BMGT380 Chapter 12 and 13

Consideration

requirement to have a contract, everyone in the contract has to give consideration to everyone else, can be anything of legal value

Legal Value - Consideration

1. Do something: ex. give money

2. Promise to do something: ex. promise to give money

3. Don’t do something you’re legally entitled to do

4. Promise not to do something you’re legally entitled to dp

Does Not Count as Consideration

Illusory promises, pre-existing duties, past consideration

Illusory Promises

fake promises that has no legal significance (example: cancellation clause where either party can cancel unrestricted)

1. Cancellation Clauses

2. Output Contracts and Requirement Contracts

3. Exclusive Distribution contracts

Cancellation Clause (Illusory Promise)

common in contracts between two businesses, but if either party can cancel with no restriction then it is illusor

Output Contract and Requirement Contracts (Illusory Promises)

Neither is illusory now

Output Contract: Dell will buy all the microchips Intel outputs

Requirement Contract: Intel agrees to provide all microchips Dell needs

Exclusive Distribution (Illusory Promises)

no longer illusory despite having no quantity (EX: Coors Beer gives exclusive distribution contract in certain jurisdiction)

Pre-Existing Duty

can not offer as consideration because you are already supposed to do it

1. Pre-existing public duty: “will not sell cocaine"…”

Past Consideration

does not count, doing something in the past can not count for the future

Contract Modifications

Common Law: need new consideration to modify

UCC: do not need new consideration, but if contract states they need to be in writing then it must be. If value is > 500 then it needs to be in writing

Exceptions to Consideration

1. Promissory Estoppel: do not need consideration

2. Promise to pay a debt: can be sued for breaching new agreement

3. Promise to pay a debt by a bankruptcy discharge: can be sued for breaching new agreement

4. Promise to make a charitable donation (like promissory estoppel)

Theories to get out of Contract (5)

Misrepresentation, fraud, mistake, duress, undo influence

Misrepresentation Theory

something is said that one party relies on but it is false

What you need to prove for misrepresentation defense

1. False statement of fact: opinions do not count

2. Misrepresentation was material/ significant: large decision factor in entering the contract

3. Person actually relied on the statement

4. Reliance is justifiable: can not be outlandish statement just believed without researching

Fraud Theory

one party lied about material facts to trick the other into signing, can receive compensatory and punitive damages

What you need to prove for fraud defense

1. False statement of fact: opinions do not count

2. Misrepresentation was material/ significant

3. Person actually relied on the statement

4. Reliance is justifiable

5. Scienter; very hard to prove

Scienter

legal term referring to the intent or knowledge of wrongdoing, often described as "guilty knowledge" or a reckless disregard for the truth. Very hard to prove

Mistake Theory

Mutual and Unilateral mistakes

one party is mistaken about something and enters the contract, does not have to be about fact (can be legal issue).

even if negligent, the theory can still apply

if the written agreement has mistakes that do not align with oral agreement, courts will reform contract to reflect actual agreement

Mutual Mistake

both parties are mistaken about the same thing and so you have to prove:

1. mistake was basic: about the identity, existence, quality, or quantity of whatever contract is about

2. Mistake is material: significant enough

3. Party trying to get out of contract, can not bear risk of the mistake

Party trying to get out of contract can not bear the risk (Mutual Mistake)

• The contract explicitly allocates the risk to them (e.g., "as is" clauses).

• You know or you don’t know the true state of affairs (selling a locked safe, friend buys it and opens it and there is a million dollars inside, can’t undo)

Unilateral Mistake

one party is mistaken and realize it, then want to get out of the deal

virtually impossible to get out of this, so you have to prove

1. Mistake was basic

2. Mistake was material

3. Can not bear risk of mistake

4. either one of these:

   1. show other side caused/ knew about mistake and didn’t tell

   2. show it would be unfair to not let you out of contract

Duress Theory

wrongful coercion, being coerced into entering the contract

1. Physical compulsion (rare): someone physically forces you to sign the contract

2. Threat of Physical/ Emotional/ Economical harm: threatened into entering the contract

What you have to prove under Duress Theory

1. Improper threat was made

2. No reasonable alternative BUT to give into the threat

Undo Influence Theory

being unfairly persuaded to do something, comes up with wills commonly

What you have to prove under undo influence theory

1. Certain kind of relationship (either one)

   1. Relationship of trust and confidence: family, spouse, professional

   2. Relationship of Psychological Domination: nurses, house keeper, victim dependent on person for something

2. Persuasion is Unfair: was the victim isolated from other people? what time was document signed (awoken to sign it)? is the result of the change lopsided (totally cut out of will)?

Jordan Case - Background

Michael Jordan is married and cheated on his wife with singer, Karla, who got pregnant and told Jordan he was the father. They entered into a contract for her silence, as to not harm Jordan’s image, stating she will get $5 million after he retires. He refused to pay the money after 2nd retirement and said he was not the father. Jordan sues under extortion and fraud theories

Jordan Case Outcome

Jordan wins the case, no damages are stated.

• A lot of different motions and counter motions, eventually an appeal

• Jordan won appeal on theory of fraud and does not have to pay

• Her fact that Jordan was the father was false, which he relied on that statement.

• She should have known that when saying “You are the father” he would rely on it, despite her having slept around with plenty of men at the same time and there being a high chance he was not the father.

Skebba Case Background

Skebba gets an offer from another company while working, as he seriously considers he goes and tells his boss. His current company wants to keep him and offer a retention bonus of 250K if he stays and they later sell the company. Skebba decided to stay with the company, which is then later sold. They do not give him his bonus, and so he sues for breach of contract.

Skebba Case Outcome

• Looses on theory of breach of contract in trial court, stating they do not know how much damages were proven in him denying the other companies offer

• Wins in appeals court because the promise of 250k was made, so damages do not matter.

Promissory Estoppel: Skebba was made a promise of 250k, he relied on that promise in his decision to stay with the company, and therefore they need to keep that promise and pay the 250k retention bonus.