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Unit 3 CONTRACT LAW

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WHAT IS A CONTRACT?A legally

binding agreement

THAT

requires a bargain

Offer + Consideration = Acceptance

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WHAT IS IN A CONTRACT?

Offer-- proposal by one party to another to create legally binding agreement.

Acceptance --- 2nd parties willingness to go along with lst parties proposal (offer)

Consideration -- whatever is exchanged for something else

THE BIG QUESTION IN A CONTRACT: Did everyone give up something?

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Developer promised to pay Graphic Designer $5000 for creating certain promotional materials for Developer's multimedia work. Graphic Designer created the materials and delivered them to Developer, as required in the contract. Developer admits that the materials meet the contract specifications.

IS THERE AN OFFER?IS THERE ACCEPTANCE?IS THERE CONSIDERATION?IS THERE A BINDING CONTRACT?

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WHAT ARE THE TWO PARTS TO AN AGREEMENT?

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THE EXCHANGE OF SOMETHING FROM BOTH PARTIES IS CALLED?

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CAPACITYLegal ability to enter a contract

CAPACITY HAS TO DO WITH BEING CAPABLE

Did both parties know what they were doing when they entered into the contract?

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INFANCYIf under age of 18, can disaffirm an agreement if NOT for the necessity of life

WHY 18: BELIEF THAT YOU CAN BE TAKEN ADVANTAGE OF

What are necessities of life:

food, clothing, shelter, medical care

Disaffirm: deny, terminate

Capacity continued

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CAN SEAN VOID THE CONTRACT?

• Sean, 17, a snowboarder, signs a long- term endorsement agreement for sportswear. He endorses the products and deposits his compensation for the endorsements for several years. At age 19, he decides he wants to void the agreement to take a better endorsement deal. He claims he lacked capacity when he signed the deal at 17.

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Capacity continued

MENTAL INCAPACITYTwo tests:

1. COGNITIVE TEST

Did you understand the nature and consequences of the transaction at the time it was entered into?

2. MOTIVATIONAL OR AFFECTIVE TEST Because of a mental illness or defect, a person was unable to act in a reasonable manner with respect to the transaction. Did the other party know or should have known of the condition?

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CAN SMALLEY CONTRACT?

• Mr. Smalley contracted to sell an invention, and then later claimed that the contract was void because he lacked capacity. Smalley had been diagnosed as manic-depressive and had been in and out of mental hospitals. His doctor stated that Mr. Smalley was not capable of evaluating business deals when he was in a "manic" state. The manic phase of the illness under discussion is not, however, a weakness of mind rendering a person incompetent to contract ….

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UNDER WHAT AGE CAN YOU DISAFFIRM A CONTRACT?

WHAT DOES DISAFFIRM MEAN?

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TYPES OF CONTRACTS:

EXPRESS CONTRACTS

– CLEAR STATED. KNOW PARTY’S INTENT

TWO TYPES OF EXPRESS CONTRACTS:

1. ORAL –ONLY SPOKEN WORDS

2. WRITTEN CONTRACTS: WRITTEN TERMS

IF YOU DON’T TRUST A PERSON’S WORD, OR MONEY INVOLVED AND THINK A PROBLEM WILL ARISE: GET IT IN WRITING

Statute of Limitations on contracts:ENFORCEMENT: ORAL – 6 YRS. WRITTEN – 15 YRS.

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IMPLIED CONTRACTRESULTS FROM ACTIONS OF PARTIES

1. LOOK AT THE FACTS

2. CAN RESULT WITHOUT SINGLE WORD SPOKEN

WHAT ARE THE FACTS YOU LOOK AT?

THE ACTIONS INVOLVED

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QUASI CONTRACT

CONTRACT WOULD HAVE BEEN CREATED EXCEPT FOR UNFORESEEN CIRCUMSTANCES (TROLLEY EXAMPLE)

Quasi contracts determined by two things: 1. Facts2. Law

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WHAT TYPE OF CONTRACT IS CREATED THROUGH ACTIONS OF PARTIES?

WHAT TYPE OF CONTRACT IS CREATED THROUGH CLEARLY STATED TERMS EACH PARTY UNDERSTANDS?

WHAT TYPE OF CONTRACT IS CREATED THROUGH UNFORESEEN CIRCUMSTANCES -- CONTRACT WOULD HAVE BEEN CREATED UNDER NORMAL CIRCUMSTANCES?

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OTHER TYPES OF CONTRACTSVALID CONTRACT – good contract

Six elements to a good contract:

1. offer

2. acceptance

3. agreement

4. consideration

5. capacity

6. legality

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VOID CONTRACT --contract that is not good

--one element missing would

void contract

VOIDABLE CONTRACT--defect in contract (legal reason?)

--can continue or void

EXAMPLE: CONTRACT BETWEEN MINOR AND ADULT WILL VOID CONTRACT FOR ____________ BUT NOT ____________.

Why voidable for minor?_____________

Other types of contracts cont.

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Other types of contracts cont.

BILATERAL CONTRACT--two sides – two promises

--promise for a promise

UNILATERAL CONTRACT--uni means one

-- promise for an act

One person promises to do something if and when the other person performs some act.

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Other types of contracts cont.

EXECUTED CONTRACT--completed contract when both parties FULFILL their part of the bargain.

EXECUTORY CONTRACT--incomplete contracts

--one party fulfills obligation to contract

--other party has not completed their part of the bargain.

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COMMON LAW CONTRACTS

VS

MODERN TRENDS OF CONTRACTS

Common Law –

--all contracts must be agreements

--not all agreements enforceable

Modern Trends—

Promissory Estoppel

--If agreement made and you accept in good faith and injured, can sue for monetary damages.

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WHAT IS THE DIFFERENCE BETWEEN A

VOID CONTRACT

AND A

VOIDABLE CONTRACT?

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I OFFER TO PAY YOU $5 IF YOU WASH MY CARUNILATERAL OR BILATERAL CONTRACT?

I WILL SELL YOU MY CANDYBAR FOR $.50, I WILL BUY YOUR CANDYBAR FOR $.50 UNILATERAL OR BILATERAL CONTRACT?

THIRD PARTY OFFERS TO BUY MY CANDYBAR FOR $.50UNILATERAL OR BILATERAL CONTRACT?

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OFFER

A proposal by one party to another party to enter a contract

OFFEROR Person making offer Person who receives the offer OFFEREE

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THREE BASIC REQUIREMENTS OF A BASIC OFFER:

Offer made to you must be definite and certain. (ex: newspaper ad, catalog, price lists – invitations to negotiate NOT OFFERSHOWEVER, IF AD SAYS ”this price good for given period” – can hold to that price

2.Offer must be communicated to offeree.3.Offer must be made seriously and intent to

be enforceable obligation. (I will sell you my stapler for $5; I will buy your stapler for $5

OFFERS DONE IN JEST OR UNDER EMOTIONAL DISTRESS NOT REAL OFFERS.

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MAILBOX RULE: APPLIES ONLY TO ACCEPTANCE

When an offer is sent, acceptance takes place when it is mailed, faxed, phoned.

E-mail – acceptance takes place when it is received in readable form in the designated inbox. It does not have to be opened.

If you want to withdraw an offer, withdrawal does not take effect until offer is received.

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E-mail E-mailed When arrives in readable form at system designated

received

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EXCEPTION TO MAILBOX RULE:

IF YOU DO NOT RESPOND AS TOLD TO AN OFFER

EX: Please mail your response to our offer

and you fax it.

THE OFFER IS NOT ACCEPTED UNTIL RECEIVED

GENERAL RULE:

UNLESS SPECIFICALLY INDICATED, ANY REASONABLE MANNER OF ACCEPTANCE IS ACCEPTABLE UNLESS TOLD OTHERWISE.

EX: If mailed offer, I respond by fax

Acceptance when faxed unless told to mail.

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REVIEW OF MAILBOX EXAMPLE

Receive offer on April 10. Letter dated April 1, offer says good for 10 days. Good

until _______________

If letter dated April 1 and offer good for 10 days from date of letter. You receive the

letter on April 10. Is offer still good? ___________________

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A makes an offer to B on January 1; A then decides to revoke the offer on January 2 and puts a letter in the mail to B revoking the offer; however, B puts a letter accepting the offer in the mail on January 3, and does not receive A's revocation letter until January 4.

WHEN WAS A CONTRACT FORMED?

CAN THE OFFER BE REVOKED?

#1

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A makes an offer to B on January 1, and initially B intends to reject the offer on January 2 by putting a letter in the mail to A rejecting the offer. However, the next day B changes his mind and sends a fax to A accepting the offer.

IS THE OFFER REJECTED OR ACCEPTED BY A?

#2

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REQUIREMENTS FOR ACCEPTANCE

1)Acceptance cannot change terms of original offer in any way

2)Mirror Image Rule –acceptance

mirrors offer.

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COUNTEROFFERAny change in the terms of the offer that means the offeree has

not really accepted the offer.

Ex: House on market for $30,000. $30,00 is too much. I will offer

$25,000 for your house. If counteroffer made by offeree,

original offeree becomes offeror.

1)If counteroffer made by offeree, offeror becomes offeree to accept/reject offer.

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EXCEPTIONS for MERCHANTSMerchants –can make minor changes as long as it does not change the basic terms of the contract.

Merchants can revoke an offer before acceptance

Ex: An event planner extended a firm offer to accept the company's proposal for a private catered dinner party.

Firm Offer • can be good for max. of 90 days. Terms are: it must be in writing, it must be clearly stated.

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OFFER AND ACCEPTANCE – OFFER TERMINATION

1. DURATION STATED IN OFFER – most common way to end offer

2. NO DURATION STATED IN OFFER – reasonable time frame one month reasonable

3. DESTRUCTION OF SUBJECT MATTER – unknown to both, subject matter destroyed

4. DEATH OR INSANTIY OF PARTY -- BEFORE offer accepted, offeror dies or insane at time of offer. If offeror dies AFTER offer made, must deal with guardians or person(s) handling estate

5. SUPERVENING ILLEGALITY – an offer is made and then it becomes illegal to perform it.

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How do most offers end?

BY ACTION OF THE PARTIESRevocation of Offer – withdraw offer

Irrevocable Offer – paying someone money to keep an offer open

Firm Offer - offer good for 3 months if nothing stated. MUST BE IN WRITING.

Rejection – NO. That ends offer immediately

Counteroffer – ends first offer

Inquiry - As long as one does not say NO, original offer is still on the table

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LET’S REVIEW WHAT WE ALREADY KNOW

ABOUT CONTRACTS

•Contracts are legal agreements & enforceable

•The age of majority or legal adult age is 18

•The age of minority or minor age is under 18

•Disaffirm means your intention to get out of a contract

•You cannot disaffirm a contract for necessities of life: food, clothing, shelter, medical need

•Six elements of a valid contract are: offer, agreement, acceptance, consideration, capacity, legality

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DEFECTIVE AGREEMENT

Genuine agreement disrupted by fraud, misrepresentation, mistake, duress, undue influence.

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FRAUDIntentional misrepresentation,

deliberate deception

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MISREPRESENTATION (1-2)

1. CAN BE INNOCENT

Both parties believed

information provided

was true but it was not true

Ryan puts his summer cottage up for sale. Mary, interested in buying it, asks if it had termites. Ryan, unaware of the termite problem, answers NO. Mary buys the cottage and discovers termites. Can Mary get her money back?

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2. INTENTIONAL --CHEAT SOMEONE KNOWINGLY

Andrew’s basement floods every time it rains. When Stephanie, a potential buyer, asks about water in the basement, Andrew says the basement is dry. After the first heavy rain, Stephanie’s new home basement is flooded. Is Andrew guilty of a crime? Can Stephanie sue for damages?

MISREPRESENTATION continued (1)

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MISTAKE1. UNILATERAL MISTAKEOne of the parties makes a mistake on a material fact OR in

judgment, value, or quality out of carelessness.

OR

2. BILATERAL(MUTUAL) MISTAKEDeals with existence of subject matter.Contract can be voided by either party because both parties mistaken.

Nature of mistake determines whether courts will help you.

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UNILATERAL OR BILATERAL MISTAKE (1-2-3)

Michael agreed to sell his car to Jon for $1,000. Unknown to both of them, the car had been totaled the night before by a tree that fell on the car as it sat on the side of the street. Unilateral or Bilateral Mistake?

Kierra sent a letter to Melissa offering her a babysitting job at $15/hr. The letter was delivered to another Melissa

instead. The other Melissa accepted the offer. Unilateral or bilateral mistake?

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http://search.live.com/results.aspx?q=IRMEN+ VS+WRZESINSKI&src=IE- SearchBox&Form=IE8SRC

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DURESSOvercoming a person’s will

by: Force; Threat of force; Threat of bodily harm

“You shoot him or I will shoot you. You shoot the person to save yourself.

Your defense: Duress. Will it hold up in a court of law?

NO—cannot use duress as an excuse for killing someone.

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UNDUE

INFLUENCEOne party in a

dominating relationship

takes unfair advantage, causing a contract to

be voidable.

Ex: doctor-patient relationship; lawyer-client relationship; teacher-student relationship

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INFANCY IS A SHIELD

NOT A SWORDWHAT DOES THAT MEAN?WHAT DOES THAT MEAN?

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MINOR’S RIGHT TO DISAFFIRM CONTRACT CAUSES

CONTROVERSY If you take out a contract at 17 and continue

making payments after you turn 18, are you liable for the contract?

YES - ratified the contract by continuing to make payments after turning 18.

If you lie about your age are you held to a contract?

YES, If a minor misrepresents their age, they could be held liable for the contract – fraud.

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RATIFICATION OF MINORS’CONTRACTS

What does ratification mean?

confirming or making something validUpon reaching age of majority (18), person can ratify contract

made during minority (under 18).

1. Ratification can be done orally, in writing, or by actions.

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• If you bought an item with your parent around, your parents will be held to the contract.

• If you bought an item WITHOUT your parents around, you have the right to return an item and ask for your money back.

DOES IT MATTER WHETHER YOU ARE WITH FRIENDS OR YOUR PARENTS WHEN YOU BUY ITEMS?

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ARE THERE LIMITATIONS OF MINORS RIGHTS TO DISAFFIRM CONTRACT

1. Minors have right to disaffirm contracts even if items damaged or destroyed.

2. After disaffirmed, minor must return purchased items.

3. Minor cannot disaffirm unfavorable parts of contract and affirm favorable parts of contract.

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(1) Gina, one week before her 18th birthday purchased an iPod from the Apple store and paid $180 cash for the item.

A week after her birthday, she purchased a handheld police scanner for $95 from Radio Shack and paid cash. A week after she purchased the police scanner, Gina wished

to disaffirm both contracts and recover $180 from the Apple store and $95 from Radio Shack. Will Gina be allowed to disaffirm one, both, or neither of these

contracts assuming that both purchases were within the guidelines of selling to minors?

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MINORSREPONSIBLE FOR ALL

TORTS

1) PARENTS RESPONSIBLE FOR ACTIONS OF MINORS

2) PARENTS CAN BE SUED UP TO $10,000 FOR PROPERTY DAMAGES OR PERSONAL DAMAGES SUCH THEFT, ASSAULT. $15,000 FOR DESECRATION, VANDALISM IF WANTON (RECKLESS) ACTION

3) MINOR CAN BE SUED AS WELL AS PARENT

4) NON-RESIDENT PARENT CAN BE HELD EQUALLY LIABLE FOR ACTIONS OF KIDS

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EMANCIPATION AND ABANDONMENT

EMANCIPATION –

ABANDONING

the protection afforded to them as minors.

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OHIO does not have an emancipation law.

As a general rule, a child is “emancipated,” or freed from parental control, care and custody, upon reaching the age of 18 or upon graduation from high school if a child turns 18 in his or her senior year. In Ohio, emancipation also can occur before that time if the child gets married or joins the military service. While many people think that someone under 18 can go to court and “get emancipated,” Ohio law does not provide for such a court order. Rather, circumstances determine whether or not a person is emancipated in the eyes of the law.

In the event of divorce or annulment, or discharge from the Armed Forces before the age of 18, custody of the minor will automatically revert to the parent who previously had custody over the minor.

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RIGHTS OF MENTALLY IMPAIRED TO DISAFFIRM

1. No guardian, contract voidable

2. Guardian, contract valid

ROLE OF GUARDIAN:

LOOK AFTER MENTALLY IMPAIRED

PERSON’S AFFAIRS

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INTOXICATED PERSON’S RIGHT TO DISAFFIRM

Must prove state of mind was impaired 1. unable to understand purpose

2. unable to understand nature or effect of transaction

3. must have been intoxicated at time of contracting

4. responsible for fair value of necessities (food, clothing, shelter, medical care)

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• Mr. Thackrah, a Utah resident and owner of $80,000 worth of mining stock, went on a three- month bender. Mr. T's fondness for alcohol was well known, and a local bank hired Mr. Haas to contract with the inebriated Thackrah. Haas did the deal, getting Thackrah to agree to accept $1,200 for his mining stock. When he sobered up (a month later), Thackrah learned that Haas had turned over the mining shares to a local bank (apparently the real culprits in the scheme). Thackrah sued Haas. The case went all the way to the U.S. Supreme Court.

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ALIENS

PEOPLE LIVING IN THIS COUNTRY BUT OWE THEIR ALLEGIENCE TO ANOTHER COUNTRY.

If they don’t speak English, are they bound to contracts they enter?