Understanding Business and Personal Law Consideration Section 8.1 Consideration Pre-Learning...

Understanding Business and Personal Law

Consideration Consideration Section 8.1Section 8.1

Consideration

Pre-Learning Question Pre-Learning Question

Why is consideration one of the six elements of a legally binding contract?

Consideration

The law has always refused to The law has always refused to enforce most enforce most gratuitousgratuitous, or free, , or free, agreements. agreements. Parties to an agreement must Parties to an agreement must surrender something of value in surrender something of value in exchange for something else of exchange for something else of value.value.

Requirements of Consideration Requirements of Consideration

Consideration

This exchange, or the promise to This exchange, or the promise to exchange things of value, is what exchange things of value, is what binds the parties to each other in a binds the parties to each other in a contractual relationship. contractual relationship.

This binding element is known as This binding element is known as consideration.consideration.

Consideration

Consideration distinguishes a legally Consideration distinguishes a legally binding agreement from other types of binding agreement from other types of agreements, such as social agreements, such as social agreements that contain an offer and agreements that contain an offer and an acceptance.an acceptance.

Consideration

ConsiderationConsideration is the exchange of is the exchange of benefits and detriments by parties to benefits and detriments by parties to an agreement. an agreement.

The Nature of Consideration The Nature of Consideration

Consideration

A A benefitbenefit is something that a party is something that a party was not previously entitled to was not previously entitled to receive.receive.A A detrimentdetriment is any loss suffered. is any loss suffered.

Consideration

8.18.1

ConsiderationConsideration

Consideration

There are three types of There are three types of consideration.consideration.

1.1. Giving up or promising to give up Giving up or promising to give up something that you have the legal something that you have the legal right to keep.right to keep.

Consideration

2.2. Doing something or promising to do Doing something or promising to do something that you have the legal something that you have the legal right not to do.right not to do.

3.3. Not doing something that you have Not doing something that you have the legal right to do, which is known the legal right to do, which is known as as forbearanceforbearance..

Consideration

Consideration must involve these key Consideration must involve these key characteristics.characteristics.

The Characteristics of The Characteristics of Consideration Consideration

1.1. bargained-for exchangebargained-for exchange2.2. something of valuesomething of value3.3. legal benefits and detriments legal benefits and detriments

Consideration

What is the difference between a benefit and a detriment?

Consideration

ANSWERANSWER

A benefit is something that a party was not previously entitled to receive, and a detriment is any loss suffered.

Consideration

An agreement involves a bargained-An agreement involves a bargained-for exchange when a promise is made for exchange when a promise is made in return for another promise, an act, in return for another promise, an act, or a promise not to act.or a promise not to act.

Bargained-for Exchange Bargained-for Exchange

Consideration

Something of Value Something of Value

The law has no specific value The law has no specific value requirements on consideration.requirements on consideration.All that matters is that the parties All that matters is that the parties agreed freely on the value and the agreed freely on the value and the price. price.

Consideration

Something of Value Something of Value

Usually the courts will not even Usually the courts will not even consider whether the value of the consider whether the value of the consideration is adequate.consideration is adequate.However, a contract may be However, a contract may be deemed deemed unconscionableunconscionable, when the , when the courts believe the consideration is courts believe the consideration is completely out of line.completely out of line.

Consideration

Legality of Consideration Legality of Consideration

The courts require that the The courts require that the consideration involved in an consideration involved in an agreement be legal. If the agreement be legal. If the consideration is illegal, the contract is consideration is illegal, the contract is invalid.invalid.

Consideration

Name one type of consideration.

Consideration

Types of Consideration Types of Consideration

These include:These include:

moneymoneypropertypropertyservicesservicespromises not to suepromises not to suecharitable pledges charitable pledges

Consideration

Money as Consideration Money as Consideration

Unless price limits have been placed Unless price limits have been placed on certain transactions by on certain transactions by administrative regulations, legislative administrative regulations, legislative fiat, or executive ruling, parties to a fiat, or executive ruling, parties to a contract are free to exchange any contract are free to exchange any amount of money that they negotiate.amount of money that they negotiate.

Consideration

Property and Services as Property and Services as Consideration Consideration

Before money was accepted as a Before money was accepted as a medium of exchange, it was common medium of exchange, it was common to use property and services as to use property and services as consideration. consideration.

Consideration

Property and Services as Property and Services as Consideration Consideration

Some parties still prefer to engage in Some parties still prefer to engage in barter agreements that involve goods barter agreements that involve goods and services.and services.

Consideration

A Promise Not to Sue A Promise Not to Sue

If one party has the right to sue If one party has the right to sue another party but gives up that right in another party but gives up that right in exchange for something of value, the exchange for something of value, the court will generally uphold the court will generally uphold the exchange as valid consideration.exchange as valid consideration.

Consideration

A Promise Not to Sue A Promise Not to Sue

Pending lawsuits are frequently Pending lawsuits are frequently settled in this manner.settled in this manner.

When a person accepts an offer and When a person accepts an offer and agrees not to sue, he or she is asked agrees not to sue, he or she is asked to sign an agreement, which is called to sign an agreement, which is called a a releaserelease..

Consideration

Charitable Pledges Charitable Pledges

Charitable organizations and nonprofit Charitable organizations and nonprofit institutions often depend upon institutions often depend upon contributions. contributions.

This dependency has led the court to This dependency has led the court to enforce charitable pledges just as if enforce charitable pledges just as if they were contracts.they were contracts.

Consideration

What do you think happens when the parties to a contract cannot agree as to the actual amount of money owed?

Consideration

Problems with ConsiderationProblems with Consideration

When parties disagree about the When parties disagree about the amount of money that the debtor owes amount of money that the debtor owes the creditor, a problem has arisen the creditor, a problem has arisen over the consideration involved.over the consideration involved.

Consideration

Disputed Amounts Disputed Amounts

If the parties to a contract cannot If the parties to a contract cannot agree as to the actual amount owed, agree as to the actual amount owed, the amount is said to be in dispute.the amount is said to be in dispute.

Consideration

A dispute can be settled by A dispute can be settled by accord and satisfactionaccord and satisfaction if the if the creditor accepts a payment that is less creditor accepts a payment that is less than the amount due as full payment.than the amount due as full payment.

Consideration

The acceptance by the creditor of The acceptance by the creditor of less than what has been billed to less than what has been billed to the debtor is the debtor is accordaccord..The agreed-to settlement as The agreed-to settlement as contained in the accord is the contained in the accord is the satisfactionsatisfaction..

Consideration

The dispute must be real, must occur The dispute must be real, must occur in good faith, and must not be trivial.in good faith, and must not be trivial.

Consideration

Undisputed Amounts Undisputed Amounts

If the parties have mutually agreed to If the parties have mutually agreed to a set amount of money in the contract, a set amount of money in the contract, then the amount cannot be disputed.then the amount cannot be disputed.

Consideration

How does contractual consideration affect your everyday life?

Consideration

Consideration in Your Consideration in Your Everyday Life Everyday Life

Consideration distinguishes a Consideration distinguishes a legally binding agreement from all legally binding agreement from all other types of agreements.other types of agreements.Consideration must be legal. Consideration must be legal.

Consideration

Paying a debt in advance is Paying a debt in advance is consideration for settling the debt consideration for settling the debt for a lesser amount.for a lesser amount.To be consideration, the act or To be consideration, the act or promise must be bargained for.promise must be bargained for.

Consideration

Because charities depend on Because charities depend on contributions, pledges are enforced contributions, pledges are enforced like contracts.like contracts.A promise by one party not to sue A promise by one party not to sue another party is generally proven by another party is generally proven by evidence of a release.evidence of a release.

Consideration

Usually, a party will offer money in Usually, a party will offer money in exchange for another party’s exchange for another party’s promise or performance promise or performance Some people prefer to barter goods Some people prefer to barter goods and services.and services.

Consideration

Generally, courts do not get Generally, courts do not get involved in determining how much involved in determining how much consideration is enough.consideration is enough.

Consideration

Forbearance involves promising not Forbearance involves promising not to do something that you are legally to do something that you are legally entitled to do.entitled to do.

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