Presentation on theme: "ES 2.00 UNDERSTAND CONTRACT LAW"— Presentation transcript:
1ES 2.00 UNDERSTAND CONTRACT LAW Obj Understand the elements and characteristics of a contract
2Elements of a Contract Offer Acceptance Genuine Agreement/Assent ConsiderationCapacityLegalityAll elements MUST be present to be an enforceable contract.
3OFFERProposal by one party to another with intent to create a legal binding agreementOfferorMakes the offerOffereeOffer made to this person
4Requirements of an Offer Serious IntentMust intend to make the offerAdvertisements?No serious intentKnown as an invitation to negotiateDefinite and CertainMust use definite wordsCommunicated to the OffereePhone, fax, Internet, letter, etc
5Termination of Offer Revocation – Taking back of an offer by offeror Rejection – Refusal by the offereeCounteroffer – Any change in the terms of the offerDeath – Offeror diesInsanity – Offeror is declared insaneExpiration of Time – If the offeror puts a time limit on the offer and it has passedDestruction of the subject matter
6Options & Firm OffersOption – the offeree gives the offeror something of value in return for a promise to keep the offer open for a set period of timeFirm Offer – a written offer for goods that states the period of time during which the offer will stay openNo additional consideration is requiredMaximum period of time set by the UCC – 3 monthsOfferor must be a merchant who deals in related goods on a daily basis
7ACCEPTANCEUnqualified willingness by the offeree to go along with the offerMirror Image RuleTerms of the acceptance must match exactly (mirror) the terms of the offerAny change means there is no acceptance (counteroffer)
8Methods of Acceptance Bilateral Acceptance Unilateral Acceptance Offer is accepted by offeree through communication of the promise to the offerorOnly requires giving a promise to perform, not performance itselfMost offers are bilateralUnilateral AcceptanceOfferor promises something in return for offeree’s performance and indicates that performance represents acceptanceSilence as AcceptanceDoes not represent acceptanceOfferor cannot word offer in a way that silence would be considered acceptance
9GENUINE AGREEMENT (ASSENT) A valid offer has been made by the offeror, and a valid acceptance has been exercised by the offereeSeveral causes for genuine agreement to be lacking in a contractDuressUndue InfluenceUnilateral or Mutual MistakeInnocent MisrepresentationFraudulent Misrepresentation
10DuressOvercoming a person’s free will by use of force or by threat of force or bodily harmThreats of Illegal ConductThreats to Report CrimesThreats to SueThreats to sue made for purpose unrelated to the suitEconomic DuressThreats to a person’s business or income
11Undue InfluenceUnfair and improper persuasive pressure within a relationship of trustMust be able to prove:Relationship of trust, confidence or authorityUnfair persuasion
12Unilateral Mistake An error on the part of one of the parties Does not affect validity of the contractCannot get out of contractNature of the AgreementSigning a contract you don’t understand or have not readSigning a contract in a language you don’t understand
13Mutual Mistake (Bilateral Mistake) Both parties are mistaken about an important factImpossibility of PerformanceContract is impossible to performContract is voidSubject MatterEither party can void contractExisting LawContract is validParties are expected to know the law
14Innocent Misrepresentation Innocent statement of supposed fact that turns out to be falseStatement must be one of factStatement must be materialStatement must be relied uponInjured party has the right to rescind (take back) the offerNo rights to damages
15Fraudulent Misrepresentation Party to a contract deliberately makes an untrue statement of factDeliberate: Done with or marked by full consciousness of the nature and effects; intentionalDeception: The fact or state of being deceivedGain: To secure as profit or rewardIn order to prove fraud, you must prove the above 3 definitions
16Proving Fraudulent Misrepresentation Untrue statement of factMust be one of fact, not opinionActive concealmentSilence – may stay silent about defects except when:statement is about material factsTrue statement is made false by subsequent eventsOne party knows the other party has made a basic mistaken assumptionMaterialityStatement would cause reasonable person to contractIf one party knows the other party would rely on the statementIf one party knows the statement is false
17Proving Fraudulent Misrepresentation Reasonable RelianceOne party must reasonable rely on statementIntentional or recklessOne party deliberately lies or conceals a material factOne party recklessly makes a false statement of fact, without knowing whether it is true or falseStatement must be intended to induce party to enter into contractResulting LossMust cause an injury
18CAPACITY Legal ability to enter into a contract Minors Mentally IncapacitatedIntoxicatedA person serving a prison sentence lacks capacity.
19Minors Minor – not yet reached legal age (age of majority) NC Age of Majority – 18 years oldEmancipation - severing of the parent-child relationshipFormal – court decreeInformal – arises from the conduct of the minor and the parentParent and minor agree that parent will end supportMinor gets marriedMinor moves out of family homeMinor joins armed forcesMinor gives birthMinor takes on full-time employmentRatification – agreeing to be bound by a contract that could be avoidedContracts made by minors are voidable; minors may disaffirm (or avoid being bound by) contracts
20Mentally Incapacitated Lacking the ability to understand the consequences of his or her contractual actsSevere mental illnessSevere mental retardationSevere senilityContracts made by mentally incapacitated are usually void unless involving necessaries.
21Intoxicated People under the influence of drugs or alcohol Intoxication is a voluntary act.Most courts are reluctant to consider contracts entered into by intoxicated individuals as voidable.Must be so intoxicated that the person did not know they were contracting.
22CONSIDERATIONExchange of benefits and detriments by the parties to an agreementsRequirements of consideration:Must involve a bargained-for exchange (promise made in return for another promise)Must involve something of valueBenefits and detriments must be legalBenefitsSomething that a party was not previously entitled to receiveDetrimentsAny loss suffered; anything given upForbearanceNot doing something that you have the right to do
23Adequacy of Consideration Courts don’t look at adequacy or value of an agreement unless it is “unconscionable”UnconscionableSo grossly unfair or oppressive that it would shock the conscience of the courtSo lop-sided that the average person would not agree to terms
24Nominal Consideration Token amount in a written contract where either the parties cannot or do not wish to state the amount
25Agreements without Consideration Promise to make a giftGifts have no considerationCannot be enforcedGift that has been givenDoesn’t have to be returnedDonor – Gives the giftDonee – Accepts the gift
26Illusory PromisesClause or wording that allows party to escape from legal obligationTermination clauseIllusory – clause to allow termination of contract for any reasonNot illusory – termination only allowed after a change in defined circumstancesOutput ContractsAgreement to purchase all of a specific producer’s productRequirements ContractsAgreement to supply all of the needs of a specific buyerOutput & Requirements contracts are recognized by the courts as having consideration by implying fair dealing.
27Existing Duty Existing Public Duty Existing Private Duty No detriment Obligation to obey the lawExisting Private DutyIf a person is already under legal duty to do something, another promise to do that same thing does not furnish consideration for a new contract.
28Past PerformanceAn act that has already been performed cannot be consideration in a contract.
29Exceptions to Consideration Promises to charitable organizationsGift or Pledge for future contributionEnforceable as consideration if organization identifies the pledge for a specific use and acts in reliance on the pledgePromises covered by the UCCFirm offersGood faith modification of contractPromises discharged in bankruptcy
30Exceptions to Consideration Promises barred from collectionPromissory EstoppelRely on what a person saidElements:Promise must bring action or forbearanceOne who gave no consideration must have relied on the promiseInjustice can be avoided only enforcing the promise
32Illegal Contracts Licensing Civil & Criminal Usury Gambling Agreements to commit a crime/tort are illegalUsuryState sets a max interest rateInterest – fee the borrower pays to the lender for using the moneyUsury - charging too high of an interest rateGamblingLegal gambling varies from state to stateLicensingStates require that persons in certain occupations obtain a license to practice that occupationDoctors, plumbers, barbers, lawyers, funeral directors
33Illegal Contracts Public policy Agreements that unreasonably restrain tradeTakes away the ability to do business with othersAgreements not to competeRestrictive covenant - agreement not to compete in a region for a period of timeOnly legal for a short period of time and small geographic regionAgreements for price fixingPrice Fixing - competitors agree on certain price ranges within which they will sell their products
34Illegal Contracts Public policy (continued) Agreements to eliminate competitive bidding (or bid rigging)Bid - offer to buy or sell goods or services at a stated priceBid rigging – competitors agree that one bidder will have low bid for a certain job….low bidder sets bid higher than would if real competitionAgreements to obstruct justiceAnything that delays or prevents justiceAgreements to induce breach of duty or fraudInfluencing persons who hold positions of high trust for private gainAgreements to interfere with marriageDamage, destroy, or discourage good family relationships
35Statute of FraudsRequires that certain contracts be in writing to be enforceableContracts to buy and sell goods for a price of $500 or moreContracts to buy and sell real propertyContracts that require more than one year to completePromises to pay the debt of anotherPromises to give something of value in return for marriage
36CHARACTERISTICS OF A CONTRACT Valid, void, voidable, unenforceableExpress or impliedBilateral or unilateralOral or written
37Valid, Void, Voidable, Unenforceable Valid contractIncludes all elements recognized by the courtsLegally bindingVoid contractWithout legal effectContracts missing one or more elementsVoidable contractOne or more parties can get out of contract for some legal reasonContract lacks genuine assent, contracts with minorsUnenforceable contractContract that court will not uphold, usually because of some rule of lawStatute of limitations has expired
38Express or implied Express Implied Contract statement that may be written or oralImpliedContract that comes about from the actions of the parties
39Bilateral or Unilateral Contains two promisesMost contracts are bilateralUnilateralContains a promise by only one person to do something if, and when, the other party performs a certain actReward offer is most common unilateral contract
40Oral or written Oral Written Created by two or more people speaking to each otherWrittencontract terms are written so that both parties know the exact termsProvides proof of existence for the contractCertain contract are required by the Statute of Frauds to be in writing