Unit 2 Seminar

Consideration

That reminds me…

• When you are preparing your written assignments, please be sure you consult both the directions for that assignment as well as the CHECKLIST for the assignment to insure that you meet all of the requirements.– There are no more specific rubrics for you to see,

just the general writing ones which you should follow as well

That also reminds me…

• There will be no opportunities for extra credit• I give every chance to make-up assignments

however, so just ask me and I will work with you

Things to do this unit:

• Read Chapter 2 in our book• Participate in the Discussion Boards (there are

2)• Attend the Seminar on Wednesday at 8:00pm

ET • Submit Drafting a Contract: Basic Contract

Project. Be sure to review the Checklist provided with the assignment to ensure that you meet the requirements of the assignment.

• Take a short Quiz

ObjectivesChapter Objectives:– Use vocabulary regarding consideration properly– Discuss the requirements of valid consideration– Identify invalid, not legally recognizable consideration– Differentiate between sufficiency and adequacy of

consideration– Determine if the obligation falls within one of the four

“special agreements” that do not require consideration

Consideration

• Consideration is something of value given in exchange for a promise– It may be tangible (like money, property) or

intangible (like performing a service) – There is a rebuttable presumption that written

contracts are supported by consideration• That means, it is presumed that a written contract is

supported by consideration. However, the party arguing that there is no consideration may offer evidence to prove their position.

Consideration

• Requirements of Consideration– Consideration requires that something of legal

value be given• This includes situations in which the promisee suffers a

legal detriment or the promisor receives a legal benefit

– The consideration must also be a bargained-for exchange, instead of a gratuitous promise.

Consideration

• Consideration is the element of a contract that shows a bond between the parties, and that bond is evidenced by some value

• A Historical Perspective– In the Middle Ages, no consideration was

required, because a man’s word was his bond. A nobleman would seal his contract with a wax seal and with his ring pressed into it.

Consideration

• Today, consideration is made up of 2 subcomponents– 1. Legal Value• Detriment - Represents the value of the contract.

Consideration

• Affirmative detriment – where, because of the contract, a person promises to do something he or she has no obligation to do– Pay money, give property, provide a service, etc.

Consideration

• Negative detriment – where, because of the contract, a person abstains from doing something he or she has a legal right to do– Accepting a out-of-court settlement instead of

going through with trial, refraining from “drinking, swearing, gambling”.

Consideration

• Today, consideration is made up of 2 subcomponents– 2. Bargained-For Exchange• Parties engaged in an exchange to decide the

consideration• Was is a bargained-for exchange and not just a promise

for nothing (a gratuitous promise)?.

Consideration

• Gift Promise or “gratuitous promise”– Unenforceable because they lack consideration

• Mom promises to give son $10,000, but doesn’t. Son has no recourse – there was no consideration on his part.

• Mom promises to give son $10,000 if he gets an “A” in a certain class. If son does so, mother is obligated to pay.

– A “completed gift promise” becomes a true gift, which is irrevocable even if there was no consideration• Once you give something, you can’t take it back..

Consideration• Alden v. Presley

– Facts: Elvis Presley was engaged to Cindy Alden. He gave many gifts to the Alden family, and when Cindy’s mother was getting divorced, he promised to pay off the mortgage on the family home. Elvis died before fulfilling his promise. Mrs. Alden sued his estate to enforce the promise. The trial court held in favor of Elvis’ estate, and the appellate court upheld that decision.

– Issue: Is Elvis’ promise enforceable? (is is supported by consideration?)

– Decision: No– Reason: Elvis made a promise of a gift because his promise was not

supported by consideration. Because the gift was not delivered prior to his death, the gift was incomplete and the promise was unenforceable.

Consideration• Cooper v. Smith

– Facts: Cooper was hospitalized as a result of serious injuries. Smith, who was married at the time, visited him often at the hospital and they became romantically involved. Cooper proposed to Smith and the Smiths got divorced. When he got out of the hospital, Cooper moved in with Smith and her mother. He bought gifts for Smith, paid off her car, and made improvements to the house. When his money ran out, they still were not married. They had a fight, Cooper moved out and Smith returned the engagement ring. Cooper sued for the value of the gifts and improvements.

– Issue: Can Cooper recover the gifts or value of the gifts?– Decision: No– Reason: The court held that these were irrevocable gifts – he could

not recover them just because he was no longer in love.

Consideration

• When is Consideration Inadequate?– Generally, courts do not inquire as to the adequacy of

consideration unless it “shocks the conscience of the court”• Considers subject of contract, amount of consideration,

relationship of the parties, and other facts and circumstances of the case

– Example - A famous painting was sold to someone for $10 and the court overturned the sale. Both parties knew how much it was worth, and the exchange was only made to prevent the seller’s soon-to-be ex-wife from benefiting from the sale

Contracts Lacking Consideration

• Illegal Consideration– Contracts cannot be supported by a promise to

perform or refrain from doing an illegal act.– These contracts are void– Example – I will burn down your house unless you

pay me $10,000. VOID because burning down your house (arson) is illegal.

– Example – Pay me $10,000 and I will break your boss’ legs. VOID because breaking someone’s legs is illegal.

Contracts Lacking Consideration

• Illusory Promises– If one or more parties can opt out of their obligations, the

contract lacks consideration and is called an “illusory contract”

– Example: If you wash my car, I will pay you $10 if I feel like it. No contract – have option not to pay

– Example: I promise to work for you for 3 years, unless I resign before then. No contract – can be fired before 3 years because you made an illusory promise.

Contracts Lacking Consideration

• Moral Obligations– Promises made due to moral obligations are generally not

enforceable as moral consideration is not legal consideration• A sense on honor that prompts a person to make a promise

– Examples – contracts based on love and affection and deathbed promises

– Example – I will give you $10,000 because you are my son. No consideration – only making promise because of relationship/moral obligation.

Contracts Lacking Consideration

• Pre-existing Duty– If the person that promises to perform an act was already

under a duty to perform it, the promise lacks consideration• For example – many states forbid police officers from accepting

rewards for capturing criminals because that is already their duty. They did not do anything new

• Example – changing terms of the contract after performance already began – already have pre-existing duty to perform as per the terms of the original contract.

Contracts Lacking Consideration

• Past Consideration– Promises for prior actions are not supportable as

consideration• Example – employer’s promise to pay bonus for

employee’s work performed in the past is not enforceable because employee’s work is part consideration.

Contracts Lacking Consideration

• Dementas v. Estate of Tallas– Facts: Over a persiof of years, Dementas provided services to Tallas.

Because of these acts, Tallas signed a statement indicating that he would change his will to compensate Dementas for these services. Tallas failed to do so. Dementas sued the estate of Tallas to enforce the promise.

– Issue: Is the promise a binding contract? (is there consideration?)– Decision: No. There was no present consideration to support the

promise– Reason: Services rendered by Dementas that preceded the promise

are past consideration. Consideration to support a contract must be a legal value that is batgained for. Past consideration does not meet this criteria. Therefore, there was no consideration to support Tallas’ promise, so no contract existed.

Contracts Lacking Consideration

• Special Business Contracts– The courts have tolerated a greater degree of

uncertainty in certain business contracts• Output Contracts

– Seller agrees to sell all of its production to a single seller• Requirements Contracts

– Buyer contracts to purchase all if its requirements from one seller

• Best-efforts contracts– Contains a clause requiring both parties to use their best

efforts to achieve the objective of the contracts.