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

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.. Is the

Chapter 9

Consideration

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

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?

Definition: Something of value, given

in exchange for something else of

value, that is the product of a mutually

bargained-for exchange

Examples of Consideration

• Benefit to promisor

• Detriment to promisee

• Promise to do something

• Promise to refrain from doing

something

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

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”)

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

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

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