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Basic Contract Law for Paralegals Fifth Edition Jeffrey A. Helewitz.

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Presentation on theme: "Basic Contract Law for Paralegals Fifth Edition Jeffrey A. Helewitz."— Presentation transcript:

1 Basic Contract Law for Paralegals Fifth Edition Jeffrey A. Helewitz

2 Chapter 1 OVERVIEW OF CONTRACTS In this chapter you will:  Define a legally binding contract  Identify the six basic requirements to forming a valid contract  Explain the concept of offer and acceptance  Define and exemplify consideration  Classify contracts into bilateral or unilateral agreements  Understand how a contract is created  Explain the difference between executory and executed contracts  Differentiate between valid, void, voidable and unenforceable contracts  Discuss various contractual provisions  Know what is meant by the term contractual capacity

3 Contract Defined contract A contract is a legally enforceable agreement that meets certain specified legal requirements between two or more parties in which each party agrees to give and receive something of legal value.

4 Elements of a Valid Contract  Offer  Acceptance  Consideration  Legality of subject matter  Contractual capacity  Contractual intent

5 Type of Obligation  Bilateral: a bilateral contract is a promise for a promise.  Unilateral: a unilateral contract is a promise for an act.

6 Method of Creation  Express contract: mutual assent of the parties is manifested in words, either orally or in writing.  Implied-in-fact contract: promises of the parties are inferred from their actions or conduct as opposed to specific words being used.  Implied in Law contract (also known as quasi- contract): situations that look like a contract but are not because one of the requisite elements is missing.

7 Type of Form  Formal: limited group of contracts that different states have declared valid and enforceable if certain statutory requirements are met.  Informal: all non-formal contracts; agreements that meet all the requirements of valid contracts.

8 Timing  Executory contract: a contract in which one or both of the parties still have obligations to perform.  Executed contract: a contract that is complete and final with respect to all of its terms and conditions.

9 Enforceability  Valid: an enforceable contract that meets all of the six requirements  Void: a situation where there is no contract and the law therefore does not entitle the parties to any legal remedy.  Voidable: a contract where a party to the agreement has the option of avoiding his legal obligation without any negative consequences, but who could, if he wished, affirm his obligation and thereby be contractually bound.

10 Summary Type of Obligation Method of Creation FormTimingEnforceability Bilateral Unilateral Express Implied in fact Implied in law (quasi) Formal Informal Execut- ory Execut- ed Valid Void Voidable Unenforceable

11 Chapter 2 OFFER In this chapter you will:  Define offer  Identify the three conditions necessary to create a valid offer  Explain the concept of certainty and definiteness in the terms of an offer  List the four required terms in a valid offer  Briefly discuss what is the UCC  Discuss the impact of the UCC on traditional legal principles of a contractual offer  Know what is meant by an output contract  Apply basic concepts of an offer to contractual clauses  Draft a basic offer that would meet legal standards  Indicate the difference between contracting with a member of the general public and a merchant

12 Offer Defined An offer is a proposal by one party, the offeror, to a second party, the offeree, manifesting an intention to enter into a valid contract.

13 Three Conditions for a Proposal to Qualify as a Contractual Offer 1. The offeror must manifest a present contractual intent. 2. The offer must be communicated to the offeree. 3. The offer must be certain and definite with respect to its terms

14 Certainty and Definiteness in the Terms of the Offer  Four essential elements for definite and certain terms: The price of the contract The subject matter of the contract The parties to the contract The time of performance for fulfilling the contract

15 Uniform Commercial Code The Uniform Commercial Code (UCC) is a model law adopted in whole or in part by each state as a statutory enactment that, among other things, has codified certain contractual concepts with respect to the sale of goods.

16 Chapter 3 ACCEPTANCE In this chapter you will:  Define acceptance  Differentiate between an acceptance and a counter-offer  Discuss the mirror image rule  Indicate the effect of silence on an offer  Explain who is capable of accepting an offer  Discuss the method of accepting a bilateral and a unilateral offer  Discuss the impact of the mailbox rule on the acceptance of a contract  Explain the effect of the rejection of an offer  Define revocation  Discuss the effect of the termination of an offer on the parties ability to create a valid contract

17 Acceptance Acceptance is the manifestation of assent in the manner requested or authorized by the offeror.

18 Varying the Terms of the Offer  First, to be valid, the acceptance must parrot exactly the terms of the offer.  Second, any variance in the terms of the offer creates a counteroffer, which rejects and therefore terminates the original offer.  Third, if the variance is merely a term that is implicit in the original offer, that variance will not constitute a counteroffer.

19 When Does Silence Constitute an Acceptance?  if the offer was solicited by the offeree or  the contract is implied in fact

20 Principal-Agent Relationship An agent is one who acts for and in the place of another, known as the principal, in order to enter into contracts with third persons on the principal’s behalf.

21 Mailbox Rule The acceptance of an offer of a bilateral contract is effective when properly dispatched by an authorized means of communication.

22 Termination of the Ability to Accept To terminate an offer by an act of the parties, either the offeree must reject the proposal or the offeror must revoke the offer.

23 Termination by Operation of Law  Lapse of time  The death or destruction of the subject matter  The death or insanity of the offeror or offeree  Supervening illegality

24 Chapter 4 CONSIDERATION In this chapter you will:  Define contractual consideration  Discuss the concept of mutuality of consideration  Differentiate between a benefit conferred and a detriment incurred  Exemplify what is not considered to be legally sufficient consideration  Explain the pre-existing duty rule  Discuss the impact of the UCC on traditional concepts of consideration  Explain what is meant by the sufficiency of the consideration  Define promissory estoppel  Discuss accord and satisfaction  Indicate how one becomes a guarantor

25 Consideration Consideration is something that has legal value.

26 Detriment as Consideration For a detriment to qualify as consideration, the person incurring the detriment must: 1. give up a legal right 2. at the request of the other party 3. in exchange for something of legal value

27 What is Not Consideration  Past consideration is no consideration  Moral consideration is no consideration  A gift can never be legal consideration  Illusory promises are never consideration  Promises to do that which one is already bound to do are not consideration

28 Circumstances under which a Preexisting Duty May Be Consideration  If new or different consideration is given  The purpose is to ratify a voidable obligation  The duty is owed to a third person, not the promisee  Unforeseen circumstances make the duty more difficult to fulfill

29 Does a Bad Bargain Matter?  Caveat emptor: Let the buyer beware  Caveat venditor: Let the seller beware

30 Valid Accord and Satisfaction The requirements are:  A valid contract  A dispute between the parties with respect to that contract and  An agreement to compromise the dispute rather than sue

31 Guarantees A guarantee is a written promise to answer for the debts of another that is enforceable against the guarantor.

32 Requirements for a Guarantee to be Valid  A valid contract is entered into between two or more parties  The guarantor creates the guarantee at the time the contract is executed and  The guarantee is in writing

33 Chapter 5 LEGALITY OF SUBJECT MATTER AND CONTRACTUAL CAPACITY In this chapter you will:  Discuss the concept of the legality of the subject matter  Define malum in se  Define malum prohibitum  List the sic types of contracts that come under the Statute of Frauds  Discuss what is meant by usury  Explain the concept of contractual capacity  Differentiate between infants and minors  Know which types of contracts a minor cannot avoid  Discuss the effect of alcohol and drugs on a person’s contractual capacity  Apply the concepts of legality and capacity to your everyday life

34 Malum in Se Contracts that violate public policy and are deemed bad in and of themselves.

35 Malum Prohibitum Contracts that are not morally reprehensible or against public policy but are still minor violations of the law  a prohibited wrong, or something prohibited by statutory regulation.

36 Contracts that Violate the Statute of Frauds  Contracts for an interest in realty  Contracts that are not to be performed within one year  Contracts in consideration of marriage  Guarantees  Sale of goods valued at over $500  Executors’ promises to pay the decedent’s debts

37 Contractual Capacity The parties’ legal ability to enter into a binding contractual relationship

38 Four Major Areas of Contractual Capacity  Age  Mental capacity  Alcohol  Drugs

39 Chapter 6 CONTRACTUAL INTENT In this chapter you will:  Define what is meant by contractual intent  Define fraud  Differentiate fraud from misrepresentation  Explain the concept of duress  List the three types of duress that may be encountered in contract law  Discuss what is meant by undue influence  Define a contract of adhesion  Discuss the effect of a mistake on contract formation  Discuss the enforceability of contract entered into with a unilateral mistake  Understand how the concept of contractual intent may be applied to void contracts

40 Contractual Intent The parties to the contract must actually intend to enter into a contract for the same bargain at the same time.

41 Fraud Five elements of contractual fraud: 1. The misrepresentation 2. of a material fact 3. made with the intent to deceive and 4. relied on by the other party 5. to his or her detriment

42 Duress Duress connotes some form of force or coercion exercised over one party to the contract in order to induce that party’s promise to contract

43 Forms of Duress  Physical duress  Economic duress  Mental duress

44 Mistake Mistake occurs when one (or both) of the parties is under a misconception as to the subject matter of the contract.

45 Categories of Mistake  Mutual mistake: this type of mistake goes to a basic assumption of the agreement, the mistake has a material adverse effect on the parties, and the mistake was of the type that could not be foreseen.  Unilateral mistake: concerns a situation in which only one party to the contract is mistaken because of some typewritten or computation error.

46 Chapter 7 CONTRACT PROVISIONS In this chapter you will:  Distinguish between a covenant and a condition  List the most generally encountered contractual rules of construction  Apply general contract rules of construction to analysis of contract provisions  List the types of contracts that are governed by the Statute of Frauds  Define an antenuptial agreement  Categorize conditions by when they create or extinguish a contractual duty  Categorize conditions by the method whereby they have been created  Define a condition subsequent, precedent and concurrent  Explain the parol evidence rule  Analyze contractual clauses to determine the parties rights and obligations

47 The Statute of Frauds The statute of frauds required that, to be enforceable, the following six types of contracts had to be in writing:  Contracts for an interest in real estate  Contracts in consideration of marriage  Contracts that are not to be performed within one year  Guarantees  Contracts for the sale of goods valued over a specified amount  Executor’s promises to pay a decedent’s debts

48 Covenant An unconditional, absolute promise to perform.

49 Conditions Specific promise made by the parties to the contract.

50 Categories of Conditions  Conditions categorized by when they create, or extinguish, the duty to perform the covenant Conditions precedent Conditions subsequent Conditions concurrent  Conditions categorized by how the parties have arrived at them Express conditions Implied-in-fact conditions Implied-in-law conditions

51 Rules of Construction  Guidelines that the courts use to interpret all contractual provisions Lengthy communications are viewed as a whole, and any inconsistent words are discarded Contracts are to be interpreted according to business custom and usage Words are to be construed according to their ordinary meaning If there is an inconsistency with words that are printed, typed, or handwritten, handwriting prevails over typing, and typing prevails over mechanical printing

52 Parol Evidence Rule Oral testimony may not be used to vary the terms of a writing

53 Chapter 8 THE UNIFORM COMMERCIAL CODE In this chapter you will:  Explain the background of the Uniform Commercial Code  Discuss the basic guidelines to be used when applying the UCC  Indicate the obligations imposed by Article I of the UCC  Discuss the concept of custom and usage as it applies to contracts  Distinguish between contracts for goods and contracts for services  Define the UCC concept of merchant  Discuss the UCC express and implied warranties  List and discuss conditional sales contracts  List and discuss shipment contracts  Discuss the various remedies afforded parties under the UCC  Define a secured transaction  Indicate the requirements to create a security interest  Define a financing statement

54 Uniform Commercial Code Major statutory basis of several important areas of contract law. The UCC was created to promote commerce and to establish certain basic guidelines for those parties involved in commercial transactions.

55 Basic Guidelines of Article I  The law of the state applies unless otherwise superseded by the UCC  The parties to a contract may, by their agreement, vary the provisions of the Code  The UCC is to be liberally construed

56 Obligations Imposed by Article I  To perform in “good faith”–honesty in fact  To perform in a “reasonable time,” “reasonableness” to be determined by the facts and circumstances of each situation  To perform according to past business dealings and practices (custom and usage)

57 Basic Guidelines of Article II, Sales  The type of contracts that are governed by the UCC  Specific contractual provisions regulated by the Code covering warranties and risk of loss  Certain remedies that the contracting parties may be entitled to that differ from the general contractual remedies

58 Types of Contracts Covered by Article II  Contracts for the sale of goods  Contracts for the lease of goods  Contracts between merchants

59 Remedies Available under Article II  Remedies available to Seller Withhold delivery Stop delivery Reclaim goods from insolvent buyer  Remedies available to Buyer Cover Replevin Revocation Claim goods from insolvent seller

60 Article II-A Leases  Many jurisdictions have added a new subsection to Article II to deal with the lease of goods.

61 Article IX Secured Transactions A secured transaction is any transaction, regardless of form, that is intended to create a security interest in personal property or fixtures, including tangible goods, intangibles, and documents.

62 Requirements to Create a Security Interest  There must be a security agreement  There must be attachment  There must be perfection

63 Chapter 9 THIRD PARTY CONTRACTS In this chapter you will:  List the different types of third party contracts  Discuss third party creditor beneficiary contracts  Discuss third party donee beneficiary contracts  Distinguish between an intended and an incidental beneficiary  Define a contractual assignment  Discuss the effect of an assignment on the original contracting parties  Indicate how a gratuitous assignment may become irrevocable  Differentiate between an assignment and a novation  Distinguish a delegation from an assignment  Explain the effect of the UCC on third party contracts

64 Third Party Beneficiary Contracts  Agreements in which the original intent of one of the contracting parties, when entering into the contractual agreement, is to have the promised-for consideration pass not to her, but to some outside person

65 Two Types of Third Party Beneficiary Contracts  Third party creditor beneficiary contract: the purpose is to extinguish a debt or obligation owed to some third party  Third party donee beneficiary contract: the purpose is to confer a gift on a third person

66 Third Party Beneficiary Contracts Creditor BeneficiaryDonee Beneficiary Created to extinguish debtCreated to confer gift Rights vest with detrimental reliance Rights vest on knowledge Can sue promisor or promiseeCan sue promisor only Promisor/promisee can defend by asserting any claim he has against the other contracting party Promisor can defend by asserting any claim he has against promisee

67 Assignment  An assignment is the transfer of a promisee’s rights under an existing contract Assignments come into existence after the original contract is created A promisee may not assign his rights without the consent, express or implied, of the promisor

68 Chapter 10 DISCHARGE OF OBLIGATIONS In this chapter you will:  List the methods whereby a contractual obligation may be discharged  Define voluntary disablement  Discuss the concept of anticipatory breach  Understand what is meant by tendering performance  Differentiate between a material and a minor breach  Define mutual rescission  Explain the concept of impossibility of performance  Exemplify frustration of purpose  Understand which contracts are divisible contracts  Discuss the effect of discharge on the parties to the agreement

69 Methods of Discharge  Excuse of conditions  Performance  Breach of contract  Agreement of the parties  Impossibility of performance  Supervening illegality  Death or destruction of the subject matter or parties  Frustration of purpose

70 Chapter 11 REMEDIES In this chapter you will:  Distinguish between legal and equitable remedies  Define compensatory damages  Discuss when punitive damages may be sought  Explain what is meant by consequential damages  Distinguish between liquidated damages and limitation of damages  Define injunction  Understand when specific performance may be sought as a remedy  Explain the effect of rescission and restitution on a contract  List the quasi-contractual remedies  Discuss the effect of waivers on a breach of contract

71 Legal Remedies Legal Remedies or damages are monetary awards granted to an injured party in a contractual dispute whenever money would be an appropriate method of rectifying the injury

72 Four Types of Damages  Compensatory damages  Punitive damages  Consequential damages  Liquidated damages

73 Equitable Remedies Equitable remedies are designed to prevent unfairness and unjust enrichment. These are largely nonmonetary awards.

74 Categories of Equitable Remedies  Injunctions  Specific performance  Rescission and restitution  Reformation  Quasi-contractual

75 Quasi-Contractual Remedies These are the only equitable remedies that involve a monetary award  Quantum meruit: the value of the service rendered  Quantum valebant: the value of the property received


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