Consideration Vocabulary 9-1

Gift
The transfer of ownership without receiving
anything in return.
Donor
The person giving a gift.
Donee
The person receiving gift.
Consideration
That which is given or received in a contract.

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Vocabulary

Forbearance
A promise to not do something.
Promisor
The person who promises an action or
forbearance.
Promisee
The person to whom a promise is made.
Nominal Consideration
A token amount in a written contract.

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 MUTUAL CONSIDERATION
CHAPTER 9

Three Requirements of
Consideration:
Each party must give an act,
forbearance, or promise to the other
party.

Each party must trade what they

contribute to the transaction.

What each party trades must have

legal value.

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How Can Forbearance Be Adequate
Consideration?
If forbearance, or promise not to do
something, has value to the other party,
then it has legal value and is adequate to a
contract.
In this case, a detriment to one party is a
benefit to the other. In some cases both
parties may offer forbearance.

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Define Consideration

Consideration is the difference

between social promises and
more serious transactions. For
consideration to exist, there are
three requirement.

1. Act
2. Forbearance
3. Promise

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Under What Conditions is There no
Consideration?
There is no consideration if one of the
parties does not give an act, forbearance,
or promise to the other.
If one of the parties does not trade her or
his contribution to the transaction, or if
what is traded has no legal value.

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Consideration 9-2

Illusory Promises
A contract that contains a clause that allows
you to escape legal obligation.
Ex. I will paint the house -- if I have time.
(time frame not definite)
Termination Clauses
Termination allowed after a change in
defined terms or passage of a certain length
of time.
( Example #8 page 134)

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Continued 9-2

Output Contract
Buyer agrees to purchase all of a producers
product.
Ex. A steel company buying all of the output of a nearby
coal mining company.
Requirements Contract
Seller agrees to supply all of the needs of a
particular buyer.
Ex. A carburetor manufacturer agrees to supply all the
carburetors needed for a certain make of vehicle.

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Implied Duty of Fair Dealings

If a clause seems to be Illusory, the

contracts must be exercised in a way
that constitutes implied duty of fair
dealings.

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Existing Duty

Existing Public Duty

A person promises to do something that is
already obligated to do by law.
Not Consideration - see example pg. 133.
Situation # 9 on page 134

Existing Private Duty

If a contract creates a duty, this duty cannot be
the basis of consideration in a different contract.
Ex. Whats Your Verdict? Pg. 132.

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Liquidated Debts

Liquidated Debt parties agree that the

debt exists and on the amount of the
debt.
Settlement of Liquidated Debts
Examples Shawver & Reno No new
consideration given. ; Situation #11 Page 134
In This Case Page 133 Additional consideration
given.
Early payment may be consideration if there is
mutual agreement. Ex. Situation # 10 Page 134

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Settlement of Unliquidated Debts

Dispute as to the amount of the debt.

Accord & Satisfaction
Partial payment offered in full settlement by the
debtor and accepted by a creditor.

Release
Settling a claim at the time a tort occurs,
while the liability is unliquidated because the
extent of damages is uncertain.

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Consideration -- continued

Composition of Creditors
A group of creditors agree to accept less
than what they are entitled to collect.
The debtor agrees not to file bankruptcy.

Bargained-For Exchange
Mutual Gifts - Whats Your Verdict
Past Performance Bargaining must take
place in the present for immediate or future
perfomance.

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Chapter 9 -2 Review
Describe four ways of settling debts.
Liquidated Debt
Unliquidated Debt
Signing a Release
Composition of Creditors
Describe why mutual gifts are not considerations
in a contract.
Consideration arises through bargaining one thing of value in
return for another. The bargaining takes place in the present,
for immediate or future performance by both parties. When a
gift of an act or a tangible item such as goods or money is
made, it is not bargained in exchange for something else and
therefore in not a consideration.

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Chapter 9 -2 Review
Identify when there is legal value.
Legal value means there is a change in the legal
position of the party as a result of a contract.
Explain when there is a bargained for exchange.
A bargained for exchange occurs when one party asks
a consideration of another party in return for a
consideration. The bargaining or negotiation takes
place in the present for immediate or future
performance by both parties. Therefore an act that
has already been performed cannot be a consideration
after it has occurred.

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Consideration 9-3

Promissory Estoppel
The promisor should reasonably foresee
that the promisee will rely on the promise.
The promisee does, in fact, act in reliance
on the promise.
The promisee would suffer a substantial
economic loss if the promise is not
enforced.
Injustice can be avoided only by
enforcement of the promise.

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Exceptions to the Consideration
Requirement
Promises to Charitable Organizations
Courts will enforce promises when a specific
causes is stated and a charity acts in reliance on
the pledge.
Statute of Limitations
Time limit for bringing a lawsuit
Uniform Commercial Code
Option Contract Common Law - money must be
paid to keep offer open
Firm Offer UCC - merchants are bound for 3
months to keep offer open in a signed writing
Modifications Common Law vs UCC (see above)

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