Chapter 8 Consideration Consideration 8 1 After finishing

Chapter 8 Consideration

Consideration 8. 1 • After finishing this section, you will know how to: – Explain the legal concept of consideration – Explain the types of consideration – Identify certain problems regarding consideration – Identify the principles that apply to consideration in everyday life

Required Elements of Consideration • • Gratuitous- free Agreements must be bargained for to be binding Agreements are bargained for when: Promise for a promise Promise for an action Promise for a forbearance If in relying on another’s promise someone gives up nothing he or she is not injured if the promise is not kept. • Contracts must contain all 6 essential elements.

The Legal Concept of Consideration • Consideration- the exchange of benefits and detriments by the parties to the agreement • Benefit- something that a party was not previously entitled to receive • Detriment- any loss suffered • The 3 types of detriment include: • giving up something you have the right to keep • doing something you have the legal right not to do • forbearance- not doing something that you have the legal right to do – A common forbearance is a promise not to bring a lawsuit

The Characteristics of Consideration • Consideration has three key characteristics: • promise must involve the concept of bargained-for exchange • something of value must be involved • the benefits and detriments promised must be legal

• Bargained-for Exchange- a promise is made in return for another promise, an act, or a promise not to act • Bargaining requires that a party will be injured if the other party does not keep his or her promise • Example: Anne agreed to let Ian use her snowboard for the weekend. There was no understanding that Ian would pay Ann for using the snowboard. On Friday afternoon, Ann told Ian that she would not lend her snowboard to him. Although it is unfair for Ann to change her mind, the agreement contained no bargained-for promise from Ian in exchange for using the snowboard. As a result, there was no contract.

• Something of value- the law has no specific value requirements on consideration • The value of the goods and services involved in a contract do not have to be the same as market value of those goods or services • Parties must agree freely to the value and the price • Courts permit individuals to devise their

• Unconscionable- the contract is so onesided that it unfairly opposes one party and favors the other party • The court may refuse to enforce the contract, enforce the contract minus the unconscionable clause, or limit the application of the unconscionable clause

Types of Consideration • • • Money Property Services Promises not sue Charitable pledges

Money as consideration • If one party offers money in exchange for another party’s promise or performance, the parties are free to exchange any amount of money that they negotiate • Employers must follow certain pricing regulations set by the government • Fair Labor Standards Act- minimum wage rate

Property and services as consideration • Before money was accepted as an exchange, it was common to use property and services as consideration

A promise not to sue • If one party has the right to sue another but gives up that right in exchange for something of value, the court will uphold the exchange as valid consideration • Example: Abagail was eating a steak for lunch at Martin’s Eatery when she began to suffer stomach pains. She was rushed to a hospital. In the emergency room, she was diagnosed with food poisoning. The type of food poisoning that she had could only have resulted from the improper refrigeration of the steak she had for lunch. Abagail elected to sue Martin’s alleging the restaurant was negligent in not properly refrigerating the steak. Martin’s offered her $5000 if she would drop her lawsuit. Abagail agreed. The thing of value that Abagail transferred to Martin’s was her right to sue. • Release- an agreement not sue

Charitable Pledges • The court enforces charitable pledges just as if they were contracts • Example: Father Smith, pastor of S. Carmela’s Church, announced that the parish was beginning a campaign to raise funds for an addition to the church’s parking lot. Parishioners at the church pledged more than $12000. relying on the pledges, St. Carmela’s began work on the parking lot. Each pledge became an enforceable agreement at that point, no matter how small.

Problems with Consideration Disputed Amounts • Accord and satisfaction- if a creditor accepts a payment that is less than the amount due as full payment • Accord- acceptance by the creditor of less than what has been billed • Satisfaction- the agreed to settlement as contained in the accord • Example: Claudette and Larry contracted with Roberta for installation of a roof on their cottage. Roberta charged the couple $50 per hour for a job that lasted 200 hours. The couple received a bill for $11250. When they examined the bill, they saw that Roberta had charged them one extra hour each day for lunch. The couple felt that it was unfair to have to pay Roberta to eat lunch. They subtracted $1250 (25 lunch hours at $50 per hour) and sent Roberta a check for $10000. On the check they wrote, “In full payment for the installation of the roof at 280 Kenton Drive, Lakeside, Ohio. ” When Roberta cashed the check, she accepted the lesser amount that the couple offered in good faith and as full payment of the amount in dispute.

Undisputed Amounts • If the parties have mutually agreed to a set amount of money in the contract, then the amount cannot be disputed • The debtor might have remorse over the amount that he or she has agreed to pay in the contract, but they still owe the amount

Undisputed Amounts • This would be true even if the debtor found out later that another party was offering the same contractual arrangements at a lesser amount. • Example: Irene paid Fairchild Paving $9000 to pave her driveway with concrete. She felt that Fairchild’s rate was reasonable for such a job. Two days later, Irene saw a booth at the Delaware county Fair and learned that Greenbrier Cement would do the same job for $7000. Irene sent a check to Fairchild for $7000 adding the notation, “In full payment for the concrete driveway. ” Fairchild deposited the check and demanded payment of the remaining $2000. Irene would still be obligated to pay the balance.

Consideration in your every day life • Consideration is the contractual element that distinguishes a legally binding agreement from all other types of agreements. • For something to amount to consideration the act performed or promised must be legal. • The constitute consideration, an act or a promise must be bargained for. • If a person pays a debt in advance it is something that he or she, is not legally bound to do. • The courts enforce charitable pledges as if they were contracts.

Consideration in your everyday life • A promise by one party not to sue another party is generally proven by evidence of a release. • Usually, a party will offer money in exchange for another parties promise or performance. • Some people prefer barter agreements that involve goods and services rather than money. • Generally, the courts do not get involved in determining how much consideration is enough. • Forbearance is a type of consideration that involves promising not to do something that you are legally entitled to do.

Assignment • • Page 172 Reviewing What You Learned #1 -4 Critical Thinking Activity