Chapter 1: Legal Ethics
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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? 
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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? 
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Learning Objectives
5. What is an exculpatory clause? In
what circumstances might
exculpatory clauses be enforced?
When will they not be enforced?
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Consideration
 Generally, consideration must have:
–“Legally Sufficient Value” 
and
–a “Bargained-for-Exchange.” 
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Consideration
 Legally Sufficient Value can mean:
–Promise,
–Performance, or
–Forbearance. 
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Consideration
 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 legally
detrimental to the promisee, or legally
beneficial to the promisor.
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Consideration
 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.
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Consideration
 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.
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Consideration
 Agreements That Lack Consideration.
– Past Consideration: no consideration
because the bargained-for exchange
element is missing.
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Consideration
 Agreements That Lack Consideration.
– Illusory Promises: promisor has not
definitely promised to perform because
consideration is lacking, and
unenforceable.
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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.
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Consideration
 Settlement of Claims.
–Release: Good faith, signed writing,
consideration.
–Covenant Not to Sue: does not always
bar further recovery.
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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. 
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Consideration
 Promissory Estoppel. Elements:
–Must be definite promise.
–Promisee must justifiably rely on the
promise.
–Reliance is substantial.
–Justice will be served by enforcing
promise. 
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Consideration
 Promissory Estoppel.
–Application of the Doctrine.
–CASE 9.1 HARVEY V. DOW (2011). What
actions or words did Teresa rely on to
her legal detriment?
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Contractual Capacity
 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. 
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Contractual Capacity
 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.
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Contractual Capacity
 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.
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Contractual Capacity
 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.
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Contractual Capacity
 Mental Incompetence.
–Void: person is adjudged mentally
incompetent by a court of law and a
guardian has been appointed. 
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Contractual Capacity
 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. 
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Contractual Capacity
 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).
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Legality
 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.
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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.
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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.
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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 STURDZA V. UNITED ARAB EMIRATES
(2011). Do you think this decision was fair?
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Legality
 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.
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Legality
 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.
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Legality
 Unconscionable Contracts or Clauses.
–Substantive Unconscionability.
• CASE 9.3 LHOTKA V. GEOGRAPHIC
EXPEDITIONS, INC. (2010). Why was the
arbitration clause unenforceable?
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Legality
 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.
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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.
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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.
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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.
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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. 
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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.
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