1. Chapter 1: Legal Ethics 1

2. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 1.What is consideration? What is required for consideration to be legally sufficient? 2.In what circumstances might a promise be enforced despite a lack of consideration?  2

3. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 3.Does a minor have the capacity to enter into an enforceable contract? What does it mean to disaffirm a contract? 4.Under what circumstances will a covenant not to compete be enforceable? When will such covenants not be enforced?  3

4. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 5.What is an exculpatory clause? In what circumstances might exculpatory clauses be enforced? When will they not be enforced? 4

5. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 5  Generally, consideration must have: – “Legally Sufficient Value”  and – a “Bargained-for-Exchange.” 

6. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 6  Legally Sufficient Value can mean: – Promise, – Performance, or – Forbearance. 

7. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 7  Bargained-for-Exchange: must provide basis for the bargain. – Something of legal value (a promise, or a performance) must be exchanged between the parties. – The promise must be either l egally detrimental to the promisee, or legally beneficial to the promisor.

8. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 8  Adequacy of Consideration: – Courts typically will not consider. – Law does not protect a person from entering into an unwise contract. – Cases of “shockingly inadequate consideration” may raise a red flags, and be ruled unconscionable.

9. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 9  Agreements That Lack Consideration. – Preexisting Duty. Promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. Unforeseen Difficulties. Recession and New Contract.

10. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 10  Agreements That Lack Consideration. – Past Consideration: no consideration because the bargained-for exchange element is missing.

11. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 11  Agreements That Lack Consideration. – Illusory Promises: promisor has not definitely promised to perform because consideration is lacking, and unenforceable.

12. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration  Settlement of Claims. – Accord and Satisfaction. Settlement for lessor amount; debt must be in dispute. – Liquidated Debts: debt is certain, accord and satisfaction cannot occur. – Unliquidated Debts: amount not settled. 12

13. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration  Settlement of Claims. – Release: Good faith, signed writing, consideration. – Covenant Not to Sue: does not always bar further recovery. 13

14. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Promissory Estoppel  Promissory Estoppel (“detrimental reliance”): – Doctrine applies when a person relies on the promise of another to her legal detriment. – Promisor is “estopped” (precluded) from revoking the promise.  14

15. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 15  Promissory Estoppel. Elements: – Must be definite promise. – Promisee must justifiably rely on the promise. – Reliance is substantial. – Justice will be served by enforcing promise. 

16. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Consideration 16  Promissory Estoppel. – Application of the Doctrine. – CASE 9.1 H ARVEY V. D OW (2011). – CASE 9.1 H ARVEY V. D OW (2011). What actions or words did Teresa rely on to her legal detriment?

17. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 17  Minors: at 18 years, a person is emancipated, and has the legal capacity to enter into any contract that an adult can. – However, a contract entered into by a minor is voidable at the option of that minor, and can be disaffirmed. 

18. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 18  Minors. – Disaffirmance. A contract can be disaffirmed at any time during minority, or for a reasonable period after minor is emancipated. Minor must disaffirm the entire contract. Disaffirmance can be expressed or implied.

19. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 19  Minors. – Ratification: when minor reaches the age of majority, he can ratify a contract created while minor. – Parents’ Liability: generally, parents are not liable for minors, except for necessaries.

20. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 20  Intoxication. – Lack of capacity at the time the contract is being made. Contract is either voidable or valid, depending on circumstances. – Disaffirmance (voidable). – Ratification: after ‘sobering up.

21. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 21  Mental Incompetence. – Void: person is adjudged mentally incompetent by a court of law and a guardian has been appointed. 

22. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 22  Mental Incompetence (cont’d). – Voidable: person does not know she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. 

23. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contractual Capacity 23  Mental Incompetence (cont’d). – Valid: when person is able to understand the nature and effect of entering into a contract but may lack capacity to engage in other activities (known as “lucid” intervals).

24. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality 24  A contract must be formed for a legal purpose.  A specific clause in contract can be illegal, but rest of contract can be enforceable.  Contract to commit a tortious act is illegal.

25. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  Contracts Contrary to Statute. – A contract must be formed for a legal purpose. – A specific clause in contract can be illegal, but rest of contract can be enforceable. – A contract to commit a tortious act is illegal. 25

26. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  Contracts Contrary to Statute. – Any contract prohibited by federal or state statutory law is illegal and therefore void (never existed). – Contracts to Commit a Crime. – Contracts for Usury. 26

27. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  Contracts Contrary to Statute. – Gambling: distribution of property based on chance among persons who have paid valuable consideration. – Licensing Statutes: contract’s enforceability depends on purpose. CASE 9.2 S TURDZA V. U NITED A RAB E MIRATES (2011). CASE 9.2 S TURDZA V. U NITED A RAB E MIRATES (2011). Do you think this decision was fair? 27

28. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality 28  Contracts Contrary to Public Policy. – Contracts contrary to public policy are void. – Contracts in Restraint of Trade are generally void. Exception: Covenant not to Compete and Sale of an Ongoing Business. Exception: Covenant Not to Compete in Employment.

29. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality 29  Unconscionable Contracts or Clauses. – Procedural Unconscionability: inconspicuous print or legalese. Depends on a party’s lack of knowledge or expertise. – Substantive Unconscionability. Contracts are oppressive or overly harsh; that deny a remedy for nonperformance. 

30. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality 30  Unconscionable Contracts or Clauses. – Substantive Unconscionability. CASE 9.3 L HOTKA V. G EOGRAPHIC E XPEDITIONS, I NC. (2010). CASE 9.3 L HOTKA V. G EOGRAPHIC E XPEDITIONS, I NC. (2010). Why was the arbitration clause unenforceable?

31. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality 31  Exculpatory Clauses. – Release a party from liability in the event of monetary or physical injury – no matter who is at fault. Enforceable when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct.

32. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  The Effect of Illegality. – Generally, an illegal contract is void. – Both parties are considered to be at fault, and neither party has any rights or duties. – Courts are not generally concerned about unjust enrichment in an illegal contract. 32

33. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  The Effect of Illegality. – Justifiable Ignorance of the Facts. If one party is ‘innocent’, she can recover if there has been unjust enrichment. Likewise, if an innocent party has fully performed, courts may enforce the contract against the other party. 33

34. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  The Effect of Illegality. – Members of Protected Classes. When a statute protects a certain class of people, a member of that class can enforce the contract, even though the other party cannot. 34

35. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  The Effect of Illegality. – Withdrawal from an Illegal Agreement. If the contract is executory, a party can withdraw from the contract, and recover the performance or its value.  35

36. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Legality  The Effect of Illegality. – Severable, or Divisible, Contracts. Distinct parts that can be performed separately, with separate consideration for each part. – Fraud, Duress, or Undue Influence. Party to an illegal contract may be able to recover if wrongfully induced. 36