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MGSC30H3 (57)
Jeff Rybak (14)

Legal Environment - Lecture 008

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Management (MGS)
Jeff Rybak

CONSIDERATIONAND PRIVITY 11March 2014 (Chapter 8, p. 184-202) CONSIDERATION Main goal of contract law is to enforce bargains (offer, acceptance, mutual exchange of value). G RATUITOUSP ROMISE is a promise for which nothing of legal value is given in exchange (IE: Offer to give computer, simply agree to receive it). Because there is no bargain, there is no contract, and person is entitled to change their mind. CONSIDERATION exists when a party either gives (or promises to give) a benefit to someone else or suffers (or promises to suffer) a detriment to themselves. Consideration must move from each side of a contract but not necessary to the other side (IE: Promising to give $5000 to your brother while you promise to give a car to my sister). SUFFICIENT ANDADEQUATE CONSIDERATION SUFFICIENTC ONSIDERATIONmay be almost anything of value (exceptions of love and affection, do not want to be involved in intimate matDEQUATEAC ONSIDERATION has essentially the same value as the consideration for which it is exchanged. • Forbearance to Sue is a promise to not pursue a lawsuit PAST CONSIDERATION M UTUALITY OFCONSIDERATION requires that each party provide consideration in return for the other party’s consideratiASTCPONSIDERATIONconsists of something that a party did prior to the contemplation of a contract; no mutuality, cannot support a contract (IE: Landscaping worked on lawn and was delighted with result; therefore, you promise to pay $250 – not obligated to keep promise because they provided services before you promised to pay money. HOWEVER, if you saw landscaping company and ask them to work on your lawn as well and after the company finishes the job then you promise to pay, although promise to pay came after, reasonable person would interpret initial request as a promise to pay). PRE -XISTINGO BLIGATION PRE -XISTINGO BLIGATIONis an obligation that existed, but was not actually performed, before the contract was contemplated. A person who owes a pre-existing public duty cannot rely upon obligation as consideration for a new contract because when they become a public servant, they already promised to help people like you in their time of need. Also, it would be against public policy to allow public servants to take advantage of your misfortune by charging for their services.  NO A promise to perform a pre-existing obligation that previously arose under a contract with a third party can be a good consideration for a new contract. An advantage is to use the same consideration for two different contracts (promising one thing, extract valuable promises from 2 different parties).  YES If the pre-existing obligation arose under an earlier contract with the same party on the other side of the new contract, the courts hold the same person cannot be required to pay twice for the same benefit. If a promise is merely repeated, it does not provide anything new. Parties sometimes fail to appreciate the effort and expense that will be involved in the performance of the contract. If so, they may genuinely agree that the terms of their original contract should be revised to ensure that the deal benefits both of them, especially if they want to develop and maintain good will. Successful business people recognize that a small sacrifice in the short term can lead to larger benefits in the long term. A party’s promise to revise the terms of a contract should sometimes be enforceable if the revision accurately reflects an unexpected change in circumstances.  NO Gilbert Steel is where the plaintiff contractually agreed to sell several shipments of steel to the defendant at a set price. After that agreement was partially fulfilled, plaintiff’s own supplier raised its prices. Defendant then promised to pay plaintiff a higher price for remaining shipments. Plaintiff delivered the rest of the steel, defendant refused to honor their promise to pay the extra amount. Defendant argued plaintiff had already promised to deliver steel under initial contract and did not provide anything in exchange for later promise of higher price. Ways to avoid the rule in Gilbert Steel: • Process of novation to discharge their initial contract and enter into a new agreement that includes a higher price • Agree that something new is to be done in exchange for the extra price (IE: Delivering earlier) • Defendant’s promise would have been binding, despite lack of any new consideration, if it had been made under seal • Business people can simply ignore the rule in Gilbert Steel (realize financial success in long run requires short term flexibility Promise to forgive an existing debt: • Promise to accept a smaller sum is enforceable if it is placed under seal • Promise to accept less money is enforceable if the debtor gives something new in exchange for it (IE: Giving $70,000 and a car for previous $100,000, cheque instead of cash, or lesser sum early) • Part performance is part of the debt must have been paid (IE: Actually received $70,000 instead of promise to pay) • Court will not allow the statute to be used in an unconscionable manner (IE: Knowing you were desperate for cash, had $100,000 but said you’d pay $70,000 or nothing at all), in this scenario even if you accepted lesser amount, can still sue for remainder of original debt PROMISES E NFORCEABLE W ITHOUT C ONSIDERATION SEAL is a mark that is put on a written contract to indicate a party’s intention to be bound by the terms of that document, even though the other party may not have given consideration. Purpose is to draw parties’ attention to importance of occasion and appreciate seriousness of making an enforceable promise. Process of placing a seal on a document is subject to a loose rule and a strict rule (historically, an insigma; today, a red adhesive wafer or word “seal” on paper signed when party signed document). A symbolic indication of intention to create gratuitous obligation. ESTOPPEL is a rule that precludes a person from disputing or retracting a statement that they made earlier. PROMISSORY E STOPPEL is a doctrine that prevents a party from retracting a promise that the other party has relied upon. 4 requirements for promissory estoppel: • Representor (party making promise) must clearly indicate that they will not enforce legal rights against the representee (party receiving promise) (IE: Late payment vs. no payment) • Representee must rely upon the statement in a way that would make it unfair for the representor to retract their promise (IE: Rearranging business plans for promise) • Representee must not be guilty of inequitable behavior (IE: Representee unfairly pressured representor into making the statement) • Representor’s statement must be made in the context of an existing legal relationship PRIVITY OF CONTRACT Consideration is necessary for the creation of a contract. Privity of contract identifies the people who can be involved in the enforcement of a contract. TRANGER is someone who did not participate in the creation of the contract (IE: You agreed to transfer your car to me if I paid $5000 to your sister, sister cannot sue). A contract is used to distribute benefits and burdens amongst th
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