Business Law With Ucc Applications Student Edition Brown 13th Edition Solutions Manual

Business Law with UCC Applications Student Edition
Brown 13th Edition Solutions Manual
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brown-13th-edition-solutions-manual/
Business Law with UCC Applications Student Edition Brown 13th Edition Solutions Manual
Chapter 09 - Consideration and Cyber-Payments
Chapter 9
Consideration and Cyber-Payments
I. Key Terms
Accord (p. 197) Legal detriment (p. 193)

Accord and satisfaction (p. 197) Locus sigilli (p. 199)
Bargained-for exchange (p. 192) Option (p. 201)
Consideration (p. 191) Past consideration (p. 201)
Disputed amount (p. 197) Preexisting duties (p. 201)
Estoppel (p. 200) Promissory estoppels (p. 200)
EU Data Protection Directive (p. 204) Safe Harbor Principles (p. 196)
EU E-Privacy Directive (p. 204) Satisfaction (p. 197)
Firm offer (p. 2201 Seal (p. 199)
Forbearance (p. 192) Statutes of limitations (p.200)
Illusory promise (p. 202) Unconscionable (p. 193)
Irrevocable offer (p. 201) Undisputed amount (p. 198)
II. Learning Objectives
1. Define the term consideration.

2. Identify the different types of detriment
3. Explain the characteristics necessary for valid consideration.
4. Define the term unconscionable.
5. Explain whether a promise not to sue can be consideration.
6. Explain whether a charitable pledge can be consideration.
7. Define accord and satisfaction.
8. Identify those enforceable contracts that lack consideration.
9. Explain promissory estoppel.
10. Describe the issues involved in cyber-payments
III. Major Concepts
9-1 Requirements of Consideration
The second element necessary for a contract is the mutual promise to exchange benefits
and sacrifices among the parties. This exchange of things of value is called
consideration. If an agreement has no consideration, it is not a binding contract.
Consideration consists of a mutual exchange of gains and losses between contracting
parties. Consideration has three characteristics: (1) The agreement must involve a
bargained-for exchange; (2) the contract must involve adequate consideration; and (3) the
benefits and detriments promised must themselves be legal.
9-1
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9-2 Types of Consideration
Generally, consideration takes the form of money, property, or services. There are certain
special kinds of agreements and promises where the benefits and sacrifices are unique.
Among those are promises not to sue and charitable pledges. Under traditional rules,
charitable pledges are not enforceable as contractual obligations because they are not
supported by consideration. Because of the dependence of charitable institutions on
contributions, however, courts have found ways in which to enforce charitable pledges.
9-3 Problems with Consideration
Problems sometimes arise when the consideration involved in a contract is money and the
parties do not agree on the amount of money owed. If there is a genuine dispute, a
creditor can accept an amount as full payment even though it is less than the amount
claimed. Once the creditor has accepted the lesser amount, the dispute is settled by an act
of accord and satisfaction. If the dispute is not genuine, acceptance of a lesser amount
does not establish an accord and satisfaction.
9-4 Agreements Without Consideration
As a general rule, contracts are not enforceable without consideration. However, some
states eliminate the need for consideration in some agreements including promises
bearing a seal, promises made after discharge in bankruptcy, promises to pay debts barred
by the statute of limitations, promises enforced by promissory estoppel, and certain
option contracts involving merchants governed by the UCC. Rules vary from state to
state regarding exceptions to the requirement of consideration. There are other
agreements that courts will not enforce because they lack even the rudimentary qualities
of valid consideration such as agreements involving preexisting duties, past
consideration, illusory promises, and promises of future gifts and legacies.
IV. Outline
I. Requirements of Consideration (9-1)

A. The Nature of Consideration
1. Consideration consists of a mutual exchange of gains and losses between contracting
parties.
2. The term “legal benefit” is used to designate the gain that each party experiences.
3. The term “legal detriment” is used to describe the sacrifice that each party must
experience.
4. The term “forbearance” is used to reference the type of legal detriment that involves
refraining from doing something that one has a legal right to do.
9-2
B. The Characteristic of Consideration

1. Consideration has three characteristics.
a. The agreement must involve a bargained-for-exchange.
b. The contract must involve adequate consideration.
c. The benefits and detriments promised must themselves be legal.
2. In general, the courts do not look into the adequacy of consideration.
3. A court may refuse to enforce a contract or any clause of a contract if it finds
unconscionability.
4. Consideration requires that the benefits and sacrifices promised between the parties
be legal.
II. Types of Consideration (9-2)
A. Money as Consideration
1. The shift from a barter to a cash economy occurred when transporting goods to the
market became difficult and hazardous, and it was also accelerated by the need for
credit.
2. Today we are in an era of change from a cash/credit economy to one based on
electronic transfer; but even when electronic transfers are involved, people still tend
to think in terms of cash.
B. Property and Services as Consideration
1. Consideration can consist of property and services.
2. Barter agreements contain valid consideration.
C. Promises Not to Sue
1. A promise not to sue, when there is the right or apparent right to sue, is enforceable
when it is supported by consideration.
2. A promise not to sue in exchange for an amount of money is a customary way to
settle or prevent a pending lawsuit.
3. A promise not to sue is commonly called a release.
D. Charitable Pledges
1. Under traditional rules, charitable pledges are not enforceable as contractual
obligations because they are not supported by consideration.
2. Because of the dependence of charities on contributions, courts have been encouraged
to enforce charitable pledges in the following three ways:
a. Some courts see the promise to install a memorial to the promisor as
consideration.
b. A more contemporary approach is to use either promissory estoppel or public
policy to support the claim.
c. Some courts have held that a pledge made is supported by the pledges of all
others who have made similar pledges.
III. Problems with Consideration (9-3)
A. Disputed Amounts
1. A disputed amount is one on which the parties never reached mutual agreement.
2. If a creditor accepts as full payment an amount that is less than the amount due, then
the dispute is settled by an accord and satisfaction.
3. Accord is the implied or expressed acceptance of less than what has been billed the
debtor.
9-3
4. Satisfaction is the agreed upon settlement contained in the accord.

B. Undisputed Amounts
1. An undisputed amount is one on which the parties have mutually agreed.
2. A part payment in lieu of full payment when accepted by a creditor will not cancel an
undisputed debt.
IV. Agreements Without Consideration (9-4)
A. Enforceable Agreements
1. There are certain promises which the court will enforce even without consideration.
2. Rules regarding exceptions to the requirement of consideration vary from state to
state.
3. Following are typical exceptions to the requirement of consideration.
a. Some states honor a promise under seal without consideration, but most states
have abolished that concept.
b. Persons discharged from indebtedness through bankruptcy may reaffirm their
obligations without new consideration upon approval by the bankruptcy court;
and, in most cases, state laws allow reaffirmation without additional
consideration.
c. Debtors may revive and reaffirm debts barred by a statute of limitation without
the necessity of new considerations; and while state requirements vary,
affirmation may be found from part payment of a debt.
d. Under certain conditions promissory estoppel may restrict a party from denying
that a promise was made even though consideration is absent.
e. An offer in writing by a merchant stating the time period during which the offer
will remain open is enforceable without consideration up to a period of three
months.
B. Unenforceable Agreements
1. Certain promises are not enforced by courts because they lack even the rudimentary
qualities of valid consideration.
2. Following are promises that are unenforceable based upon a lack of consideration.
a. A promise based upon a preexisting duty.
b. Past consideration involving promise to give another something of value in return
for goods or services rendered and delivered in the past, without expectation of
reward.
c. An illusory promise that fails to obligate the promissor to do anything.
d. The promise of a gift to be given at some future time or in a will.
V. Cyber-Payment Tactics and Concerns (9-5)
A. Cyber-Price and Competition
1. Cyber-Price Shopping
a. Some consumers subscribe to search engines providing pricing comparison
information.
b. In some industries, it is becoming more common for companies to provide price
comparison rates on their own Web sites.
2. Cyber-Shopping Costs
9-4
a. A danger of cyber-shopping involves hidden costs.

b. A hidden cost may involve Internet access fees.
c. Another hidden cost involves shipping and handling fees.
3. Cyber-Shopping and the Law
a. Buyers and sellers are both at risk when they negotiate a contract online.
b. Sellers are especially vulnerable to credit card fraud and identity fraud.
c. To protect consumers, Congress passed the Identity Theft and Assumption
Deterrence Act (ITADA).
d. ITADA was amended by the Identity Theft Penalty Enhancement Act (ITPEA)
adding a new crime called aggravated identity theft to the original statute.
B. Cyber-Payments and Cyber-Contracts
1. Cyber-Payment Options
a. Popular payment methods are by credit card or debit card.
b. Online shoppers who deal with European companies may find that they have to
use a stored value or smart card.
c. Many consumers are moving to a third option, the alternative payment systems,
such as PayPal
2. Cyber-Payment Security Issues
a. The United States is not as up-to-date as the European Union in providing data
and privacy protection to its consumers.
b. The EU Data Protection Directive along with the EU E-Privacy Directive
guarantee the rights of European citizens while, at the same time, ensuring the
smooth exchange of data among those nation-states that honor the privacy and
data protection standards themselves.
c. U.S. corporations that are involved with EU corporations must demonstrate that,
despite the lack of legislation in the United States, the companies themselves will
promise to honor the same degree of protection to data and to privacy as
guaranteed by the EU.
d. Guarantees that U.S. corporations will promise the same degree of protection as
EU corporations have been labeled the Safe Harbor Principles and are enforced by
the U.S. Department of Commerce.
V. Background Information
A. Cross-Cultural Notes
1. The Masai of East Africa have long used cattle as a medium of exchange, particularly
in dowries.
B. Historical Notes
1. Medieval English lawyers invented the verbs agreare and barganizare to describe the
action of a contract, which previously had been described by the words covenant and
contract. As the actions of contracts became more
9-5
complex, however, these words lost their ability to describe contracts adequately and
were replaced by the more common word assumptio, which means undertaking. The
action of assumpsit was defined as “mutual agreement between the parties for a thing
to be performed by the defendant in consideration of some benefit which must depart
from or of some labor or prejudice which must be sustained by the plaintiff.” It
wasn’t until the 1600s that the word contract regained widespread usage, taking on a
broader, more useful definition.
2. In early America, contract law was less enforced and more flexible than land law or
civil procedure. Consideration was regarded as an element that was not to be
measured by the court. For purposes of the law of contract, the price determined by
the parties was proof of the market value. In actual practice, however, judges were
often sympathetic to the underdog in contract cases in which the uneducated or naive
were manipulated by those who were more shrewd. As a result, rules of consideration
were often bent.
C. State Variations
1. In Alabama and California, an accord is an agreement to accept, in extinction of an

obligation, something different from, or less than, that to which the person agreeing to
accept is entitled.
2. California defines a satisfaction as acceptance, by the creditor, of the consideration of

an accord which extinguishes the original obligation.
3. Although the seal was highly regarded in early contract law as proof of consideration,
few people in the United States owned a seal, and literacy was high enough to
undercut the need for the device. Thus, state statutes were passed that limited the
meaning of the seal. In 1836, New York passed a statute that stated a seal was only
“presumptive evidence of a sufficient consideration” and its effect could be “rebutted
in the same manner and to the same extent as if [the] instrument were not sealed.”
Even today, however, the seal may take the place of consideration in Massachusetts.
4. The statute of limitations for breach of a sales contract in North Carolina is four
years. For liabilities arising from general contracts, the limit is three years. The statute
of limitations for forfeiture of a mortgage is ten years.
VI. Terms
1. Another legal term for consideration is quid pro quo, which is Latin for “something
in return for something.”
9-6
2. Estoppel is a legal way to stop someone from making a claim or denial when previous
actions or words to the contrary have been made. The term estoppel comes from the
French word estopail, which literally means “a stopper.”
VII. Related Cases
1. In the case of Frey v. Sovine, 294 S.E.2d 748 (N.C. App. 1982), Michael Sovine
wrote two bad checks to Robert Barrett. Barrett then had warrants issued for Sovine’s
arrest. Barrett also went to Sovine’s mother, threatening to have her son put in jail if
he did not pay his debts. Frightened by his threats, Mrs. Sovine signed a promissory
note and a deed of trust giving security interest on her home to Barrett in exchange
for his promise not to pursue criminal charges against her son. The court held that the
note and deed of trust were void and unenforceable because they were executed as a
result of coercion and duress. The court also ruled that dismissal of the criminal
warrants against her son was not valid consideration because it was against public
policy.
2. Danby guaranteed that the Osteopathic Association would receive credit for bank
loans totaling $55,000. The Association, a charity, was using the funds to build a
hospital. After the hospital had used $31,000 of the credit available, Danby became
dissatisfied with the construction of the hospital and attempted to withdraw his
guarantee for the rest of the promised funds. In Danby v. Osteopathic Hospital
Association of Delaware, 104 A.2d 903(Del. 1954), the court ruled that, based on the
doctrine of promissory estoppel, the guarantee could not be withdrawn. The hospital
relied on the promise—it might never have agreed to a loan contract knowing funding
might be withdrawn at any point in the project.
3. A Porsche owner was experiencing problems with the automobile’s clutch system, so
he took the car in to be repaired. The new maintenance included a six-month
warranty. When the Porsche owner soon after experienced the same problems, he
took the car back to the shop, where he was promised the repair would be covered by
the warranty. However, the repair shop later refused to pay for the repairs, asserting
that the repair was due to driver abuse. The court ruled that the promise to repair was
not supported by any new consideration and therefore did not constitute an
enforceable contract. Schupak v. Porsche Audi Manhattan, 541 N.Y.S.2d 412 (N.Y.
App. 1989).
9-7
VIII. Teaching Tips and Additional Resources
1. Information from the Internal Revenue Service regarding bartering is available at

http://www.irs.gov/businesses/small/article/0,,id=187920,00.html.
2. Additional information regarding Roman Emperor Justinian, referenced in the text,

including legal reform he instituted, may be found at
3. http://www.britannica.com/EBchecked/topic/308858/Justinian-I.
4. The introduction to the text Public Goods, Private Goods, referenced in the text, may
be found at http://press.princeton.edu/chapters/s7155.html.
5. The National Park Service has interesting information regarding philanthropy

available at http://www.nps.gov/partnerships/fundraising_individuals_statistics.htm.
6. The Federal Trade Commission provides online shopping tips at

http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt191.shtm.
7. Additional information regarding charitable giving may be found at the web site of
the American Bar Association at
http://www.americanbar.org/groups/taxation/resources/taxtips4u/charity_b4.html.
8. The Better Business Bureau has an article titled “Shopping Online? Beware of
Misleading Shipping and Handling Fees” at http://vi.bbb.org/article/shopping-online-
beware-of-misleading-shipping-and-handling-fees-24216.
9. Additional information regarding U.S. EU Safe Harbor provisions is available at

http://export.gov/safeharbor/eg_main_018236.asp.
10. An interesting article on the Masai of East Africa, referenced in the text, from Conde
Nast Traveler is available at
http://www.concierge.com/cntraveler/articles/503114?all=yes.
11. Traditionally, charities have avoided litigation because it brings them bad publicity.
Recently, however, some nonprofit organizations, particularly museums, have begun
to pursue donors who have reneged on pledges. Some collectors are only willing to
donate partial interest in a work of art, which is a potential legal nightmare for
museums because heirs may not be willing to donate the remaining interests. Some
museums usually accept such arrangements only if donors sign an enforceable pledge
to turn over the artwork at or before their death. Information regarding a dispute
between Ryan O’Neil and the University of Texas regarding a portrait Andy Warhol
painted of Farah Fawcett at http://www.bbc.co.uk/news/entertainment-arts-14165225.
9-8
Business Law with UCC Applications Student Edition Brown 13th Edition Solutions Manual
12. Point out to students that a binding contract involves each party in suffering a
detriment and each in receiving a benefit. If you offer to sell your watch to a student
for $25, you are promising to give up your legal right to keep your watch (your
detriment) in exchange for the student’s legal right to keep the $25 (the student’s
detriment). Your benefit is the promise of the money; the student’s benefit is the
promise of the watch.
13. Students may think that a bargained-for exchange must be verbally explicit or even
conducted orally. However, a bargained-for exchange may be implied by a price
marked on an item that a customer proves he or she is willing to pay by actually
purchasing the item. The merchant implies a promise that the item is worth its price
and the customer implies a promise that the form of payment for the item is good.
14. Remind students of their study of ethics in Chapter 1. Have them propose what
ethical character traits might be applied in cases in which the courts decide to refuse
enforcement of a contract because it is unconscionable.
15. Give a student a $20 bill while saying, “I’ll give you $20 for that pencil or pen.”
Show students the pen or pencil in question and ask them how much it is worth. Then
ask if your agreement to pay $20 for the item is binding. Now the stage is set for you
to explain the rule of law concerning adequacy of consideration.
16. Ask students to compare the bargaining practices involved in accord and satisfaction
to plea-bargaining in criminal cases.
17. Remind students that the law cannot enforce moral obligations. Personal ethics may
motivate a debtor to reaffirm debts and renew obligations to creditors. However, the
law does not require it and has taken the position that it is more unethical for creditors
to pressure a debtor whose debts have legally been discharged through bankruptcy
than it is for the debtor to be unable to pay back debts.
18. Direct pairs of students to create three proposals for contracts - two that are
enforceable and one that is unenforceable because it contains an illusory promise.
Remind them that an illusory promise of consideration is usually phrased in
ambiguous terms or may seem to mean something that it does not. Each pair of
students can challenge another pair to identify which of the three proposed contracts
is the one with the illusory promise.
9-9
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Brown 13th Edition Solutions Manual

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Accord (p. 197) Legal detriment (p. 193)

II. Learning Objectives

1. Define the term consideration.

III. Major Concepts

9-1 Requirements of Consideration

9-2 Types of Consideration

9-3 Problems with Consideration

9-4 Agreements Without Consideration

I. Requirements of Consideration (9-1)

B. The Characteristic of Consideration

4. Satisfaction is the agreed upon settlement contained in the accord.

a. A danger of cyber-shopping involves hidden costs.

1. In Alabama and California, an accord is an agreement to accept, in extinction of an

2. California defines a satisfaction as acceptance, by the creditor, of the consideration of

VII. Related Cases

VIII. Teaching Tips and Additional Resources

1. Information from the Internal Revenue Service regarding bartering is available at

2. Additional information regarding Roman Emperor Justinian, referenced in the text,

5. The National Park Service has interesting information regarding philanthropy

6. The Federal Trade Commission provides online shopping tips at

9. Additional information regarding U.S. EU Safe Harbor provisions is available at

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