Chapter 9 Mutual Consideration PDF

ration? Exchange ideration For a college graduation present, a wealthy aunt promised to give Mau reen two round-trip tickets for a cruise for her and a frien...

ration? Exchange ideration For a college graduation present, a wealthy aunt promised to give Mau reen two round-trip tickets for a cruise for her and a frien d The promised trip was to be along the ".Mexican ruviera" from Long Beach, Cali forma, to Acapulco, Mexico. At the graduation exercise~, however, her aunt gave her a kiss instead and said, "Th e stoc k market is down. Sorry, darling!" ~h ere Do You Sta nd ? 1. St.ate two reasons why you think Maureen should be able to reco ver the value of the trip from her aunt. 2. St.ate two reasons why you think the aunt should not have to pay.  ~ lesson 9-1 f , ;r IS CONSIDERATION? each day. This is an iJCI. It was traded for the neighbor's promise to pay the $30. Both this act and promise have Define consideration value in the eyes of the law. When examining promises, we look for Determine when there Is no consideration legal value in the underlying act that is promised. Similarly, if someone promises forbearance (to not do CONSIDERATION something), we look beneath the promise and ask if the forbearance WHAT'S YOUR VERDICT? has legal value. Trading Your neighbors arc going skiing in the Canadian Rockies near Calga,y-. In a typical contract, one party in Alberta. Their vacation will last IO days. They unilaterally offer to pay effect says to another, Nlf you do this you $30 on their return if you pick up their mail each day they are for me (pick up my mail), I shall do gone. You accept by pic)cjng up their mail every day. that for you (pay you S30)." A person promising an action or forbearance is ls there consideration for both parties? Is the contract enforceable? the prornisor. The person to whom the promise is made is the promistt In most contracts, trading arises as he main purpose of consideration be worth something in the eyes , T is to distinguish between social promises, such as offering a birthday of the law. one the party exchanges a promise for promise of the party on the other side. There has been a bargaining, or gift, and more serious transactions where one thing is being exchanged Act, Forbearance, or PromlSe trading, of one promise for the other. for something else. In What's Your Verdict? what you Consideration must be mutual. A gift is the transfer of ownership contributed was picking up the mail This means that each party must give without receiving anything in return. Apromise to make a gift is generally not enforceable. Only after a donor In today's world we all wane instant results: Find the answer co a (the person giving the gift) transfers question by a quick search on the World Wide Web. Order a book by possession of the gift to the donee (the clicking a button at your favorite book vendor's Web page. Buy a share person receiving the gift) with the of stock or your favorite CD online. Even buy your next vehicle by intent to transfer ownership, does the searching, pointing, and clic)cjng "I accept" on the purchase agreement. transaction irrevocably shift owner- But just how safe are the "cybercontracts" we make online? Can you ship to the donee. legally consummate a contract by e-mail? Does an electronic signature There are three requirements of consideration. bind an online contract and make it enforceable? Electronic contracrs raise complex legal issues. (See the "Electronic Issues in Business Law 1. Each party mustgive an act, feature on pages 154-155.) forbearance, or promise to the other party. 2. Each party must trade what they contribute to the transac- tion (act, forbearance, or prom- ise) for the other party's I t?\·\,r.' Internet law is evolving, and it will have many test cases over the course of several years. Many lawsuits have been brought before the courts, but the establishment of cybercontracting and Internet law is just beginning. Contrary to other actions in contribution. today's world, the law is just not esrablished 3, What each party trades must with a quick click of "I accept." have legal value, that is, it must INTERNET 9-1 WHAT Is C0Ns1DERAT10N? -  consideration, and each must receive Legal value can also be found in sometimes expressed as, "The courts consideration. Consideration can be the exchange of benefit for a detri- do not inquire into the adequ acy of given by conferring (or promising to ment. A detriment always arises when consid eration." confer) a benefit or by incurring (or you promise forbearance-that is, promising to incur) a detriment. If promise to refr.1in from doing what either of the parties does not give you have a right to do. If your uncle consideration, the other has no duty to perform as promised. S.'lid on your eighteenth birthday, 1115 "Look, if you refrain from smoking until your twenty-first birthday, I'll CASE : Legal Value give you $25,000." You respond, ' Legal ,alue means there has been a L - - - - - - : in "Yes, I accept." What you have prom- garage, Shreve found change in a party's legal position as a ised is not a benefit to your uncle, but result of the contract. In \,Vhar's Your lampshade. He showed r.1ther a detriment to yourse lf-you Laval, who thoug ht it Verdict? you performed an act which have given up a legal right. This is a involve d a benefit to }'Our neighbor authentic Tiffan y antiq change in your legal position and is offered to buy it for $ (pickin g up mail). There is legal value thus valid consideration. Shreve accepted. Wh because this changed (benetitted) Legal value can also arise from the lacer learned that it your neighbor's legal position. Your exchange of two detriments. If you least $450, he uicd neighbors, as promisors, benefitted say to your neighbor that you will for- contra ct and reclaim your legal position by promising the bear buying a dog if she will forbear $30. Because both the act (pickin g up · shade. "Your misc buildin g a fence, both parties have not a fair price! he the mail) and the promise (to pay changed their legal positions. shade is worth at I $30) have legal value and were Therefore, there is consideration. as much! " Shreve traded, consideration is present and because $150 is there is a contract. Legal value (a Adequacy or constderauon eration for a $45 change in legal position) is most com- Generally, what the parties give and monly found in this form- in the get as consideration need not be of exchange of two benefits. equal econo mic value. This idea is The values that differe nt people place on the same prope rty may vary widely. For examp le, one person might gladly pay $60,0 00 for an orig- inal and exclusive high-fa shion gown by a famous designer. Others would not be interested in ownin g such a gown for $60. A person also might place a higher value on a produc t at one time than at anothe r. For exam- ple, when you have been baking for hours on the sunny side of a baseball stadium, you might willing ly pay three times the grocer y-store price for a cold soft drink. Economic value is unimp ortant as long as there is genuin e agreement. However, a big differe nce in eco- nomic value of what one gives and receives may be eviden ce of mutual mistake, duress, undue influen ce, or fraud. If the consid eration received by one of the parties is so grossly inade- quate as to shock the consci ence of the court, the contra ct will be de- cl ared uncon sciona ble. In such a case, the contra ct or the unconscion- able clause may not be enforceable. CHAPTER 9 MUTUA L CONSIDERATION Nominal consideration In certain written contracts, such as publicly recorded deeds, considera- tion from one party may be identified Answer the following questions about legal concepts. as "one dollar ($1) and other good 1. A promise of a gifr is enforceable in court:. True or False? and valuable consideration." In such 2. A valid gift arises when there has been a transfer of possession situations, the actual consideration with the incenc co transfer ownership. True or False? may be substantially more. However, the parties either cannot state the 3. The person who makes a gift is called the donee. True or False? amount precisely or do not want to 4. Consideration can be found in the exchange of benefits, or in publicize it. This token amount is the trading of a benefit for a detriment, or in bargaining co known as nominal consideration. exchange two detriments. True or False? Courts will enforce contracts sup- ported by nominal consideration if 5. To create an enforceable contract, rhe things exchanged muse circumstances indicate that, in fact, have approximately che same economic value. True or False? consideration was given. 6. Courts do not consider the __L of consideration. 1. If a conuacc required the payment of $10 for a property won:h $100,000, che $IO would be (a) nominal consideration (b) adequate consideration (c) sufficient consideration. CUlnlRAl DIVERSRY IN UW THINK CRITICALLY ABOUT EVIDENCE Englan~: Study the following situations, answer the questions, then prepare arguments to support your answers. Medieval Contracts 8. After graduation from h.igh school in June, you and three dass- maces plan co travel around the United Scares. The plan is co Contracts have not always visit the capital cities of all 48 contiguous scaces, caking numer- been as important as they ous pictures along the way. The Sunnyside Camera Shop offers are in today's society. The to give you a dozen rolls of 36-exposun: color film for the trip rigid hierarchy of the feudal free if you agree co lee ic develop and print all the rolls you use, society in medieval England for a seated price per roll. You agree. Are both you and che required very few contracts. Sunnyside Camera Shop legally bound? \Vlm is the considera- Nobles, knights, serfs and tion for each party? peasants all knew their place 9. A four-piece high school rock band practices for at lease one in society and understood hour most days of the week. Its studio is the garage of the their rights. drummer's home. The music was so loud char ic violated a Formal contracts, known as noise ordinance. Several neighbors offered co pay the rent ac a "solemn promises," were local mini-warehouse as a practice room for a year if the group more common in England agreed to stop practicing ac the drummer's home. The players by the fourteenth century. agreed. Did the neighbors receive consideration? Did che rock The royal courts required band receive consideration~ Did the rock band receive a bene- that these promises be writ- fit, endure a detriment, both, or neither? Was the contract ten down and sealed. In enforceable? Would it make a difference if the band's music order to seal the contract, a didn't violate the noise ordinance? noble would use the imprint 10. Gil found a nearly new engine in his neighbor's garage. He was of his signet ring in a wax experienced enough co see chat ic was in good shape. When he seal. Today, you can seal a asked the neighbor how much she wanted for it, she said $65. document by writing the Gil said, "Okay," even though he knew it was worth nearly word "seal" in parentheses $800. Is chis a valid concracc? after your name. 9-1 WHAT IS CONSIDERATION? -  -. - lesson 9-2 ' , , :~ ·C,\INED FOR ExcHANCE ,I~ seem that one part y cou ld elec t to stop prod uctio n and ther eby elim i- Identify wh en there Is legal value nate the oblig ation , cour ts recognize these contracts as supp orte d by con- Determine whe n there Is a bargalned for exchan ge sideration. N'lD Dm llf hll DouNlliS Whe n termi- LEGAL VALUE nation clauses, outp ut and require- ments clauses, and othe r clauses.-__-i I create wha t wou ld seem to be illu- C WHAT'S YOUR VERDICT? sory promises, man y states will find an impl ied duty of fair dealings. This means the clause cann ot be Lcmsky employed Vork und er a th~ yca r cont exercised arbitrarily, but mus t be ract. The contraet called for York to manage a mot d for Lcmsky at $25, exercised in a way that constitutes 000 a year, as wdl as rcoeivc a free apan mcn t. After six months, Flem fair dealings. By find ing an implied ming offered York $30,000 a year to manage a larger mot d. Upo duty of fair dealings, these courts n learning of the offer, Lcm.sl"Y said to Vork. -You're competent. You have a basis for the presence of 're honest. I need you. I'll meet any offer you get from anyone else." Vor consideration. k remains on the job. Must lemsky pay her the higher salary? EJclsUngDutv A person sometimes promises to do L egal value means there is a change in the legal position of the party as a result of the contract. contract if business circumstances change. Therefore they include something that he or she is already obligated to do by law or by prior termination clauses in their contracts. When a benefit is promised, the If the clause gives one party the promisee has his or her legal rights pow er to terminate the contract for increased, so this has legal value. any reason, the promise to perform Thus if you promise to pain t your wou ld be illusory. On the other neighbor's house for $3,000, you' ve hand, if termination is allowed only increased your neighbor's legal bene- after a change in defined circum- fits to include painting the house. stances, or after the passage of acer - tain length of time, or after 30-days' musorv Promises notice, the promise is not illusory. To be consideration, a promise must There is clearly a change in the be binding. In other words, the party's legal obligations. promise must create a duty or impose an obligation. If a contract 0UmT N llaM.aBTS l:anum Buyers contains a clause that allow s you to sometimes agree to purchase all of a escape the legal obligation, the particular producer's production. For promise is said to be illusory. For instance, a steel company may buy example, you migh t have a clause all of the output of a nearby coal stating that you will "pai nt the mini ng company. This is an output hou se-i f you have time." This does contract. On the other hand, a seller not increase your legal obligation may agree to supply all of the needs because you may never have time to of a particular buyer. For instance, a paint the house. carburetor manufacturer may agree to supply all the carburetors needed Ta.m oll CUUm Businesses often for a certain make of vehicle. This is wan t the pow er to with draw from a a requirements contract. While it may CHAPTER 9 MUT UAL CONSIDERATION  contract. Such a promise, or act, can- and recover the unpaid balance of Rawl At the time most torts occur, not serve as consideration. $100. She has received no considera- the liability is unliquidated because tion for the suggested agreement to the extent of damages is uncertain. If (IJsTll8 PwtJc Ihm If on your sixteenth reduce the amount due. a party settles a claim at this point, birthday, your aunt promised to pay A debtor can settle a claim by pay- this is called a release. The payment you $10,000 if you promised to not ing less than the full amount if addi- of money is sufficient consideration purchase alcohol for two years and tional consideration is given. So for the promise not to sue. Many peo- you said, "Okay," this would not be a payment of less than the full amount ple are hurt financially by signing contract. There is no consideration before the due date could be consid- releases too soon. because it is illegal for you to pur- eration. But there must be mutual CMts11 11 Clemas Occasionally, a chase alcohol when you are 16 and agreement between the creditor and group of creditors will cooperatively 17 years old. While the agreement debtor to do so. Valid consideration agree to accept less than what they creates a benefit for you ($10,000), exists because the creditor receives are entitled to, in full satisfaction of you don't incur a detriment because the benefit of early payment. If some- their claims against a debtor. In you are not giving up a legal right. thing extra is given by the debtor, the return, the debtor agrees not to file new consideration supports a volun- EmTIIII Pllvm Dun If a contract creates for bankruptcy. This is called a tary release by the creditor. a duty, this duty cannot be the basis composition of creditors. Considera- of consideration in a different con- tion for the promise of each creditor tract. In What's Your Verdict? Vork to release the debtor from full pay- was still bound to work for Lemsky TIii ment is found in the reciprocal prom- for an additional 30 months under ises of the other creditors to refrain the original contract. Therefore CASE Baileymval from suing for the entire amounts due Lemsky's promise to pay more money Huff'$500 them. If the creditors did not agree to is unenforceable. To hold Lemsky to but said he could pay only $300. this arrangement, the debtor could the new promise, Vork would have to Huff agreed to accept the kJw.:r file for bankruptcy, and the creditors provide new, additional considera- sum together with a silver ball- might receive much less. tion. Otherwise Vork is obligated to point pen in payment of the carry out the contract as originally entire debt. The pen, although agreed upon. not wonh $200, was sufficient The same rule holds true when a new consideration for Huff's person demands further compensa- release from the remaining dcbc. tion for carrying out a contract already made. Snnallll Ullwtl DIils In some Smumr II l.lQL':llJID Oms A liquidated cases, there is a genuine dispute between the parties about how much A motorist and her two young debt is one where the parties agree is owed. In such case, partial pay- children are stranded in the that the debt exists and on the ment offered in full settlement by the parking lot of a shopping mall amount of the debt. When a creditor (a person to whom a debt is owed) debtor and accepted by a creditor with a dead car battery. agrees to accept less than the total settles the claim. For instance, a (Having just completed your amount due in full settlement from a debtor may in good faith claim that a driver's education course, you debtor (a person who owes money to certain debt is $500. The creditor in know how to jump-scan a a creditor) there is no consideration if good faith contends that it is $1,000. dead battery.) You connect the the debt is liquidated. If the parties compromise on $750, batteries of the two vehicles Assume that Shawver borrows their agreement is binding. Consider- with your jumper cables. With $1,000 from Reno. The loan is to be ation is found in their mutual for- your engine running, she turns paid in one year with interest at bearance from litigating the amount her ignition key and her 10 percent per year, or a total amount owed. Such an agreement is called engine srarn smoothly. of $1,100. On the due date, Shawver an accord and satisfaction. Graceful, she asks for your sends Reno a check for only $1,000, The disputed claim for an unliqui- address and promises to send saying "Sorry, I'm strapped for cash. dated debt would be settled if the you $25. Is she legally bound You will have to accept this in full creditor cashed the debtor's check to keep her promise? Is she payment." Reno endorses (signs) and bearing a clear notation: Nin full set- ethically bound to do so? cashes the check. Reno may later sue tlement of all claims outstanding." ' l 9-2 LEGAL VALUE ANO BARGAINED-FOR ExCHANGE  BAHGAINm-FOR EXCHANGE.-__-i I WHAT'S YOUR Answer the following questions about legal concep ts, 1. lf a contract provides a way for one party to comple tely escape its.. VERDICT? obligations under the contract, then the promise is called _L. Francis, a pedestri an, saw a car 2. Termination clauses make a contract invalid for lack of considera- pulled over by the side of the tion. True or False? road with a Rat tire. He came to 3. Output clauses make contracts invalid. True or False? the driver's aid, replacing the 4. l f you already owe a duty, then that duty cannot be used as con- flat with the spare tire. Then he sideration. True or False? accomp anied rhe driver to the nearest gas station where her flat 5. If two acts have legal value and they are given indepen dently of was repaired. She thanked one another without being traded, they are not conside ration. Francis and said she would give True or False? him $20 on her next payday. 6. Legal value means a change in one's legal position as a result of Later she changed her mind, the contract. True or False? and Francis sued. 1. If a court implies a duty of fair dealings, this can be the basis for Can Francis win the $20? consider ation even when a promise seems illusory. True or False? Mutual Gifts T he consideration on both sides must be traded one for the other. If they are not traded, then there are probably two gifts being made. In Study the followin g situatio ns, answer the questio ns, then \Vhat'.s Your Verdict? Francis made a prepare argume nts to suppon your answers. gift of changing the tires. Because the 8. If a contract contains a clause srating that all the buyer's obliga- driver's promise was made after tions could be extinguished by giving 30-days' notice, would Francis changed the tire, the driver this make the buyer's obligations under the contrac t illusory? made a gift of promisin g $20. Neither 9. Georgia's neighbors approached her right after she received her party sought to exchange one thing driver's license and said they felt that she drove coo fast on the for the other. Even where the gifts roads where their kids often played. They struck a deal with her have legal value, they are not consid- that if she stayed within the speed limit for the next three eration unless they arise from a bar- months they would pay her $200. Georgia agreed. Is there a gained-for exchange. benefo to the neighbors? Is there a benefit to Georgia ? Is there a contract? Past Perronnance 10. Kamiar owed Rubio $5,000, which was due in one year. There Recall that consideration is what one was no dispute as to the amount. However, Rubio needed person asks of another in return for money immediately, so Kamiar offered to pay $4,000 early in consideration. The bargaining takes full settleme nt of che debt. If Kamiar pays the $4,000 early, place in the present, for immediate or may Rubio sue to collect the remainin g $1,000 later? future performance by both parties. Therefore, an act that has already 11. Shea owed Barlow $1,200 chat was due and payable. Shea had been performed cannot serve as con- been temporarily laid off at work, so he asked Barlow co extend sideration. Such act is called past the due dace for six months. Barlow agreed, but a month lacer consideration. sued Shea to collect the debt. Will she win? , 146 CHAPTER 9 MUTUAL CONSIDER ATION 1  ~ ·; ~ J~ -.'\~ lesson 9-3 , -, , ,,.11 J1JI.t.T ~, I REQUIRED?...... ~ ~· GOALS TIIS Identify when promissory eefop CASE Cmuolidarecl Discuss situations In which consideration Is not Schoola.. needed trict asked for bids to c:onsuuc:c a new school building,. Canlinal Construaion, a gcncn1 con~ PROMISSORY ESTOPPEL tor, asked a wriecy of poccndal -- subcontractors to submit bids on :;-__j I WHAT'S YOUR VERDICT? pans of the job. Plcny F.learical submitted a bid for the dcariatj work. Cardinal told Pleny mac - bid was the lowac and would be Silvertone, a wealthy financier, strongly believes that world travel is used by Cardinal in iD bid aa me essential for a balanced educacion. Accordingly, he told his twin niece new school building. Luer, Plmy and nephew that if they would "cap their college degrees with a trip sought to withdnw iD bid and around the world," he would pay all their expenses upon their return, subscitutc- a higher price. Canliaal up to $9,500 for each, Using savings and some borrowed money, the sued. However, the promise wa twins took off on a 90-day journey. Total reasonable expenses for each one that Plmy knew Caidinal exceeded $9,500 by the time they returned home. would rdy on. Canlinal did~ Is Silvertone liable to the twins? on it in submitting iD bid. Cardinal would be ecpf!Oftlicalf.: promissory estoppel. He could see injured if the bid wae oor ~ here are important exceptions to T the general rule that mutual con- sideration is necessary for a valid that the twins would rely on his promise, they did in fact spend their ored, and this would be uajast. Since all the- dcrneoa olpmail money on the trip, and they would sory est0ppd ~ sarisfied. die:.¾ contract or binding promise. When promise will be cnfon:cd. someone intends a gift but considera- suffer an unfair economic loss unless tion is not present, a promise may he is required to pay. Injustice can be be enforced under the doctrine of avoided only if Silvertone pays. promissory estoppel. The following conditions must be met: EXCEPTIONS TO THE CONSIDERATION REQUIREMENT The promisor should reason- ably foresee that the promisee will rely on the promise. ----j I WHAT'S YOUR VERDICT? The promisee does, in fact, act in reliance on the promise, Branyan pledged $25,000 to the building fund of the community The promisee would suffer a hospital. Relying on this and other pledges, the hospital's board substantial economic loss if the of directors entered into a contract for construaion of a new promise is not enforced. secnon. Injustice can be avoided only by enforcement of the promise. Can the Branyans be held to their pledge? Silvertone is legally bound to reimburse each twin with $9,500. Promises to Charitable hospitals not operated for profit. The Although he received no considera- oruanlZaUons contributions may be outright gifts or tion for his promise of a gift, he is I ndividuals and business firms often promises (pledges) to pay in the estopped (or barred) from denying I contribute to charitable organiza- future. Because the party who makes his liability under the doctrine of tions, such as churches, schools, and the pledge receives nothing in return, 9-3 WHEN IS CONSIDERATION NOT REQUIRED? -  1x-r We-change ior the promise or the action of donee ,mottit r person donor ~ Rc"a,n '1!, trom doing what ont hJ!> a right to do firm offer forbearance ; \olunt,m trarister 01 owner~h1p of propertv without consideration gift legal value c, (_ hange in the legal po'>ltIon of a party as a result of the contract liquidated debt ~ Act th.it has al read\ lx,en performed and thus cannot be c.onsiderat ion for a nominal consideration promIw In the prl">t-nt option contract output contract ii. E.ntorc.c ment of a promI¼.' to avoid 1niustice, even though no consideration Is past consideration );I\Cn for 1t promisee 4 Person who makes a promise promisor promissory estoppel 1o Person to whom a promise is made requirements contract 11. Merchant's binding written promise to ke