Lesson 8-2 Questionable Consideration

By: Lindsay Wisot, Jessica Miller, Danielle Archambault, Jon Arasin,

Jon Gilbert

Vocabulary Review Part Un

• Output Contract- a contract in which a buyer agrees to purchase all of a particular producer’s production

• Requirements Contract- a contract in which a seller agrees to supply all of the needs of a particular buyer

• Liquidated Debt- a debt which both parties agrees exists and agrees on the amount of the debt

Vocabulary Review Part Deux

• Accord and Satisfaction- parties’ agreement to change the obligation required by the original contract and the performance of the new obligation

• Release- settling a claim at the time tort occurs, while the liability is unliquidated because the extent of damages is uncertain

• Composition of Creditors- a settlement in which the creditors mutually agree to accept less than they are entitled to in full satisfaction of their claims while the debtor to agrees to not file for bankruptcy

Why are output and requirement contracts supported by consideration?

• Courts recognize output and requirements contracts are supported by consideration because use they imply a duty of fair duty meaning production cannot be stopped and any action terminating the obligation of an output/requirement contract must be taken in a way that constitutes fair dealing. By finding an implied duty of fair dealing the courts have maintained the basis for the presence of consideration.

Example of Existing Duty….

• Your father may offer to purchase you a car when you reach the age of 18 if you promise you never smoke. This is an unenforceable contract since you are already required by law not to smoke, and your father’s promise to reward for refraining from smoking, something that you are already required to refrain from by law, is unenforceable.

Under what situations is consideration not binding?

• Consideration is not binding if the promise does not create a duty or impose an obligation such as with illusory promises. Illusory promises include termination clauses in contracts and output and requirements contracts.

Example… Appears Binding, But Isn’t

• Existing public duty

• Mutual gifts

• Past performances

Legal Application

• Mark owes Consuelo $800, which he is to pay back in six months. Mark cannot pay the full amount, but he can pay Consuelo $650 right away. If Consuelo accepts the $650 in satisfaction of the debt Mark owes to him, is there a valid consideration for both parties??

The Answer……

• Yes. Mark would receive the benefit of paying $150 less than he owed. Consuelo would receive the benefit of early payment