Contract LawContract LawOffer and AcceptanceOffer and Acceptance

Ms. MurrayMs. Murray

Contract vs. AgreementContract vs. Agreement Contracts are legally enforceable.Contracts are legally enforceable.

Social agreements are not Social agreements are not enforceable by law.enforceable by law.

Does there have to be specific Does there have to be specific language for a contract to be valid?language for a contract to be valid? NO . . .NO . . .

ContractsContracts A contract is a legally binding A contract is a legally binding

document between two or more document between two or more parties.parties.

Offeror is the one who makes the Offeror is the one who makes the offer.offer.

Offeree is the one who the offer Offeree is the one who the offer is made to.is made to.

It must be serious, accepted with It must be serious, accepted with mutually satisfactory terms.mutually satisfactory terms.

Often result from the exchange Often result from the exchange of valuable promisesof valuable promises

ContractsContracts To be valid, a contract must:To be valid, a contract must:

Have offer and acceptanceHave offer and acceptance Give genuine assent (no Give genuine assent (no

deceptions, etc.)deceptions, etc.) LegalityLegality Consideration (both sides get Consideration (both sides get

something of legal value)something of legal value) CapacityCapacity Writing – some agreements Writing – some agreements

must be in writingmust be in writing

Reasonable Person TestReasonable Person Test The law is not concerned with what is The law is not concerned with what is

actually in the mind of the person making actually in the mind of the person making a purported offer.a purported offer.

It is concerned with the appearance of this It is concerned with the appearance of this person.person. If a reasonable person would interpret your If a reasonable person would interpret your

actions as indicating you were serious, you will actions as indicating you were serious, you will be obligated to follow though and vice versa.be obligated to follow though and vice versa.

Legal standard used by judge and juryLegal standard used by judge and jury

Reasonable Person Test ExampleReasonable Person Test Example A man is not really interested in buying his A man is not really interested in buying his

neighbor’s boat (subjective intent). (Would neighbor’s boat (subjective intent). (Would you like to sell your boat?)you like to sell your boat?)

However, he tries to find out what price However, he tries to find out what price the neighbor wants by saying, “I’ll give the neighbor wants by saying, “I’ll give you $2,000 for your fishing boat.” you $2,000 for your fishing boat.” (objective intent – what a reasonable (objective intent – what a reasonable person would interpret this as an offer).person would interpret this as an offer).

How would you word your questions to let How would you word your questions to let the other party know you are not entering the other party know you are not entering into a contract but conducting preliminary into a contract but conducting preliminary negotiations?negotiations?

Contract or Not?Contract or Not? Nick asks Kim to go to dinner at the Nick asks Kim to go to dinner at the

Sunset Restaurant at 7 PM on Saturday.Sunset Restaurant at 7 PM on Saturday. Social agreement, no contractSocial agreement, no contract Tim says to Blake, “I”ll buy one of your Tim says to Blake, “I”ll buy one of your

cars.” cars.” Incomplete information, subject matter Incomplete information, subject matter

and price not identified. No contract.and price not identified. No contract. Sam tells Brian, “I will buy the female Sam tells Brian, “I will buy the female

puppy from you for $575.”puppy from you for $575.”

ExampleExample Paul and Sean were chatting between Paul and Sean were chatting between

classes. Remember “Great Moments in classes. Remember “Great Moments in Sports”, the video I showed you last week Sports”, the video I showed you last week asked Paul. You thought it was great and asked Paul. You thought it was great and said you wished it was yours. I’ll let you said you wished it was yours. I’ll let you have it for $15. Do you want it? “Sure!” have it for $15. Do you want it? “Sure!” Sean answers. “Bring it to school Sean answers. “Bring it to school tomorrow, ok?”.tomorrow, ok?”.

Was a contract created?Was a contract created?

YESYES

The offerThe offer The offeror must appear to The offeror must appear to

intend to create a legal intend to create a legal obligation.obligation.

The terms must be definite and The terms must be definite and complete.complete. Complete, clear, implied terms Complete, clear, implied terms

based upon industry standards, based upon industry standards, advertisements.advertisements.

The offer must be The offer must be communicated to the offeree.communicated to the offeree. Can’t have contract is this does not Can’t have contract is this does not

happen.happen.

Expression of intentExpression of intent Reasonable person testReasonable person test

Meets expectations of what a reasonable Meets expectations of what a reasonable person would do in similar circumstances.person would do in similar circumstances.

Facts and circumstancesFacts and circumstances Preliminary negotiations take place Preliminary negotiations take place

before formal offers (would you take before formal offers (would you take $500 for that ring)$500 for that ring)

Social agreements to act upon Social agreements to act upon obtained information.obtained information.

Termination of offersTermination of offers Revocation by offerorRevocation by offeror Time stated in offer Time stated in offer

passes.passes. Reasonable length of Reasonable length of

time passes.time passes. Rejection by offeree.Rejection by offeree. Counteroffer.Counteroffer. Death or insanity of Death or insanity of

either offeror or offeree.either offeror or offeree.

Keep offers openKeep offers open Option – offeree gives the Option – offeree gives the

offeror something of value offeror something of value to keep an offer open for a to keep an offer open for a period of time.period of time.

Firm option – an offer by a Firm option – an offer by a merchant for the sale or merchant for the sale or purchase of goods stating purchase of goods stating in a signed writing how in a signed writing how long it is to stay open.long it is to stay open.

The Uniform Commercial The Uniform Commercial Code (UCC) makes firm Code (UCC) makes firm offers binding for the time offers binding for the time stated.stated.

AcceptancesAcceptances Acceptance occurs when a party to Acceptance occurs when a party to

whom an offer has been made whom an offer has been made agrees to the proposal.agrees to the proposal.

An offer made to one person cannot An offer made to one person cannot be accepted by another.be accepted by another.

Acceptance must match offerAcceptance must match offer Mirror image rule: Terms in Mirror image rule: Terms in

acceptance must exactly match acceptance must exactly match terms of the offer.terms of the offer.

Must be communicated to the Must be communicated to the offeror.offeror.

Unilateral acceptance – offeree must Unilateral acceptance – offeree must do somethingdo something

Bilateral acceptance – both must do Bilateral acceptance – both must do somethingsomething

Silent acceptance – silence is Silent acceptance – silence is approval (book and cd clubs, etc.)approval (book and cd clubs, etc.)

Genuine Agreement Genuine Agreement

Agreements to enter into a contract that is Agreements to enter into a contract that is evidenced by words or conduct of both evidenced by words or conduct of both parties.parties. No fraud, threats etc.No fraud, threats etc.

Absence of genuine agreement makes Absence of genuine agreement makes contracts voidable.contracts voidable.

Injured party can rescind (back out) by Injured party can rescind (back out) by asking for the return of what they gave and asking for the return of what they gave and offering to give back what was received. offering to give back what was received. Rescission must occur before ratification.Rescission must occur before ratification.

RatificationRatification

Conduct suggesting Conduct suggesting you intend to be you intend to be bound by contract.bound by contract.

DuressDuress One party uses One party uses

improper threats or improper threats or acts to get an acts to get an agreementagreement

Contract is voidable if Contract is voidable if it can be proven.it can be proven.

Threat of illegal act.Threat of illegal act. Threat to report crime.Threat to report crime. Threat to sue.Threat to sue. Economic threats.Economic threats.

Undue InfluenceUndue Influence One in a trusted position and wrongfully One in a trusted position and wrongfully

dominates the other.dominates the other. Two elements: relationship, wrongful Two elements: relationship, wrongful

persuasion.persuasion.

Relationship is presumed to exist in Relationship is presumed to exist in client/attorney, parent/child, spousal, client/attorney, parent/child, spousal, doctor/patient, minister/parishioner doctor/patient, minister/parishioner situations.situations.

Formal relationship is not needed – i.e. a Formal relationship is not needed – i.e. a neighbor routinely helps out a disabled neighbor routinely helps out a disabled person, etc. person, etc.

Unilateral MistakeUnilateral Mistake Occurs when one Occurs when one

party holds an party holds an incorrect belief incorrect belief about the facts about the facts related to a related to a contract.contract.

Failure to readFailure to read Signing hastilySigning hastily Not understandingNot understanding

Ignorance of law is no excuseIgnorance of law is no excuse Recognized unilateral mistake – Recognized unilateral mistake –

major and recognized errormajor and recognized error

Induced unilateral mistake – one Induced unilateral mistake – one party encourages the other to make party encourages the other to make an erroran error

Mutual mistakesMutual mistakes Both parties have Both parties have

incorrect belief incorrect belief about important about important factfact

Subject matter or Subject matter or mistake can be the mistake can be the focusfocus

MisrepresentationMisrepresentation Innocent misrepresentationInnocent misrepresentation Fraudulent misrepresentationFraudulent misrepresentation

Untrue statement of the factsUntrue statement of the facts ConcealmentConcealment SilenceSilence

MaterialityMateriality Three ways to determine if untrue Three ways to determine if untrue

statement is materialstatement is material

If it would cause a reasonable person If it would cause a reasonable person to contractto contract

If defendant knew it would be relied If defendant knew it would be relied onon

If defendant knew it was falseIf defendant knew it was false

Reasonable relianceReasonable reliance Even if a statement is material, there Even if a statement is material, there

is no misrepresentation unless the is no misrepresentation unless the victim reasonably relied on it to victim reasonably relied on it to make decision.make decision.

Fraud and remediesFraud and remedies FraudFraud

Misrepresentation must be intentional or Misrepresentation must be intentional or recklessreckless

Misrepresentation or concealment must Misrepresentation or concealment must injureinjure

RemediesRemedies

Rescission, Damages, Punitive DamagesRescission, Damages, Punitive Damages

Contractual RightsContractual Rights Contractual rights are the rights a Contractual rights are the rights a

person will receive under a contract person will receive under a contract that they transfer to another.that they transfer to another. Transfer called assignment.Transfer called assignment. Assignor and assigneeAssignor and assignee

Assignable rights occur if the Assignable rights occur if the performance will not be changed performance will not be changed materially.materially. Performance is the fulfillment of Performance is the fulfillment of

contractual promise as agreed.contractual promise as agreed.

Non-assignable rights – if the Non-assignable rights – if the performance changes materially, performance changes materially, rights are non-assignable.rights are non-assignable. Can’t transfer:Can’t transfer:

A right created under a contract that A right created under a contract that prohibits transfer of the contractual rightsprohibits transfer of the contractual rights

Claims for damages for personal injury.Claims for damages for personal injury. Claims against the USClaims against the US Rights to personal services especially those Rights to personal services especially those

of skilled nature/when personal trust or of skilled nature/when personal trust or confidence is involved.confidence is involved.

Assignments of future wages, as limited by Assignments of future wages, as limited by state statues.state statues.

Delegating contractual dutiesDelegating contractual duties Contractual duties are legal Contractual duties are legal

obligations created by contract.obligations created by contract. Delegation of duties is created when Delegation of duties is created when

simple obligations are transferred to simple obligations are transferred to another.another.

Can’t delegate duties that requires personal Can’t delegate duties that requires personal skill or qualifications.skill or qualifications.

Think of subcontractors in construction as an Think of subcontractors in construction as an example of this.example of this.

Performance of DutiesPerformance of Duties Discharge of contract is a termination of Discharge of contract is a termination of

dutiesduties Breach of contract is the failure to provide Breach of contract is the failure to provide

complete performance (can end the contract)complete performance (can end the contract) Substantial performance is when the majority Substantial performance is when the majority

of the duties have been met but a minor of the duties have been met but a minor detail remains.detail remains.

Default is failure to perform.Default is failure to perform. Anticipatory breach is when you tell the party Anticipatory breach is when you tell the party

ahead of time that you won’t be performing a ahead of time that you won’t be performing a duty and will be defaulting.duty and will be defaulting.