1.  In Act 4, Scene 1, Shylock reminds the court that his bond with Antonio clearly states that if Antonio cannot pay his debt to Shylock, that Shylock is entitled to one pound of Antonio's flesh.  The bond does not offer any type of alternative payment on Antonio's part.

2.  Shylock's first impression of Portia (who is dressed as Balthazar in this act) is that she is on his side.  As she goes over the bond, she seems to agree that Shylock's bond and request for payment legal.  As she speaks, Shylock inserts comments of approval and becomes more excited at the thought that at last there is someone in the court on his side.  He naively does not realize that Portia is simply setting him up and giving him one last chance to demonstrate mercy toward Antonio.