Post on 24-Feb-2016
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CONTRACTS!What makes a contract?
CONTRACTSWHAT YOU WILL LEARN
How to identify a contract’s elements
How to identify valid, void, voidable & unenforceable contracts
How to distinguish between express & implied contracts
How to identify unilateral & bilateral contracts
How to distinguish between oral & written contracts
CONTRACTSPRE-LEARNING QUESTION
What contracts have you had to sign?
What contracts will you probably sign in the future?
ELEMENTS OF A CONTRACTThere are six elements of a contract.
1. Offer2. Acceptance3. Genuine assent/agreement4. Consideration5. Capacity6. Legality
ELEMENTS OF A CONTRACTThere are TWO sides to a contract
1. Offeror – the person (party) proposing the contract
2. Offeree – the person (party) the offer is made to
3. Offer – a proposal by offeror to do something provided the offeree does or refrains from doing something in return
ELEMENTS OF A CONTRACT1. Offer 2. Acceptance
An offer is a proposal by one party to another intended to create a legally binding agreement.An acceptance is the second party’s unqualified willingness to go along with the first party’s proposal.
ELEMENTS OF A CONTRACT3. Genuine Assent (Agreement)
4. Legality If a valid offer is met by a valid acceptance, a genuine agreement exists.Legality means that people can only enter into contracts for legal purposes. People cannot enter into contracts to commit illegal acts.
ELEMENTS OF A CONTRACT5. Consideration 6. Capacity
Consideration is the exchange of things of value. What the promisor demands and must receive.
Capacity is the legal ability to enter a contract.
Types of ContractsExecuted & Executory contracts
Executed contract is one that has been fully performed (completed).
Executory contract is one that has not been fully performed yet.
Types of ContractsExpress Contract is one that has all terms stated in writing or orally spoken.
Implied-in-Fact Contract does not have its terms expressly stated but can be inferred from the action of both parties.
Implied-at-Law Contract is not really a contract but is created by the law to enforce a contract into existence.
Types of ContractsAn oral contract is created by word of mouth and comes into existence when two or more people form a contract by speaking to each other. They are valid contracts! BUT…
It is desirable to put contracts in writing!!!
Oral or Written
Types of ContractsUnilateral contract has the offeror promising something in return for the offeree’s performance
Bilateral contract both parties exchange promises to do something
ContractsThe 3 Requirements of an Offer1. Made Seriously the offer must have
been made with intent (no joking! Can’t be made in anger)
2. Communicated the contract must be communicated to the offeree (someone not being offered the contract can not jump in and take it)
3. Terms are definite the terms must be complete and not vague
ContractsThe 3 Requirements of an OfferInvitation to Negotiate
This happens when a store, for example, initiates a bargain but not a definite contract – ads on TV
Social Agreements Agreements between friends are not usually seen as legal obligations – go to the movies tonight
ContractsThe 3 Requirements of an OfferComplete Contracts
1. Proper legal description of the item2. Price3. Quantity4. Date for delivery of possession
All of these things must be present and clearly identified (at minimum) to create a valid offer.
ContractsEnding An Offer
RevocationWithdrawing an offer before it is accepted
RejectionRefusal to accept an offer by the offeree
Expiration of TimeOffers end when a reasonable length of time passes
Death or InsanityEnds an offer due to loss of control (voluntary involvement)
ContractsAccepting An Offer!!The acceptance must match the offer. This
means:• Comes from the person to whom the
offer was made• Matches the terms of the offer exactly
(also called the mirror image rule)• Be communicated to the offeror
If the acceptance doesn’t match the offer, it may be a counteroffer
ContractsCOUNTEROFFERSCounteroffers are made by the offeree back
to the offeror• Rejects the original offer• Creates a new offer• Makes the offeree the new offeror
Roles have now reversed!
ContractsWhen is Acceptance effective?Offers are effective the moment it is
received.Acceptance is effective the moment it is
SENTThe way to control this is for the offeror to
require a certain method of responding acceptance (mail, fax, email, etc.)
Courts generally say acceptance is effective when sent by the same means or faster used for the offer.
ContractsWhen is Acceptance effective?Offers are effective the moment it is
received.Acceptance is effective the moment it is
SENTThe way to control this is for the offeror to
require a certain method of responding acceptance (mail, fax, email, etc.)
Courts generally say acceptance is effective when sent by the same means or faster used for the offer.
ContractsMistakesUnilateral Mistake – when only 1 party holds
an incorrect belief about the facts or law related to a contract
Example: I have $40k to buy a car. I buy a $40k car. Dealer then says I owe 8% tax. My mistake!
Mutual Mistake – (bilateral mistake) when both parties have an incorrect belief about an important fact or applicable law
Example: We both think land being sold is 40 acres. It is then measured and found to be 30 acres. We both were wrong.
ContractsMistakesVOID – a contract without any legal effect
MATERIAL FACTS – facts that influence the parties’ decisions about a contract
ContractsMisrepresentationCan be innocently done (didn’t know it was untrue)
or fraudulently done (knew it was untrue but said it anyway) – a contract without any legal effect
NOTE: Mistakes void a contract (it has no legal effect).
Misrepresentation allows the injured party to make a contract voidable which means they can cancel the contract and receive damages.
ContractsMisrepresentationTo prove in court you must show:
1. false representation of fact2. the statement is key to the transaction3. Victim reasonably relied on the statement
ContractsFRAUDFraud is misrepresentation that was:
1. done intentionally or recklessly2. caused an injury (physical or
emotional)To prove in court you must show both things above
PLUS the 3 things for misrepresentation:3. false representation of fact4. the statement is key to the transaction5. Victim reasonably relied on the statement
PLUS the two statements in green above.
ContractsFRAUDRemedies for FraudIf a seller innocently misrepresents a material fact,
the buyer may avoid (cancel) the contract.If fraud is established in court, the buyer can also
recover damages!
ContractsDURESSWhen one party is forced to enter into a contract
through threats or actions. This includes:1. Threats of illegal conduct or crime2. Tort-like conduct3. Threats to sue if the other party won’t settle a
suit4. Threats to use economic power to negotiate a
favorable settlement
ContractsUNDUE INFLUENCEWhen a person uses their influence or power to
pressure someone into a contract1. Parent – child2. Child – elderly parent3. Attorney – client4. Physician – patientThis action results in the loss of free will of the person
entering the contract.Note: persuasion or nagging does not count!
ContractsCAPACITYRECAP: 5 elements of a contract are:1. OFFER2. ACCEPTANCE3. GENUINE ASSENT/AGREEMENT4. LEGALITY5. CONSIDERATION6. CAPACITY
ContractsCAPACITYContractual capacity = the ability to understand the
consequences of a contractNote: This doesn’t mean understand the TERMS of the
contract, just the CONSEQUENCES
Special parties with contractual rights include:1. Minors2. Intoxicated individuals3. Mentally impaired
Incapacitated – the parties above who lack capacity
ContractsCAPACITYMinors are said to be under the age of majority
Majority – in most states it is 18 years old (some states it is 19 or 21)
Minor – a person who has not yet reached their majority
Minority – the state of being below the age of majority (ends the day BEFORE your 18th birthday in IL)
ContractsCAPACITYScope of AuthorityIN business, the person with the greatest authority
should be the one to sign a contract. They have the greatest capacity.
However an employer can give someone capacity to enter a contract. Certain people may have capacity in certain areas.
Example: Barnes & Noble – café manager has capacity to purchase café goods, trade book manager has capacity to purchase books to sell, etc.
ContractsCAPACITY & MINORSI’m under majority! I don’t want to be held to this
contract!!!!
Lucky for you!
Disaffirmance – a refusal to be bound by a previous legal commitment
1. Can happen anytime while still under incapacity2. Can happen within a reasonable time after attaining
capacity (reaching majority, for example)
If you disaffirm a contract, you must return anything of value!
ContractsCAPACITY & MINORSI’m under majority! I don’t want to be held to this
contract!!!!
The law shields minors when they make contracts to protect them from unscrupulous adults. Minors may be vulnerable because of
ImmaturityInexperience
Lack of educationNaïveté
ContractsCAPACITY & MINORSYES! I am now 18!!!!!
After reaching the age of majority, a person can ratify, or approve, contracts made during minority.
ContractsCAPACITY & MINORSI’m a minor…I still have to pay for that??
A minor is held responsible for the fair value of necessaries.Necessaries, or necessities, include food, clothing, shelter, and medical care.
ContractsCAPACITY & EXCEPTIONSYou are a what?
Other classes of persons lack the capacity to enter into certain types of contracts. 1. Convicts—people convicted of a crime. 2. Aliens—people who are living in this country but owe
their allegiance to another country.3. Enemy aliens—some foreign-born persons
designated as such during time of war.