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AU / Accounting / ACCT 2700 / What are the elements of consideration?

What are the elements of consideration?

What are the elements of consideration?

Description

School: Auburn University
Department: Accounting
Course: Business Law
Professor: Robert cochran
Term: Spring 2016
Tags:
Cost: 25
Name: Business Law Chapter 12 Notes
Description: Here are the notes from Chapter 12!
Uploaded: 04/21/2016
6 Pages 32 Views 3 Unlocks
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Chapter 12


What are the elements of consideration?



“There are no shortcuts to any place worth going.”

“Anything worth having is worth working for.”  

Agreement: Offer 

 ∙     Termination of Offer 

o An offer may be terminated prior to acceptance by either:

 Action of the Parties

o or by

 Operation of Law.

 ∙     Termination by Action of Parties: 

o Acceptance

o Revocation of the Offer by the Offeror:

 Offer can be withdrawn anytime before Offeree accepts the offer  Effective when the Offeree or Offeree’s agent receives it  

 If the offer has been accepted, it can’t be revoked 


Courts typically will not consider adequacy of consideration. why? value?



o Rejection of the Offer by the Offeree:

 Rejection by the Offeree (expressed or implied) terminates the  offer

 Effective only when it is received by the Offeror or Offeror’s  

agent

 Once a rejection of an offer is made, the offer is finished unless  the Offeror brings it back.  

o Counteroffer by the Offeree

 Rejection of original offer and the simultaneous making of a new offer

 Mirror Image Rule: At common law, any change in terms  

automatically terminates the offer and substitutes the  

counteroffer.

o Bottom Line:


Why do we have to have consideration in a contract?



 Acceptance

∙ Mirror Image Rule

 Revocation

 Rejection

 Counteroffer

∙ Termination by Operation of Law: 

o Lapse of Time:

 Offer terminates by law when the period of time specified in the  offer has passed If you want to learn more check out What are the two pathways of photosynthesis?

 If no time period for acceptance is specified, the offer terminates ate the end of a reasonable period of time

o Destruction of the Subject Matter: If it occurs before acceptance of the  offer , then the offer is canceled

o Death or Incompetence of the Offeror or Offeree: automatically  terminates unless it is an irrevocable offer

o Supervening Illegality of the Proposed Contract: legislation or court  decision automatically terminates offer or renders contract  

unenforceable.

Agreement: Acceptance 

∙ Unequivocal Acceptance: The “Mirror Image” Rule

∙ Silence as Acceptance:

o General Rule: Offeree should not be legally obligated to affirmatively  reject and offer

∙ Communication of Acceptance: Don't forget about the age old question of Define frictional unemployment.

o Every communication required in contracts has to be received by the  other party to be valid except Acceptance  

o General Rule: in bilateral contracts, acceptance is timely if made  before offer is terminated

o Mailbox Rule: Acceptance is effective when Offeree places the  acceptance in the mailbox (Default Rule)  

∙ Mode and Timeliness If you want to learn more check out What are the primary bond types?

o Substitute Method of Acceptance

 If the offer calls for a specific way of acceptance that should be  the only way you accept. Use and alternative way at your own  risk 

 Ex: California Warehouse case

Agreement in E-Contracts 

∙ Full contract should be available to both parties (at least hyperlink) ∙ Terms of Acceptance should be clear

o Forum-Selection Clause

o Click-On Agreements: “I accept” or “I Agree”

∙ E Signatures:

o Any electronic means of agreeing to an electronic contract is valid if it  clearly indicates “intent to be bound” “x” or “check mark

Sample Questions  

T/F An agreement must have both an offer and an acceptance

True

Generally, what the parties intend to do matters in determining what a contract  means.

False

An offer may be terminated by:

Operation of the Law and Actions of the Parties

The Objective Theory of Contracts has no effect on offer termination

 “No case of action arises from a bare promise”  

- Legal Maxim

Elements of Consideration: 

∙ Generally, consideration must have:

o “Legally Sufficient Value”

o And

o A “Bargained-for-Exchange”  Don't forget about the age old question of What is the deutsch word of to play the guitar?
Don't forget about the age old question of What is an area between supply curve and price curve?

∙ Consideration Definitions:

o It’s something of value that is promised, given, or done that has the  effect of making an agreement a legally enforceable contract  

∙ First Element, “legal value”:

o Value

o Promise

o Performance Don't forget about the age old question of What is the study of systems in state of constant motion at rest and constant velocity?

o Forbearance – Failure to do something (or choosing not to do  something of value)  

 Case 13.1 Hamer v. Sidway (1891)

∙ Hamer = school kid in Iowa that was brilliant and went  

through the 12 grade when no one else in the county had

∙ “If you can go 4 years without drinking, smoking,  

gambling, cussing, or womanizing, you get $10,000” said  

Hamer’s Uncle to him  

∙ Hamer does so, and Uncle is like “good job bro, you get  

the mullah”

∙ Hamer graduates, goes to see his uncle, finds out Uncle  

died, and his cousins decided to not pay him the money

∙ Judge said that Hamer gave all those things up because of

the contract, because the promise he made was based in  

value

∙ Second Element, bargained-for-exchange:

o Must provide basis for the bargain

o Both parties must be able to say “yes” or “no”

o Something of legal value must be exchanged between the parties. Key  Point: Both parties must get and give consideration. But Why?  

Adequacy of Consideration:

∙ General Rule

o Courts typically will not consider adequacy of consideration. Why?  Value?

o In general, the law does not protect a person from entering into an  unwise contract

o Rarely, courts may look at the contract, if there is a large “shockingly  inadequate” disparity in the amount consideration exchanged. Is there  really “consent”  

∙ “If You think education is expensive, try ignorance”

∙ Where is consideration in a contract?

o Both parties bring consideration and give consideration

∙ Why do we have to have consideration in a contract?

o Without it, the contract is not valid

∙ T/F Consideration has to be essentially equal in any contract o False

Agreements that lack Consideration: 

 ∙     Preexisting Duty 

o Promise to do what one already has a legal duty to do doesn’t  constitute legally sufficient consideration  

∙ Past Consideration: 

o Is not consideration because the bargained for exchange element is  missing

o Past consideration is Consideration = False 

o Past Consideration is Not Consideration = True  

∙ Illusory Promises: 

o Promise hasn’t definitely promised to do anything (no promise at all) ∙ Gift Promises:  

o 1 party gives consideration, the other doesn’t

T/F : You agree to pay Eddie $1,000 if he quits smoking. This is a valid contract. True

Settlement of Claims: 

∙ Accord and Satisfaction:

o Debtor offices to pay a lesser amount than the creditor purports to be  owed

o The debt (amount owed) must be in dispute

o The Accord = new agreement

o Satisfaction occurs when new agreement (accord) is completed  (release)

Exceptions to the Consideration Requirement: 

∙ Promises to Pay debts Barred by the Statute of Limitations

∙ Charitable subscriptions = gifts

o Generally unenforceable, but courts now rely on promissory estoppel if  reliance

Sample Questions  

T/F In contract law, the term consideration refers to the serious thought that  underlies a party’s intent to enter into a contract

False

T/F In contract law if a promise is made, it will be enforced False

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