P A R T 3 Contracts Introduction to

P A R T 3 Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent Mc. Graw-Hill/Irwin Business Law, 13/e © 2007 The Mc. Graw-Hill Companies, Inc. All rights

P A R T 3 Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies Mc. Graw-Hill/Irwin Business Law, 13/e © 2007 The Mc. Graw-Hill Companies, Inc. All rights

C H A P T E R 12 Consideration “Make yourself necessary to someone. ” Ralph Waldo Emerson, The Conduct of Life (1860)

Learning Objectives v Elements of consideration w Legal value w Bargained-for exchange v Exchanges that fail to meet consideration v Exceptions to consideration requirement 12 - 5

Elements of Consideration v Consideration is legal value bargained for and given in exchange for an act or a promise Purely gratuitous promises are not enforceable because not supported by consideration 12 - 6

Legal Value of Consideration v Consideration in the form of an act or promise may have legal value if the person w Refrains from doing something the person has the legal right to do w w Example: Hamer v. Sidway Does something the person had no prior legal duty to do v Generally, courts will not examine the adequacy of consideration 12 - 7

Bargained-for Exchange v. A promisee’s act or promise must have been bargained for and given in exchange for the promisor’s promise w 12 - 8 Example: Gottlieb v. Tropicana Hotel and Casino in which participating in a promotion that benefited the company was adequate consideration to form a contract

Exchanges That Are Not Consideration v Illusory promises v Preexisting duties v Past consideration 12 - 9

Illusory Promises v If the promisee’s promise really does not bind the promisee to do or refrain from doing anything, the promise is illusory and cannot serve as consideration v Example: Heye v. American Golf Corporation, Inc. in which an employee successfully claimed lack of consideration for an arbitration clause in a contract because mutual obligation did not exist w 12 - 10 AGC’s promise to arbitrate was illusory since they could amend the contract at any time

Preexisting Duties v As a general rule, performing or agreeing to perform a preexisting duty is not consideration w Promisor in such a case has effectively made a gratuitous promise v Includes public duties (obey the law) and preexisting contractual duties 12 - 11

Preexisting Duties & Contract Modification v General rule is an agreement to modify an existing contract requires new consideration v Exceptions to general rule: Modification due to unforeseen circumstances that a party could not reasonably foresee w CISG and UCC 2– 209(1): agreement to modify a contract for the sale of goods w 12 - 12

Preexisting Duties & Settlement Agreements v Liquidated debts are debts in which parties have no dispute about the existence or amount of the debt w A creditor’s promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable for lack of consideration v If there is a dispute about the existence or amount of the debt, the debt is unliquidated w 12 - 13 Settlement agreements are enforceable

Past Consideration v Past consideration is an act or benefit given in the past that was not given in exchange for the promise in question, thus it cannot be consideration 12 - 14

Review 12 - 15

Test Your Knowledge v True=A, False = B Consideration is legal value bargained for and given in exchange for an act or a promise w A person who agrees not to file suit has not provided valid consideration w Courts always examine the adequacy of consideration w 12 - 16

Test Your Knowledge v Multiple Choice w A person who agrees to obey the law has provided _____ consideration. (a) No consideration (a preexisting duty) w (b) Adequate consideration that is binding and enforceable w w To be valid under the UCC, an agreement to modify a contract for the sale of goods: (a) Does not need new consideration w (b) Requires new consideration w 12 - 17

Thought Question v Your Aunt agrees to buy you a new car when you graduate if you earn straight “A” grades during your senior year. You earn those grades. Have you provided legally sufficient consideration? 12 - 18