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Chapter 6

Chapter 6 BU231.docx

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Department
Business
Course Code
BU231
Professor
Valerie Irie

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BU231 Chapter 6 – Formation of a Contract: Consideration and Intention Week 2 The Meaning of Consideration -An accepted offer will not be recognized as an enforceable contract unless it has consideration -Bargain – each party pays a price for the promise of the other -Consideration – the price for which the promise of the other is bought Gratuitous Promises -Gratuitous promise – a promise made without bargaining for or accepting anything in return -Such arrangements never amount to legal contract -If the promisor does not perform, the promise has no legal remedy – he cannot seek compensation for the benefit he was promised -Charities for example, seldom find it in their interest to sue those who have made pledges but do not perform Adequacy of Consideration -While the consideration given in return for a promise must have some value, the court does not inquire into whether the promisor made a good bargain -The question of adequacy of consideration might seem to arise whenever parties to a dispute agree to settle out of court -Suppose that after settling, one party discovers she was mistaken about either the law or the facts: she promised to pay a sum of money to the other party when she really was not bound to pay anything – the threat of the other party to sue was without merit since he would have lost in court -Provided the promisee has an honest belief in her right to sue, giving it up is good consideration for the promisor’s promise Motive Contrasted with Consideration: Past Consideration -Motive cannot change a gratuitous promise into a binding contract, nor can it reduce a binding promise into a merely voluntary obligation -Past consideration – a gratuitous benefit previously conferred upon a promisor -Moral cause – moral duty of a promisor to perform his promise Relation Between Existing Legal Duty and Consideration -Consideration already given will not support new promises when parties try to modify an existing contract -A related problem arises when a third party to a contract promises to pay a sum to the promisor for his promise to preform already existing obligations to the promise Gratuitous Reduction of a Debt --Early payment before the due date is sufficient new consideration to make an agreed reduction in the debt binding on the creditor -Trading debt or an object is valid, providing the person agrees to it voluntarily -A third party, who is not bound to anything to the creditor, may offer to pay the creditor a lesser sum is she will cancel the debt – a creditor who accepts such an offer is bound by her promise and will fail is she later sues the debtor BU231 Chapter 6 – Formation of a Contract: Consideration and Intention Week 2 Equitable Estoppel Evolution of the Principle -Suppose a person makes a gratuitous promise to another, fully intending to keep it, but later finds it inconvenient to perform – the gratuitous promise remains gratuitous, the promise cannot be enforced, and the promisee suffers the burden of his expenses Estoppel Based on Fact -When one person asserts as true a certain statement of fact and another relies on that statement to his detriment, the maker of the statement will be estopped from
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