4 Contracts What You Will Learn: How to identify a contract’s elements How to identify valid, void, voidable and unenforceable contractsHow to distinguish between express and implied contractsHow to distinguish between oral and written contractsWhy 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 contractsFast foodPumping gasYou 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 anotherThe Three Theories of Contract LawEquity TheoryWill TheoryFormalist TheoryIn 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 theoryBecause each party agreed to the contract on their own free willThe 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 PeckBoys PloysWant FontReeces NiecesDeacon PeekinConical Chronicle5. Church officer sneakin’ a look (2)6. Dunce-cap-shaped Houston newspaper (3)
8 The Elements of a Contract OfferAcceptanceGenuine AgreementConsiderationCapacityLegalityOFFER is a proposal by one party to another intended to create a legally binding agreementACCEPTANCE is the second party’s unqualified willingness to go along with the first party’s proposalGENUINE AGREEMENT is when a valid offer is met by a valid acceptanceCONSIDERATION the exchange of things of valueIf 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 formsValid, Void, Voidable or UnenforceableValid – legally binding or goodVoid – has no legal effectVoidable – when a contract can be voidedUnenforceable – a contract that the court will not upholdValid legally means goodVoid means that the contract has no legal effect – it can be missing one or more of the 6 elementsVoidable – means that the contract can be voided by either party. – a contract between 2 minorsUnenforceable 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 partiesOral or WrittenContracts created by spoken word are oral contracts.One offers to do something and the other offers to do something in returnContracts are written in many casesBoth parties know the exact termsProvides proof of the agreementStatute of Frauds requires certain contracts be writtenExpress or ImpliedImplied – throw $20 on the counter of a self serve gas station. Neither party spoke a word but an implied contract was in placeExpress 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 promisesUnilateral – one sidedWhen a contract only contains the offer and the condition, but no acceptanceExample are reward postersBILATERAL 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 actLost 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 LegalityValid 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 notUnilateral is one sided – a promise for an act. Bilateral involves promises exchanged by twoOral 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 WoeUrn FernLukes DukesBest DressedDimmer GlimmerGrouches Couches5. 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 offerHow to distinguish between an offer and an invitation to negotiateHow to recognize the requirements of an acceptanceHow to distinguish between an acceptance and a counterofferHow to recognize when an offer has terminatedWhy 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 contractOffers have three requirementsMade seriouslyDefinite and certainCommunicated to the offereeThe six elements are the heart of contract law.Understanding offer and acceptance is key before moving on to the othersOfferer is the party who offers the contractOfferee 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 offerPrice tags on itemsSigns in windowsExceptions do existAdvertisers must use phrases like:First come/first servedQuantities limitedMakes it an offer not a ITNMust be made with the intention of entering into a legal obligationAn 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 enforceableSellers usually have a limited quantity of merchandise to sell and cannot fulfill all requests for productsadvertisements are invitations to negotiate rather than offersAlso called invitations to deal, trade, or to make an offerRead Example #3 page 114 – item being sold out – first come first served.The “I would like to buy a Lava Lamp” was the offerThe storeowner is free to accept or reject the offer
18 Definiteness and Certainty Terms must be clear and have NO doubtTenant/landlord plumbing fixJob offer with “reasonable” commissionCommunication to the OffereeDefinite and ClearRead Example 4 page 115Not a definite and certain – what is “reasonable”?Communication to offereeRead Example 5 page 116Communication 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 AteDate EightPlate CrateGreat SlateFreight StateHates Weights5. 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 contractUnconditional AcceptanceMirror image ruleCounterofferExceptions to the MIRPersonal property itemsCreated by the UCC – uniform commercial codeNon-merchants – non-regular sellersSales between merchants or B2B salesUnconditional acceptanceNot 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 offerRead Example 6 page 117Sellers 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 exampleIf the parties don’t agree on the sales price, the contract is never a valid contractB2B conditions1. the new or different terms do not make a material or crucial difference to the nature of the contract2. the offeror does not object to the new or different terms within a reasonable time3. 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 actionsCannot impose silence as means of acceptanceThe 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 acceptanceAcceptance by mail over long distances a contract comes into existence when it is sentCommon 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 effectiveRead Example 7 on page 119 – If I don’t hear from you, I assume you have accepted my offer
22 Termination of an Offer RevocationOffer taken off the table by offerorRejectionOffer rejected by offereeCounterofferNegotiating over price – one contract ends and another one startsExpiration of TimeMust accept offer before a set time passesOption contractDeath or InsanityRevocation is when the offer is taken back by the offerorTwo conditions:Can be revoked any time before acceptanceBecome effective upon communication to the offereeRead Example 8 page 120Rejection is when the offer is rejected by the offereeRead Example 9 on page 120Counteroffer is when the offeror and the offeree haggle back and forth on conditions of the contractExpiration 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 occursDeath 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 offereeAn 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.
26 Fraud and Misrepresentation What You Will Learn:How to identify the elements of fraudHow to distinguish between fraud and concealmentHow to distinguish between fraud and innocent misrepresentationHow to distinguish between the remedy available for fraud and the remedy available for misrepresentationWhy 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 suchAgreement is defectiveFraudMisrepresentationMistakeDuressUndue influenceHow is Genuine Agreement achieved?When a valid offer is acceptedCourts describe this type of agreement a “meeting of the minds”Making the assumption that the other three elements of the contract are in placeConsiderationCapacityLegality
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 contractRescind the contract or sue for money damagesDeliberate deception may lead to punitive damagesAward 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 losspunitive 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 switchbankruptcy fraudbenefit fraud, committing fraud to get government benefitscounterfeitcharlatanism (psychic and occult),confidence tricks such as the 419 fraud and Spanish Prisonerselling 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 partyfalse advertisingfalse billingfalse insurance claimsforgery of documents or signatures,health fraud, for example selling of products known not to be effective, such as quack medicines,identity theftinvestment frauds, such as Ponzi schemes and Pyramid schemesReligious fraudmarriage fraud to obtain immigration rights without entitlementrigged gambling games such as the shell gamesecurities frauds such as pump and dumptaking payment for goods ordered with no intention of delivering themtax fraud, not reporting revenue or illegally avoiding taxes (tax evasion). Iin some countries tax fraud is also prosecuted under false billing or tax forgeryFalse Advertising and Consumer FraudFalse 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 DonJail DaleBlunt HuntGeeks WeeksMakeup ShakeupCheaper Sleeper5. Cosmetics drastic reorganization (2)6. More miserly snoozer (2)
30 False Representation of Fact Material FactIs a fact that is importantMatter to one of the partiesCannot be a promise of future actions or an opinionNot limited to oral or written statementsActions intended to deceiveConcealmentIs when chooses not to reveal important informationAlso called passive fraud or nondisclosureHidden problems in a houseMaterial 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 actionConcealmentSellers disclosure doco for real estateIf 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 falseStatement made without regard for the truthRead 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 negotiationsFalse Representation Actually Relied UponWhen someone uses misrepresented information as part of negotiating a contractResulting LossActual monetary loss must have resultedFalse Representation Intended to be Relied UponExample 2 on page 131False Representation Actually Relied UponExample 3 on page 131Resulting LossIf 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 contractDamages 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 DealVast PastKent SpentChick FlickPuddle HuddleHaitian Nation5. 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 lossConcealment is passive fraudIn 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 mistakeHow to recognize the types of mistake that will allow rescission of a contractHow to recognize the requirements of economic duressHow to recognize the requirements of undue influenceWhy 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 contractReasonable expectations should not be blocked because of a mistakeMistake as to the Nature of the AgreementWhat 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 PartyMaking 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-versaUnilateral 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 identityRead Example 6 on page 134
39 Bilateral MistakeSometimes both parties involved in a contract make mistakes.Contract is voidable by either partyMistake as to the Possibility of PerformanceSomething happens that will not allow the contract to be completedMistake as to the Subject MatterWhen both parties are mistaken as to the identity of the subject matterContract may be voidedMistake as to the Possibility of PerformanceRead 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 MatterRead Example 8 on page 136 – location of land
41 Duress Influencing a person’s will by use of force or threat Physical or Emotional DuressAgreements made under duress are void or voidableMob offering protection to merchantsThreat made against the party of a member of their familyEconomic DuressIs 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 voidWhen physical harm is threated to establish a contract, that contract is voidableEconomic DuressRead Example 9 on page 137Using 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 InfluenceIs when one person used unfair and improper persuasive pressure to force someone else into a contractIll healthOld ageMental instabilityThe stronger persons substitutes his will for the will of the weaker personUndue InfluenceRead 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 mistakenMistake 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 CapMarx BarksHaul StallCuter RooterDrudges FudgesQuicker Kicker5. Bottom scraping creamy chocolate treats (2)6. Faster football punter (2)
47 Contractual Capacity What You Will Learn: How to explain the legal concept of minorityHow to identify the rights of minors in relation to contractHow to identify contract that are voidable by a minorHow a person can ratify a contract made in minorityHow to identify other, besides minors, who can rescind contractsWhy 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 AgreementThe fourth element is CapacityDeals with minors and contracts they enterThe law permits minor to rescind their contractsIts intent was to protect minors from dishonest adultsThe last two chapters we have discussed the first three elements of a contractsOfferAcceptanceWhich created Genuine AgreementRemember, 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 Capacityis the legal ability to enter a contract.Rebuttable presumptionThe assumption that the other party is of legal age.Definition of MinorityLegal AgeEmancipation and AbandonmentThe presumption of capacity play a key role in contact made by minors because the law permits minors, within limits, to rescind or void their contractsDefinition of MinorityA 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 minorityLegal Age1972 the legal voting age was moved from 21 to 18Many states also lowered the age of majority to 18EXCEPT for the legal drinking ageFor 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 AbandonmentMinors no longer under the control of their parents are emancipated.They are responsible for their contractsA 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 minorsMany 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 IDThey have committed fraudSome 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 SerratingScenery GreeneryDoubting ScoutingRaitts StraightsBleachers FeaturesBeaches Breaches5. 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 ContractsContract made by minor are voidableEven if they damage or destroy the itemSome states allow for deduction for damageReturning the MerchandiseItems should be returned when contract is disaffirmedImmaturity, inexperience, lack of education, or niavete could allow an adult to take advantage of a minorVoidable ContractsContract made by minors are voidable by minorsMay disaffirm or avoid the contractReturning merchandiseSome 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 disaffirmedDisaffirming Contracts Made With Other MinorsBoth parties have the right to disaffirmDisaffirming the Whole ContactYou can’t choose to keep the favorable part of a contractIt is all or nothing.Contract with each party being a minorRead 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 contractRatification ends the privileges that they had as a minorCan be done orally, in writing, or by actionsUsing or selling itemsMaking payment for itemsKeeping for a reasonable amount of timeRatification of a minor’s contractRead example 2 on page 154
57 Contracts for Necessaries Minors are held responsible for the fair value of necessariesFood, Clothing, Shelter, & Medical CareOne “Station in Life” has a bearing on what is necessary$150 pair of shoesNecessary if you have a foot injuryLuxury if you just want themSpecial Statutory RulesContacts for NecessariesRead example 3 on page 156If a minor pays more than fair value for their necessaries, they are entitled to a refund of the over paid amountSpecial Statutory RulesSome states give minors the capacity to enter into contract for things like car insurance and life insuranceSome states allow minors who are in a business of their own to make contracts that are essential to running a businessMarried minors are treated as adults.Apartment rentals may be considered necessariesParents may need to guarantee contracts made by their children
58 Other Contractual Capacity Rules Mentally Impaired PersonsMust be given the right to disaffirm a contractThey are responsible for the fair value of necessariesIntoxicated PersonsIf you enter into a contract while drunk you may disaffirmTreated in the same way as minor and mentally impairedOther Capacity LimitationsAliens may not have the ability to enter into contactsMentally 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 LimitationsIraq’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 ChokeThese SeasTrue PoohMadder AdderFlakes SteaksHailing Mailing5. Crazy one’s T-bones and porterhouses (1)6. Publicly commending a mass sending (2)
62 Consideration What You Will Learn: How to explain the legal concept of considerationHow to explain the types of considerationHow to identify certain problems regarding considerationHow to identify the principles that apply to consideration in everyday lifeWhy 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 valueMany agreements are not legally binding because they lack considerationSocial agreements have no considerationThe 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 sufferedThree types of considerationGiving up something that you have the legal right to keepDoing something that you have the legal right not to doNot doing something that you have the legal right to doforbearanceForbearanceAgreeing not to sue is an example of forbearance – you have a legal right to sue but agree not toALSOA 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-ExchangeBoth parties gain something when the promises are kept and the exchange is madeSomething of ValueNo specific value requirementsValue does not have to be the same as market valueCourts will not consider value, but rather enforcementOne exception – when a contract is deemed unconscionableA great inequality exists between the partiesLegality of ConsiderationConsideration must be legal, if not then the contract is invalidBargained-for ExchangeAn 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 promisedRead Example 1 on page 165Something of ValueAll that matters is that the parties agreed freely on the value and the price.Courts permit people to devise their own agreementsThe one exception of the contract being deemed unconscionableThis occurs when one party has all the bargaining power and takes advantage of the other partyCourt may do one of three things to rectifyRefuse to enforce the contractEnforce the contract but reduce by the unconscionable clauseLimit the application of the unconscionable clause.Legality of ConsiderationA 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 GutImps ChimpsFruit ChuteSwayed MaidPackard PlacardTrustin Justin5. 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 considerationMoney as ConsiderationMoney is exchanged for another’s performanceFree to negotiate and exchange any amountException is where the government regulatesMinimum wageRent controlledProperty and Services as ConsiderationBarter agreements are valid agreements
69 A Promise Not to Sue Charitable Pledges One party has the right to sue but gives up that rightExample of forbearance – not doing something you have the right to doAuto AccidentsHome ImprovementsCharitable PledgesOrganizations enter into contracts and rely upon donations to pay for thingsYour charitable pledge is a verbal contract is treated as suchPromise Not to SueRead Example 2 on page 168After 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 trialCharitable PledgesRead Example 3 on page 169
70 Problems With Consideration Parties can disagree about the amount of money that the debtor owes the creditorA problem in regard to the consideration involved
71 Disputed Amounts Undisputed Amounts Parties don’t agree on amount owed A per hour contractSettled by accord and satisfactionAccord is the acceptance of less by the creditorSatisfaction is the acceptance of the accordUndisputed AmountsMutually agreed upon price per contractA fixed price contractDisputed AmountsRead Example 4 on page 170Undisputed AmountsBuyer 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 relationshipMoney, property, services, promises not to sue, and charitable contributionsDisagreement as to the amount of money that the debtor owe the creditorConsideration 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 PailTout ScoutFlood MudPrince VinceCrocker MockerAlleys Valleys5. 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 considerationHow to explain the legal concept of promissory estoppelHow to identify agreements that are not enforceable without considerationHow to distinguish between past consideration and preexisting dutiesWhy 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 considerationSome agreements where there is no considerationPromises Under SealA seal is a mark or impression made on a written contractMust have the word “seal” or “L.S.”Promises After Discharge in BankruptcyOne can choose to pay debts after dischargeMust be in writingIt is optionalIt is a new contractPromises Under SealUsing a seal is not required by the UCCSome states still do require it with contracts involving real property and certain other propertiesStates varyPromises After Discharge of BankruptcyA
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 yearsPartial payment is affirmationOptionKeeping the contract OPEN for a reasonable period of timeNot to exceed 3 months
78 Promises Enforced by Promissory Estoppel Promissory = “containing a promise”Estoppel = restraint to prevent from contradicting a previous actThe promise must be made to bring about action by anotherOfferee relied upon the promise and changed positionInjustice avoided by enforcing promisePromises Enforced by Promissory EstoppelRead Example 6 on page 176
79 Unenforceable Agreements Without Consideration Some promises will not be enforced by the courts because they lack basic considerationsIllusory PromisesBoth parties are under obligation to do somethingLook like a valid contract but are hollowFuture GiftsA promise of a future gift is not enforceable where there is no considerationPast ConsiderationActions of the past can not be used as current considerationsIllusory PromisesRead Example 7 on page 177Future GiftsIncludes promises that provide free services or to lend something without asking or expecting any benefit in returnPast ConsiderationsYou have three contracts A, B and CYou delivered contract A Early and CompletelyYou 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 DutiesPromising to do something that you are already under a contract to providePromise to Attend a Social EngagementAll contracts are agreementNot all agreements are contractsGoing to lunch with a friend is not legally binding.Nothing given as considerationPreexisting DutiesIf a person under a legal oblRead 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 BraveFroze NoseConned BondDover CloverMellow FellowSkilled Guild5. 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 &72Case – page 73Self Assessment – page 76
85 Agreements That Violate Statutes What You Will Learn:How to explain what make a contract illegalHow to identify the consequences of illegality in relation to contract lawHow to identify contract that are illegal by statutory lawHow to identify different types of licensesWhy 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 CodTell BellRace PlaceThank FrankBrailles PailsDeacons Beacons5. 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 invalidIllegality in Entire AgreementIf any part of the contract is illegal it makes the entire contract would be considered illegalIn Pari Delicto and Divisible ContractsWhen some elements of a contract can be performed by themselvesThe Nature and Consequences of IllegalityA contract can be made illegal several waysviolates statutory law – the illegal action voids the contractif the illegal agreement were carried out, it would subject the parties to whatever punishment was specified in the lawEven making the agreement itself my be illegalPeople who agree to commit crimes for consideration are involved in what is called conspiracyIn Pari Delicot and Divisible ContractsExample – 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 partThe shipping part of the contract is valid – Fraser must be paid to deliver the goodsThe illegal part is the time contraintsIf both parties know about the illegality in a contract they are said to be in pari delicto or in equal faultIf only one party knows about the illegality in a contract the contract is said to be NOT in pari delictoa 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 illegalCivil and Criminal StatuesContacts that require one party to commit a tort or crimeA contract that would protect one party from consequencesUsury StatutesCharging more than the state set interest rateTruth in Lending ActCivil and Criminal StatuesRead Example 3 on page 188Read Example 4 on page 188Usury StatutesInterest is the fee the borrower pays to the lender for using the moneyRead Example 5 on page 189
89 Gambling StatutesGambling agreements are when one person wins and the other losesBets on sports and bets on card playingStates regulate types of gamblingBetting at the track if okOff track betting is notGiveaway games as promos are legal as long as there is no purchase necessaryLottery is a state sponsored game of chanceGambling StatutesRead 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 centurySunday StatutesRules apply in states that don’t allow contracts to be made on SundaysAn agreement made on Sunday is voidAn offer made on a day other than Sunday but accepted on Sunday is voidAn 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 JinxPlane StainSnobby BobbyFaults VaultsHeartens SpartansStrippers Flippers5. Cheers the spirits of Michigan State’s team (2)6. Clothes shedder’s snorkeling footwear (2)
92 Licensing StatutesA license is a legal document stating that the holder has permission from proper authorities to perform that trade or profession.Licensing AgreementsVendors LicenseOccupational LicensingLaws were designed to protect people from dealing with unqualified professionalsRevenue generator for local governments – competence not requiredWhich allows you to enter into a contract with an unlicensed vendorLicensing StatutesAll states have statutes that require a license to practice certain tradesPlumbing, carpenter, electrician, doctor, lawyer, accountantRead 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 lawIf 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 partsContract involving usury: some gambling agreements; some contract made on Sunday; and some agreements involving licensing requirementsSome 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 policyHow to identify agreements that are contrary to public policyHow to identify contract that involve an unreasonable restraint of tradeHow to explain the nature of restrictive covenantWhy 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 policyThe 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 NitFools RulesBlunt FrontHandle CandleMinding WindingLispers Whispers5. 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 policyAgreements that involve an unreasonable restraint of tradeContract do not competePrice fixing agreementsDefeating competitive agreementsAgreements obstruct justiceAgreements inducing fraud or breach of dutyContracts 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 othersOutright Contracts Not to CompeteRestrictive covenant or a non-compete agreementPrice FixingWhen competitors agree on ranges within which to set their prices.Agreements to Defeat Competitive BiddingRival submit bids for a project – the best bid winsContracts to Not CompeteWhen 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 unreasonableAn employment non-compete contractPrice FixingThe law views competition in the marketplace as an efficient way of determining pricesProducers compete to provide better products at attractive pricesPrice fixing discourages competition and raises pricesThis is contrary to public policy – it hurts the public at large.Price fixing is prosecuted by state or federal agenciesAgreements to defeat competitive biddingRead example 8 on page 197``
99 Agreements to Obstruct Justice Any contract that interferes with the administration of justice is illegalProtecting someone from arrestEncouraging lawsuitsGiving false testimonyBribing a jurorPaying a non-expert to testify as an expertAgree not to prosecute someone in return for moneyObstruction of JusticeRead 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 othersCongress critters and other public officialsThey owe a duty to work for the best interest of the publicContracts that tried to influence position for gain are unenforceableThis rule also applies to anyone in a position of trustAgreements Interfering with MarriageLaw encourages marriages and protects family relationshipsContracts 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 RamsGrills BillsScares BearsChiefs BeefsPaints SaintsRavens Havens5. Does an oil of New Orleans NFLers (1)6. Baltimore NFL team’s refuges (2)
102 Effect of IllegalityGenerally, a court will not aid either party to an illegal contractNeither party can enforce the contract nor can they receive aid from the courtException does exist when the parties are not equally at faultIf you are less at fault the court may award money or property lostThere may be an occasion that only part of the contract is illegalIf the illegal part can be separated, the legal part may be enforceableIf 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 largeAgreements 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 marriageContract not to compete; price fixing agreements; and agreements to defeat competitive biddingAgreement 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 & 80Case – page 81Assessment – 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 MayLead SteedTrick NickHost GrossedChamps ClampsMissile Bristle5. 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 FraudsHow to explain the legal status of a contract that is not in writingHow to identify the elements that must be included in a written contractHow to deal with contradictory and ambiguous terms in a written agreementHow to identify which contracts must be writingWhy 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 contractPerjuryIs making false statements while under oath of the courtStatute of FraudsAre state laws requiring that certain contracts be in writingA written contract helps the clarify the agreementPurpose of WritingMany 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.PerjuryTo 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, checkPlace, date, parties involved, price and terms, and signaturesExample 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 contractsWritten words prevail over numbersEvaluating Ambiguous ClausesWritten contracts can be understood in different waysCourts will typically rule in favor of the party who did not write the contractEvaluating Contradictory TermsSometimes 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 ClausesRead 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 enforceableIt does not eliminate the essential elements, but requires the contract to be in writingDebts of othersDebts of the deadYear or longer in lengthMarriageSales in the amount over $500Real 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 DepressorStrippers ClippersFeature CreatureReception DeceptionEndlesslyFriendlessly5. (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-signerContracts to Pay Debts of Deceased PersonsAgreeing to pay a dead persons debt needs to be in writingContracts Requiring More Than a Year to PerformMust be in writing if they cannot be performed within one year of the date they are madeContracts to Pay Debts of Deceased PersonsExecutors 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 willIf the estate lacks the value to satisfy the debt, the executor may promise to pay the unpaid debts – but this must be in writingRead 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 performRead 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 contractPromises made to one another are the considerationOral in natureGenerally not enforceableEither party can back out without being liableIf a third person agrees to pay two other for marrying, that needs to be in writingAdopting a child from a previous marriage must be in writing as wellContracts in Consideration of MarriageMarriage is a valid contract. The promise made to one another is the considerationAn agreement between two people to marry is generally not enforceable. Either party can break the agreement without being liable to the otherRead 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 enforceableGoods are movable itemsContracts to Sell Real PropertyMust be in writing to be enforceableThe exception is called Equitable EstoppelAlso called Part performance- changes position in a big wayContracts for Sale of Goods of $500 or MoreGoods 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 PropertyEquitable EstoppelApplies 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 perjuryA contract that is supposed to be in writing, but which is not in writing, is unenforceablePlace, date, parties, subject matter, price and terms, and intent of the partiesWith contradictory terms, the court will uphold the most recent clause. The court will interpret ambiguous clauses against the person who wrote the contractContracts 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 TagMatts SpatsLedge EdgeMoths BrothsDenser FencerQuitting Pitting5. 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 ruleHow to identify the exception to the parol evidence ruleHow to explain the best evidence ruleHow to change a contractual writingWhy 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 contractsParol Evidence RuleOral agreements prior to written contract are not enforceableParol – from the mouthEvidence – anything presented as proofThe Best Evidence RuleOriginal is usually requiredCopies are looked at with disfavor by the courtDuplicate originals are your copy of the original contractWritten contracts must contain everything agreed upon by the parties of a contractBy 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 RuleParol meaning from the mouthEvidence means anything presented as proof at a court trialThe 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 partiesMay 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 RuleCopying a contract can make it easier for an unscrupulous party to conceal any misleading alterations to the original agreementFor 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 outDon’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 WritingAs 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 agreementParole evidence may be introduced to explain some point that is not clear, to show certain terms were typed incorrectly, or to prove fraudThe courts usually require that the original copy of a written agreement be submitted into evidence rather than an sort of copyRead 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 JudeLast BlastCanny AnniePaler MailerWeasels MeaslesSmartest Artist5. 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 & 88Case Study – page 89Assessment – page 92
127 Performance and Agreement What You Will Learn:How to identify when time is important in a contractHow to distinguish between satisfactory and substantial performanceHow to explain tender of performanceHow to explain how contracts can be discharged by agreementWhy 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 ContractWhen a contract comes to an end it is referred to as dischargedBy performance or by agreementDischarge by PerformancePerformance meaning the parties complete the terms of the contractYou promised to paint my houseI promised to pay you
129 Time for Performance Tender of Performance If time not stated, performance must be completed in a reasonable timeReasonable time varies with the circumstances of each caseTender of PerformanceA tender is an offer to do what you have agreed to do under a contractIt is important to make tender even if you know the other party will not perform their part of the contractTime for PerformanceThe time for completing a contract may be important to one or both partiesSelling 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 essenceRead Example 1 on page 225Assume 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 essenceRead Example 2 on page 225 – 5000 chocolate rabbits to be delivered 3 weeks before EasterTender of PerformanceExamples:If you agree to buy a car, making tender would be offering to pay the money at the agreed time for performanceIf you were selling the car, making tender would be offering to give the car to the buyer at the agreed timeIn 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 contractThis 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 lateif payment is required in legal tender it must be in cash – no checks or credit cardsA 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 GrewNine LineWrecks DecksMalone AloneLanky SpankyTiming Climbing5. 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 mannerCourt will use the “reasonable person test” if there is a question as to the satisfactory performanceOne party will agree to perform services for another “to the other’s satisfaction.” If satisfied, the other party is bound to the contractSubstantial PerformanceIs performance that is slightly less than full performanceFulfilled the major requirements, but has left only minor details incompleteSatisfactory PerformanceSometimes 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 paintingRemember, one who has not fully performed their duties cannot win a lawsuit against the other party for money owed. With one exception:Substantial PerformanceCourts 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 agreementMutual ReleaseWhen two parties mutually agree to end their agreementAccord and SatisfactionWhen one contract is substituted for anotherOften used to settle honest disagreements or unforeseen circumstances regarding an amount owedDischarge by AgreementRead Example 6 on page 229 – being offered to sell your car, then both parties agree not toMutual ReleaseWhen two parties mutually agree to end their agreementBy mutual agreement the contract no longer existsAccord and SatisfactionA contract can also be discharged when one party agrees to accept performance that is different from what was agreed upon in the original contractRead 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 viewThe standard for satisfactory performance is reasonableness. Substantial performance is slightly less than full performanceAn offer to what a party has agreed to do under contractCan 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 StartHock FlockFlabby CabbyPick BrickFalse WaltzSteves Sleeves5. 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 impossibilityHow to identify discharges that occur by operation of lawHow to define the statute of limitationsHow to identify debts that cannot be discharged in bankruptcyWhy 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 PerformanceOperation of LawDischarge by Impossibility of Performancea contract the become impossible to perform may be discharged and both parties released from their obligationsDeath and PainDestruction of subject matterMeans of PerformanceIllegalityInvoluntary DischargeSome 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 servicePerson selected for their abilityDestruction of the Exact Subject MatterIf the subject matter that is destroyed through no fault of either partyMust occur after the contract accepted, but before carried outDeath or IllnessThe contract would not be discharged if the party who became ill or died hired someone else to perform the obligationDestruction of the Exact Subject MatterRead Example 8 on page 232 – one of a kind antique printerRead 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 performedIllegalityContract is void if performance is illegal at initiation.Same rule applies if performance becomes illegal after initiation.IllegalityRead 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 PawKill BillVent BentSnoops SoupsSmelly DeliFading Trading5. 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 terminatedWrongful AlterationAltering or changing a contract after acceptanceStatute of LimitationsWhen time voids your right to sue for performanceYou can’t “sleep on your rights” and expect helpYou can “stop the clock” and still collect damagesBankruptcySet up for the discharging of debtDebtors used to go to prisonWrongful AlterationRead Example 11 on page 233 – canoe sale changed from 95 to 195Statute of LimitationsRead Example 12 on page 233 – retailer owes money for stock – supplier waited 10 yearsMost states have a Statute of Limitations on collection set at 4 yearsRead 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 prisonDebts can be renewed upon release, but only if the debtor makes a partial payment or acknowledged the debtBankruptcyDebtors no longer imprisoned for failure to pay – if you are locked up you can’t pay.Some debt can not be dischargedStudent 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 illegalWhen a wrongful alteration has occurred, when the statute of limitations has run its course, and in cases of bankruptcySpecified the length of time within which legal actions can be broughtEducation 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 & 96Case – page 97Assessment – page 100
144 Transfer of Contractual Rights & Duties What You Will Learn:How to explain the nature of an assignmentHow to identify contractual rights that can be assignedHow to explain the nature of a delegationHow to explain the nature of a novationHow to identify a situation involving privity of contractWhy 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 debtsSome people transfer their duties to other qualified partiesAssignmentIs the transfer of right under contractAssignor and assigneeHow Rights May Be AssignedThe person who is owed money can assign it to anyone elseThe person who owes the money needs to be notified of the assignmentAssignmentRead Example 1 on page 242 – assigning the rights to payments to someone elseAssignor is the person assigning the rights or duties of a contractThe assignee is the third person who is not in the original contract.How rights may be assignedNo consideration is necessary for an assignment to be valid.It needs to be in writing, as oral assignment are hard to proveRead 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 assignedAn assignor can assign nothing more that the rights that he or she possessesExample 3 on page 244 – assigning the rights to something you don’t haveRights to the payment of money – including wages, money owed on account, royaltiesAfter 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 ClamsWide GuideTurn FernHigher BuyerWeighed BraidKnitters Sitters5. 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 placeSome duties can not be delegatedParty agrees to perform the task personallyContract calls for personal skill and judgmentContract prohibits delegationDuties may be delegated but not the responsibilityTransfer of DutiesDelegationDo not confuse delegation with assignmentDelegate DutiesAssign RightsRead 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 contractRead Example 6 on page 247 – if the promise to perform the duties personally, delegation would not have been allowedRead 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 NovationIs an agreement where an original party to a contract is replaced by a new partyThe other terms of the new contract remain the save as the original contractTo be effective, the substitution requires the consent of all of the parties involvedNovationRead Example 8 on page 248
150 Third Parties Privity of Contract Third Party Beneficiary Is the relationship between the parties of a contractit determines who can sue in regard to performanceUsually it is the parties to the contractThird Party BeneficiaryIs 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 benefitThird party beneficiaryRead 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 GillHeat WheatJays PraiseGutter ClutterMissile WhistleBlanche Branch5. 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 breachHow to identify remedies available for breach of contractHow to define specific performanceWhy you must minimize the damages involved in a breach of contractWhy 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 agreementAnticipatory BreachOccurs when one party to a contract notifies the other that they will not be able to fulfill the contract BEFORE the agreed upon start dateDoes not apply to the promise of payment of money in the future.Can only sue for breach of contract after the due date has passesAnticipatory BreachRead Example 11 on page 250 – notice that the duties will not be able to be performed by date in the contract
155 DamagesUpon breach of contract, the injured party has a choice of remedies.A remedy is a legal means of enforcing the contractAs the injured party, you have three options:Accept the breachSue for money damagesAsk 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 FigKlums ZoomsMight BiteGraze StraysRockers DockersQuotable Notable5. 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 dischargedMoney DamagesAre the amount recovered in due to breach of contractActual & Incidental DamagesActual damages are the difference between contracted price and market valueIncidental damages are any reasonable expenses incurredLiquidated DamagesAgreed upon damages should one of the parties breachAcceptance of breachIf one party breaches the contract, it is an excuse for the other not to performDamages 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 DamagesMoney damages should make you whole or put you in the position had the contract been carried outActual and Incidental DamagesActual 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 DamangesRead Example 13 on page 252 – products arriving late, thus causing lost revenueContracts 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 DamagesAn 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 damagesMinimizing DamagesRead 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 RemediesThe remedy of money damages is not always enough to repay an injured partySpecific PerformanceInjunctionIs asking the court to enforce the contractCan only be asked for when money damages would be inadequateIs a court order that prevents a party from performing an act.Specific PerformanceRead 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 adequateSpecific 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 uniqueNot in the case where common goods or easily obtained services were the subject of the breach.InjunctionRead 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 LimeSelf ShelfForbes OrbsMoney HoneyGlamor GrammarPeoples Steeples5. 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 & 104Case – page 105Assessments – page 108