BCOR 3000 Chapter 11 BCOR 3000 Chapter 11 Professor Michael Maciszewski Professor Michael Maciszewski part 1 part 1 Esquire Esquire October 8 2015 October 8 2015 Agenda Agenda 1 1 Reminder Elements of a Contract Reminder Elements of a Contract Consideration 2 2 Consideration 3 3 Agreements That Lack Consideration Agreements That Lack Consideration 4 4 Settlement of Claims Settlement of Claims 5 5 Promissory Estoppel Promissory Estoppel 6 6 Contractual Capacity Contractual Capacity Reminder Elements of a Reminder Elements of a Contract Contract Agreement offer and acceptance Consideration something of value Elements for an enforceable contract 1 2 received or to make a deal 3 4 goal that is legal and not against public policy Capacity both parties must be competent Legality purpose must be to accomplish a promised to convince a person Consideration Consideration Consideration the value given in return for a promise or performance in a contractual agreement Essential element for contract formation Broken down into two parts 1 Something of legally sufficient value must be given in exchange for the promise 2 There must be a bargained for exchange Consideration Legally Sufficient Consideration Legally Sufficient Value Value 1 Legally Sufficient Value something of value in the eyes of the law may consist of any of these A promise to do something that you otherwise have no prior legal duty to do To pay a supplier upon receiving goods Performance of an action that you are otherwise not obligated to undertake Provide accounting services Forbearance refraining from an action that you have a legal right to undertake Not purchasing goods from another supplier Consideration Bargained For Consideration Bargained For Exchange Exchange bargain struck between or among the 2 Bargained For Exchange the basis for a contracting Distinguishes contracts from gifts Example of a gift parties Father to son In consideration of the fact that you are not as wealthy as your brothers I will pay you 5 000 Because the son does not need to give his father something of legal value in return for his father s promise there is no bargained for exchange Rather the father has merely stated he is giving a gift to his son Consideration Hamer v Sidway Consideration Hamer v Sidway Hamer v Sidway By agreeing to refrain from drinking alcohol using tobacco and playing billiards and cards for money until he reached the age of 21 did the grandson provide sufficient consideration to his grandfather Consideration Adequacy Consideration Adequacy Involves how much consideration is given Measuring whether the bargain was fair Who decides that Typically not courts as long as consideration is legally sufficient Why Remember the doctrine of freedom of contract The courts are not used to determine whether someone entered into a bad deal or is a bad negotiator However if there is shockingly bad consideration the courts may review because that may indicate that fraud duress etc was involved in the contract formation Agreements That Lack Agreements That Lack Consideration Consideration Examples where consideration is lacking Preexisting Duty In most cases a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration Goal prevent against extortion or a hold up game Construction company enters into agreement with developer to build seven story office building After three months construction company demands an extra 75 000 on its contract and threatens to stop working if not paid What about unforeseen difficulties Construction company encountered unforeseen rock formation court may allow an exception if it is not part of ordinary business risk Agreements That Lack Consideration Agreements That Lack Consideration cont d d cont Examples where consideration is lacking Rescission a remedy where a contract is cancelled and the parties are returned to the positions they occupied before the contract was entered into The parties to the contract can agree to rescind Can be done to the extent the contract is executory If the parties enter into a new contract It is often difficult to determine whether there was sufficient consideration given for the new contract or whether the parties had a preexisting duty under the original contract Agreements That Lack Consideration Agreements That Lack Consideration cont d d cont Examples where consideration is lacking Past Consideration promises made in return for actions or events that have already taken place are unenforceable Bargained for exchange is missing second element of consideration Ex companies which attempt to impose a non compete covenant upon an existing employee Continued employment is typically not enough to satisfy consideration requirement Agreements That Lack Consideration Agreements That Lack Consideration cont d d cont Examples where consideration is lacking Illusory Promise when promisor has not definitely promised to do anything even though it appears he or she has made a promise i e like an illusion Ex CEO says to employees All of you have worked hard and if profits remain high a 10 bonus at the end of the year will be given if management thinks it is warranted Performance depends solely on the discretion of the management No bargained for exchange Settlement of Claims Settlement of Claims Accord and Satisfaction a common means of settling a disputed claim whereby a debtor offers to pay a lesser amount than creditor purports to be owed It s important to understand the nature of consideration given Typically occurs when the amount of debt is in dispute Accord agreement under which one party promises to give or perform and the other party to accept in satisfaction of a claim something different from what the parties originally agreed Satisfaction performance usually payment which takes place after the accord is executed Settlement of Claims cont d d Settlement of Claims cont Release a contract in which one party forfeits the right to pursue a legal claim against the other party release It prohibits any further recovery beyond the terms stated in the Generally binding if 1 2 3 Given in good faith Stated in a signed writing required by many states Accompanied by consideration Ex Car accident Abby gives Bobby 3 000 as consideration for Bobby releasing Abby from further liability resulting from the accident what if the car repairs cost 4 200 Promissory Estoppel Promissory Estoppel Promissory Estoppel doctrine that can be used to enforce a promise