Business Law Ch 15 Consideration

Contracts under Seal

-Contracts simply identified with the word seal or the letters L.S. (locus sigillia) which means "the place for the seal" at the end. -Some states no longer require however ten states still allow a contract without consideration to be enforced if it is under seal.

Types of Consideration

-In a bilateral contract (a promise for a promise), the consideration for each promise is a return promise. -In a unilateral contract (a promise for an act), one party's consideration is the promise and the other party's consideration is the act.

Past Consideration

-Past consideration is no consideration at all. -In some cases, if past consideration was given with expectation of future payment, the court may enforce the promise.

Two exceptions requiring Consideration

-Promissory estoppel -Contracts under seal

Which of the following was the result in the case in the text Hamer v. Sidway, in which, after performance by his nephew, an uncle reneged on a promise to the nephew to pay him $5,000 if the nephew refrained from drinking liquor, using tobacco, swearing, and playing cards or billiards for money until he was 21 years of age?

-That the nephew could recover because he supplied consideration. -The court enforced the agreement stating that "having fully performed the conditions imposed, it makes no difference whether such performance was actually a benefit to the promisor." -The court ruled for the plaintiff recognizing that "consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future."

What is Consideration?

-The second element of a legally binding contract. -Something of value, given in exchange for something else of value, that is the product of a mutually bargained for exchange. -Consideration is what a person will receive in return for performing a contract obligation.

The Rules regarding Consideration

-a promise must have consideration for a court to enforce it. ~~Exception "Promissory Estoppel" -courts seldom consider whether consideration is adequate, they just want to know it exists. -an illusory promise is not consideration. -past consideration is not consideration -a promise to do something you are already obligated to do is not value consideration. (pre-existing duty rule)

Preexisting Duty Rule

-a promise to do something that one is already obligated to do. It is not considered valid consideration. -Performance of a duty you are obligated to do under the law is not good consideration. *police duty to catch criminals - not receive rewards. Performance of an existing contractual duty is not good consideration. *a pool contractor should have been aware of the amount of labor needed - not obligated to pay additional money.

Partial Payment of Debt

-liquidated Debt -unliquidated debt -accord and satisfaction

Exemption to the Preexisting Duty Rule

-unforeseen circumstances -additional work (more than the contract requires) -UCC Article 2 (sale of goods)

What is Promissory Estoppel and when can it be used?

An exception to the rule requiring consideration is promissory estoppel which occurs when (1) a party makes a promise and either knows or should know that the other party will reasonably rely on it, (2) the other party does reasonably rely on the promise, (3) the only way to avoid injustice is to enforce the promise.

Illusory Promise

An illusory promise is not a promise at all. An illusory promise occurs when there is no commitment to do anything.

Reliance damages

In most states, a party recovering under the theory of promissory estoppel may recover reliance damages. *money spent moving in "reliance" of a job offer.

Liquidated Debt

No dispute as to amount of money owed.

Unliquidated Debt

Parties either (in good faith) dispute fact money owed, or dispute amount of money owed.

Accord and Satisfaction

Requires to be enforceable: 1. an unliquidated debt 2. the creditor agrees to accept as full payment less than is owed. 3. the debtor pays the amount agreed on - the accord is the agreement -the satisfaction is the payment.

Adequacy of Consideration

The court does not weigh whether you made a good bargain. if the court believes fraud or undue influence occurred, the court may look at the adequacy of consideration.

Debtors sending a check with "paid in full" written on it.

Under UCC section 3-311, effective in 30 states, if a business does inadvertently cash a "paid-in-full" check, it has 90 days to offer the debtor repayment in the same amount in order to reinstitute the debt.