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Contract Law Organize the requirements of each element of a contract Competency 3. 00 Contract Law Organize the requirements of each element of a contract Competency 3. 00

Contract Law All 6 Elements are required in order to have a contract Contract Contract Law All 6 Elements are required in order to have a contract Contract ◦ any agreement enforceable by law ◦ Ex Every time you buy something Competency 3. 00

6 Elements Offer ◦ Proposal by one party to another with intent to create 6 Elements Offer ◦ Proposal by one party to another with intent to create a legal binding agreement Acceptance ◦ an unqualified willingness to go along with the offer Competency 3. 00

6 Elements continued Genuine Agreement ◦ if a valid offer is met by a 6 Elements continued Genuine Agreement ◦ if a valid offer is met by a valid acceptance then a genuine agreement exists ◦ Can be destroyed by fraud, misrepresentation, duress, or undue influence Capacity ◦ Legal ability to enter into a contract ◦ Ex Minor, mentally ill, drunk, drugs Competency 3. 00

6 Elements continued Consideration ◦ Must exchange something of value in order to create 6 Elements continued Consideration ◦ Must exchange something of value in order to create a bond Legality ◦ Must be permitted by law ◦ Courts will not enforce an illegal contract Competency 3. 00

Offer ◦ Proposal Offeror ◦ Makes the offer Offeree ◦ Offer made to this Offer ◦ Proposal Offeror ◦ Makes the offer Offeree ◦ Offer made to this person Competency 3. 00

3 Requirements of an Offer Serious Intent ◦ Must intend to make the offer 3 Requirements of an Offer Serious Intent ◦ Must intend to make the offer ◦ Advertisements? No serious intent Known as an invitation to negotiate Definite and Certain ◦ Must use definite words Communicate to the Offeree ◦ Phone, fax, Internet, letter, etc Competency 3. 00

Organize the Required Parts and Forms of a Contract Competency 3. 00 Organize the Required Parts and Forms of a Contract Competency 3. 00

Breach of Contract Wrongful failure to perform one or more promises of a contract. Breach of Contract Wrongful failure to perform one or more promises of a contract. Competency 3. 00

Writing must identify: Date Parties Price Intent of parties Place Subject Matter Terms Signature Writing must identify: Date Parties Price Intent of parties Place Subject Matter Terms Signature of both parties Competency 3. 00

Contradictory/Ambiguous Terms Contradictory ◦ Handwritten terms prevails over typed terms ◦ Handwritten numbers prevails Contradictory/Ambiguous Terms Contradictory ◦ Handwritten terms prevails over typed terms ◦ Handwritten numbers prevails over figures Ambiguous Clauses ◦ Can be interpreted two different ways ◦ Court favors the one who didn’t draft the contract Competency 3. 00

Statute of Frauds? Requires that certain contracts must be in writing ◦ Relates to Statute of Frauds? Requires that certain contracts must be in writing ◦ Relates to executory contracts Competency 3. 00

Must be in Writing: Contracts persons Contracts perform Contracts to pay debts of others Must be in Writing: Contracts persons Contracts perform Contracts to pay debts of others to pay debts of deceased requiring more than a year to to sell real property ◦ (Exception: Equitable Estoppel – must rely on promise. ) Contracts for sale of goods over $500 Prenuptial contract (contemplation of marriage) Competency 3. 00

Parol Evidence Rule Courts assure ALL terms are written into the agreement. Competency 3. Parol Evidence Rule Courts assure ALL terms are written into the agreement. Competency 3. 00

Changing the Writing Read entire document If you don’t agree with something, then cross Changing the Writing Read entire document If you don’t agree with something, then cross it out and both parties initial it Write in promises Refuse to sign if you don’t agree contract Competency 3. 00

Acceptance Unqualified willingness to go along with the offer Competency 3. 00 Acceptance Unqualified willingness to go along with the offer Competency 3. 00

Requirements of Acceptance Unconditional Acceptance ◦ Mirror Image Rule Acceptance must “mirror” offer Any Requirements of Acceptance Unconditional Acceptance ◦ Mirror Image Rule Acceptance must “mirror” offer Any change means there is no acceptance ◦ Counteroffer Offeree makes an offer Offeror becomes offeree Competency 3. 00

Methods of Acceptance Contract accepted when sent, if same method of communication used Contract Methods of Acceptance Contract accepted when sent, if same method of communication used Contract accepted when received, if different method of communication is used If method is stated in offer, it MUST be used Action=Acceptance Silence cannot be a method of acceptance Competency 3. 00

Example of Acceptance Competency 3. 00 Example of Acceptance Competency 3. 00

Example of Acceptance Competency 3. 00 Example of Acceptance Competency 3. 00

Termination of Offer Revocation – Taking back of an offer by offeror Rejection – 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 Expiration of Time – If the offer puts a time limit on the offer and it has passed Death – Offeror dies Insanity – Offeror is declared insane Competency 3. 00

Genuine Agreement A valid offer has been made by the offeror, and a valid Genuine Agreement A valid offer has been made by the offeror, and a valid acceptance has been exercised by the offeree Competency 3. 00

Mistake Unilateral Mistake ◦ An error on the part of one of the parties Mistake Unilateral Mistake ◦ An error on the part of one of the parties ◦ Cannot get out of contract ◦ Types: Nature of the Agreement Signing a contract you don’t understand or have not read This applies to signing a contract in a language you don’t understand Identity of a Party Bound by contract with face to face meetings May be able to void a contract made NOT face to face Competency 3. 00

 Bilateral Mistake (Mutual Mistake) ◦ Both parties are mistaken ◦ Types: Possibility of Bilateral Mistake (Mutual Mistake) ◦ Both parties are mistaken ◦ Types: Possibility of Performance Contract is impossible to perform Either party can void contract Subject Matter Either party can void contract Competency 3. 00

Fraud Deliberate deception for an unfair or unlawful gain ◦ Define each word in Fraud Deliberate deception for an unfair or unlawful gain ◦ Define each word in bold Competency 3. 00

 Deliberate: Done with or marked by full consciousness of the nature and effects; 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 Competency 3. 00

 Proving Fraud: 1. False Representation of Fact 1. Must be a material (important) Proving Fraud: 1. False Representation of Fact 1. Must be a material (important) fact 2. Concealment (nondisclosure) may be considered false representation 2. Representation Known to be False 3. False Representation Intended to be Relied Upon 4. False Representation Actually Relied Upon 5. Resulting Loss Competency 3. 00

Innocent Misrepresentation Make an innocent statement of supposed fact that turns out to be Innocent Misrepresentation Make an innocent statement of supposed fact that turns out to be false Injured party has the right to rescind (take back) the offer No rights to damages Competency 3. 00

Duress Overcoming a person’s will by use of force or by threat of force Duress Overcoming a person’s will by use of force or by threat of force or bodily harm Economic Duress ◦ Threats to a person’s business or income Actual physical harm will void the contract Threat of physical harm will make contract voidable A threat of exercising one’s legal right is NOT duress Ex Threatening to sue someone and you have right to sue, is NOT duress Competency 3. 00

Undue Influence Unfair and improper persuasive pressure within a relationship of trust Competency 3. Undue Influence Unfair and improper persuasive pressure within a relationship of trust Competency 3. 00

Match the column on left with who they have undue influence over in the Match the column on left with who they have undue influence over in the right column? 1. 2. 3. 4. Doctor Lawyer Parents Teacher 1. 2. 3. 4. Student Children Client Patient Answers: 1 -4, 2 -3, 3 -2, 4 -1 Competency 3. 00

Capacity to Contract Competency 3. 00 Capacity to Contract Competency 3. 00

Capacity to Contract v Capacity – legal ability to enter a contract v Majority Capacity to Contract v Capacity – legal ability to enter a contract v Majority – age of legal adulthood v Minor – not yet reached legal age (minority) v NC Age of Majority = 18 years old v Voidable Contracts – minors may disaffirm or avoid their contracts if they so choose v Infancy = minority = minor = under 18 yrs old Competency 3. 00

Capacity to Contract v Returning Merchandise – must be returned if disaffirming a contract Capacity to Contract v Returning Merchandise – must be returned if disaffirming a contract v Tender – offer to return v Misrepresenting Age – fraud - if contract disaffirmed, you may be sued for fraud Competency 3. 00

Capacity to Contract v Disaffirming the Whole Contract - can’t disaffirm parts of a Capacity to Contract v Disaffirming the Whole Contract - can’t disaffirm parts of a contract -- must disaffirm all or none v Disaffirming Contracts made with Minors – both can disaffirm contact Competency 3. 00

Ratification of Contracts with Minors v Ratify – approve contract - after reaching majority Ratification of Contracts with Minors v Ratify – approve contract - after reaching majority age, a minor can ratify a contract made while he or she was a minor - ratification ends all rights given to a minor v Contracts for Necessaries – necessities – food, clothing, shelter, and medical care - responsible for the fair value of item Competency 3. 00

Ratification of Contracts with Minors v Special Statutory Rules – minors have capacity to Ratification of Contracts with Minors v Special Statutory Rules – minors have capacity to buy car/life insurance - married = adult - limited capacity if you own a business - renting apartment is a necessity Competency 3. 00

Other Contractual Capacity Rules v Mentally insane: impaired persons – if declared v. Prior Other Contractual Capacity Rules v Mentally insane: impaired persons – if declared v. Prior to guardian being appointed – Contract is voidable v. After guardian appointed - all contracts are void v Intoxicated person – must not understand the purpose, nature, or effect of the transaction - fair value of necessities Competency 3. 00

Other Capacity Limitations v Convicts have certain limitations v Aliens – people who live Other Capacity Limitations v Convicts have certain limitations v Aliens – people who live in U. S. but own allegiance to a different country - limited capacity ex: war Competency 3. 00

Consideration Competency 3. 00 Consideration Competency 3. 00

Gratuitous Contracts The law does not enforce any contracts that are gratuitous Gratuitous contracts Gratuitous Contracts The law does not enforce any contracts that are gratuitous Gratuitous contracts are free agreements Competency 3. 00

Consideration Exchange of benefits and detriments by the parties to an agreements Benefits ◦ Consideration Exchange of benefits and detriments by the parties to an agreements Benefits ◦ Something that a party was not previously entitled to receive Detriments ◦ Any loss suffered Competency 3. 00

Types of Detriments Give up or promise to give up something you are entitled Types of Detriments Give up or promise to give up something you are entitled to receive Doing or promising to do something you have a legal right to do Forbearance ◦ Not doing something you have a legal right to do Competency 3. 00

Agreements without Consideration Promise to make a gift ◦ Gifts have no consideration ◦ 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 Competency 3. 00

Agreements without Consideration Promise to obey the law ◦ No detriment ◦ You are Agreements without Consideration Promise to obey the law ◦ No detriment ◦ You are obligated to obey the law Preexisting Duty ◦ If a person is already under legal duty to do something, a promise to do that same thing does not furnish consideration Competency 3. 00

Agreements without Consideration Past Consideration ◦ Consideration cannot already have been completed Promise to Agreements without Consideration Past Consideration ◦ Consideration cannot already have been completed Promise to attend a social agreement ◦ No consideration ◦ However, in some instances (prom) there may be grounds for a lawsuit You must show a loss ◦ Exception: Prom Competency 3. 00

Adequacy of Consideration Courts don’t look at adequacy or value of an agreement unless Adequacy of Consideration Courts don’t look at adequacy or value of an agreement unless it is unconscionable Unconscionable? ◦ So lopsided that the average person would not agree to terms Competency 3. 00

Special Applications Partial Payment of Debt ◦ Must have new consideration in order to Special Applications Partial Payment of Debt ◦ Must have new consideration in order to relieve entire debt Settlement of Disputed Claims ◦ Examples: Fixing your car or visit the doctor Extension of Time ◦ To extend time, one party must offer new consideration Competency 3. 00

Promises Enforceable Without Consideration Pledges and subscriptions Promissory Estoppel ◦ Rely on what a Promises Enforceable Without Consideration Pledges and subscriptions 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 Competency 3. 00

Consideration Quiz Draw a box – 2 x 2 1 A sells a car Consideration Quiz Draw a box – 2 x 2 1 A sells a car to B for $5000 2 B sells stereo to A for $150 3 A gives B an engagement ring 4 A gives B $50 for returning her lost jacket B received the $50 the day after the jacket was returned 5 A gives B $100 for saving his sons life (B is a police officer) Competency 3. 00

Legality Competency 3. 00 Legality Competency 3. 00

Agreements that Violate Statutes Civil & Criminal Statutes ◦ Agreements to commit a crime/tort Agreements that Violate Statutes Civil & Criminal Statutes ◦ Agreements to commit a crime/tort are illegal Usury Statutes ◦ 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 Competency 3. 00

 Truth in Lending Act ◦ Lender is required to make clear the annual Truth in Lending Act ◦ Lender is required to make clear the annual percentage rate (APR). Gambling Statutes ◦ Discuss state laws Lottery vs Poker Sunday Statutes ◦ Illegal to perform certain contracts on Sunday Competency 3. 00

Licensing Statutes License - legal document stating that the holder has permission from the Licensing Statutes License - legal document stating that the holder has permission from the proper authorities to carry a certain trade or profession (Example) - If license is only to raise revenue (not to show competence) contracts made are valid not void (Person w/out license subject to arrest ) Competency 3. 00

Agreements Contrary to Public Policy Agreement in unreasonable restraint of trade Types: Competency 3. Agreements Contrary to Public Policy Agreement in unreasonable restraint of trade Types: Competency 3. 00

Agreements Contrary to Public Policy 1) Outright contracts not to compete - seller of Agreements Contrary to Public Policy 1) Outright contracts not to compete - seller of a business may sign a restrictive covenant which would be upheld by the court 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 Competency 3. 00

Agreements Contrary to Public Policy 2) Price Fixing - competitors agree on certain price Agreements Contrary to Public Policy 2) Price Fixing - competitors agree on certain price ranges within which they will sell their on prices Competitors may agree to sell a product at a particular price Manufacturers may set a price at which a product must be sold Price fixing is NOT enforced by the court Competency 3. 00

Agreements Contrary to Public Policy 3) Agreements to defeat competitive bidding Bid - offer Agreements Contrary to Public Policy 3) Agreements to defeat competitive bidding Bid - offer to buy or sell goods or services at a stated price Law often requires govt to contract public works or buy goods or services through competitive bidding Agreement to bid above a certain price is illegal Competency 3. 00

Agreements Contrary to Public Policy 4) Agreements to obstruct justice - any agreement to Agreements Contrary to Public Policy 4) Agreements to obstruct justice - any agreement to interfere with administration of justice (Example - protect someone from arrest; giving false testimony; bribing) Competency 3. 00

Agreements Contrary to Public Policy 5) Agreements Inducing Breach of Duty or Fraud - Agreements Contrary to Public Policy 5) Agreements Inducing Breach of Duty or Fraud - contracts that try to influence public officials 6) Agreements Interfering with Marriage contracts that discourage, harm, or interfere with good family relations Competency 3. 00

Effect of Illegality If the legal part can be separated from illegal part, the Effect of Illegality If the legal part can be separated from illegal part, the court will separate If the legal part can’t be separated from illegal part, the contract is void Competency 3. 00