3 “ promises enforceable without consideration ” B u s i n e s s F i n a n c e
BUS-225: Legal Environment of Business
To form a contract, the subject matter of the contract must be lawful and there must be a clear offer and a voluntary acceptance of that offer. The parties must have the legal capacity to contract. If a party enters into a contract because of undue influence, the court will allow the aggrieved party to rescind the contract. Undue influence occurs when contracting parties are involved in a confidential or fiduciary-type relationship and the dominant party takes unfair advantage of the other party’s vulnerability, such as mental or emotional weakness. Examples of fiduciary relationships include attorney-client, doctor-patient, and guardian-ward. A contract based on undue influence is voidable by the aggrieved party.
Upon successful completion of the course material, you will be able to:
Utilize critical thinking methods to examine legal issues in business.
- Textbook: Business Law and the Legal Environment
File: Simon’s Food Truck (Wheelin’ and Dealin’) Template.docx
As a general rule, contract law requires consideration, which states that the contract has to be based on legal value and that the contract is a bargained-for exchange. Consideration is given when a party:
makes a promise to act (for example, a party promises to do something he/she is not legally obligated to do) or
- promises to refrain from acting (for example, a party promises not do something he/she has a legal right to do, such as taking the other party to court).
Although courts emphasize the need for consideration as an integral part of contracting, a court may enforce a contract that lacks consideration as a way to avoid injustice. Courts recognize the doctrine of promissory estoppel, which serves to protect parties that have relied on promises to their detriment.
Review the rubric to make sure you understand the criteria for earning your grade.
In your textbook Business Law and the Legal Environment, read section 11.3 “Promises Enforceable without Consideration” from Chapter 11, “Consideration”.
Consider the following scenario:
Simon has done so well in the food truck business that he attracted the attention of numerous investors. However, Simon never really considered partnering with other vendors until he received an inquiry from the Street Foods R Us franchise.Orlando, the owner of the Street Foods R Us franchise, was interested in the possibility of setting up business in a food truck park with Simon as a part of a franchise agreement. Orlando would be the franchisor, and Simon would be the franchisee. Orlando would supply Simon with the use of his nationally known trademarks as well has his expertise. Orlando wanted to be certain that Simon was serious, so he asked Simon to secure a land lease and $20,000 for start-up costs. The $20,000 was to be paid to Orlando.Simon withdrew $10,000 of his savings to secure a multi-year land lease and took out a $20,000 mortgage on his home to cover the franchise start-up costs. When Orlando mentioned that they needed lighting for nighttime vending, Simon contracted with an electrician service to install commercial-grade outdoor lighting fixtures throughout the property. The electrician’s bill totaled $8,000.
Despite numerous phone calls, Simon did not hear from Orlando again until a month later, when Orlando advised Simon that the leased land was not to his liking and that the franchise start-up costs would be $45,000 instead of $20,000.Frustrated by Orlando’s demands, Simon protested and asked Orlando to reconsider the deal. Orlando refused and told Simon, “Take it or leave it.” To recoup his losses, Simon filed a lawsuit against Orlando based on breach of contract and undue influence. Orlando responded by asking the court to dismiss the case because no formal franchise agreement was ever signed between the parties and because he did not unduly influence Simon’s business decisions in the matter.
Using the Simon’s Food Truck (Wheelin’ and Dealin’) Template.docx, describe the elements necessary to form a contract.