Consideration

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Consideration
Make yourself necessary to someone. Ralph
Waldo Emerson, The Conduct of Life (1860)
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Learning Objectives

• Elements of consideration
• Legal value
• Bargained-for exchange
• Exchanges that fail to meet consideration
• Exceptions to consideration requirement

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Elements of Consideration

• Consideration is legal value bargained for and
  given in exchange for an act or a promise
• Consideration in the form of an act or promise
  may have legal value if the person
• Refrains from doing something the person has the
  legal right to do
• Does something the person had no prior legal duty
  to do

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Bargained-for Exchange

• A promisees act or promise must have been
  bargained for and given in exchange for the
  promisors promise
• Example Gottlieb v. Tropicana Hotel and Casino
  in which participating in a promotion that
  benefited the company was adequate consideration
  to form a contract

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Illusory Promises

• If promisees promise really does not bind
  promisee to do or refrain from doing a thing,
  promise is illusory and cannot serve as
  consideration
• See Heye v. American Golf Corporation, Inc.

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No Consideration

• Generally, performing or agreeing to perform a
  preexisting duty is not consideration
• Promisor effectively made gratuitous promise
• Includes public duties (obey the law) and
  preexisting contractual duties
• Past consideration is an act or benefit given in
  the past that was not given in exchange for the
  promise in question, thus it cannot be
  consideration

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Reality of Consent
Necessity never made a good bargain. Benjamin
Franklin, 1735
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Learning Objectives

• Five doctrines that permit people to avoid their
  contracts because of the absence of real consent
• Misrepresentation
• Fraud
• Mistake
• Duress, and
• Undue influence

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Effect of Doctrines

• Contracts induced by mistake, fraud,
  misrepresentation, duress, or undue influence are
  generally considered to be voidable
• Person claiming non-consent has power to rescind
  (cancel) the contract
• Person claiming non-consent must not act in a
  manner to ratify (affirm) the contract

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Misrepresentation or Fraud?

• A misrepresentation is a false statement and may
  be negligent (innocent) or fraudulent (knowledge
  of falsity and intent to deceive)
• Elements
• Defendant made an untrue assertion of fact
• Fact asserted was material or was fraudulent
• Complaining party relied on the assertion
• Reliance of complainant was reasonable
• Fifth element for fraud injury

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Mistake Duress

• A mistake is a belief about a fact that is not in
  accord with the truth
• A unilateral mistake will not render a contract
  unenforceable unless unequal bargaining position
  existed
• Duress is wrongful threat or act that coerces a
  person to enter or modify contract
• Physical, emotional, or economic harm

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Undue Influence

• Undue influence involves wrongful pressure
  exerted on a person during the bargaining process
• Pressure exerted through persuasion rather than
  coercion

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Capacity to Contract
No brilliance is needed in the law. Nothing but
common sense, and relatively clean fingernails.
John Mortimer
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Learning Objectives

• The meaning of capacity
• The classes of persons without capacity
• The rights to disaffirm or ratify
• The duties of disaffirmance

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Definition

• Person must have ability to give consent before
  being legally bound to agreement, thus capacity
  is the ability to incur legal obligations and
  acquire legal rights
• A person who contracts without necessary capacity
  may avoid the contract at his/her option

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The Lack of Capacity

• Status incapacity refers to minors, factual
  incapacity includes those suffering from a mental
  disability and intoxicated persons
• Contract in which one party lacks capacity is
  voidable at the option of person lacking capacity
• Right to avoid a contract is disaffirmance
• Example Stroupes v. The Finish Line, Inc.

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Capacity Mental Impairment

• Those who suffer from a mental illness may be
  disadvantaged in their ability to protect their
  interests in the bargaining process
• Thus, their contracts are void or voidable
• Test Did the person have sufficient mental
  capacity to understand the nature and effect of
  the contract?

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Contracts of Intoxicated Persons

• Intoxication is a ground for lack of capacity
  only when it is so extreme that the person is
  unable to understand the nature of the bargaining
  process
• Note courts are not sympathetic!

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Duties Upon Disaffirmance

• Each party has duty to return to the other any
  consideration the other has given
• The incapacitated may be liable for damages
• See Dodson v. Schrader
• Incapacitated person generally required to pay
  reasonable value for necessities (required for
  survival) furnished to them
• Example Young v. Weaver
• Was the apartment a necessity?

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Ratification

• Ratification occurs when a person who reaches
  majority or is no longer suffering a mental
  disability or intoxication indicates either
  expressly or impliedly, that he intends to be
  bound by a contract made while incapacitated

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