1. 2.00 UNDERSTAND CONTRACT LAW
Obj Understand the elements and characteristics of a contract

2. ELEMENTS of a Contract Offer Acceptance Genuine Agreement/Assent
Consideration
Capacity
Legality
All elements MUST be present to be an enforceable contract.

3. OFFER
Proposal by one party to another with intent to create a legal binding agreement
Offeror
Makes the offer
Offeree
Offer made to this person

4. Requirements of an Offer
Serious Intent
Must intend to make the offer
An offer made in the heat of anger or as a joke would not meet this requirement.
Sometimes an invitation to negotiate can be confused with an offer.
Advertisements?
No serious intent
Known as an invitation to negotiate

5. Requirements of an Offer
Definite and Certain
Offers that use vague words or terms that cannot be quantified lack definiteness and certainty.
An offer must be definite and certain to be enforceable.
Communicated to the Offeree
Offers may be made by any method that communicates the offer to the offeree, includin: Phone, Fax, Internet, Letter, , Telegram, etc

6. Termination of Offer Revocation – Taking back of an offer by offeror
Rejection – Refusal by the offeree
Counteroffer – Any change in the terms of the offer
Death – Offeror dies
Insanity – Offeror is declared insane
Expiration of Time – If the offeror puts a time limit on the offer and it has passed
Destruction of the subject matter

7. Options & Firm Offers
Option – the offeree gives the offeror something of value in return for a promise to keep the offer open for a set period of time
Firm Offer – a written offer for goods that states the period of time during which the offer will stay open
No additional consideration is required
Maximum period of time set by the UCC – 3 months
Offeror must be a merchant who deals in related goods on a daily basis
WORKSHEET:
Offeror & Offeree

8. American Airlines, Inc. vs. FareChase, Inc.
FareChase is a search engine whose customers are travel agencies. Its software scours-or-scrapes the Web sites of airlines, hotels, and car rental agencies to find the best rates.
In February, 2003, American Airlines(AA) won an injunction against FareChase alleging that FareChase scraped AAs site and took information without its permission. AA also claimed that FareChase violated the law of “trespass to chattels’”- or interfering with someone’s ownership of goods. Even though AA’s Web site, AA.com, is a public site, its home page contains a statement restricting the use of the information on its site.
Who is correct?

9. ACCEPTANCE
Unqualified willingness by the offeree to go along with the offer
Mirror Image Rule - Unconditional
Terms of the acceptance must match exactly (mirror) the terms of the offer
Any change means there is no acceptance (counteroffer)

10. Requirement of Acceptance
Counteroffer
Offeree makes an offer
Offeror becomes offeree
If a counteroffer is made, the original offeror is not obligated to go along and no contract exists.
The offeror becomes an offeree and may accept or reject the counteroffer.
Contracts for the sale of goods are exceptions to the mirror image rule.
These exceptions include contracts for personal property such as clothing, furniture, food, motor vehicles, and appliances.

11. Methods of Acceptance Bilateral Acceptance Unilateral Acceptance
Offer is accepted by offeree through communication of the promise to the offeror
Only requires giving a promise to perform, not performance itself
Most offers are bilateral
Unilateral Acceptance
Offeror promises something in return for offeree’s performance and indicates that performance represents acceptance
Silence as Acceptance
Does not represent acceptance
Offeror cannot word offer in a way that silence would be considered acceptance

12. Methods of Acceptance
Contract accepted when sent, if same method of communication used:
The time at which an acceptance takes place is important because that is when the contract comes into existence.
Special rules govern acceptances that take place when the parties are separated by a distance and must be communicated by letters, telegrams, or fax.
According to common law, an acceptance that must be sent over long distances is effective when it is sent.

13. Time of Acceptance Counteroffer Offeree makes an offer
Offeror becomes offeree
If a counteroffer is made, the original offeror is not obligated to go along and no contract exists.
The offeror becomes an offeree and may accept or reject the counteroffer.
Contracts for the sale of goods are exceptions to the mirror image rule.
These exceptions include contracts for personal property such as clothing, furniture, food, motor vehicles, and appliances.

14. Time of Acceptance
Contract accepted when received, if different method of communication is used
The authorization of an acceptance can also be implied by any reasonable means, including:
Past practices between the parties
The usual method in the trade
Customary means in comparable transactions

15. Time of Acceptance Offer Offeree Method Method FAX Internet Phone Mail
Internet Internet
Mail Phone
FAX FAX
Contract?
Received
Sent

16. Lava Lamp
An advertisement in the newspaper read: “Lava Lamps, $49.98.” James Darling went to the store the next day and said, “I would like to buy a Lava Lamp.” The salesperson apologized and said the lamps had sold out within an hour after the store opened.
Do you feel that the store misled Mr. Darling?

17. Home Purchase
Art Clifford sent a letter to Marge and Norm Grayson offering to buy their home for $250,000. The Graysons, who had advertised their house at $280,000, wrote in reply, “We accept your offer. However, we would like the price set at $265,000.”
Do you feel that this situation represents an “unconditional acceptance”?

18. Twin Pines
The Galaxy Research Center ed an offer to the owners of Twin Pines, a farm in rural Arkansas. The message stated: “please consider this our offer to purchase between 9,000 and 11,000 acres of your 15,000-acre tract of farmland near Twin Pines, Arkansas. Our offering price is between $15,000 and $19,000 per acre. Respond ASAP”
Is this message a legally effective offer? Why or why not?

19. Homecoming
Connie Adler agreed to go the homecoming dance with Fred Wolfe. Later, Steve McNamara, the captain of the football team, asked Connie to be his date for homecoming. Connie broke her date with Fred to go the dance with Steve.
Does Fred have a legal claim against Connie?
Why or why not?

20. Pocket Calculator
Bob Goodman made a verbal agreement to buy a pocket calculator from Howard Hermann for $35. When Hermann delivered the calculator, Goodman refused to accept it, stating that he was not bound by his verbal agreement.
Was Goodman correct?
Why or why not?

21. Waterbeds
Home Furniture Company advertised its waterbeds in a local newspaper. The newspaper mistakenly advertised the beds for $49 instead of $249.
Must Home Furniture sell the beds at the advertised price? Defend your position by citing which legal principle is involved and how it applies.

22. Revocation
Victor Archer mailed an offer to Sally Miles. Sally mailed a properly addressed and stamped letter of acceptance ten minutes before she received a revocation from Victor.
Was the revocation effective? Defend your position by citing which legal principle is involved and how it applies.

23. GENUINE AGREEMENT (ASSENT)
A valid offer has been made by the offeror, and a valid acceptance has been exercised by the offeree.
Several causes for genuine agreement to be lacking in a contract:
Duress
Undue Influence
Unilateral or Mutual Mistake
Innocent Misrepresentation
Fraudulent Misrepresentation

24. Duress
Overcoming a person’s free will by use of force or by threat of force or bodily harm
Threats of Illegal Conduct
Threats to Report Crimes
Threats to Sue
Threats to sue made for purpose unrelated to the suit
Economic Duress
Threats to a person’s business or income

25. Undue Influence
Unfair and improper persuasive pressure within a relationship of trust
Must be able to prove:
Relationship of trust, confidence or authority
Unfair persuasion

26. Unilateral Mistake An error on the part of one of the parties
Does not affect validity of the contract
Cannot get out of contract
Nature of the Agreement
Signing a contract you don’t understand or have not read
Signing a contract in a language you don’t understand

27. Mutual Mistake (Bilateral Mistake)
Both parties are mistaken about an important fact
Impossibility of Performance
Contract is impossible to perform
Contract is void
Subject Matter
Either party can void contract
Existing Law
Contract is valid
Parties are expected to know the law

28. Innocent Misrepresentation
Innocent statement of supposed fact that turns out to be false
Statement must be one of fact
Statement must be material
Statement must be relied upon
Injured party has the right to rescind (take back) the offer
No rights to damages

29. Fraudulent Misrepresentation
Party to a contract deliberately makes an untrue statement of fact
Deliberate: Done with or marked by full consciousness of the nature and effects; intentional
Deception: The fact or state of being deceived
Gain: To secure as profit or reward
In order to prove fraud, you must prove the above 3 definitions

30. Proving Fraudulent Misrepresentation
Untrue statement of fact
Must be one of fact, not opinion
Active concealment
Silence – may stay silent about defects except when:
statement is about material facts
True statement is made false by subsequent events
One party knows the other party has made a basic mistaken assumption
Materiality
Statement would cause reasonable person to contract
If one party knows the other party would rely on the statement
If one party knows the statement is false

31. Proving Fraudulent Misrepresentation
Reasonable Reliance
One party must reasonable rely on statement
Intentional or reckless
One party deliberately lies or conceals a material fact
One party recklessly makes a false statement of fact, without knowing whether it is true or false
Statement must be intended to induce party to enter into contract
Resulting Loss
Must cause an injury

32. CAPACITY Legal ability to enter into a contract Minors
Mentally Incapacitated
Intoxicated
A person serving a prison sentence lacks capacity.

33. Minors Minor – not yet reached legal age (age of majority)
NC Age of Majority – 18 years old
Emancipation - severing of the parent-child relationship
Formal – court decree
Informal – arises from the conduct of the minor and the parent
Parent and minor agree that parent will end support
Minor gets married
Minor moves out of family home
Minor joins armed forces
Minor gives birth
Minor takes on full-time employment
Ratification – agreeing to be bound by a contract that could be avoided
Contracts made by minors are voidable; minors may disaffirm (or avoid being bound by) contracts

34. Mentally Incapacitated
Lacking the ability to understand the consequences of his or her contractual acts
Severe mental illness
Severe mental retardation
Severe senility
Contracts made by mentally incapacitated are usually void unless involving necessaries.

35. Intoxicated 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.

36. CONSIDERATION
Exchange of benefits and detriments by the parties to an agreements
Requirements of consideration:
Must involve a bargained-for exchange (promise made in return for another promise)
Must involve something of value
Benefits and detriments must be legal
Benefits
Something that a party was not previously entitled to receive
Detriments
Any loss suffered; anything given up
Forbearance
Not doing something that you have the right to do

37. Adequacy of Consideration
Courts don’t look at adequacy or value of an agreement unless it is “unconscionable”
Unconscionable
So grossly unfair or oppressive that it would shock the conscience of the court
So lop-sided that the average person would not agree to terms

38. Nominal Consideration
Token amount in a written contract where either the parties cannot or do not wish to state the amount

39. Agreements without Consideration
Promise to make a gift
Gifts have no consideration
Cannot be enforced
Gift that has been given
Doesn’t have to be returned
Donor – Gives the gift
Donee – Accepts the gift

40. Illusory Promises
Clause or wording that allows party to escape from legal obligation
Termination clause
Illusory – clause to allow termination of contract for any reason
Not illusory – termination only allowed after a change in defined circumstances
Output Contracts
Agreement to purchase all of a specific producer’s product
Requirements Contracts
Agreement to supply all of the needs of a specific buyer
Output & Requirements
contracts are recognized by the courts as having consideration by implying fair dealing.

41. Existing Duty Existing Public Duty Existing Private Duty No detriment
Obligation to obey the law
Existing Private Duty
If 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.

42. Past Performance
An act that has already been performed cannot be consideration in a contract.

43. Exceptions to Consideration
Promises to charitable organizations
Gift or Pledge for future contribution
Enforceable as consideration if organization identifies the pledge for a specific use and acts in reliance on the pledge
Promises covered by the UCC
Firm offers
Good faith modification of contract
Promises discharged in bankruptcy

44. Exceptions to Consideration
Promises barred from collection
Promissory Estoppel
Rely on what a person said
Elements:
Promise must bring action or forbearance
One who gave no consideration must have relied on the promise
Injustice can be avoided only enforcing the promise

45. LEGALITY Illegal Contracts Licensing Civil & Criminal Usury Gambling
Agreements to commit a crime/tort are illegal
Usury
State sets a max interest rate
Interest – fee the borrower pays to the lender for using the money
Usury - charging too high of an interest rate
Gambling
Legal gambling varies from state to state
Licensing
States require that persons in certain occupations obtain a license to practice that occupation
Doctors, plumbers, barbers, lawyers, funeral directors

46. Illegal Contracts Public policy
Agreements that unreasonably restrain trade
Takes away the ability to do business with others
Agreements not to compete
Restrictive covenant - agreement not to compete in a region for a period of time
Only legal for a short period of time and small geographic region
Agreements for price fixing
Price Fixing - competitors agree on certain price ranges within which they will sell their products

47. Illegal Contracts Public policy (continued)
Agreements to eliminate competitive bidding (or bid rigging)
Bid - offer to buy or sell goods or services at a stated price
Bid rigging – competitors agree that one bidder will have low bid for a certain job….low bidder sets bid higher than would if real competition
Agreements to obstruct justice
Anything that delays or prevents justice
Agreements to induce breach of duty or fraud
Influencing persons who hold positions of high trust for private gain
Agreements to interfere with marriage
Damage, destroy, or discourage good family relationships

48. Statute of Frauds
Requires that certain contracts be in writing to be enforceable
Contracts to buy and sell goods for a price of $500 or more
Contracts to buy and sell real property
Contracts that require more than one year to complete
Promises to pay the debt of another
Promises to give something of value in return for marriage
Fraud
WORKSHEET:
Elements of a Contract
WORKSHEET:
Ted & Brenda

49. CHARACTERISTICS of a contract
Valid, void, voidable, unenforceable
Express or implied
Bilateral or unilateral
Oral or written

50. Valid, Void, Voidable, Unenforceable
Valid contract
Includes all elements recognized by the courts
Legally binding
Void contract
Without legal effect
Contracts missing one or more elements
Valid Contracts

51. Valid, Void, Voidable, Unenforceable
Voidable contract
One or more parties can get out of contract for some legal reason
Contract lacks genuine assent, contracts with minors
Unenforceable contract
Contract that court will not uphold, usually because of some rule of law
Statute of limitations has expired

52. Express or Implied Express Implied
Contract statement that may be written or oral
Implied
Contract that comes about from the actions of the parties

53. Bilateral or Unilateral
Contains two promises
Most contracts are bilateral
Unilateral
Contains a promise by only one person to do something if, and when, the other party performs a certain act
Reward offer is most common unilateral contract

54. Oral or written Oral Written
Created by two or more people speaking to each other
Written
contract terms are written so that both parties know the exact terms
Provides proof of existence for the contract
Certain contract are required by the Statute of Frauds to be in writing
WORKSHEET:
Characteristics
of a Contract
WORKSHEET:
Matching
DEBATE

55. Contract Characteristics Which Characteristics
Review
WORKSHEET:
Terms, Definitions
& Examples
WORKSHEET:
Contract Characteristics
Matching
WORKSHEET:
Scenarios
WORKSHEET:
Which Characteristics