Unit B: Contract Law

1. Unit B: Contract Law Unit Outline: 2/14 – 3/9 Friday 2/24: Quiz (Elements of a Contract) _____ Monday 2/27: Progress Reports Friday 3/2: Quiz (Forms of a Contract) _____ Thursday 3/8: Quiz (Characteristics of a Contract), Test review _____ Friday 3/9: Unit Test _____

2. Objective 3.01: Understand requirements of each element of a contract. Contract • any agreement enforceable by law • Ex. Every time you buy something • All 6 Elements are required in order to have a contract

3. 6 Elements of a contract • Offer • Proposal by one party to another with intent to create a legal binding agreement • Acceptance • an unqualified willingness to go along with the offer • Genuine Agreement • if a valid offer is met by a valid acceptance then a genuine agreement exists • Can be destroyed by fraud, misrepresentation, duress, or undue influence

4. 6 Elements continued • Capacity • Legal ability to enter into a contract • Ex Minor, mentally ill, drunk, drugs • Consideration • Must exchange something of value in order to create a bond • Legality • Must be permitted by law • Courts will not enforce an illegal contract

5. Offer • Offer • Proposal • Offeror • Makes the offer • Offeree • Offer made to this person

6. 3 Requirements of an Offer Serious Intent: • Must intend to make the offer • Advertisements? • No serious intent • Known as an invitation to negotiate Definite and Certain: • Must use definite words Communicate to the Offeree: • Phone, fax, Internet, letter, etc

7. AcceptanceUnqualified willingness to go along with the offer Requirements of Acceptance • Unconditional Acceptance • Mirror Image Rule • Acceptance must “mirror” offer • Any change means there is no acceptance • Counteroffer • Offeree makes an offer • Offeror becomes offeree

8. Methods of Acceptance • Contract accepted when sent, if same method of communication used • Contract accepted when received, if different method of communication is used • If method is stated in offer, it MUST be used • Action=Acceptance • Silence cannot be a method of acceptance

9. Example of Acceptance

10. Termination of Offer Revocation: • Taking back of an offer by offeror Rejection: • Refusal by the offeree Counteroffer: • Any change in the terms of the offer Expiration of Time: • If the offer puts a time limit on the offer and it has passed Death: • Offerordies Insanity: • Offeroris declared insane

11. Genuine Agreement A valid offer has been made by the offeror, and a valid acceptance has been exercised by the offeree

12. Mistake Unilateral Mistake • An error on the part of one of the parties • Cannot get out of contract • Types: • Nature of the Agreement • Signing a contract you don’t understand or have not read • This applies to signing a contract in a language you don’t understand • Identity of a Party • Bound by contract with face to face meetings • May be able to void a contract made NOT face to face

13. Mistake Bilateral Mistake (Mutual Mistake) • Both parties are mistaken • Types: • Possibility of Performance • Contract is impossible to perform Either party can void contract • Subject Matter • Either party can void contract

14. Fraud Deliberatedeception for an unfair or unlawful gain Deliberate: • Done with or marked by full consciousness of the nature and effects; intentional Deception: • The fact or state of being deceived Gain: • To secure as profit or reward • In order to prove fraud, you must prove the above 3 definitions

15. Proving Fraud: • False Representation of Fact • Must be a material (important) fact • Concealment (nondisclosure) may be considered false representation • Representation Known to be False • False Representation Intended to be Relied Upon • False Representation Actually Relied Upon • Resulting Loss

16. Innocent Misrepresentation • Make an innocent statement of supposed fact that turns out to be false • Injured party has the right to rescind (take back) the offer No rights to damages

17. Duress • Overcoming a person’s will by use of force or by threat of force or bodily harm • Economic Duress • Threats to a person’s business or income • Actual • physical harm will void the contract • Threat • of physical harm will make contract voidable • A threat of exercising one’s legal right is NOT duress Ex Threatening to sue someone and you have right to sue, is NOT duress

18. Undue Influence Unfair and improper persuasive pressure within a relationship of trust Student Children Client Patient • Doctor • Lawyer • Parents • Teacher

19. Capacitylegal ability to enter a contract • Majority: • age of legal adulthood • Minor: • not yet reached legal age (minority) • NC Age of Majority = 18 years old • Voidable Contracts: • minors may disaffirm or avoid their contracts if they so choose

20. Capacity to Contract Returning Merchandise: • must be returned if disaffirming a contract Tender: • offer to return Misrepresenting Age – fraud: • if contract disaffirmed, you may be sued for fraud Disaffirming the Whole Contract: • can’t disaffirm parts of a contract, must disaffirm all or none Contracts made with Minors: • both can disaffirm contact

21. Ratification of Contracts with Minors Ratify: - approve contract - Once, a minor can ratify a contract made a minor - ratification ends all rights given to a minor Contracts for Necessities: - food, clothing, shelter, and medical care - responsible for the fair value of item - renting apartment is a necessity Special Statutory Rules: - minors have capacity to buy car/life insurance - married = adult - limited capacity if you own a business

22. Other Contractual Capacity Rules Mentally impaired persons (if declared insane): • Prior to guardian being appointed – Contract is voidable • After guardian appointed - all contracts are void Intoxicated person: • must understand the purpose and nature of the transaction • fair value of necessities Others with limited capacity: • Convicts: have certain limitations • Aliens: people who live in U.S. without citizenship

23. Consideration Exchange of benefits and detriments by the parties to an agreements Benefits • Something that a party was not previously entitled to receive Detriments • Any loss suffered Gratuitous Contracts: • The law does not enforce any gratuitous contracts • Gratuitous contracts are free agreements

24. Types of Detriments • Give up or promise to give up something you are entitled to receive • Doing or promising to do something you have a legal right to do • Forbearance • Not doing something you have a legal right to do

25. Agreements without Consideration • Promise to make a gift • Gifts have no consideration • Cannot be enforced • Gift that has been given? • Doesn’t have to be returned • Donor – Gives the gift • Donee – Accepts the gift • Promise to obey the law • No detriment • You are obligated to obey the law

26. Agreements without Consideration • Preexisting Duty • If a person is already under legal duty to do something, a promise to do that same thing does not furnish consideration • Past Consideration • Consideration cannot already have been completed • Promise to attend a social agreement • No consideration • However, in some instances (prom) there may be grounds for a lawsuit You must show a loss

27. Adequacy of Consideration • Courts don’t look at adequacy or value of an agreement unless it is unconscionable • Unconscionable? • So lopsided that the average person would not agree to terms

28. Special Applications • Partial Payment of Debt • Must have new consideration in order to relieve entire debt • Settlement of Disputed Claims • Examples: Fixing your car or visit the doctor • Extension of Time • To extend time, one party must offer new consideration

29. Promises Enforceable Without Consideration • Pledges and subscriptions • Promissory Estoppel • Rely on what a person said • Elements: • Promise must bring action or forbearance • One who gave no consideration must have relied on the promise • Injustice can be avoided only enforcing the promise

30. Legality Agreements that Violate Statutes • Civil & Criminal Statutes • Agreements to commit a crime/tort are illegal • Usury Statutes • State sets a max interest rate • Usury • Charging too high of an interest rate • Truth in Lending Act • Lender is required to disclose the annual percentage rate. • Sunday Statutes • Illegal to perform certain contracts on Sunday • Licensing Statute • legal document giving permission to perform a certain trade

31. Agreements Contrary to Public Policy:Agreement in unreasonable restraint of trade • Outright contracts not to compete: • seller of a business may sign a restrictive covenant which would be upheld by the court Restrictive covenant: • agreement not to compete in a region for a period of time *Only legal for a short period of timeand small geographic region

32. Agreements Contrary to Public Policy • Price Fixing: • Competitors agree on certain price ranges within which they will sell their on prices • Competitors may agree to sell a product at a particular price • Manufacturers may set a price at which a product must be sold (MSRP) • Price fixing is NOT enforced by the court

33. Agreements Contrary to Public Policy 3) Agreements to defeat competitive bidding • Bid: • offer to buy or sell goods or services at a stated price • Law often requires govt to contract public works or buy goods or services through competitive bidding • Agreement to bid above a certain price is illegal

34. Agreements Contrary to Public Policy • Agreements to obstruct justice: • any agreement to interfere with administration of justice • (Example - protect someone from arrest; giving false testimony; bribing) • Agreements Inducing Breach of Duty or Fraud: • contracts that try to influence public officials • Agreements Interfering with Marriage: • contracts that discourage, harm, or interfere with good family relations

35. Effect of Illegality • If the legal part can be separated from illegal part, the court will separate • If the legal part can’t be separated from illegal part, the contract is void

36. Obj. 3.02: Organize the Required Parts and Forms of a Contract Breach of Contract • Wrongful failure to perform one or more promises of a contract. Writing must identify: • Date • Parties • Price • Intent of parties • Place • Subject Matter • Terms • Signature of both parties

37. Contradictory/Ambiguous Terms • Contradictory • Handwritten terms prevails over typed terms • Handwritten numbers prevails over figures • Ambiguous Clauses • Can be interpreted two different ways • Court favors the one who didn’t draft the contract

38. Statute of Frauds Requires that certain contracts must be in writing • Relates to executorycontracts Must be in writing: • Contracts to pay debts of others • Contracts to pay debts of deceased persons • Contracts requiring more than a year to perform • Contracts to sell real property • (Exception: Equitable Estoppel – must rely on promise.) • Contracts for sale of goods over $500 • Prenuptial contract (contemplation of marriage)

39. Parol Evidence Rule • Courts assure ALL terms are written into the agreement.

40. Changing the Writing • Read entire document • If you don’t agree with something, then cross it out and both parties initial it • Write in promises • Refuse to sign if you don’t agree contract

41. Obl. 4.01: Analyze the Characteristics, Methods of Termination and Transferring or Breaching Contracts and Remedies. Characteristics of a Contract • Valid • Legally good • Void • No legal force • Voidable • Not void, but may be voided by one party • Unenforceable • Some rule of law can not be enforced by the court.

42. Express vs. Implied • Express • Stated in words • Written or spoken • Implied • Based on actions (not words)

43. Bilateral vs.. Unilateral • Bilateral • Contains two promises • Unilateral • Contains one promise

44. Oral vs.. Written • Oral • Spoken words • Written • Write out exact terms

45. Obj. 4.02Methods to Terminate a Contract Discharge by Performance • Complete • All terms have been carried out properly and completely. • Time • Court will honor time request, if it is deemed “of the essence.” • If not mentioned in contract, then a reasonable time will be assumed.

46. Discharge by Performance Satisfactory • Law requires that services be completed in a satisfactory manner. • Reasonable person test • Would a reasonable person consider the work to done in satisfactory manner? Substantial • Slightly less than full performance • Must meet the following rules: • Acted in Good Faith • Completed Major Components of Contract • Only Minor Details Incomplete.

47. Discharge by Performance • Tender of Performance • Tender: • Offer to Perform • Must make tender even if you know the other party will not perform their part of the contact.

48. Discharge By Agreement • Mutual Release • Each side releases the other side from the contract. • Accord and Satisfaction • Substitute one contract for another.

49. Discharge By Impossibility of Performance • Death or Illness in a Personal Service Contract • Only allowed in Personal service contracts. • What is personal service? • Photographer • Artist • Any other contract must be completed.

50. Discharge By Impossibility of Performance • Destruction of the Exact Subject Matter • If the subject matter is essential to the contract then it will be discharged. • Illegality • Any illegal contract is void.