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4 Contracts What You Will Learn: How to identify a contract’s elements
How to identify valid, void, voidable and unenforceable contracts How to distinguish between express and implied contracts How to distinguish between oral and written contracts Why It Is Important: Identifying a contract’s elements will help you manage your affairs in an intelligent and effective manner.

5 Understanding Contract Law
Many common daily activities are contracts Fast food Pumping gas You create a contract anytime that you agree to exchange things of value

6 The Nature of a Contract
A contract is any agreement enforceable by law. Contracts are based upon what the involved parties do and say to one another The Three Theories of Contract Law Equity Theory Will Theory Formalist Theory In the past, courts asked whether the parties to a contract exchanged thing of equal value. This was called the equity theory of contract law. Industrial capitalism and the need to support a profit-making system forced the courts to shift their focus. Now the courts whether the parties had agreed to the terms of the contract – called the will theory Because each party agreed to the contract on their own free will The courts no longer asked if the contract was fair, but rather “did they really agree to these terms?” Gradually, this approach led to a search for certain fixed elements to contracts. If these elements existed, the courts would hold that the contract existed, which led to the formalist theory. That theory relied on the form of the agreement

7 1. Outside platform Atticus player Gregory (1)
2. Lad’s stratagems (1) 3. Desire Helvetica or Arial (1) 4. Actress Witherspoon’s sibs’ girls (2) Deck Peck Boys Ploys Want Font Reeces Nieces Deacon Peekin Conical Chronicle 5. Church officer sneakin’ a look (2) 6. Dunce-cap-shaped Houston newspaper (3)

8 The Elements of a Contract
Offer Acceptance Genuine Agreement Consideration Capacity Legality OFFER is a proposal by one party to another intended to create a legally binding agreement ACCEPTANCE is the second party’s unqualified willingness to go along with the first party’s proposal GENUINE AGREEMENT is when a valid offer is met by a valid acceptance CONSIDERATION the exchange of things of value If A signs a contract to buy a car from B for $5,000, A's consideration is the $5,000, and B's consideration is the car. CAPACITY is the legal ability to enter a contract – usually assumed that anyone entering a contract has the capacity to do so, but can be disputed. LEGALITY states that one cannot enter into a contract that commits an illegal act


10 Characteristics of a Contract
Can be created in different ways and can assume diverse forms Valid, Void, Voidable or Unenforceable Valid – legally binding or good Void – has no legal effect Voidable – when a contract can be voided Unenforceable – a contract that the court will not uphold Valid legally means good Void means that the contract has no legal effect – it can be missing one or more of the 6 elements Voidable – means that the contract can be voided by either party. – a contract between 2 minors Unenforceable contract – court will not uphold due to some law, like statute of limitations. Waiting too long to bring a lawsuit my make the contract unenforceable

11 Express Implied Oral or Written Words of the contract are in words
Actions performed by the parties Oral or Written Contracts created by spoken word are oral contracts. One offers to do something and the other offers to do something in return Contracts are written in many cases Both parties know the exact terms Provides proof of the agreement Statute of Frauds requires certain contracts be written Express or Implied Implied – throw $20 on the counter of a self serve gas station. Neither party spoke a word but an implied contract was in place Express means that the contract was written and the conditions of the contract were spelled out in detail.

12 Bilateral – two sided Unilateral – one sided
When the contract contains two promises Unilateral – one sided When a contract only contains the offer and the condition, but no acceptance Example are reward posters BILATERAL You offer to sell your old cell phone to a friend for $50. They verbally accept the offer by saying that they will buy it. UNILATERAL you offer to sell you old cell phone to your friend if they show up tomorrow with $50 before school starts – contains a promise to do something when the other party performs some sort of act Lost pet reward posters are unilateral as well – the contract does not exist until someone shows up with your lost pet

13 Reviewing What You Learned
What are the elements of a contract? What are the differences among valid, void, voidable, and unenforceable contracts? What are the differences between express and implied contracts? What are the differences between unilateral and bilateral contracts? What are the differences between oral and written contracts? Offer, Acceptance, Agreement, Capacity, Consideration, and Legality Valid contract is legally binding. Void has no legal effect. Voidable can be voided by either party. Unenforceable is a contact that will not be upheld by the court because of some rule of law or statute of limitations. Express is clearly written where an implied is not Unilateral is one sided – a promise for an act. Bilateral involves promises exchanged by two Oral contracts are verbal and written contracts are in writing

14 1. Garden tilling tool misfortune (1)
2. Ornamental vase plant with fronds (1) 3. Master Skywalker’s fists (1) 4. Mostly stylishly attired (1) Hoe Woe Urn Fern Lukes Dukes Best Dressed Dimmer Glimmer Grouches Couches 5. Not as bright flash of hope (2) 6. Ill-tempered complainers’ sofas (2)

15 Offer and Acceptance What You Will Learn:
How to recognize the requirements of an offer How to distinguish between an offer and an invitation to negotiate How to recognize the requirements of an acceptance How to distinguish between an acceptance and a counteroffer How to recognize when an offer has terminated Why It Is Important: You need to know when an offer has been made and when an acceptance goes into effect to make sound contracts

16 Requirements of an Offer
First element of a legally binding contract Offers have three requirements Made seriously Definite and certain Communicated to the offeree The six elements are the heart of contract law. Understanding offer and acceptance is key before moving on to the others Offerer is the party who offers the contract Offeree is the party to whom offer has been made

17 Serious Intent Offer must be made in a serious manner
An invitation to negotiate is often confused as an offer Price tags on items Signs in windows Exceptions do exist Advertisers must use phrases like: First come/first served Quantities limited Makes it an offer not a ITN Must be made with the intention of entering into a legal obligation An offer made in haste or as a joke would not meet this requirement “give me five bucks and it’s yours” It may sound like an offer, but it is not enforceable Sellers usually have a limited quantity of merchandise to sell and cannot fulfill all requests for products advertisements are invitations to negotiate rather than offers Also called invitations to deal, trade, or to make an offer Read Example #3 page 114 – item being sold out – first come first served. The “I would like to buy a Lava Lamp” was the offer The storeowner is free to accept or reject the offer

18 Definiteness and Certainty
Terms must be clear and have NO doubt Tenant/landlord plumbing fix Job offer with “reasonable” commission Communication to the Offeree Definite and Clear Read Example 4 page 115 Not a definite and certain – what is “reasonable”? Communication to offeree Read Example 5 page 116 Communication can be made by phone, letter, telegram, fax, or any other method

19 1. Actress Blanchett dined (1)
2. Romantically see 6+2 people (1) 3. Dinner dish shipping box (1) 4. Terrific list of candidates (1) Cate Ate Date Eight Plate Crate Great Slate Freight State Hates Weights 5. Cargo condition after shipping (1) 6. Can’t stand dumbbells and barbells (1)

20 Requirements of Acceptance
Acceptance is the second element of a legally binding contract Unconditional Acceptance Mirror image rule Counteroffer Exceptions to the MIR Personal property items Created by the UCC – uniform commercial code Non-merchants – non-regular sellers Sales between merchants or B2B sales Unconditional acceptance Not accepted upon conditions that change the contract. Any changes to the offer means that it was not really accepted. The offerer is not obligated to go along with the counter offer Read Example 6 page 117 Sellers and buyers go back and forth until a price is agreed upon and then a contract is written to reflect the negotiated price. The mirror image rule is when each party writes the same condition in their respective offer and acceptance. Use the house example If the parties don’t agree on the sales price, the contract is never a valid contract B2B conditions 1. the new or different terms do not make a material or crucial difference to the nature of the contract 2. the offeror does not object to the new or different terms within a reasonable time 3. The original offer did not expressly limit acceptance to the terms of the original offer

21 Method of Acceptance Time limits may be imposed as well
Offers may be accepted by actions Cannot impose silence as means of acceptance The time at which an acceptance takes place is important because that is when the contract comes into existence. When dealing face to face or over the phone, it is not a problem. One party speaks and the other listens and communicates the offer or the acceptance Acceptance by mail over long distances a contract comes into existence when it is sent Common law also states that an acceptance is implied when the offeree accepts by the same or a faster mean than used by the offeror. Time Limits = the offeror can specify the time by which the acceptance must be received to be effective Read Example 7 on page 119 – If I don’t hear from you, I assume you have accepted my offer

22 Termination of an Offer
Revocation Offer taken off the table by offeror Rejection Offer rejected by offeree Counteroffer Negotiating over price – one contract ends and another one starts Expiration of Time Must accept offer before a set time passes Option contract Death or Insanity Revocation is when the offer is taken back by the offeror Two conditions: Can be revoked any time before acceptance Become effective upon communication to the offeree Read Example 8 page 120 Rejection is when the offer is rejected by the offeree Read Example 9 on page 120 Counteroffer is when the offeror and the offeree haggle back and forth on conditions of the contract Expiration of Time is when the offeror sets a time limit for the acceptance of the offer. Option contract is when the offeree pays the offeror to hold the offer for an agreed period of time. Option contract requires and absolute, unconditional, unqualified acceptance exactly according to the terms of the option. Death or Insanity is when the offeror dies or becomes insane before acceptance of offer occurs Death may end an offer but does not end a contract, unless it is for personal services

23 Reviewing What You Learned
What are the requirements of an offer? What is the difference between an offer and an invitation to negotiate? What are the requirements of an acceptance? What is the difference between an acceptance and a counteroffer? When is an offer terminated? Serious intent, clear and definite terms, and communication to the offeree An offer empowers the offeree to accept its terms and create a contract. An invitation to negotiate is an invitation to the other party to make an offer. Must be unconditional an must follow the rules regarding the method of acceptance. An acceptance creates a contract. A counteroffer means that the original offer has not be accepted. The offeree has made a new offer. Upon revocation by the offeror, on rejection by the offeree, when a counter offer is made, after the expiration of a set period of time, and/or on the death or insanity of the offerer.

24 Workbook Exercises Terms – page 45 Judge – page 46
Concepts – page 47 & 48 Case – page 49 Self Assessment – page 52


26 Fraud and Misrepresentation
What You Will Learn: How to identify the elements of fraud How to distinguish between fraud and concealment How to distinguish between fraud and innocent misrepresentation How to distinguish between the remedy available for fraud and the remedy available for misrepresentation Why It Is Important: Learning the elements of fraud may prevent you from being victimized or help you claim your rights if you are defrauded

27 Defective Agreements Something goes wrong
What you thought was a valid contract is nothing of the such Agreement is defective Fraud Misrepresentation Mistake Duress Undue influence How is Genuine Agreement achieved? When a valid offer is accepted Courts describe this type of agreement a “meeting of the minds” Making the assumption that the other three elements of the contract are in place Consideration Capacity Legality

28 These 5 elements must be present to succeed in a fraud lawsuit
Is the deliberate deception intended to secure an unfair or unlawful gain. You were talked into entering a contract Rescind the contract or sue for money damages Deliberate deception may lead to punitive damages Award money greater then the amount needed to pay back -There must be a false representation of fact -The party making the representation must know it is false -The false representation must be made with the intent that it be relied upon -The innocent party must reasonable rely upon the false representation -The innocent party must actually suffer some monetary loss punitive damages awarded to each plaintiff is not only an attempt to punish the hotel for its misconduct, or to deter it from future failure to properly exterminate, but also, or perhaps instead, an attempt, albeit an imperfect one, to effect societal compensation. Types of criminal fraud include: bait and switch bankruptcy fraud benefit fraud, committing fraud to get government benefits counterfeit charlatanism (psychic and occult), confidence tricks such as the 419 fraud and Spanish Prisoner selling counterfeit goods which are not what they claim to be, e.g., designer clothing, fake works of art, archaeological objects, etc. creation of false companies or "long firms" embezzlement, taking money which one has been entrusted with on behalf of another party false advertising false billing false insurance claims forgery of documents or signatures, health fraud, for example selling of products known not to be effective, such as quack medicines, identity theft investment frauds, such as Ponzi schemes and Pyramid schemes Religious fraud marriage fraud to obtain immigration rights without entitlement rigged gambling games such as the shell game securities frauds such as pump and dump taking payment for goods ordered with no intention of delivering them tax fraud, not reporting revenue or illegally avoiding taxes (tax evasion). Iin some countries tax fraud is also prosecuted under false billing or tax forgery False Advertising and Consumer Fraud False advertising is one of the most common forms of consumer fraud. Such fraud often results when misleading statements are made in an advertisement in an attempt to over-hype a product or service. For example, if a LASIK service guarantees 20/20 vision, and a customer's vision is only 20/30 following a procedure, then this could be considered false advertising. These 5 elements must be present to succeed in a fraud lawsuit

29 2. Imprison a Disney chipmunk (1)
1. Atop a mafia Chief (1) 2. Imprison a Disney chipmunk (1) 3. Not so sharp actress Helen (1) 4. Computer nerd’s seven-day spans (1) On Don Jail Dale Blunt Hunt Geeks Weeks Makeup Shakeup Cheaper Sleeper 5. Cosmetics drastic reorganization (2) 6. More miserly snoozer (2)

30 False Representation of Fact
Material Fact Is a fact that is important Matter to one of the parties Cannot be a promise of future actions or an opinion Not limited to oral or written statements Actions intended to deceive Concealment Is when chooses not to reveal important information Also called passive fraud or nondisclosure Hidden problems in a house Material Fact: The law does allow for some “sales talk” “this car is really flashy” is an opinion “you will get plenty of dates with this car” is an opinion and a promise of future action Concealment Sellers disclosure doco for real estate If the sellers know about a problem that is not readily seen by the buyer, they have the duty to disclose. The buyer is relying on the sellers knowledge about the subject

31 Representation Known to be False
The party making the false representation must be aware that the representation is false Statement made without regard for the truth Read Example 1 on page 130 buyer being told that a car has never been in an accident, but then found a receipt that showed other wise

32 False Representation Intended to Be Relied Upon
The person making the misrepresentation must intend that the other party will rely on the information as part of negotiations False Representation Actually Relied Upon When someone uses misrepresented information as part of negotiating a contract Resulting Loss Actual monetary loss must have resulted False Representation Intended to be Relied Upon Example 2 on page 131 False Representation Actually Relied Upon Example 3 on page 131 Resulting Loss If you purchased a used CD player that the seller told you it was “in perfect working condition” and you find out that is was not, you have lost what you paid for the CD player and can sue on the basis of fraud. If you received the CD player in exchange for a favor, since you suffered no monetary loss you do not have a fraud case/.

33 Innocent Misrepresentation
Sometimes a person will make an innocent statement that turns out to be false. Honestly believed that statement was true at the time it was made. The law gives you the right to rescind the contract Damages not awarded


35 1. That guy’ll pass out poker cards (1)
2. Long, measureless history (1) 3. Superman’s last name lost money (1) 4. Movie intended for women (1) He’ll Deal Vast Past Kent Spent Chick Flick Puddle Huddle Haitian Nation 5. Gridiron meeting in a rainwater pool (2) 6. Port-au-Prince native country (2)

36 Reviewing What You Learned
What are the elements of fraud? What is the difference between fraud and concealment? What is the difference between fraud and innocent misrepresentation? What is the difference between the remedy available for fraud and the remedy available for misrepresentation? Must be a false misrepresentation of fact – the party making the claim must know that it is false and was made with the intent that it was relied upon to be true, the innocent party must actually suffer monetary loss Concealment is passive fraud In fraud, the defrauding party knows of the false representation. In misrepresentation the false statement is made innocently. Damages are the possible remedy in a fraud case.

37 Mistake, Duress, & Undue Influence
What You Will Learn: How to distinguish between unilateral and bilateral mistake How to recognize the types of mistake that will allow rescission of a contract How to recognize the requirements of economic duress How to recognize the requirements of undue influence Why It Is Important: Recognizing how mistake, duress, and undue influence can affect agreements will help you make better decisions in such situations

38 Mistake Unilateral Mistake Mistake as to the Nature of the Agreement
Is a mistake on the part of one of the parties to the contract Reasonable expectations should not be blocked because of a mistake Mistake as to the Nature of the Agreement What exactly did you agree too? If you don’t understand the language, bring someone who does and can explain it. Mistake as to the Identity of a Party Making the contract to the wrong person. The purpose of contract law is to fulfill the reasonable expectations of the parties to a contract. People sometimes enter into contracts believing that certain information is true when it is actually not, or visa-versa Unilateral Mistake Read Example 5 on page 133 – miscalculated bid was submitted. You sign a contract to mow the neighbors lawn at least once a week, through the summer. Your oral agreement was every other week. Your are obligated to your written contract. Your signature shows that you are unconditionally agreeing to the terms outlined in the contract. What is a Unilateral mistake? An error on the part of one person to a contract.  A person cannot get out of a contract because they made a mistake. What are two types of Unilateral mistakes ? Mistake as to the Nature of the Agreement - Failure to read  the contract, or the failure to understand the language used in the contract, is no excuse. Mistake as to the Identity of Party -  may cause a contract to be void when you are not dealing in a face to face manner. However,  When dealing face to face, a mistake in identity is no excuse. What is Bilateral Mistake ? A mutual mistake by both parties.  Either party can avoid the contract. Mistake as to the identity Read Example 6 on page 134

39 Bilateral Mistake Sometimes both parties involved in a contract make mistakes. Contract is voidable by either party Mistake as to the Possibility of Performance Something happens that will not allow the contract to be completed Mistake as to the Subject Matter When both parties are mistaken as to the identity of the subject matter Contract may be voided Mistake as to the Possibility of Performance Read Example 7 on page 136 – offer, acceptance and agreement made and valid. The car was damaged afterward – the contract can be voided. Mistake as to the Subject Matter Read Example 8 on page 136 – location of land


41 Duress Influencing a person’s will by use of force or threat
Physical or Emotional Duress Agreements made under duress are void or voidable Mob offering protection to merchants Threat made against the party of a member of their family Economic Duress Is the threat of a person’s business or income as establishment of a contract. Remember, contracts are to be entered into willingly, not by force. When actual physical force is used to establish a contract , that contract is void When physical harm is threated to establish a contract, that contract is voidable Economic Duress Read Example 9 on page 137 Using a threat to exercise one’s legal rights is not duress. You can threaten to protest a business unless they honor the contract in which they entered with you.

42 Undue Influence Is when one person used unfair and improper persuasive pressure to force someone else into a contract Ill health Old age Mental instability The stronger persons substitutes his will for the will of the weaker person Undue Influence Read Example 10 on page 139

43 Reviewing What You Learned
What is the difference between unilateral and bilateral mistake? What types of mistake will allow rescission of a contract? What are the requirements of economic duress? What are the requirements of undue influence? Unilateral mistake – only one party is mistaken. Bilateral mistake – both parties are mistaken Mistake as to the identity of a party, mistake as to the possibility of performance, and mistake as to the subject matter. Economic duress requires threats to a person’s business or income that cause the person to enter a contract without real consent. Undue influence requires unfair and improper persuasive pressure exercised by one person in a relationship of trust with another person.

44 1. Junk a baseball player’s headgear (1)
2. Funny Groucho dog talk (1) 3. Move a car that stopped running (1) 4. More adorable cheering fan (2) Scrap Cap Marx Barks Haul Stall Cuter Rooter Drudges Fudges Quicker Kicker 5. Bottom scraping creamy chocolate treats (2) 6. Faster football punter (2)

45 Workbook Exercises Terms – page 53 Judge – page 54
Concepts – page 55 & 56 Case – page 57 Self Assessment – page 60


47 Contractual Capacity What You Will Learn:
How to explain the legal concept of minority How to identify the rights of minors in relation to contract How to identify contract that are voidable by a minor How a person can ratify a contract made in minority How to identify other, besides minors, who can rescind contracts Why It Is Important: Understanding the rights afforded to minors in contract law will enable you to exercise your rights and help others

48 The Requirement of Capacity
We’ve covered Offer, Acceptance, and Genuine Agreement The fourth element is Capacity Deals with minors and contracts they enter The law permits minor to rescind their contracts Its intent was to protect minors from dishonest adults The last two chapters we have discussed the first three elements of a contracts Offer Acceptance Which created Genuine Agreement Remember, when Genuine Agreement is disrupted by fraud, misrepresentation, mistake, duress or undue influence, a contract my not be considered binding. The fourth is Capacity, which deals directly with the involvement of minors in contracts

49 Minor’s Rights and Obligations
Capacity is the legal ability to enter a contract. Rebuttable presumption The assumption that the other party is of legal age. Definition of Minority Legal Age Emancipation and Abandonment The presumption of capacity play a key role in contact made by minors because the law permits minors, within limits, to rescind or void their contracts Definition of Minority A person who has not yet reached the age of legal adulthood – known as the age of majority, is considered a minor. A person below the age of majority is still in their minority Legal Age 1972 the legal voting age was moved from 21 to 18 Many states also lowered the age of majority to 18 EXCEPT for the legal drinking age For legal purposes you reach the age of majority the day before your birthday. The law does not consider fractions of a day. So on your 18th birthday you are considered 18 years and 1 day old. Emancipation and Abandonment Minors no longer under the control of their parents are emancipated. They are responsible for their contracts A minor who marries or leaves home is giving up the rights to parental support. Such individuals are said to have abandoned the protection afforded them as minors Many merchants are reluctant to deal with such minors only because they assume that they are not responsible for their contracts.

50 Misrepresentation of Age
When minors who lie about their age or use a fake ID They have committed fraud Some states allow minors to be sued for fraud while others do not. It is often considered a criminal offense to buy age-restricted products

51 1. Scolding the making of a toothed knife edges (3)
2. Stage background plants and trees (3) 3. Being suspicious of recon work (2) 4. Singer Bonnie’s 3-of-a-kind beaters (1) Berating Serrating Scenery Greenery Doubting Scouting Raitts Straights Bleachers Features Beaches Breaches 5. Tiered stadium seats’ traits (2) 6. Sandy strands’ security lapses (2)

52 Contracts of Minors Voidable Contracts Returning the Merchandise
Law shields minors from making contracts as a protective measure. Does not give the right of the minor to take advantage of others. Voidable Contracts Contract made by minor are voidable Even if they damage or destroy the item Some states allow for deduction for damage Returning the Merchandise Items should be returned when contract is disaffirmed Immaturity, inexperience, lack of education, or niavete could allow an adult to take advantage of a minor Voidable Contracts Contract made by minors are voidable by minors May disaffirm or avoid the contract Returning merchandise Some states say that a minor can disaffirm the contract and get a full refund even if they do not have possession of the item that should be returned.

53 Disaffirming the Whole Contract
The whole contract must be disaffirmed Disaffirming Contracts Made With Other Minors Both parties have the right to disaffirm Disaffirming the Whole Contact You can’t choose to keep the favorable part of a contract It is all or nothing. Contract with each party being a minor Read Example 2 on page 153

54 Here is a letter that is from a minor who is disaffirming a contract the he entered into.

55 Ratification of Minor’s Contacts
When one turns of majority age they can ratify, or approve, their contract Ratification ends the privileges that they had as a minor Can be done orally, in writing, or by actions Using or selling items Making payment for items Keeping for a reasonable amount of time Ratification of a minor’s contract Read example 2 on page 154


57 Contracts for Necessaries
Minors are held responsible for the fair value of necessaries Food, Clothing, Shelter, & Medical Care One “Station in Life” has a bearing on what is necessary $150 pair of shoes Necessary if you have a foot injury Luxury if you just want them Special Statutory Rules Contacts for Necessaries Read example 3 on page 156 If a minor pays more than fair value for their necessaries, they are entitled to a refund of the over paid amount Special Statutory Rules Some states give minors the capacity to enter into contract for things like car insurance and life insurance Some states allow minors who are in a business of their own to make contracts that are essential to running a business Married minors are treated as adults. Apartment rentals may be considered necessaries Parents may need to guarantee contracts made by their children

58 Other Contractual Capacity Rules
Mentally Impaired Persons Must be given the right to disaffirm a contract They are responsible for the fair value of necessaries Intoxicated Persons If you enter into a contract while drunk you may disaffirm Treated in the same way as minor and mentally impaired Other Capacity Limitations Aliens may not have the ability to enter into contacts Mentally impaired people are considered unable to make sound judgments. Any contracts that they enter are voidable until a guardian is appointed. Once they have an appointed guardian, their contracts are absolutely valid. Other Capacity Limitations Iraq’s assets were frozen, then making their capacity to contract severely limited.

59 1. Made of acorn tree strangle (1)
2. The major bodies of water right here (1) 3. Devoted to bear Winnie (1) 4. Angrier one who sums (2) Oak Choke These Seas True Pooh Madder Adder Flakes Steaks Hailing Mailing 5. Crazy one’s T-bones and porterhouses (1) 6. Publicly commending a mass sending (2)

60 Workbook Exercises Terms – page 61 Judge – page 62
Concepts – page 63 & 64 Case – page 65 Self Assessment – page 68


62 Consideration What You Will Learn:
How to explain the legal concept of consideration How to explain the types of consideration How to identify certain problems regarding consideration How to identify the principles that apply to consideration in everyday life Why It Is Important: By understanding the concept of consideration, you will be able to avoid problems that frequently result when agreements lack this important contractual element

63 Requirements of Consideration
Where each party surrenders something of value Many agreements are not legally binding because they lack consideration Social agreements have no consideration The exchange, or promise to exchange things of value, is what binds the parties to each other in a contractual relationship. This binding element is known as consideration.

64 The Legal Concept of Consideration
Consideration is the exchange of benefits and detriments by parties to an agreement. A Benefit is something that you were not previously entitled to. A detriment is any loss suffered Three types of consideration Giving up something that you have the legal right to keep Doing something that you have the legal right not to do Not doing something that you have the legal right to do forbearance Forbearance Agreeing not to sue is an example of forbearance – you have a legal right to sue but agree not to ALSO A forbearance agreement is typically an agreement to postpone, reduce, or suspend payment due on a loan for a limited and specific time period. Interest that accrues during the forbearance remains the debtor's responsibility. When the forbearance expires the unpaid interest is added (capitalized) to the principal balance of the loan. A forbearance request must be approved by the lender. Typically, the lender agrees not to foreclose on the property or accelerate payments due on the loan during the forbearance period. In exchange, the debtor agrees not to contest any actions taken by the creditor to collect the debt in the event that the debtor fails to make scheduled payments or live up to other terms of the forbearance agreement. In some forbearance agreements, the debtor may grant the creditor a deed in lieu of foreclosure if the terms of the forbearance agreement are not met.

65 The Characteristics of Consideration
Bargained-for-Exchange Both parties gain something when the promises are kept and the exchange is made Something of Value No specific value requirements Value does not have to be the same as market value Courts will not consider value, but rather enforcement One exception – when a contract is deemed unconscionable A great inequality exists between the parties Legality of Consideration Consideration must be legal, if not then the contract is invalid Bargained-for Exchange An agreement involves a bargained-for exchange when a promise is made in return for another promise, an act, or a promise not to act. Bargaining requires that a party will be injured if the other party does not keep their promise – the opposite is also true. A promise to help your friend clean their room can be considered something of value promised Read Example 1 on page 165 Something of Value All that matters is that the parties agreed freely on the value and the price. Courts permit people to devise their own agreements The one exception of the contract being deemed unconscionable This occurs when one party has all the bargaining power and takes advantage of the other party Court may do one of three things to rectify Refuse to enforce the contract Enforce the contract but reduce by the unconscionable clause Limit the application of the unconscionable clause. Legality of Consideration A party can not agree to do something that they do not have the legal right to do. You do not have the legal right to sell your friends car – you don’t own it. You also can not promise to stop doing something illegal – you shouldn’t be doing it in the first place.


67 2. Little devil’s astronaut apes (1)
1. Which beer belly? (1) 2. Little devil’s astronaut apes (1) 3. Apple or berry sloping channel (1) 4. Influenced a cleaning lady (1) What Gut Imps Chimps Fruit Chute Swayed Maid Packard Placard Trustin Justin 5. Early U.S. luxury car sign (2) 6. Havin’ faith in singer Timberlake (2)

68 Types of Consideration
Money, Property, and Services qualify as valid consideration Money as Consideration Money is exchanged for another’s performance Free to negotiate and exchange any amount Exception is where the government regulates Minimum wage Rent controlled Property and Services as Consideration Barter agreements are valid agreements

69 A Promise Not to Sue Charitable Pledges
One party has the right to sue but gives up that right Example of forbearance – not doing something you have the right to do Auto Accidents Home Improvements Charitable Pledges Organizations enter into contracts and rely upon donations to pay for things Your charitable pledge is a verbal contract is treated as such Promise Not to Sue Read Example 2 on page 168 After acceptance of the offer and agreeing not to sue, the right to sue was terminated. It is typical to sign a release – sometimes offered after the law suit has started and in the middle of the trial Charitable Pledges Read Example 3 on page 169

70 Problems With Consideration
Parties can disagree about the amount of money that the debtor owes the creditor A problem in regard to the consideration involved

71 Disputed Amounts Undisputed Amounts Parties don’t agree on amount owed
A per hour contract Settled by accord and satisfaction Accord is the acceptance of less by the creditor Satisfaction is the acceptance of the accord Undisputed Amounts Mutually agreed upon price per contract A fixed price contract Disputed Amounts Read Example 4 on page 170 Undisputed Amounts Buyer may have remorse over the amount that they agreed to pay per the contract. This happens when you find a contractor who will do the job for less than the contractor who signed an agreement with. Read Example 5 on page 171


73 Reviewing What You Learned
What is consideration? What are the types of consideration? What problems can arise regarding consideration? What are the principals that apply to consideration in everyday life? Exchange or the promise to exchange things of value in a contract; binds parties to each other in the contractual relationship Money, property, services, promises not to sue, and charitable contributions Disagreement as to the amount of money that the debtor owe the creditor Consideration binds the agreement, it must be bargained for, charitable contributions may be enforced, promise not to sue are usually done with a release

74 2. Props to a merit badge earner (1)
1. Prison bucket (1) 2. Props to a merit badge earner (1) 3. Deluge dirt that is wet (1) 4. “Royal Harry, meet actor Vaughn” (1) Jail Pail Tout Scout Flood Mud Prince Vince Crocker Mocker Alleys Valleys 5. One ridiculing Betty on food labels (2) 6. Narrow urban passageway’s peaks’ opposites (2)

75 Agreements Without Consideration
What You Will Learn: How to identify agreements that are enforceable without consideration How to explain the legal concept of promissory estoppel How to identify agreements that are not enforceable without consideration How to distinguish between past consideration and preexisting duties Why It Is Important: Understanding the difference between contract that require consideration and those that do no will enable you to avoid common problems associated with consideration or the lack thereof.

76 Enforceable Agreements W/O Consideration
A contract is usually invalid if there is no consideration Some agreements where there is no consideration Promises Under Seal A seal is a mark or impression made on a written contract Must have the word “seal” or “L.S.” Promises After Discharge in Bankruptcy One can choose to pay debts after discharge Must be in writing It is optional It is a new contract Promises Under Seal Using a seal is not required by the UCC Some states still do require it with contracts involving real property and certain other properties States vary Promises After Discharge of Bankruptcy A

77 Debts Barred by Statutes of Limitations
Establishes the time frame within which a party is allowed to bring suit. Times vary by state – 3 to 10 years Partial payment is affirmation Option Keeping the contract OPEN for a reasonable period of time Not to exceed 3 months

78 Promises Enforced by Promissory Estoppel
Promissory = “containing a promise” Estoppel = restraint to prevent from contradicting a previous act The promise must be made to bring about action by another Offeree relied upon the promise and changed position Injustice avoided by enforcing promise Promises Enforced by Promissory Estoppel Read Example 6 on page 176

79 Unenforceable Agreements Without Consideration
Some promises will not be enforced by the courts because they lack basic considerations Illusory Promises Both parties are under obligation to do something Look like a valid contract but are hollow Future Gifts A promise of a future gift is not enforceable where there is no consideration Past Consideration Actions of the past can not be used as current considerations Illusory Promises Read Example 7 on page 177 Future Gifts Includes promises that provide free services or to lend something without asking or expecting any benefit in return Past Considerations You have three contracts A, B and C You delivered contract A Early and Completely You are in Contract B and have determined that you can’t make the deliver date – you want to move the date out. You can not use the fact that you delivered contract A early as current consideration. You CAN use the deliverables in Contract C as current consideration IF your customer is willing to.

80 Promise to Attend a Social Engagement
Preexisting Duties Promising to do something that you are already under a contract to provide Promise to Attend a Social Engagement All contracts are agreement Not all agreements are contracts Going to lunch with a friend is not legally binding. Nothing given as consideration Preexisting Duties If a person under a legal obl Read Example 9 on page 178

81 1. Donated to an Atlanta player (1)
2. Turned a schnoz to ice (1) 3. Took advantage of agent 007 (1) 4. Delaware capital shamrock (2) Gave Brave Froze Nose Conned Bond Dover Clover Mellow Fellow Skilled Guild 5. Laid-back chap (2) 6. Talented Screen Actors association (1)

82 Reviewing What You Learned
What agreements are enforceable without consideration? What is the legal doctrine of promissory estoppel? What agreements are not enforceable without consideration? What is the difference between past consideration and preexisting duties? 1. Differs from state to state

83 Workbook Exercises Terms – page 69 You be the Judge – page 70
Concepts – page 71 &72 Case – page 73 Self Assessment – page 76


85 Agreements That Violate Statutes
What You Will Learn: How to explain what make a contract illegal How to identify the consequences of illegality in relation to contract law How to identify contract that are illegal by statutory law How to identify different types of licenses Why It Is Important: By understanding the concept of illegality in contract law, you will be able to avoid problems that might arise when you consider entering a contract

86 1. Weird Massachusetts cape fish (1)
2. Say to inventor Alexander Graham (1) 3. NASCAR event location (1) 4. Offer gratitude to singer Sinatra (1) Odd Cod Tell Bell Race Place Thank Frank Brailles Pails Deacons Beacons 5. Teacher of the blind Louis’ buckets (1) 6. Priest assistant’s lighthouse lights (2)

87 The Nature and Consequences of Illegality
A contract can have all of the previous elements but if lacks a legal purpose it is invalid Illegality in Entire Agreement If any part of the contract is illegal it makes the entire contract would be considered illegal In Pari Delicto and Divisible Contracts When some elements of a contract can be performed by themselves The Nature and Consequences of Illegality A contract can be made illegal several ways violates statutory law – the illegal action voids the contract if the illegal agreement were carried out, it would subject the parties to whatever punishment was specified in the law Even making the agreement itself my be illegal People who agree to commit crimes for consideration are involved in what is called conspiracy In Pari Delicot and Divisible Contracts Example – truck driver agreed to a cross nation delivery in a shorter time than it would take if layovers are figured in. The main purpose of the contract is to deliver goods – it is legal and can be separated from the illegal part The shipping part of the contract is valid – Fraser must be paid to deliver the goods The illegal part is the time contraints If both parties know about the illegality in a contract they are said to be in pari delicto or in equal fault If only one party knows about the illegality in a contract the contract is said to be NOT in pari delicto a contractor remodeling a bed and breakfast accepted money but knew that the city laws prohibited B&B’s inside city limits. The judge would rule that you could recover your lost money because both parties were not in pari delicto.

88 Agreements that Violate Statutes
Laws passed declaring that certain types of agreements are illegal Civil and Criminal Statues Contacts that require one party to commit a tort or crime A contract that would protect one party from consequences Usury Statutes Charging more than the state set interest rate Truth in Lending Act Civil and Criminal Statues Read Example 3 on page 188 Read Example 4 on page 188 Usury Statutes Interest is the fee the borrower pays to the lender for using the money Read Example 5 on page 189

89 Gambling Statutes Gambling agreements are when one person wins and the other loses Bets on sports and bets on card playing States regulate types of gambling Betting at the track if ok Off track betting is not Giveaway games as promos are legal as long as there is no purchase necessary Lottery is a state sponsored game of chance Gambling Statutes Read Example 6 on page 189

90 Sunday Statutes Contracts used to not be made on Sundays
Sunday Statutes commonly known as “blue laws” are state laws that attempt to regulate public and private activity on Sunday. They are called “blue laws” because they were printed on blue paper in the 17th century Sunday Statutes Rules apply in states that don’t allow contracts to be made on Sundays An agreement made on Sunday is void An offer made on a day other than Sunday but accepted on Sunday is void An agreement made on Sunday with a date other than a Sunday place on the paper is void

91 1. Hockey venue’s whammy (1)
2. Discoloration on a jet (1) 3. Socially exclusive British Cop (2) 4. Cast blame on bank chambers (1) Rinks Jinx Plane Stain Snobby Bobby Faults Vaults Heartens Spartans Strippers Flippers 5. Cheers the spirits of Michigan State’s team (2) 6. Clothes shedder’s snorkeling footwear (2)

92 Licensing Statutes A license is a legal document stating that the holder has permission from proper authorities to perform that trade or profession. Licensing Agreements Vendors License Occupational Licensing Laws were designed to protect people from dealing with unqualified professionals Revenue generator for local governments – competence not required Which allows you to enter into a contract with an unlicensed vendor Licensing Statutes All states have statutes that require a license to practice certain trades Plumbing, carpenter, electrician, doctor, lawyer, accountant Read Example 7 on page 192

93 Reviewing What You Learned
What makes a contract illegal? What are the consequences of illegality in relation to contract law? What contracts are illegal by statutory law? What are the different types of licenses? Illegal contracts may be created in many ways. It can involve an agreement to do something that violates statutory law If it is impossible to separate a contract into isolated promises and acts that can be performed independently, the entire contract is rendered illegal. If certain promises in a contract can be performed by themselves, the contract is divisible and the court may enforce the legal parts tof the agreement and rescind illegal parts Contract involving usury: some gambling agreements; some contract made on Sunday; and some agreements involving licensing requirements Some licenses simply raise revenue, while others are designed to protect the public

94 Agreements Contrary to Public Policy
What You Will Learn: How to explain the legal doctrine of public policy How to identify agreements that are contrary to public policy How to identify contract that involve an unreasonable restraint of trade How to explain the nature of restrictive covenant Why It Is Important: By understanding public policy and contracts that are contrary to public policy, you will be able to avoid common problems associated with violations of this important legal doctrine

95 The Nature of Public Policy
Some agreements are illegal because they violate a time-honored legal doctrine know as public policy The underlying principle is that nobody should get away with doing something that harms the public at large

96 2. Court jester’s game regulations (1)
1. Whacked a louse egg (1) 2. Court jester’s game regulations (1) 3. Snub-nosed forward section (1) 4. Deal with a birthday cake light (2) Hit Nit Fools Rules Blunt Front Handle Candle Minding Winding Lispers Whispers 5. Unhappy having to set an old watch (2) 6. S-troubled speaker’s hushed asides (2)

97 Violations of Public Policy
If an activity harms the health, safety, welfare, or morals of the public, that activity violates public policy Agreements that involve an unreasonable restraint of trade Contract do not compete Price fixing agreements Defeating competitive agreements Agreements obstruct justice Agreements inducing fraud or breach of duty Contracts that interfere with marriage

98 Agreements that Unreasonable Restrain Trade
The law protects the rights of people to make a living and do business in a market economy. A restraint of trade is a limitation on the full exercise of doing business with others Outright Contracts Not to Compete Restrictive covenant or a non-compete agreement Price Fixing When competitors agree on ranges within which to set their prices. Agreements to Defeat Competitive Bidding Rival submit bids for a project – the best bid wins Contracts to Not Compete When a persons buys a business, that person is also buying the seller’s goodwill – the continued public approval and patronage of the business. A restrictive covenant would restrict the seller from opening a competing business within a certain distance and a certain amount of time after selling. 99 years anywhere in the US is to restrictive and unreasonable An employment non-compete contract Price Fixing The law views competition in the marketplace as an efficient way of determining prices Producers compete to provide better products at attractive prices Price fixing discourages competition and raises prices This is contrary to public policy – it hurts the public at large. Price fixing is prosecuted by state or federal agencies Agreements to defeat competitive bidding Read example 8 on page 197``

99 Agreements to Obstruct Justice
Any contract that interferes with the administration of justice is illegal Protecting someone from arrest Encouraging lawsuits Giving false testimony Bribing a juror Paying a non-expert to testify as an expert Agree not to prosecute someone in return for money Obstruction of Justice Read example 9 on page 198

100 Agreements Inducing Breach of Duty or Fraud
Many people hold positions of trust – responsible for the well being of others Congress critters and other public officials They owe a duty to work for the best interest of the public Contracts that tried to influence position for gain are unenforceable This rule also applies to anyone in a position of trust Agreements Interfering with Marriage Law encourages marriages and protects family relationships Contracts that interfere with a marriage are illegal and unenforceable $1,000 to never marry $1,000 to leave your spouse

101 1. Cons St. Louis NFL Team (1)
2. Fiercely questions Buffalo NFLers (1) 3. Frightens Chicago’s NFL team (1) 4. Kansas City NFL team gripes (1) Scams Rams Grills Bills Scares Bears Chiefs Beefs Paints Saints Ravens Havens 5. Does an oil of New Orleans NFLers (1) 6. Baltimore NFL team’s refuges (2)

102 Effect of Illegality Generally, a court will not aid either party to an illegal contract Neither party can enforce the contract nor can they receive aid from the court Exception does exist when the parties are not equally at fault If you are less at fault the court may award money or property lost There may be an occasion that only part of the contract is illegal If the illegal part can be separated, the legal part may be enforceable If it can’t then the entire contract will be void


104 Looking at the few contradictory statements we have discovered in just the last few chapters:
A judge once said to Coach Hamilton: “Mr. Hamilton, if you are looking for logic and common sense, law is not the place to look”

105 Reviewing What You Learned
What is the legal doctrine of public policy? What contracts are considered to be contrary to public policy? What types of contracts involve an unreasonable restraint of trade? What is a restrictive covenant? No one should be permitted to do anything that harms the public at large Agreements that involve unreasonable restraint of trade; contracts not to complete; price fixing agreements; agreements to defeat competitive bidding; agreements to obstruct justice; agreements inducing fraud; and contracts interfering with marriage Contract not to compete; price fixing agreements; and agreements to defeat competitive bidding Agreement by the seller of a business not to open a competing business within a certain geographic area for a certain period time.

106 Workbook Exercises Terms – page 77 You be the Judge – page 78
Concepts – pages 79 & 80 Case – page 81 Assessment – page 84

107 1. Late-night comic Leno might (1)
2. In-front warhorse (1) 3. Dupe one of the Jonas Brothers (1) 4. Party thrower made before taxes (1) Jay May Lead Steed Trick Nick Host Grossed Champs Clamps Missile Bristle 5. Boxing titleholder’s vise grippers (1) 6. Stiff hair on an ICBM (2)


109 The Statute of Frauds What You Will Learn:
How to explain the purpose of the Statute of Frauds How to explain the legal status of a contract that is not in writing How to identify the elements that must be included in a written contract How to deal with contradictory and ambiguous terms in a written agreement How to identify which contracts must be writing Why It Is Important: Understanding which contract must be in writing, as well as the elements of writing, will help you avoid pitfalls associated with the Statute of Frauds

110 Purpose of Writing Breach of Contract Perjury Statute of Frauds
Is a wrongful failure to perform one of more promises of a contract Perjury Is making false statements while under oath of the court Statute of Frauds Are state laws requiring that certain contracts be in writing A written contract helps the clarify the agreement Purpose of Writing Many contracts used to not be in writing and were enforceable. The accused could not testify on their own behalf – only people who were not parties to the contract could be witnesses in court. Perjury To protect friends or their own interests, witnesses often made false statements under oath

111 Elements of a Writing Memorandum Does not need to be formal
Sales slip, invoice, check Place, date, parties involved, price and terms, and signatures Example 1 on page 206 – agreeing on a contract to buy a car for $1500, having the deposit cashed then the seller claiming that it should have been for Tough, it was agreed to at 1500

112 Evaluating Contradictory Terms
Hand written term contradict typed contracts Written words prevail over numbers Evaluating Ambiguous Clauses Written contracts can be understood in different ways Courts will typically rule in favor of the party who did not write the contract Evaluating Contradictory Terms Sometimes parties to an agreement will make handwritten changes on a typewritten contact. Handwritten terms prevail over the form because they indicate that changes were made after the contract was printed. Evaluating Ambiguous Clauses Read Example 2 on page 208 – an insurance company refuses to pay because of an abiguous claus in your policy. The court will rule in your favor because such a clause was written to favor who wrote it.

113 Contracts Must Be in Writing
Some states require that certain types of contracts be in writing to be enforceable It does not eliminate the essential elements, but requires the contract to be in writing Debts of others Debts of the dead Year or longer in length Marriage Sales in the amount over $500 Real property

114 1. Spirit sinker of one who curbs emotions (3)
2. Clothes-shedding performer’s L.A. team (2) 3. Highlight the Black Lagoon monster (2) 4. Completed football pass trickery (3) Repressor Depressor Strippers Clippers Feature Creature Reception Deception Endlessly Friendlessly 5. (with 6) Without ever ceasing… 6. …to be without any pals (3)

115 Contracts to Pay Debts of Others
Agreements for one person to pay the debts of an other must be in writing. Co-signer Contracts to Pay Debts of Deceased Persons Agreeing to pay a dead persons debt needs to be in writing Contracts Requiring More Than a Year to Perform Must be in writing if they cannot be performed within one year of the date they are made Contracts to Pay Debts of Deceased Persons Executors and administrators that are handling the estates and wills of dead people are not personally responsible for the payment of debt. They gather the property, pay the debts out of the estate and then divide the remaining property according to the will If the estate lacks the value to satisfy the debt, the executor may promise to pay the unpaid debts – but this must be in writing Read Example 3 on page 211 – made an oral agreement to pay off the debt of a dead person via oral commitment would not be upheld by the court. Contracts requiring More than a year to perform Read Example 4 on page 211 – the painting of the offices at a school that would take 14 months would need to be in writing. If Jake had contracted to work “as long as Mr Lucas continues to be president” then the agreement would not have to be in writing because the time involved would be uncertain. The contract could be competed in less than a year.

116 Contracts in Consideration of Marriage
Marriage is a valid and binding contract Promises made to one another are the consideration Oral in nature Generally not enforceable Either party can back out without being liable If a third person agrees to pay two other for marrying, that needs to be in writing Adopting a child from a previous marriage must be in writing as well Contracts in Consideration of Marriage Marriage is a valid contract. The promise made to one another is the consideration An agreement between two people to marry is generally not enforceable. Either party can break the agreement without being liable to the other Read Example 5 on page 212 – you propose to a woman, she puts an announcement in the paper, then you cancel, she owes you nothing.

117 Contracts of Sale of Goods of $500 or More
Must be in writing if price is over $500 to be enforceable Goods are movable items Contracts to Sell Real Property Must be in writing to be enforceable The exception is called Equitable Estoppel Also called Part performance - changes position in a big way Contracts for Sale of Goods of $500 or More Goods are moveable items, specially made items, furniture, books, livestock, crops, clothing, cars and personal effects of any kind. Read Example 6 on page 213 – Al verbally agrees to buy Evans motorcycle for $950. Al then changed his mind – the contract was not enforceable because it was not in writing. Contracts to Sell Real Property Equitable Estoppel Applies to an oral contact to sell real property when either the buyer or seller makes improvements on the property or changes their position in an important way, based on the others representations. Read Example 7 on page the offeree changing their station in life in order to fulfill the oral contract.

118 Reviewing What You Learned
What is the purpose of the Statute of Frauds? What is the legal status of a contract that is not in writing? What are the elements that must be included in a written contract? How are contradictory and ambiguous terms in a written agreement interpreted by a court? What contract must be in writing? To prevent fraud and perjury A contract that is supposed to be in writing, but which is not in writing, is unenforceable Place, date, parties, subject matter, price and terms, and intent of the parties With contradictory terms, the court will uphold the most recent clause. The court will interpret ambiguous clauses against the person who wrote the contract Contracts to pay the debt of another, to pay the debts of deceased persons, contracts requiring more than a year to perform, contracts in consideration of marriage, contracts to sell real property, and contract for the sale of good in excess of $500

119 2. Actor Damon’s small quarrels (1)
1. Pennant price label (1) 2. Actor Damon’s small quarrels (1) 3. Window outcropping brink (1) 4. Not a butterfly thin soup (1) Flag Tag Matts Spats Ledge Edge Moths Broths Denser Fencer Quitting Pitting 5. Less comprehending dueling athlete (2) 6. Giving up removing centers from cherries (2)

120 Social Rules and Formalities
What You Will Learn: How to explain the parol evidence rule How to identify the exception to the parol evidence rule How to explain the best evidence rule How to change a contractual writing Why It Is Important: By understanding the parol evidence and best evidence rules, you will know what business records to keep when you enter a contractual relationship that requires a writing

121 Special Rules for Written Contracts
Special rules apply to written contracts Parol Evidence Rule Oral agreements prior to written contract are not enforceable Parol – from the mouth Evidence – anything presented as proof The Best Evidence Rule Original is usually required Copies are looked at with disfavor by the court Duplicate originals are your copy of the original contract Written contracts must contain everything agreed upon by the parties of a contract By ensuring that all of the terms are in writing, neither party can go to court and claim a contract is incorrect or fails to show the parties’ real intentions. Parol Evidence Rule Parol meaning from the mouth Evidence means anything presented as proof at a court trial The rule says that evidence of oral statement made before signing a written agreement cannot be presented in court to change or add to the terms of what written agreement. The court presumes that the written contract contains all of the terms and provisions intended by the parties May only be presented to explain some point that is not clear in a written agreement. May also be used to show that certain terms were agreed to but incorrectly typed in the written contract. Could also be used to prove that someone was persuaded by the fraud of the other party to make a written contract. Read Example 8 on page 215 – loaner car promise to get you to buy a car, but the written agreement did not have the loaner written into the contract. The Best Evidence Rule Copying a contract can make it easier for an unscrupulous party to conceal any misleading alterations to the original agreement For this reason, when a contract is reduced to writing, each party receive an original version of the contract.

122 Changing the Writing Beware of the small print
Read the ENTIRE contract BEFORE you sign it. If you don’t understand or agree to it, cross it out before you sign. Have the other party initial where you crossed out Don’t be afraid to make changes to a printed form. If promises were made to you, write them in. Refuse to sign if you do not agree with everything in writing. Sometimes an oral agreement is a better position. If the contract is too complicated and unclear, consider have a lawyer look at it – it may be worth the price. Changing the Writing As you know, a contract is an agreement between two parties. Any writing should be an expression of their mutual consent. Signing a legal document starts a chain of events that may be difficult to control. When you are asked to sign an order blank, sales slip, or other printed form, be aware that such documents may contain small print on the front or reverse side. Those words are often difficult to read and/or understand. The small print is not written in your favor.

123 Reviewing What You Learned
What is the parol evidence rule? What are the expectation to the parol evidence rule? What is the best evidence rule? What rules govern the changes in a written contract? Evidence of oral statements made before the signing of the contract cannot be presented in court to change or add to the terms of the agreement Parole evidence may be introduced to explain some point that is not clear, to show certain terms were typed incorrectly, or to prove fraud The courts usually require that the original copy of a written agreement be submitted into evidence rather than an sort of copy Read entire text; make changes if necessary; have other party initial changes

124 1. Took actor Law to Court (1)
2. Final dynamite explosion (1) 3. Street-smart comic strip orphan (2) 4. More ashy letter sender (2) Sued Jude Last Blast Canny Annie Paler Mailer Weasels Measles Smartest Artist 5. Schemer’s red-dot disease (2) 6. Most intelligent picture painter (2)

125 Workbook Exercises Terms – page 85 You be the Judge – page 86
Concepts – pages 87 & 88 Case Study – page 89 Assessment – page 92


127 Performance and Agreement
What You Will Learn: How to identify when time is important in a contract How to distinguish between satisfactory and substantial performance How to explain tender of performance How to explain how contracts can be discharged by agreement Why It Is Important: Understanding when contracts come to an end will help you determine your legal rights and obligations in such situations

128 Discharge by Performance
Ending a Contract When a contract comes to an end it is referred to as discharged By performance or by agreement Discharge by Performance Performance meaning the parties complete the terms of the contract You promised to paint my house I promised to pay you

129 Time for Performance Tender of Performance
If time not stated, performance must be completed in a reasonable time Reasonable time varies with the circumstances of each case Tender of Performance A tender is an offer to do what you have agreed to do under a contract It is important to make tender even if you know the other party will not perform their part of the contract Time for Performance The time for completing a contract may be important to one or both parties Selling a crate of ripe tomatoes does not over the same amount of reasonable time than selling a house. Courts generally allow more time that the contract states unless time is of the essence Read Example 1 on page 225 Assume that the agreement stated that he needed to be finished by June 10 because Carol was having a party on the 12th – the contract implied that time was of the essence Read Example 2 on page 225 – 5000 chocolate rabbits to be delivered 3 weeks before Easter Tender of Performance Examples: If you agree to buy a car, making tender would be offering to pay the money at the agreed time for performance If you were selling the car, making tender would be offering to give the car to the buyer at the agreed time In some states, making tender is necessary to test the other party’s willingness and ability to perform. If neither party has made tender, then neither party is in a position to bring suit. If your tender is rejected you are excused from fulfilling the contract This is not so in regard to debt. If you tender payment and are rejected you are still obligated to the debt, however you can not be charged interest. Read Example 5 on page 229 – paying in cash but late if payment is required in legal tender it must be in cash – no checks or credit cards A certified check is not considered legal tender. The offeror of the check must be given reasonable time to obtain legal tender

130 1. Actor Jackman matured (1)
2. Queue right after number 8 (1) 3. Destroys levels on a ship (1) 4. NBA great Moses without company (2) Hugh Grew Nine Line Wrecks Decks Malone Alone Lanky Spanky Timing Climbing 5. Really skinny Little Rascals Character (2) 6. Clocking the ascending of Everest (2)

131 Satisfactory Performance
When services are preformed for others, the law requires that they be done in a satisfactory manner Court will use the “reasonable person test” if there is a question as to the satisfactory performance One party will agree to perform services for another “to the other’s satisfaction.” If satisfied, the other party is bound to the contract Substantial Performance Is performance that is slightly less than full performance Fulfilled the major requirements, but has left only minor details incomplete Satisfactory Performance Sometimes contacts say nothing about satisfactory performance where others state “in a satisfactory manner” Reasonable person test “would a reasonable person consider the job to be completed in a satisfactory manner?” Any dispute will be settled by a judge or jury. Read Example 3 on page 226 – painting to customers satisfaction. Must not keep the painting Remember, one who has not fully performed their duties cannot win a lawsuit against the other party for money owed. With one exception: Substantial Performance Courts will allow the person to recover the amount agreed upon less the cost of completing the job. Courts will allow recovery if they can determine that it be unfair to deny payment. You hire a contractor to refinish your basement into an awesome man cave, he has finished everything but installing some lights and touch up painting. Mainly used in the construction business. More often than not, a construction contract is set up to have “progress payments”. When certain milestones are completed, the contractor and client agree upon the items completed to satisfaction and payment for those items are paid.

132 Discharge by Agreement
Contracts may be terminated by mutual agreement Mutual Release When two parties mutually agree to end their agreement Accord and Satisfaction When one contract is substituted for another Often used to settle honest disagreements or unforeseen circumstances regarding an amount owed Discharge by Agreement Read Example 6 on page 229 – being offered to sell your car, then both parties agree not to Mutual Release When two parties mutually agree to end their agreement By mutual agreement the contract no longer exists Accord and Satisfaction A contract can also be discharged when one party agrees to accept performance that is different from what was agreed upon in the original contract Read Example 7 on page 230

133 Reviewing What You Learned
What is reasonable time for completing a contract? What is the difference between satisfactory and substantial performance of a contract? What is tender of performance? How can contracts be discharged by agreement? Defined as the time that is suitable, fair, and proper to the objective in view The standard for satisfactory performance is reasonableness. Substantial performance is slightly less than full performance An offer to what a party has agreed to do under contract Can be terminated by mutual agreement by the contracting parties

134 1. Intelligent beginning (1)
2. Pawn a group of sheep (1) 3. Out-of-shape taxi driver (2) 4. Choose a mason’s building block (1) Smart Start Hock Flock Flabby Cabby Pick Brick False Waltz Steves Sleeves 5. Not a true gliding dance (1) 6. Funny actor Carell’s shirt arms (1)

135 Impossibility of Performance & Operation of Law
What You Will Learn: How to explain situations in which the law will permit a discharge by impossibility How to identify discharges that occur by operation of law How to define the statute of limitations How to identify debts that cannot be discharged in bankruptcy Why It Is Important: Understanding when contracts are discharged by impossibility and by operation of law will help you know your legal rights and obligations in such situations

136 Involuntary Discharge
Impossibility of Performance Operation of Law Discharge by Impossibility of Performance a contract the become impossible to perform may be discharged and both parties released from their obligations Death and Pain Destruction of subject matter Means of Performance Illegality Involuntary Discharge Some contracts come to an end despite what the parties intend or what they actually do. Obligations that exist under the contract may also expire.

137 Death or Illness in a Personal Service Contract
Contract will be discharged if the contract requires personal service Person selected for their ability Destruction of the Exact Subject Matter If the subject matter that is destroyed through no fault of either party Must occur after the contract accepted, but before carried out Death or Illness The contract would not be discharged if the party who became ill or died hired someone else to perform the obligation Destruction of the Exact Subject Matter Read Example 8 on page 232 – one of a kind antique printer Read Example 9 on page 232 – one of many NEW sewing machines – model specified and can be found else where

138 Means of Performance Illegality
Sometimes the means for performance is destroyed and the contract can not be completed. You sign a contract to get a new roof, but your house burns down before the job is started. The house must exist for the contract to be performed Illegality Contract is void if performance is illegal at initiation. Same rule applies if performance becomes illegal after initiation. Illegality Read Example 10 on page 233 – labels for a drug that is ruled illegal by the FDA after the contract is agreed upon.

139 1. Sketch a dog or cat “hand” (1)
2. Nix a piece of legislation (1) 3. Air outlet got crooked (1) 4. Dawgs bisque or gazpacho (1) Draw Paw Kill Bill Vent Bent Snoops Soups Smelly Deli Fading Trading 5. Wet dog sandwich shop (2) 6. Going south Wall Street action (2)

140 Discharge by Operation of Law
Sometimes the best interest of society demands that a contract be terminated Wrongful Alteration Altering or changing a contract after acceptance Statute of Limitations When time voids your right to sue for performance You can’t “sleep on your rights” and expect help You can “stop the clock” and still collect damages Bankruptcy Set up for the discharging of debt Debtors used to go to prison Wrongful Alteration Read Example 11 on page 233 – canoe sale changed from 95 to 195 Statute of Limitations Read Example 12 on page 233 – retailer owes money for stock – supplier waited 10 years Most states have a Statute of Limitations on collection set at 4 years Read Example 13 on page 234 – waiting for an insane person to be rule competent. In some states prisoners suffer a “civil death” which prevents them from voting, to contract, to bring or defend civil lawsuits. The Statute of Limitations clock stops for them while in prison Debts can be renewed upon release, but only if the debtor makes a partial payment or acknowledged the debt Bankruptcy Debtors no longer imprisoned for failure to pay – if you are locked up you can’t pay. Some debt can not be discharged Student loans can’t be discharged inside of the first five years of their repayment period. Debt for taxes, alimony, support and maintenance are not affected by general discharge

141 Reviewing What You Learned
When will the law permit a discharge by impossibility? When will the permit a discharge by operation of law? What is the statute of limitations? What debts cannot be discharged in bankruptcy? Death or illness of a party in a personal service contract, destruction of tht exact subject matter of the contract, and when the contract becomes illegal When a wrongful alteration has occurred, when the statute of limitations has run its course, and in cases of bankruptcy Specified the length of time within which legal actions can be brought Education loans, alimony, child support and maintenance payments, and tax debts

142 Workbook Exercises Terms – page 93 You be the Judge – page 94
Concepts – pages 95 & 96 Case – page 97 Assessment – page 100


144 Transfer of Contractual Rights & Duties
What You Will Learn: How to explain the nature of an assignment How to identify contractual rights that can be assigned How to explain the nature of a delegation How to explain the nature of a novation How to identify a situation involving privity of contract Why It Is Important: Understanding when contractual rights and duties can be assigned will prepare you to deal with such situation when they arise

145 Transfer of Rights Assignment How Rights May Be Assigned
Some people transfer their rights to receive payment to other parties to pay off debts Some people transfer their duties to other qualified parties Assignment Is the transfer of right under contract Assignor and assignee How Rights May Be Assigned The person who is owed money can assign it to anyone else The person who owes the money needs to be notified of the assignment Assignment Read Example 1 on page 242 – assigning the rights to payments to someone else Assignor is the person assigning the rights or duties of a contract The assignee is the third person who is not in the original contract. How rights may be assigned No consideration is necessary for an assignment to be valid. It needs to be in writing, as oral assignment are hard to prove Read Example 2 on page 243 – landlord assigning the right to collect the rent from other tenants

146 What Right May Be Assigned
Any rights that do not change obligations of the other party in an important way. You complete a job that you agreed to do, but assign the right of the payment to someone else. The person paying you still needs to pay, but will pay the person you assigned the right of the payment to. What Rights may be assigned An assignor can assign nothing more that the rights that he or she possesses Example 3 on page 244 – assigning the rights to something you don’t have Rights to the payment of money – including wages, money owed on account, royalties After the assignment, the assignor no longer has an interest in the right that was assigned. This right now belongs to the assignee

147 1. Jon or Mia chowder bits (1)
2. Broad handbook or tour leader (1) 3. Rotate a plant with fronds (1) 4. More elevated purchaser (2) Hamms Clams Wide Guide Turn Fern Higher Buyer Weighed Braid Knitters Sitters 5. Placed a pigtail on a scale (1) 6. Afghan maker’s tot caretakers (2)

148 Transfer of Duties Delegation When duties are assigned to someone else
Is where a party of a contract has someone else perform the obligations in their place Some duties can not be delegated Party agrees to perform the task personally Contract calls for personal skill and judgment Contract prohibits delegation Duties may be delegated but not the responsibility Transfer of Duties Delegation Do not confuse delegation with assignment Delegate Duties Assign Rights Read Example 5 on page 246 – a business overextending their capacity and must delegate the duties of the contract to another company who was not part of the original contract Read Example 6 on page 247 – if the promise to perform the duties personally, delegation would not have been allowed Read Example 7 on page 248 – a builder who signs a contract to build a garage and the contract states that it can not be assigned or delegated. When you delegate the duties of the contract to another party, you are still responsible for the quality and completeion of the work.

149 Novation Is an agreement where an original party to a contract is replaced by a new party The other terms of the new contract remain the save as the original contract To be effective, the substitution requires the consent of all of the parties involved Novation Read Example 8 on page 248

150 Third Parties Privity of Contract Third Party Beneficiary
Is the relationship between the parties of a contract it determines who can sue in regard to performance Usually it is the parties to the contract Third Party Beneficiary Is a person who benefits from the performance of the contract but is not a party in the contract. A third person may enforce a contract when it is to their benefit Third party beneficiary Read Example 10 on page 249 – life insurance contract in which you are the beneficiary of. The original contract is between the insurance company and the person who took out the policy. You were named the beneficiary.

151 1. Permeate a fish’s breathing organ (1)
2. Warm up a major Kansas crop (1) 3. Late-night Leno’s accolade (1) 4. Disorganized mess in a rain channel (2) Fill Gill Heat Wheat Jays Praise Gutter Clutter Missile Whistle Blanche Branch 5. Ref’s blowing device on a Scud (2) 6. Flash cook in water tree limb (1)

152 Reviewing What You Learned
What is an assignment? What? What is novation? What is privity of contract?

153 Remedies of the Injured Party
What You Will Learn: How to explain the concept of anticipatory breach How to identify remedies available for breach of contract How to define specific performance Why you must minimize the damages involved in a breach of contract Why It Is Important: Understanding the remedies available when a contract is breached will help you pursue satisfaction if this happens to you

154 Breach of Contract Anticipatory Breach
Occurs when one party to a contract fails to perform the duties set out in the terms of the agreement Anticipatory Breach Occurs when one party to a contract notifies the other that they will not be able to fulfill the contract BEFORE the agreed upon start date Does not apply to the promise of payment of money in the future. Can only sue for breach of contract after the due date has passes Anticipatory Breach Read Example 11 on page 250 – notice that the duties will not be able to be performed by date in the contract

155 Damages Upon breach of contract, the injured party has a choice of remedies. A remedy is a legal means of enforcing the contract As the injured party, you have three options: Accept the breach Sue for money damages Ask the court for equitable remedy

156 1. Large Fruit in a Newton cookie (1)
2. Model Heidi’s lenses for close-ups (1) 3. May chomp like a mosquito (1) 4. Barely nick feral animals (1) Big Fig Klums Zooms Might Bite Graze Strays Rockers Dockers Quotable Notable 5. Heavy metal musician’s pants brand (2) 6. Worthy of being cited person of importance (3)

157 Acceptance of Breach Money Damages Accepting the breach
Consider the contract discharged Money Damages Are the amount recovered in due to breach of contract Actual & Incidental Damages Actual damages are the difference between contracted price and market value Incidental damages are any reasonable expenses incurred Liquidated Damages Agreed upon damages should one of the parties breach Acceptance of breach If one party breaches the contract, it is an excuse for the other not to perform Damages awarded, that did not cause a loss, often amount to less than $1 – only to recognize that the breach occurred. Your legal fees would far outweigh any damages you may win. Money Damages Money damages should make you whole or put you in the position had the contract been carried out Actual and Incidental Damages Actual Damages – Read Example 12 on page 251 – contracting for an item and the supplier can’t fulfill, but you find one else where more expensive. You agree to purchase land for $50,000, and the seller backs out, and let’s say the land is worth $60,000 – you could sue for the $10,000 difference or to enforce the contract. Incidental Damages – reasonable expenses for the land deal would be appraisal fees, lawyer fees, title fees and loan fees if they had been paid by the buyer. Liquidated Damanges Read Example 13 on page 252 – products arriving late, thus causing lost revenue Contracts may contain terms such as “Fines of x number of dollars paid to XYZ company if said merchandise does not arrive on agreed upon date.” Law stipulates that Liquidated Damages be reasonable – so $5000 for being late when revenue of $1000 is lost because of breach


159 Minimizing Damages An injured party must take reasonable steps to minimize damages that result from another party’s breach. Sometimes you must protect the other party from unnecessary losses – known as mitigation of damages Minimizing Damages Read Example 14 on page 253 – contracted to deliver tomatoes but ordering party would not accept them – the supplier is obligated to find another buyer

160 Equitable Remedies The remedy of money damages is not always enough to repay an injured party Specific Performance Injunction Is asking the court to enforce the contract Can only be asked for when money damages would be inadequate Is a court order that prevents a party from performing an act. Specific Performance Read Example 15 on page 253 – breach of contract on an original painting, that can’t be found anywhere else and money damages would not be adequate Specific performance can be granted when the subject matter of the contract is rare or unique. This is common in real estate transactions. Pieces of land are considered unique Not in the case where common goods or easily obtained services were the subject of the breach. Injunction Read Example 16 on page 255 – new airport that would fly over existing housing. Homeowners could sue to seek an injunction to stop construction. May be permanent or temporary. Temporary until the court determines if a permanent injunction be entered or the injunction be removed entirely. Anyone who disobeys the injunction is in contempt of court and will suffer the penalty.

161 1. Weekly news mag green citris fruit (1)
2. Condé Nast health mag bookcase level (1) 3. “Capitalist Tool” magazine spheres (1) 4. $ magazine bee product (2) Time Lime Self Shelf Forbes Orbs Money Honey Glamor Grammar Peoples Steeples 5. Fashion magazine rules of language (2) 6. Us Magazine rival’s church spires (2)

162 Reviewing What You Learned
What is involved in an anticipatory breach of contract? What remedies are available to an innocent party when a breach of contract occurs? What is specific performance? Why is it necessary to minimize the damages involved in a breach of contract?

163 Workbook Exercises Terms – page 101 You be the Judge – page 102
Concepts – pages 103 & 104 Case – page 105 Assessments – page 108

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