An introduction to the fundamentals of dynamic business law and business ethics chap009

Chapter 9
Consideration

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.


Chapter 9 Case Hypothetical
Seattle Shoestring Sales, Inc. arranged to sell shoestrings to Victory, Inc., a
tennis shoe manufacturer. According to the terms of the deal, Seattle
Shoestring Sales committed to sell Victory whatever number of shoestrings it
will produce next year, at seventy-five cents per pair.
Since entering into their agreement, the price of cotton has skyrocketed five
hundred percent. To produce shoestrings, Seattle Shoestring Sales’ cost alone
will be approximately $1.50 per pair. Seattle Shoestring Sales has informed
Victory that it cannot and will not honor the deal.
Is there an enforceable contract between Seattle Shoestring Sales, Inc. and
Victory, Inc.? Is the failure to include a quantity term in the agreement fatal to its
enforceability? What about the fact that the price of cotton dramatically
increased after the companies reached their agreement? Should a court or
other arbiter increase the per-pair contract price to account for the increase in
the price of cotton, and then enforce the agreement?
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Chapter 9 Case Hypothetical and Ethical Dilemma
John Harrington, Jr. (“Junior”) is a 24-year-old, 3-pack-per-day smoker. John Harrington,
Sr. (“Senior”) is a very concerned parent. On January 1, father announces to son,
“Junior, if you will stop smoking for the entire year, I will pay you $5,000.” Senior believes
that if Junior will stop smoking for one year, he will “kick the habit.” Junior reluctantly

accepts his father’s terms, and extinguishes his half-smoked cigarette with the heel of his
boot.
On January 1 of the following year, Junior approaches Senior and says “Dad, time to pay
up.” Senior has no reason to doubt that Junior has refrained from smoking for an entire
year, but states “Son, this was for your benefit. The gift I have given you is the gift of life,
and you are now likely to enjoy that gift longer, because you are now much less likely to
contract cancer. Health statistics show that non-smokers live ten years longer than
smokers. Enjoy your newfound life, but I will not pay you the $5,000.”
Does Senior owe Junior the $5,000? Is there an enforceable contract between father and
son? If there is not an enforceable contract, does Junior have any other legal or equitable
theory of recovery? Is Senior ethically obligated to pay Junior the $5,000?

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Consideration
Definition: Something of value, given
in exchange for something else of
value, that is the product of a mutually
bargained-for exchange

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Examples of Consideration
• Benefit to promisor
• Detriment to promisee
• Promise to do something
• Promise to refrain from doing
something

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Rules of Consideration
• For a promise to be enforced legally, there must
be consideration
-Exception—Promissory Estoppel:
• One party makes promise knowing other
party will rely on it
• Other party relies on promise (“actual
reliance”)
• Justice dictates enforcement of promise,
even though it is not supported by
consideration
• Court rarely considers adequacy of
consideration
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Rules of Consideration (Continued)
• Illusory promise does not constitute
consideration
• Past consideration does not constitute
consideration for purposes of present
contract
• Promise to do something you are already
legally obligated to do is not valid
consideration (“Pre-existing duty rule”)
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Uniform Commercial Code:
Requirement and Output Contracts
• “Requirement” Contract
-Buyer agrees to purchase all goods
needed/required from designated seller
• “Output” Contract
-Seller agrees to provide all it produces to
designated buyer
• No quantity specification necessary in
either requirement or output contract
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Partial Payment of Debt
Liquidated Debt: No dispute as to amount
of money owed
Unliquidated Debt: Parties either (in good
faith) dispute fact money owed, or dispute
amount of money owed

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Partial Payment of Debt (Continued)
• “Accord and Satisfaction” Requirements
(“Accord” represents agreement,
“satisfaction” represents payment; accord and
satisfaction means partial payment of
disputed debt discharges remaining balance

allegedly owed):
-Unliquidated debt
-Creditor agrees to accept, as full payment,
less than creditor claims owed
-Debtor pays agreed-upon amount
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