Legality & Consideration

1. Legality & Consideration Contracts

2. LEGALITY Opening Question and Discussion! • Can a contract be valid if one of its terms breaks the law?

3. LEGALITY Bad contracts can expose people to criminal conduct and other legal consequences. • Most laws are well known. • Some are not so well known • Yard sales without a license • Courts do not uphold illegal contracts or contracts that violate specific laws.

4. Agreements That Break Statutes • Civil and Criminal Statutes • Agreements that violate the law are illegal and non-binding • Any contract for illegal purposes is illegal. • UsuryStatutes • Charging more interest then legally allowed is called usury. The “Truth in Lending Disclosure”was designed to show purchasers what the are actually paying in interest. (Very shocking) • GamblingStatutes • Betting on pools, legalized gambling, or other lottery forms are still illegal.

5. Agreements That Break Statutes • Sunday Statutes (Blue Laws) • In Colonial times, some states passed laws making any contracts made on Sunday void. (Some still exist today) • 1978, PA Supreme Court ruled Blue Laws are unconstitutional, sort of… • Licensing Statutes • A license is required for certain jobs. Unlicensed people cannot make an enforceable contract.

6. Apply What You’ve Learned YOU BE THE JUDGE!

7. You’re the Judge • Mary Robinson, a 17-year old high school graduate, applied to Ed Rice for a job and was hired on a one-year contract. Nothing was said about Robinson’s age, but when Rice discovered she was only 17, he discharged her. • Did Rice have a legal right to do this? • No! An adult who contracts with a minoris usually bound by that contract!

8. You’re the Judge • Patty, 14, bought a video game at a store. The sign said:“No returns---All Sales Final” • After using the game for a week, she returned it to store and asked for a refund. • Challenge:Is she legally entitled to a refund? • Yes! Minors may return goods other than necessaries and get their money back. In a few states, an amount may be deducted if the goods are damaged, used, or soiled!

9. You’re the Judge • Ashley bought a DVD player on the day before her 18th birthday. That same day, she changed her mind and sought to return it and get her money back. She claimed that she could return the purchase because she was a minor. Was she correct? • No! Persons reach majority at the beginning of the day before their 18th birthday. But, would a vendor know?

17. Demonstrate Your Understanding! Hot Debate Angela wants to be a model Minor Lease Young lovers just want to be together Only 3 Blogs! Everything’s Coming Up Roses Where should I unload this order?

18. Special Rules for Contracts • Parol Evidence Rule • All written contracts MUST contain everything agreed to be enforceable. • If it ain’t in there…. It does NOT exist…. • Written words take precedent over spoken words • Best Evidence Rule • Original documents over copies • Original over photos • Originals given to both parties at conception of contract • Duplicates can be considered originals • SMALL PRINT WARNINGS!

19. David Allen and Minors

21. Consideration

22. Bell Ringer • What did you think the word consideration means?

23. Legal Concept of Consideration Consideration: the exchange of benefits and detriments A contract is sealed with considerationwhen each party gains something and gives up something of value Three types of Detriments: • Giving up a right to something • Doing something you have a right to do • Not doing something that you have a legal right to do; Also known as Forebearance: is NOT doing what you have a right to do

24. Legal Concept of Consideration Consideration: the exchange of benefits and detriments Each side must give up something and get something of value in exchange Does the law permit past actionsto serve as consideration in a new contract? The law doesnotpermit past actions to serve as consideration in a new contract

25. 3 Key Characteristics of Consideration Promise involving the concept of a “bargained-for-exchange” • Defined: When a promise is made in return for another promise, an act, or a promise not to act

26. 3 Key Characteristics of Consideration Something of value • There is no specific value requirements to consideration. • A promise to help you clean your friend’s room can be considered “something of value” • Courts can rule consideration is “Unconscionable”,i.e., meaning contract is completely out of line • Generally, all that matters is that the parties agreed freely on the value and the price

27. 3 Key Characteristics of Consideration Legality of consideration • Court requires all consideration in an agreement to be “legal” • If the consideration is illegal, then the contract is invalid • Parties cannot agree to do something they have no legal right to do • Also can’t give up something they do not legally own or have a right too

28. Requirements of Consideration Adhesion Contract • Courts will not enforce something like a take-it-over-leave it offer made by a party who holds most of the power in a relationship • Contracts of adhesion are standardized form contracts presented to consumers without negotiation or any option for modification. • There is nothing per se wrong with a contract of adhesion.   • Not every contract of adhesion contains unconscionable provisions.

29. Consideration • Past Consideration: • Courts will not enforce a promise to make payment that came after the consideration had been performed therefore the promise to make payment is not binding. • Past consideration is not valid

30. Types of Consideration • Money –Money, property, and services all qualify as valid consideration.

31. Types of Consideration • Property and Services –Before money was the medium of exchange, people commonly exchange property or services. • Known as bartering or barter agreements • Value is subjective to the party

32. Special Types of Consideration Promise NOT to sue • One party has the right to sue but gives up that right in exchange for something of value • Settlement or Release Charitable Pledges • Some organizations and charities are dependent on pledges • Courts will enforce pledges like contracts

33. Problems with Consideration • Parties involved in contracts sometimes disagree over the amount of consideration of the contract or the amount owed • Disputed amounts can be settled by accord and satisfaction • Accord: Acceptance of less than amount owed by creditor • Agreed-to-settlement contained in the accord is…. Satisfaction:

34. Problems with Consideration • Undisputed amounts can not be disputed if the parties have mutually agreed to a set amount of money • ALL disputes must be: • Real • Occur in good faith • Not be trivial

35. Enforceable Agreements Without Consideration 4 Enforceable Agreement w/o Consideration • Promises under seal • Promises after discharge in bankruptcy • Debts barred by the statute of limitations • Promises enforced by promissory estoppel

36. Enforceable Agreements Without Consideration • These are Enforceable Agreements without Considerationbecause: • They are allowed by state statute, or because courts, in the interest of justice and fairness, find it inappropriate to require consideration

37. Enforceable Agreements Without Consideration • Promises under seal • Mark or impression indicating that the instrument was formally accepted • Common in contracts, also know as “Notary Seals” • Promises after discharge in bankruptcy • Court hearings must be held • Debtors must be informed of legal consequences of assuming debt • Debts barred by the statute of limitations • Statute of limitations for lawsuits • Two years

38. Promissory Estoppel When someone intends a gift but consideration in not present, a promise may be enforced under the doctrine of Promissory Estoppel • These conditions must be met: • The promisor should reasonably foresee that the promisee will rely on the promise. • The promisee does, in fact, act in reliance on the promise. • The promisee would suffer a substantial economic loss if the promise in not enforced • Injustice can be avoided only by enforcement of the promise

39. Promissory Estoppel • Promissory –“containing or consisting of a promise” • Estoppel – “restraint on a person to prevent him or her from contradicting a previous act” • Promissory Estoppel – “the court will ‘estop’ the person who made the promise from claiming that there was no consideration

40. Unenforceable Agreements Without Consideration • Why are they unenforceable? • The courts find these lack even the most basic qualities of valid consideration.

41. Unenforceable Agreements Without Consideration Illusory Promises Future Gifts Past Consideration Preexisting Duties

42. Unenforceable Agreements Without Consideration • Illusory Promises • Meaning they appear at first glance to be contracts but on further scrutiny are revealed to be hollow

43. Unenforceable Agreements Without Consideration • Illusory Promises • John and Paul reach an agreement that John will sell Paul any apples that he might need over a three month period. • They develop a price for this time frame • However, because Paul might not order any apples within the next three month, he is not bound to do anything

44. Unenforceable Agreements Without Consideration • Future Gifts • Person promises to bestow a gift at some future time or in a will, that promise is not enforceable • Past Consideration • The act of giving or exchanging benefits or detriments must occur when a contract is made. • Consideration, taken in the past is not regarded as legal by the courts

45. Unenforceable Agreements Without Consideration • Preexisting Duties • If a person is already under legal obligation to do something, a promise to do that same thing is not consideration • Promise to Attend a Social Engagement • An agreement to meet for lunch would not be binding if the friend gave nothing in exchange for the promise

46. Classwork????? • Exam Next Class!