Miller_BLTS_12E_PPT_ch12.pptx

Roger LeRoy Miller BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 1...

Roger LeRoy Miller BUSINESS LAW Today STANDARD EDITION TEXT & SUMMARIZED CASES, 12e Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Miller, Business Law Today, Standard Cengage. Edition: Text All Rights Reserved. May&not Summarized be scanned, Cases, 12th copied or Edition. or duplicated, ©posted 2020 Cengage. to a All Rights Reserved. May not be publicly scanned, accessible copiedinor website, duplicated, whole or posted to a publicly accessible website, in whole or in part. Consideration, Capacity, and Legality Chapter 12 Chapter Outline 12-1 Consideration 12-2 Promissory Estoppel 12-3 Contractual Capacity 12-4 Legality 12-5 The Effect of Illegality Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Learning Objectives (slide 1 of 2) 1. What are the two elements of consideration? 2. In what circumstances might a promise be enforced despite a lack of consideration? 3. Does a minor have the capacity to enter into an enforceable contract? What does it mean to disaffirm a contract? Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Learning Objectives (slide 2 of 2) 4. Under what circumstances will courts enforce a covenant not to compete? 5. What are the consequences of entering an illegal agreement? Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1 Consideration Consideration usually is defined as the value given in return for a promise. Consideration is often broken down into two parts: (1) something of legally sufficient value must be given in exchange for the promise, and (2) there must be a bargained-for exchange. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1a Legally Sufficient Value To be legally sufficient, consideration must be something of value in the eyes of the law; that may consist of any of the following: 1. A promise to do something that one has no prior legal duty to do. 2. The performance of an action that one is otherwise not obligated to undertake. 3. The refraining from an action that one has a legal right to undertake (a forbearance). Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1b Bargained-for Exchange The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise or performance. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12-1c Adequacy of Consideration Adequacy of consideration involves “how much” consideration is given. Concerns the fairness of the bargain The General Rule: A court will normally not question the adequacy of consideration based solely on the comparative value of the things exchanged. When Voluntary Consent May Be Lacking A large disparity in the amount or value of the consideration exchanged may raise a red flag for a court to look more closely at the bargain. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Landmark in the Law Hamer v. Sidway (1891) The principles of this case remain applicable to contracts formed today, including online contracts. For a contract to be valid and binding, consideration (something of legally sufficient value) must be given. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1d Agreements That Lack Consideration (slide 1 of 3) Preexisting Duty: Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. Unforeseen Difficulties Rescission and New Contract: Two parties can mutually agree to rescind, or cancel, their contract, to the extent that it is executory (still to be carried out). Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1d Agreements That Lack Consideration (slide 2 of 3) Past Consideration Past consideration: An act that takes place before a contract is made and that ordinarily, by itself, cannot later be consideration with respect to that contract. Spotlight Case Example 12.5 Blackmon v. Iverson (2003) Illusory Promises A promise is illusory (without consideration and unenforceable) if its terms express such uncertainty of performance that the promisor has not definitely promised to do anything. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12-1d Agreements That Lack Consideration (slide 3 of 3) Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1e Settlement of Claims (slide 1 of 2) Accord and Satisfaction: A debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed. Liquidated Debt: A debt whose amount has been ascertained, fixed, agreed on, settled, or exactly determined. Unliquidated Debt: A debt that is uncertain in amount. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-1e Settlement of Claims (slide 2 of 2) Release A release will be generally binding if: 1. The agreement is made in good faith. 2. The release contract is in a signed writing. 3. The contract is accompanied by consideration. Covenant Not to Sue An agreement to substitute a contractual obligation for some other type of legal action based on a valid claim. It does not always prevent further recovery. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  Spotlight on Nike: Case 12.2 Already, LLC v. Nike, Inc. (2013) Why would any party agree to a covenant not to sue? Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-2 Promissory Estoppel Under the doctrine of promissory estoppel (also called detrimental reliance), a person who has reasonably and substantially relied on the promise of another can obtain some measure of recovery. Promissory estoppel allows a party to recover on a promise even though it was made without consideration. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12-2a Requirements to Establish Promissory Estoppel 1. There must be a clear and definite promise. 2. The promisor should have expected that the promisee would rely on the promise. 3. The promisee reasonably relied on the promise by acting or refraining from some act. 4. The promisee’s reliance was definite and resulted in substantial detriment. 5. Enforcement of the promise is necessary to avoid injustice. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-2b Application of Promissory Estoppel Promissory estoppel originally applied to situations involving gifts and donations to charities. Later, it applied to business transactions, employment relationships, and disputes among family members. Case Example 12.10 BH 329 NB, LLC v. CBRE, Inc. (2017) Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3 Contractual Capacity Contractual capacity is the legal ability to enter into a contractual relationship. Courts generally presume the existence of contractual capacity, but in some situations, capacity is lacking or may be questionable. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3a Minors (slide 1 of 3) The age of majority (when a person is no longer a minor) for contractual purposes is eighteen years in almost all states. Minority status may also be terminated by a minor’s emancipation (the act of being freed from parental control). A minor can generally enter into any contract that an adult can, provided that the contract is not one prohibited by law for minors. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3a Minors (slide 2 of 3) Disaffirmance The legal avoidance, or setting aside, or a contractual obligation. Case Example 12.11 PAK Foods Houston, LLC v. Garcia (2014). Disaffirmance within a Reasonable Time A Minor’s Obligations on Disaffirmance Courts in most states hold that the minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor’s possession or control. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3a Minors (3 of 3) Exceptions to a Minor’s Right to Disaffirm Marriage contracts, contracts to enlist in the armed services, misrepresentation of the minor’s age while engaged in business as an adult, contracts for necessaries Ratification Accepting and giving legal force to an obligation previously not enforceable. Parents’ Liability Parents are not usually liable for the contracts made by minor children acting on their own. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3b Intoxicated Persons A contract entered into by an intoxicated person can be either voidable or valid (and thus enforceable). If the person was sufficiently intoxicated to lack mental capacity, the transaction may be voidable. If the intoxicated person understood the legal consequences of the agreement, the contract is enforceable. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-3c Mentally Incompetent Persons Contracts made by mentally incompetent persons can be void, voidable, or valid. Validity of the contract depends on mental capacity of the person at the time the contract was formed. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4 Legality For a contract to be valid and enforceable, it must be formed for a legal purpose. A contract to do something that is prohibited by federal or state statutory law is illegal, void from the outset and unenforceable. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4a Contracts Contrary to Statute Contracts to Commit a Crime Any contract to commit a crime is in violation of a statute. Usury Charging an illegal rate of interest Gambling Licensing Statutes All states require members of certain professions (such as physicians) to have licenses. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4b Contracts Contrary to Public Policy (slide 1 of 5) Contracts in Restraint of Trade Covenants Not to Compete and the Sale of an Ongoing Business A contractual promise of one party to refrain from conducting similar business for a certain time and within a specified geographical area Covenants Not to Compete in Employment Contracts Sometimes, non-compete agreements are included in employment contracts. Noncompete agreements are generally legal in most states so long as the specified period of time is not excessive in duration and the geographic restriction is reasonable. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4b Contracts Contrary to Public Policy (slide 2 of 5) Contracts in Restraint of Trade Enforcement Problems Laws governing the enforceability of covenants not to compete vary significantly from state to state. California prohibits the enforcement of all covenants. In some states, such a covenant will not be enforced unless the employee has received some benefit in return for signing the noncompete agreement. Reformation Court-ordered correction of written contract to reflect true intentions of parties. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4b Contracts Contrary to Public Policy (slide 3 of 5) Unconscionable Contracts or Clauses Procedural Unconscionability Often involves inconspicuous print, unintelligible language (“legalese”), the lack of an opportunity to read the contract or ask questions about its meaning, or an adhesion contract. Case Example 12.16 Brinkley v. Monterey Financial Services, Inc. (2015). Substantive Unconscionability Occurs when contracts, or portions of contracts, are oppressive or overly harsh. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12-4b Contracts Contrary to Public Policy (slide 4 of 5) Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-4b Contracts Contrary to Public Policy (slide 5 of 5) Exculpatory Clauses Releases a contractual party from liability in event of monetary or physical injury, no matter who is at fault. Violation of Public Policy Exculpatory clauses found in rental agreements and in the employment context are frequently held to be contrary to public policy. Enforcement of Exculpatory Clauses Courts do enforce exculpatory clauses if they are reasonable, do not violate public policy, and do not protect parties from liability for intentional misconduct. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-5 The Effect of Illegality (slide 1 of 3) In general, an illegal contract is void and both parties are considered to be equally at fault. 12-5a Justifiable Ignorance of the Facts If one party has no reason to know that the contract is illegal, he or she is relatively innocent. 12-5b Members of Protected Classes A member of a protected class can enforce a contract in violation of the statute even though the other party cannot. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-5 The Effect of Illegality (slide 2 of 3) 12-5c Withdrawal from an Illegal Agreement If the illegal part of a bargain has not yet been performed, the party rendering performance can withdraw from the contract and recover the performance or its value. 12-5d Severable, or Divisible, Contracts A contract which consists of distinct parts that can be performed separately, with separate consideration provided for each part. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.  12-5 The Effect of Illegality (slide 2 of 2) 12-5d Severable, or Divisible, Contracts With an indivisible contract, complete performance by each party is essential, even if the contract contains a number of seemingly separate provisions. 12-5e Fraud, Duress, or Undue Influence If one party uses fraud, duress, or undue influence to induce a party to enter into an agreement, the second party will be allowed to recover for the performance or its value. Miller, Business Law Today, Standard Edition: Text & Summarized Cases, 12th Edition. © 2020 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.