Business Law 1 - Chapter 15 - Outline PDF

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This document includes an outline of the information provided in chapter 15 of "Dynamic Business Law" 5th Edition....

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Business Law – Chapter 15 – Outline Consideration Disclaimer: The following content is MY personal interpretation of the content provided in the textbook or lecture, it is NOT the exact information given in the textbook or lecture. This document does not contain any exam/quiz content for the course, it is only composed of the information I found most important in the section. Although I try my best to include as much accurate information as possible, it is advised that you study your own materials and gather your own interpretations.

Rule: consideration is what a person will receive in return for performing a contract obligation. - Example: Dan agrees to buy Mya’s car for $2,000. The $2,000 is the consideration Mya will receive and the title to and possession of the car is the consideration that Dan will receive. Consideration can be anything as long as it’s the product of a bargained-for exchange. Rules of Consideration Understanding the rules that govern consideration and their exceptions is KEY to understanding consideration. Lack of Consideration Rule: for a promise to be enforced by the courts, there MUST be consideration. - A court will enforce one party’s promise only if the other party promised something as well. - Example: in a bilateral contract, (a promise in exchange for a promise), the consideration for each promise is a return promise. - Example: in a unilateral contract (a promise for an act, one party’s consideration is the promise and the other’s is the act. Rule: promissory estoppel is the legal enforcement of an otherwise unenforceable contract due to a party’s detrimental reliance on the contract. One EXCEPTION to the rule requiring consideration is Promissory Estoppel. Promissory Estoppel: the legal enforcement of an otherwise unenforceable contract due to a party’s detrimental reliance on the contract. Promissory Estoppel occurs when three conditions are met: 1. One party makes a promise knowing the other party will rely on it. 2. The other party does rely on the promise. 3. The only way to avoid injustice is to enforce the promise. Promissory Estoppel is not awarded regularly, but in certain cases, it can provide a remedy when no other remedy exists. Adequacy of Consideration Rule: the court seldom considers adequacy of consideration. - Simplified: the court does not weigh whether you made a good bargain.

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Example: if you buy speakers off of your friend for $300 and later on find out that the speakers are only worth $50, you cannot sue your friend because it was your responsibility to do your research prior to buying the speakers. EXCEPTION: if you sell your assets for dirt cheap to file bankruptcy and avoid payment to creditors that you owe money to, the court can set aside each sale you made and then sell your assets. Illusory Promise Rule: an illusory promise is NOT consideration. Illusory Promise: a situation in which a party appears to commit to something but really has not committed to anything. It’s not a promise and thus not consideration. - Example: Dan offers to sell Shawn his skis for $350 and Shawn responds with, “I will look at them tomorrow, and if I like them, I’ll pay you”. - At this point, Shawn has not committed to doing anything and therefore has not created any type of promise. Past Consideration Rule: past consideration is no consideration at all. - Example: if your boss says “you’ve done a great job this past year so I am going to give you 1% of our company’s stock” and 6 months go by and you still never received the stock, you can NOT sue him because there was no bargained-for exchange. You did not offer anything in return. Work done in the past has already been performed. *A promise CANNOT be based on consideration that was provided BEFORE the promise was made. Preexisting Duty Rule: a promise to do something that you are already obligated to do is not valid consideration. There are 2 parts to this rule: 1. Performance of a duty you are obligated to do under the law is not good consideration. a. Example: if someone offers a reward to anyone who catches a criminal, a police officer who caught the criminal may NOT accept the reward because it was his responsibility under the law to do so. 2. Performance of an existing contractual duty is not good consideration. a. Example: AJ and Pete have a contract stating that Pete will finish AJ’s pool by June 1st but Pete asks AJ for an extra $5,000 to hire more workers in order to meet the deadline. Once the pool is done, AJ is NOT required to pay Pete the $5,000 because they had an agreement that the pool would be completed by June 1st. Exceptions to the Pre-Existing Duty Rule 1. Unforeseen Circumstances 2. Additional Work

3. UCC – Sale of Goods Unforeseen Circumstances: events that a reasonable person would not be expected to anticipate. If unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration. - Example (same pool example): if Pete discovers solid rock in AJ’s backyard while digging and AJ agrees to pay an additional $4,000 to remove the rock (which is necessary to finish the pool), AJ IS required to pay the $4,000 at completion because neither of them had any way of knowing that the rock was there. If a party agrees to do additional work (more work than she’s obligated to o under the contract), the promise is valid consideration. - Example (Pool): if Pete asks AJ for an additional $7,000 but agrees to add a waterfall to the pool and AJ agrees to pay the additional $7,000, Pete’s promise to do additional work is consideration and AJ’s extra $7,000 is consideration. Both parties are now bound. Partial Payment of Debt Partial payment of debt may or may not be valid consideration, depending on whether the debt is liquidated or unliquidated. Liquidated Debt: debt for which there is no dispute between the parties about the fact that money is owed, and the amount of money owed. A creditor’s promise to accept less that what’s owed, when the debtor is already obligated to pay the full amount, is not binding. - Exception: If you offer your car to the creditor in return for the full settlement of the debt and the creditor accepts, the creditor may not sue for any remaining balances. Unliquidated Debt: debt for which the parties either dispute the fact that any money. Is owed or agree that some money is owed but dispute the amount. A dispute over an unliquidated debt may be settled for less than the full amount if the parties enter into an Accord and Satisfaction. Accord and Satisfaction: an arrangement between contracting parties whereby one of the parties substitutes a different performance for his or her original duty under the contract. 3 requirements must be met for an Accord and Satisfaction to be enforceable: 1. The debt is unliquidated 2. The creditor agrees to accept a full payment less than the creditor claims is owed. 3. The debtor pays the amount they have agreed on. Rule: an accord and satisfaction is an arrangement between contracting parties whereby one of the parties substitutes a different performance for his or her original duty under the contract. Accord: the promise to perform the new duty. Satisfaction: the actual performance of that new duty. A common way that people try to create an accord and satisfaction is by sending a check to the creditor and writing “Paid in Full”. Under common law in many states, this left the creditor bound to accept the lesser amount on the check. -The UCC changed the scope of this rule by providing 2 exceptions.

1. Business may notify their debtors that any offer to settle a claim for less than the amount owed must be sent to a particular address and/or person. 2. If a business does inadvertently cash a paid-in-full check, they have 90 days from the date they cashed the check to offer the money back to the debtor. Once the offer has been made by the business, no accord and satisfaction exists....