for
immediate and future performance
only.
Chapter 8
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Question
If a contract contains a clause stating that
all the buyer’s obligations could be
extinguished by giving 30 days’ notice,
would this make the buyer’s obligations
under the contract illusory?
No. This termination clause does not make the buyer’s
obligations illusory because termination is allowed following a
defined period of notice. It does not allow termination for any
reason at any time.
Chapter 8
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Question
Georgia’s neighbors approached her right after she
received her driver’s license and said they felt that
she drove too fast on the roads where their kids
often played. They struck a deal with her that if she
stayed within the speed limit for the next three
months they would pay her $200. Georgia agreed.
Is there a benefit to the neighbors? Is there a
benefit to Georgia? Is there an enforceable
contract?
Although this arrangement seems to benefit both Georgia and
her neighbors, no contract exists. Georgia has an existing public
duty to obey the speed limit. This, Georgia is not providing a
consideration by agreeing to perform an already existing duty.
Chapter 8
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Question
Kamiar owed Rubio $5,000, which was in one year.
There was no dispute as the amount. However,
Rubio needed money immediately, so Kamiar
offered to pay $4,000 early in full settlement of the
debt. If Kamiar pays the $4,000 early, will Rubio be
able to successfully sue and collect the $1,000 later.
No. Rubio cannot sue Kamiar for the remaining $1,000. Kamiar
has offered valuable additional consideration by changing his
legal position and paying the $4,000 early in exchange for
settlement of the debt.
Chapter 8
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8-3 When Consideration
Is Not Required
GOALS
 Distinguish situations in which
consideration is not needed
 Recognize when the doctrine of
promissory estoppel can be applied
Chapter 8
Slide 24
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FOCUS
 Why are exceptions to the doctrine of
consideration needed?
Chapter 8
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EXCEPTIONS TO THE REQUIREMENT
OF CONSIDERATION
Consideration is necessary to bind someone to their
promise Except:
 Promises to charitable organizations (Next)
 Promises covered by the UCC
 Firm offers
 Modifications to sale made in “good faith” needs
no additional Consideration.
 Promises barred from collection by statute (Next)
 Statute of limitations most states 3 years for
Breach of contract from when claim arises.
 Debts discharged in bankruptcy
 Promissory estoppel (Next)
=
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Promises to Charitable Organizations
 Contributions that are pledged (payment in
the future) and the party who makes the
pledge receives nothing in return.
 If the pledge is for a specific purpose and the
organization receiving it has or is spending
money for that purpose.
 They are legally obligated to make those
payments.
(BACK)
Chapter 8
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Promises Barred from Collection by
Statute
 Debts discharge in Bankruptcy can be
reaffirmed (reinstated) by the debtor.
 This would not need additional consideration. BACK)
Chapter 8
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Promissory Estoppel

Promissory estoppel is an important doctrine in contract law in which a
non contractual promise lacking consideration rendered enforceable to
avoid an injustice. Promissory estoppel arises when injustice can be
avoided only by means of the enforcement of a promise that would
otherwise be unenforceable for lack of consideration.

The Following conditions must be present for the courts to invoke
Promissory Estoppel:
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The promisor should reasonably see that the promissee will rely on the
promise.
The promisee does rely on the promise
The promisee would suffer substantial economic loss if not enforced
Injustice can be avoided only with invoking the promise.
 BACK)
Chapter 8
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Name four exceptions to the
requirement of consideration.
Chapter 8
Slide 30
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