busi law ch04

8/4/2019 Busi Law Ch04

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Business Law

Chapter 4: Consideration

(Bargained for Exchange)


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Introduction Consideration is often defined as some

right, interest, profit or benefit accruing

to one party or the loss, detriment or

responsibility assumed by another party

to the contract.


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Consideration is also a requirement of a

legally valid contract.


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What is consideration? The basic reason for a contract; a

person gives up something of value in

exchange for receiving something of

value through the contract.


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Why is consideration

required? Consideration is required for the

formation of a valid contract for the

simple reason that it shows the parties

intent to be bound.


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A one-sided promise does not put the

other party in any different footing than

he or she had prior to the promise.


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Types of Consideration A right

A profit

An interest

A physical object

A responsibility undertaken A legal detriment


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Legal Detriment

Consideration can also be satisfied

through actions.

When a person assumes a legal

detriment, this can also satisfy the

requirement of a consideration.


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Detriment The bargained for exchange" in a

contract, where the parties take on

some responsibility that they are not

legally obligated to undertake


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Proving Consideration

When the consideration for a contract is

under dispute, the parties involved must

devote time and energy in proving (or

disproving) the existence of

consideration.


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Many times, the contract itself will recite

the actual consideration.


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In many jurisdictions, there are legal

presumptions that may also help to

establish the existence of consideration.


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Written contracts, for example, are often

presumed to have consideration,

although the other party can rebut thispresumption.


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As a general rule, there is no

requirement that consideration for a

contract be recited or expressed in thewriting.


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Quid

ProQ

uo The phrase quid pro quo is a Latin

term that is usually translated as

something for something.


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Quid pro quo and

Consideration Quid pro quo is a general term;

consideration is a specific, legal term.


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Inadequate or Insufficient

Consideration Courts often refrain from determining

the value of the consideration.


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Parties are free to negotiate any

contract terms that they choose, as long

as the contract does not involve fraud,duress or undue influence over one

party, or a contract that is void for public

policy reasons.


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Inadequate consideration is not

considered insufficient consideration

and therefore will not automatically voida contract.


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Grossly Inadequate

Consideration Grossly inadequate consideration is

often a feature of unconscionable

contracts.


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An unconscionable contract is one in

which the terms or bargain is so

obviously one-sided that the contractshould be voided for public policy

reasons.


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Contracts Under Seal Seals are rare in modern contracts.


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Under the common law, a contract

under seal was presumed to have

consideration and therefore noadditional evidence or testimony about

the consideration was required.


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Legal doctrines that affect

consideration Courts have created several legal

doctrines that affect the analysis of

consideration in a contract.


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Promissory Estoppel

The basic idea behind estoppel is that

when person A makes a statement that

person B relies upon, A is preventedfrom denying the truth of his statement.


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What is Estoppel?

When a person is barred by prior

actions from claiming a right or a duty

against another person who relied, ingood faith, on those actions.


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Promissory Estoppel and

Consideration Under the theory of promissory

estoppel, when Party B suffers some

legal detriment as a result of thecontract, Party A cannot claim that there

was no consideration for the contract.


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The Elements ofPromissory

Estoppel 1) there was a clear and definite

promise; 2) the promisor intended to

induce reliance, and that relianceoccurred; and 3) the only way to avoid

injustice is to enforce the contract.


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Waiver

When a person gives a waiver, he or

she surrenders a right, requirement or

obligation.


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Accord and Satisfaction When parties change the terms of their

contracts, or negotiate entirely new

contracts based partly on a previouslyexisting contract.


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Contracts for an Illegal

Purpose A contract that contemplates an illegal

purpose, such as a criminal act, will not

become enforceable simply because itis supported by consideration.

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