CONTRACT LAW

LAW II

CONTRACT LAW

CONTRACT LAW

INTRODUCTION

• CONTRACT: An agreement between two or more parties that creates obligations enforceable by law.

• A contract is created any time things of value are exchanged.

• Contract law was developed to support and enforce promises that people make in reliance on the promises or acts of others.

CONTRACT LAW

INTRODUCTION

• A contract gives reasonable assurances to all parties that the agreements will be fulfilled.

• The law provides remedies for those who suffer losses due to other’s failures to keep contractual promises.

CONTRACT LAW

ELEMENTS OF A CONTRACT

• There are (~) seven major requirements that must be satisfied before courts will treat a transaction as a legally enforceable contract: offer, acceptance, genuine assent, legality, consideration, capacity, and sometimes writing.

CONTRACT LAW

OFFER

• OFFER: A proposal by an offeror to do something, provided the offeree does something in return.

• OFFEROR: The person who makes an offer.

• OFFEREE: The person to whom the offer is made.

• There are three tests that a valid offer must pass:

CONTRACT LAW

OFFER

A.Contractual intent must be present in the offer.

• Jest offers are not valid; therefore, an offer cannot appear to be a joke.

• Statements made in anger or terror are not legally valid offers.

• Preliminary negotiations such as newspaper ads are actually invitations to negotiate, not offers.

CONTRACT LAW

OFFER

• Social agreements do not create legal obligations.

CONTRACT LAW

OFFER

B.The offer must be communicated to the offeree.

• A person who is not the intended offeree cannot accept the offer even if they share an identical name.

• Rewards cannot be accepted by someone who has never seen or heard the offer.

CONTRACT LAW

OFFER

C.The essential terms of the offer must be complete and definite: price, quantity, terms of payment, date of delivery, etc.

• Offers may be terminated by reasons of revocation (withdrawal by offeror before it is accepted), time, rejection, counteroffer, death/insanity, and/or destruction of subject matter.

CONTRACT LAW

ACCEPTANCE

• ACCEPTANCE: When an offeree agrees to a proposal.

• The terms of the offer must be definite and accepted without change (by the party to whom it was intended to be offered).

CONTRACT LAW

GENUINE ASSENT

• GENUINE ASSENT: When a valid offer is met by a valid acceptance and the agreement is not based on duress, undue influence, mistake, misrepresentation, or fraud.

• This element is often referred to as the “meeting of the minds.”

CONTRACT LAW

GENUINE ASSENT

• DURESS: When one party uses an improper threat or act of coercion to obtain an expression of agreement.

• If duress occurs, the contract is voidable.

CONTRACT LAW

GENUINE ASSENT

• UNDUE INFLUENCE: When one party to the contract is in a position of trust and wrongfully dominates the other party.

• If undue influence occurs, the contract is voidable.

• Possible relationships include attorney/client, husband/wife, parent/child, physician/patient, etc.

CONTRACT LAW

GENUINE ASSENT

• Mistake is categorized as either unilateral or bilateral (mutual).

• UNILATERAL MISTAKE: Occurs when only one party holds an incorrect belief about the facts related to a contract.

• This generally does not affect the validity of a contract.

• Therefore, contracts should always be read carefully before signing.

CONTRACT LAW

GENUINE ASSENT

• BILATERAL MISTAKE: When both parties have an incorrect belief about an important fact.

• If a mutual mistake of fact occurs, the contract is void.

CONTRACT LAW

GENUINE ASSENT

• Misrepresentation is categorized as either innocent or fraudulent.

• INNOCENT MISREPRESENTATION: When a party to a contract does not know that a statement they made is untrue.

• FRAUDULENT MISREPRESENTATION: When a party to a contract knows that a statement they made is untrue.

CONTRACT LAW

GENUINE ASSENT

• In both of these situations, the contract that results is voidable by the party to whom the misrepresentation is made.

• Statements are considered misrepresentations by law only if:

A.The untrue statement is one of fact (not opinion) or there is active concealment.

B.The statement is material to the transaction or is fraudulent.

C.The victim reasonably relied on the statement.

CONTRACT LAW

GENUINE ASSENT

• FRAUD: Based on misrepresentation but also done with intent which results in injury.

• Therefore, misrepresentation must first be proven to show fraud plus the elements of intent and injury.

• If a victim can show fraud, courts will grant the victim assistance beyond rescission: compensatory damages and possibly punitive damages.

CONTRACT LAW

LEGALITY

• LEGALITY: The contractual element stating that the basis of the agreement by the parties must be legal in nature.

• An agreement to pay someone to commit a crime/tort cannot be a contract.

• Contracts involving gambling debts are usually void except for a few areas in the U.S., notably Las Vegas and Atlantic City.

CONTRACT LAW

LEGALITY

• But most states do have legalized various forms of gambling under regulated conditions such as casinos, state-run lotteries, and bingo games.

CONTRACT LAW

CONSIDERATION

• CONSIDERATION: The exchange of things of value that creates the legal bond between the parties to the contract.

• Examples include money, products, services, bartered goods, etc.

• A promise to make a gift is generally not legally enforceable because there is no consideration.

CONTRACT LAW

CONSIDERATION

• An exception for equal consideration is promises made to charitable organizations.

• Courts generally enforce such promises provided the charity states a specific use for the money and actually acts in reliance on the pledge.

CONTRACT LAW

CAPACITY

• CAPACITY: The legal ability to enter a contract.

• The age of majority to contract in most states, including Michigan, is 18 years old.

• Minors may make contracts, however.• As a general rule, minors cannot be

forced to carry out their promises and may disaffirm (cancel) or refuse to honor their contracts.

CONTRACT LAW

CAPACITY

• This rule is designed to protect minors from being taken advantage of because of their age and lack of experience.

• Minors who cancel contracts usually must return any goods or consideration still in their possession.

• Minors are typically held responsible for contracts that involve necessaries such as food, clothing, shelter, or medical aid.

CONTRACT LAW

CAPACITY

• Many stores require minors to have a parent or other adult cosign any major contract.

• The adult cosigner is responsible for making payments if the minor does not honor the deal.

• In most states, a minor who continues making payments on a contract after reaching the age of majority is considered to have ratified the contract.

CONTRACT LAW

CAPACITY

• Once the contract has been ratified, it can no longer be canceled without some type of penalty.

• A sufficient mental ability to understand contracts is also required.

CONTRACT LAW

CAPACITY

• People who are mentally incapacitated (insanity, mental illness, mentally challenged) and/or so intoxicated (drunk, high) ordinarily lack the mental ability to enter into a contract.

• When an extremely intoxicated person sobers up, they have the option of canceling or ratifying a contract made while inebriated.

CONTRACT LAW

WRITING

• The following agreements must be placed in WRITING to be fully enforceable in court:

A.Contracts for the sale of land or real estate;

B.Contracts for the sale of goods priced at $500 or more;

C.Contracts for services that require more than one year to complete;

CONTRACT LAW

WRITING

D.Agreements to give something of value in return for a promise of marriage; and

E.Agreements to pay another person’s debt.

• Most contracts are actually made through spoken words or possibly nonverbal actions.

CONTRACT LAW

WRITING

• An oral contract is just as valid as a written contract but it’s always preferable to have a contract in writing and signed by each party.

• This way it’s much easier to prove the terms of the contract with specificity.

CONTRACT LAW

WRITING

• EXPRESS CONTRACT: Stated in words and may be either oral or written.

• IMPLIED CONTRACT: Originates from the actions of the parties.

CONTRACT LAW

CLASSWORK

CHAPTER 6: OFFER & ACCEPTANCE• What’s Your Verdict? pg. 107• 6-1 Assessment, pg. 111 (1-6, 7a, 8,

& 9)• What’s Your Verdict? pg. 112• 6-2 Assessment, pg. 115 (1-7, & 13-

14).• 6-3 Assessment, pg. 119 (1-2, & 6-7).

CONTRACT LAW

CLASSWORK

CHAPTER 7: GENUINE ASSENT• What’s Your Verdict? pg. 125• 7-1 Assessment, pg. 127 (1-3, 7, & 9)• 7-2 Assessment, pg. 133 (1-2, 4-5, & 7-8).CHAPTER 8: CONSIDERATION• What’s Your Verdict? pg. 139• What’s Your Verdict? pg. 145• What’s Your Verdict? pg. 147

CONTRACT LAW

CLASSWORK

CHAPTER 9: CAPACITY• What’s Your Verdict? pg. 155• 9-1 Assessment, pg. 159 (3-5, & 7-8)• What’s Your Verdict? pg. 160• 9-2 Assessment, pg. 163 (1-2 & 6-7).CHAPTER 10: LEGALITY• 10-1 Assessment, pg. 174 (1 & 5).