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Considreation in business law

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  1. 1. Consideration CHAPTER 12
  2. 2. Quote of the Day <ul><li>“ Promises are the uniquely human way of ordering the future .” </li></ul><ul><li>Hannah Arendt, </li></ul><ul><li>German-American Political Scientist </li></ul>
  3. 3. Consideration <ul><li>Consideration means that there must be bargaining that leads to an exchange between the parties. </li></ul><ul><li>Consideration can be anything that someone might want to bargain for. </li></ul><ul><li>A promisor is the person who makes the promise, and promisee , the person to whom the promise is made. </li></ul>
  4. 4. A Bargain and an Exchange <ul><li>The thing bargained for can be: </li></ul><ul><ul><li>another promise or action. </li></ul></ul><ul><ul><li>a benefit to the promisor or a detriment to the promisee. </li></ul></ul><ul><ul><li>a promise to do something or a promise to refrain from doing something. </li></ul></ul>“ Bargaining is obligating yourself in order to induce the other side to agree.”
  5. 5. There is consideration to support a contract between A and B, when they bargain... and their bargaining causes BOTH parties ... … to either give a benefit to the other or to suffer a detriment themselves. Which causes... A to give B a benefit OR A to suffer a detriment AND AND AND AND B to give A a benefit OR B to suffer a detriment Consideration supports a contract! Bargain A B
  6. 6. Adequacy of Consideration <ul><li>Courts seldom inquire into the adequacy of consideration. </li></ul><ul><li>A previously paid benefit is generally not consideration because it was not meant to induce the other side to agree. </li></ul><ul><ul><li>Exception: Economic Benefit -- in some cases, courts will enforce consideration that is an economic benefit, given with the expectation of later payment. </li></ul></ul>
  7. 7. Mutuality of Obligations <ul><li>Illusory Promise </li></ul><ul><ul><li>If one party’s promise is conditional, the other party is not bound to the agreement. </li></ul></ul><ul><li>Sales Law: Requirements and Output Contracts </li></ul><ul><ul><li>See Ch. 11 for definitions of these contracts. </li></ul></ul><ul><ul><li>Section 2-306 of the UCC expressly allows output and requirements contracts in the sale of goods. </li></ul></ul>
  8. 8. Preexisting Duty <ul><li>A promise to which the promisor is already obligated is not consideration. </li></ul><ul><ul><li>Exceptions: </li></ul></ul><ul><ul><ul><li>If the scope of the promisor’s task increases, that increase is consideration. </li></ul></ul></ul><ul><ul><ul><li>When unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration. </li></ul></ul></ul><ul><ul><ul><li>Modification of a sale of goods is allowable without consideration, unless there is a written agreement forbidding such modifications. </li></ul></ul></ul>
  9. 9. Liquidated Debt <ul><li>A liquidated debt is one in which there is no dispute about the amount owed. </li></ul><ul><ul><li>In cases of liquidated debt, if the creditor agrees to take less than the full amount as full payment, her agreement is not binding. </li></ul></ul><ul><ul><li>If the debtor offers a different performance to settle the debt and the creditor agrees, the agreement is binding. </li></ul></ul>Settlement of Debts --
  10. 10. <ul><li>A debt is unliquidated if: </li></ul><ul><ul><li>(1) the parties dispute whether any money is owed, or </li></ul></ul><ul><ul><li>(2) the parties agree that some money is owed but dispute how much. </li></ul></ul><ul><li>The parties may agree to settle for less than what is owed; this “accord and satisfaction” will be enforced if the debtor pays the agreed amount. </li></ul>Settlement of Debts -- Unliquidated Debt
  11. 11. Payment by Check <ul><li>Common Law ruling: </li></ul><ul><ul><li>If a debtor writes “Paid in Full” on a check, and the creditor cashes it, the payment is in full whether or not it was the right amount. </li></ul></ul><ul><li>UCC §3-311 </li></ul><ul><ul><li>Affirms the Common Law ruling, but adds two exceptions: </li></ul></ul><ul><ul><ul><li>Organizations may notify debtors that any offers to settle debt for less than the whole amount must be directed to a certain person. </li></ul></ul></ul><ul><ul><ul><li>The creditor can refund the paid amount within 90 days and then demand the full amount. </li></ul></ul></ul>
  12. 12. “ The law does not hold us accountable for every promise we make. The doctrine of consideration determines which promises a court must enforce.”