The last column discussed the formation of contracts by offer and acceptance. This column discusses some legal bases courts use to declare contracts invalid even though an offer is made and accepted. These include lack of consideration, duress and illegal subject matter.
A contract is often described as a bargain. Each person involved in a bargain gives something up in exchange for something received. For instance, when I sell my buffalo nickel to my cousin for $1, I give up my buffalo nickel in exchange for $1. My cousin gives up his $1 in exchange for my buffalo nickel. The dollar I receive is described by the law as bargained-for consideration. Bargained-for consideration is a necessary part of any contract.
Without bargained-for consideration, a contract will not be enforceable. If my cousin accepts my offer to give him my buffalo at no cost, there may be an agreement between us.
However, the law will not enforce our agreement because my promise to give my buffalo nickel to my cousin lacks consideration.
My cousin has not offered to give me anything of value in exchange for my buffalo nickel. Therefore, if I later change my mind and refuse to give my buffalo nickel to my cousin, the law will likely not force me to part with it.
There is an exception to this general rule. Assume that my cousin, expecting to receive my buffalo nickel, contracted to sell it to his friend for $1. Assume also that my cousin’s friend sues him for breach of contract and recovers damages. Because my cousin relied upon my promise and incurred a loss as a result, he may have a claim against me for promissory estoppel.
So far, the consideration for my buffalo nickel has been a money payment. Promises can also serve as consideration. Assume my cousin promises to mow my lawn in exchange for my buffalo nickel. My cousin’s promise to mow my lawn is consideration for my buffalo nickel. Some readers may be wondering if my buffalo nickel valued at $1 is sufficient consideration for my cousin’s promise to mow my lawn, which may be valued at $40. Generally, courts are concerned with the presence of any consideration, not the amount or value of the consideration.
An enforceable promise made previously cannot serve as consideration for a later contract. For instance, assume that I contracted with my cousin to mow my lawn in exchange for my buffalo nickel. Assume that he then refuses to mow my lawn unless I also give him my silver dollar.
If I agree, there is no consideration for my promise to give my cousin my silver dollar. My cousin was already obligated to mow my lawn in exchange for my buffalo nickel. He has provided no consideration for my promise to give him my silver dollar. Thus, our agreement is likely unenforceable.
Courts will also refuse to enforce agreements that are made under duress. Assume my cousin holds a gun to my head and threatens to kill me if I don’t sell him my $5 gold piece for $1. Assume that I agree. There appears to be $1 as consideration for my $5 gold piece. However, I did not enter into the agreement under my own free will. My life was threatened.
Only threats of great bodily injury will give rise to duress under Kentucky law.
Under the law of some states, a threat of economic injury may be enough.
For example, assume my cousin contracts to deliver 10,000 metal screws that I need to deliver a batch of doorknob sets on a big deal. Assume he threatens to not deliver them unless I contract to buy another 10,000 from him. This threat is not sufficient as duress under Kentucky law. As a threat of economic injury, it may be duress in some states. However, as discussed above, I can avoid the contract for the second 10,000 screws due to lack of consideration.
Courts will also not enforce illegal contracts. Assume that my cousin contracts with me to rob a bank and give me 10 percent in exchange for my $5 gold piece. The agreement to give me 10 percent would be unenforceable since the subject matter of the contract was illegal. Likewise, an employment contract for less than the minimum wage would be unenforceable.
Printed in Four Rivers Business Journal (Paducah Sun), April 26, 2012.