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

Learning Objectives

• Elements of consideration–Legal value–Bargained-for exchange

• Exchanges that fail to meet consideration

• Exceptions to consideration requirement

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• 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

Elements of Consideration

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• A promisee’s act or promise must have been bargained for and given in exchange for the promisor’s 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

Bargained-for Exchange

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• If promisee’s 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.

Illusory Promises

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• 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

No Consideration

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Reality of Consent

“Necessity never made a good bargain.”

Benjamin Franklin, 1735

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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• 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

Effect of Doctrines

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• 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

Misrepresentation or Fraud?

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• 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

Mistake & Duress

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• Undue influence involves wrongful pressure exerted on a person during the bargaining process– Pressure exerted through

persuasion rather than coercion

Undue Influence

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Capacity to Contract

“No brilliance is needed in the law. Nothing but common sense, and relatively clean fingernails.”

John Mortimer

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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• 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

Definition

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• 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.

The Lack of Capacity

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• 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?

Capacity & Mental Impairment

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• 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!

Contracts of Intoxicated Persons

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• 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?

Duties Upon Disaffirmance

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• 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

Ratification

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