business law: chapter 12, the ethical, global, and e-commerce environment, 14th ed., by mallor,...
TRANSCRIPT
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Capacity to ContractIllegality
WritingRights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
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Consideration
Make yourself necessary to someone.
Ralph Waldo Emerson
The Conduct of Life (1860)
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
Elements of consideration Legal value Bargained-for exchange
Exchanges that fail to meet consideration
Exceptions to consideration requirement
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Consideration is legal value bargained for and given in exchange for an act or a promise
Elements of Consideration
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Purely gratuitous promises are not enforceable because not supported by consideration Thorne v. Deas
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Consideration in the form of an act or promise may have legal value if the person Refrains from doing something the
person has the legal right to do Example: Hamer v. Sidway
Does something the person had no prior legal duty to do
Generally, courts will not examine adequacy of consideration
Legal Value of Consideration
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A promisee’s act or promise must have been bargained for and given in exchange for the promisor’s promise Example: Gottlieb v. Tropicana Hotel
and Casino in which participating in a promotion that benefited the company was adequate consideration to form a contract
Bargained-for Exchange
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Illusory promises Preexisting duties Past consideration
Exchanges That Are Not Consideration
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If promisee’s promise really does not bind promisee to do or refrain from doing a thing, promise is illusory and cannot serve as consideration 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
AGC’s promise to arbitrate was illusory since they could amend the contract at any time
Illusory Promises
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As a general rule, performing or agreeing to perform a preexisting duty is not consideration Promisor in such a case has effectively
made a gratuitous promise Includes public duties (obey the law)
and preexisting contractual duties
Preexisting Duties
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General rule is an agreement to modify an existing contract requires mutual assent and new consideration Example: Ross v. May Company
Exceptions to general rule: Modification due to unforeseen
circumstances that a party could not reasonably foresee
CISG and UCC 2–209(1): agreement to modify a contract for the sale of goods
Preexisting Duties & Contract Modification
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Liquidated debts are debts in which parties have no dispute about the existence or amount of the debt 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
If there is a dispute about the existence or amount of the debt, the debt is unliquidated Settlement agreements are enforceable
Preexisting Duties & Settlement Agreements
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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
Past Consideration
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Promissory estoppel, because a donative promise is not a bargained-for exchange Example: Skebba v. Kasch
State statutes that extend promises to pay debts that have been barred by statute of limitations or bankruptcy discharge
Charitable subscriptions (like promissory estoppel)
Exceptions to Consideration Requirement
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