Contracts

What is a Contract?

An agreement that is enforceable by law Must have an offer and acceptance on

mutually satisfactory terms Intent is more important than the language

used

Unilateral Contract

Only one person is obligated to perform. The offer calls for the party to act. Example??

Bilateral Contract

Both parties receive something in return for the contract

Both parties are obligated to perform an act. Example?

Who May Enter Into Contract?

Persons who have capacity Have the ability to understand their actions

and the effects of those actions

Those Who Lack Capacity

Minors Intoxicated People Insane People

These individuals may disaffirm most of their contracts

Disaffirm

Set aside, void, nullify Most minors do not disaffirm because they do

not know they can and most purchases are fair

You Cannot Disaffirm

If you lied about your age If a minor and an adult enter into a contract,

only the minor can disaffirm as long as they are still the age of a minor

ELEMENTS OF A CONTRACT

Offer Acceptance Genuine Agreement

Capacity Consideration Legality

Offer

Offeror The person who makes the offer

Offeree The person who the offer is made to

An offer must

Have contractual intent Be Serious, Have no humor, anger, or opinion

Have all terms complete and definite State price, subject matter, and quantity

Communicated to the offeree If you did not know about the offer, they are not

obligated for it.

Is this an offer?

This is not an offer because it does not state exactly who they will sell this Jeep Wrangler to. Instead it is an invitation to start preliminary negotiations

Is this a contractual offer?

John asked Sara the movies Friday night. No, social agreements are not contractual

offers. You can not sue someone for breaking a date unless money has been spent in preparation for the date.

How is an Offer Ended???

Revoking an Offer

Saying No (Must be said) Can happen before you receive the offer This can be done be the offeror anytime

before the offer is accepted

Making a Counter Offer

Change the terms being discussed The first offer is no long available

Time

Time has expired that was stated in the offer Subject matter destroyed Death or Insanity of either the offeror or

offeree will terminate the contract A reasonable length of time has expired

since the offer was extended Based on the product

Option

The offeree gives something of value to keep the offer open for an extended period of time

Firm Offer

Both parties state in writing how long the offer is to stay open Max of 3 months

No money exchanges hands This applies to merchants (individuals who

regularly deal in the goods being bought and sold)

Acceptance

Acceptance is…

When the offeree agrees to the offer or has performed according to the offer

3 Criteria of Acceptance

Made in a reasonable manner by the offeree In Person Phone Mail/Email/Text Message Fax

Mirror Image Rule Serious intention by matching the offer

Communicated to the offeror

When does Acceptance Take Effect?

When sent by the same means used for the offer, or by faster means

If the offer says “received by this date” or “must be sent by this means” then that takes precedent.

Acceptance Can Make A Contract

Valid

Both Sides Agree Enforceable Contract by law

Void (Invalid)

Both sides do not agree on the same terms Not Enforceable

Voidable

One party does not agree to all the terms Minor’s contracts Contracts involving fraud

Unenforceable Contract

Time limits have expired No action can be taken

Genuine Agreement

All parties are serious

Assignment

Get with a partner Which ever first name comes first in the

alphabet is the offeror (seller) The other is the offeree (buyer) Together, create a role-play showing how a

basic contract is created for the purchase of either a used car, used Ipod, or used cell phone.

Be prepared to share your contract with the class.

What is Consideration?

Consideration is

The promise or action given in exchange for the promise or action of another

Forms of Consideration

Unilateral One person gives

something

Bilateral Both parties give

something Also called mutual

consideration

6 KINDS OF CONSIDERATION

1. A return promise

2. An act other than a promise

3. Forebearance (agree not to do something)

4. A change of legal relations

5. Money

6. Other Property

Why is Consideration Required?

Force Performance Feeling of Worth

Are Gifts Consideration?

A gift is a transfer of property without mutual consideration.

The gift cannot be recovered by the donor

Promissory Estoppel

Even when consideration is not present, promises may be enforced if The other party relied on the promise Others would suffer economically Example: Telethon Pledges

What is Sufficient Consideration?

The actual value of the consideration is unimportant as long as the contracting parties have voluntarily agreed

It CANNOT be something you are legally required to do

Nominal Consideration

A token amount identified in a written contract when parties cannot or do not wish to state the amount publicly

LEGALITY

TYPES OF ILLEGAL CONTRACTS

Agreements to: Commit crimes or torts Obstruct legal procedures Injure Public Service Collect money without a required license Usury

Lending money at a higher rate of interest than the state’s maximum rate

Illegal gambling or lotteries Affect marriage negatively

Illegal Contracts Can Be

Void There is no contract and

neither party is bound

Voidable Contract Only the party who has

been victimized in some way may cancel or disaffirm the contract

Most Common Cause of Illegal Contracts

Fraud False representation or concealment of a

significant fact.

What are the Rights of a Defrauded Party?

Contracts entered into as a result of fraud are voidable

Anything that has been received must be returned

You Cannot use Duress to create a contract?

Compelling another person through threat of force or act of violence or illegal imprisonment

What Is Undue Influence?

Undue influence compelling another person to

enter an unfavorable contract This most likely occurs in a

relationship of trust, authority, or confidence

What Happens if You Make A Mistake and Enter Into A Contract

Unilateral Mistake

One of the parties has an erroneous idea about facts of the contract this does not generally affect validity

Bilateral or Mutual Mistake

Both parties are wrong about important facts Either party may disaffirm

When Can a Minor Disaffirm a Contract?

Generally, a minor may disaffirm while still a minor or within a reasonable time of reaching majority

Exceptions for Minors

transfer of real property a contract made with court approval a contract to enter armed forces insurance contracts (in some states)

What Form Does a Contract Need to Be?

Contracts May be

Expressed Spoken or Written

Implied from conduct Paying for a Trax ticket and then getting on the

train without saying a word

Quasi Contracts Parties are bound even though a contract does

not exist Example: A doctor who gave you medical attention at the

scene of an accident may collect a fee for his service even though you did not agree to his help.

Formal Written Contract that must be in a special form

Example: Checks

Simple A receipt

Executed Already Done

Executory One that has not been fully performed

Advantages to a Written Contract

More reliable as proof of agreement Protects against the innocent failure of

memory There is usually greater care and thought in

preparation

Required Elements to a Written Contract

Current Date Offer’s Name(s) Offeree’s Name(s) The Offer The Acceptance

The Consideration Date to be completed

by Signature of both

parties

The Statute of Frauds

The statute of frauds states that certain contracts must be in writing to be enforceable in court a simple memorandum is sufficient if it states quantity and is

properly signed if a contract isn’t signed, the agreement is not enforceable in

court

What Contracts are Subject to the Statute of Frauds?

Buy and sell goods for a price of $500 or more

Contract that cannot be performed within one year

Sale of any real property Contract to pay the debt of another person Contract when the consideration is marriage

Assigning, Delegating, and Discharging

What is an Assignment? Assignment

transfer of contractual rights Bank sells your loan to another institution

The party who makes the assignment is the assignor

The party who receives the contract is the assignee

Delegation of Duties Transferring routine contractual duties

Example: Building Contractors The person who delegates the contract duties

remains legally obligated and responsible

How Are Contracts Usually Discharged? Discharge of contract

both parties perform as promised Substantial performance

the contract is basically performed; however, there are minor modifications or failures to fulfill all parts of the contract

How Are Contracts Usually Discharged? Diminished value rule

if the contract is not fully performed, the buyer is entitled to the value missing

Breach of contract if the contract is not performed, the injured party can cancel

and perhaps sue

How Are Contracts Usually Discharged?

Anticipatory breach if a party notifies the other ahead of time that the

contract will not be performed, the injured party may immediately sue

Cancellation of contract if there is a breach, the terms of the contract are

terminated (cancelled)

Agreement to end the contract by both parties

Impossibility of Performance The consideration is no longer available

Operation of the Law

Your Assignment

Find a contract you, a family member, or friend have entered into

Make a copy of the contract Highlight the important elements of the

contract. (offer, acceptance, consideration, etc)

Bring it to class next time we meet.