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Lecture 4

ACTG2P40 Lecture 4.docx

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Department
Accounting
Course
ACTG 2P40
Professor
Tommy Wall
Semester
Fall

Description
Lecture 4 Chapter 6 1. Consideration - The parties are each getting something of value; getting something in return. No contract if there’s nothing of value to either parties. Something of benefit flowing to both parties, doesn’t have to be money. (a) Definition and Nature of Consideration (b) Consideration vs. gratuitous promise Consideration is a two-way promise. Gratuitous promise is a one-way promise; a promise made without consideration; doesn’t form the basis of a binding contract. Becomes irreversible if possession is exchanged (morphed into gift). Duty of rescuers  if you start with a rescue operation, you can’t make it worse. (c) Adequacy of consideration The amount of consideration going both ways doesn’t have to be equal (just has to be something of benefit). (d) Past Consideration Past consideration is no consideration at all. A promise given with no consideration (a gratuitous promise). (e) Performance of an Existing Duty Performance of an existing contractual duty (already have a duty under a contract) cannot form the basis of consideration for a new or revised deal. (f) Contracts Under Seal  Exception to the rule that you need consideration going both ways. When a party signs and seals it, there doesn’t need to be consideration going both ways. (g) Promissory Estoppel Exception to rule that you need consideration going both ways. Also called equitable estoppel / injurious reliance  when one party makes a gratuitous promise, and the other party to whom the promise is made relies on that promise to its detriment then that gratuitous promise will be enforceable as if it were a contract or had adequate consideration. Equity says it would be unfair to say “sorry I’m not bound”. Can only be used as a shield not a sword, in other words, can be used as a defense not an attack. (h) Gratuitous Reduction of Debt On the basis of gratuitous promise, when a party agrees to reduce a debt and gets nothing in return, then it’s nothing but a gratuitous promise. Party who agreed to reduce the debt can sue for the b
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