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ES 2.00 UNDERSTAND CONTRACT LAW. Obj. 2.01 Understand the elements and characteristics of a contract. Elements of a Contract. Offer Acceptance Genuine Agreement/Assent Consideration Capacity Legality All elements MUST be present to be an enforceable contract. OFFER. - PowerPoint PPT Presentation


Chapter 7

ES 2.00 UNDERSTAND CONTRACT LAWObj. 2.01 Understand the elements and characteristics of a contractElements of a ContractOfferAcceptanceGenuine Agreement/AssentConsiderationCapacityLegality

All elements MUST be present to be an enforceable contract.

OFFERProposal by one party to another with intent to create a legal binding agreement OfferorMakes the offerOffereeOffer made to this person

Requirements of an OfferSerious IntentMust intend to make the offerAdvertisements?No serious intentKnown as an invitation to negotiate Definite and CertainMust use definite wordsCommunicated to the OffereePhone, fax, Internet, letter, etc Termination of OfferRevocation Taking back of an offer by offeror Rejection Refusal by the offeree Counteroffer Any change in the terms of the offerDeath 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

Options & 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 open No 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 basisACCEPTANCEUnqualified willingness by the offeree to go along with the offer

Mirror Image RuleTerms of the acceptance must match exactly (mirror) the terms of the offerAny change means there is no acceptance (counteroffer)

Methods of AcceptanceBilateral AcceptanceOffer 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 offerees performance and indicates that performance represents acceptanceSilence as AcceptanceDoes not represent acceptanceOfferor cannot word offer in a way that silence would be considered acceptanceTime of AcceptanceAdd details of time factors for acceptanceGENUINE 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 contractDuress Undue Influence Unilateral or Mutual MistakeInnocent MisrepresentationFraudulent Misrepresentation

10DuressOvercoming a persons free will by use of force or by threat of force or bodily harm Threats of Illegal ConductThreats to Report CrimesThreats to SueThreats to sue made for purpose unrelated to the suitEconomic DuressThreats to a persons business or income Undue InfluenceUnfair and improper persuasive pressure within a relationship of trust Must be able to prove:Relationship of trust, confidence or authorityUnfair persuasion

Unilateral MistakeAn 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 dont understand or have not readSigning a contract in a language you dont understand

Mutual Mistake (Bilateral Mistake)Both parties are mistaken about an important factImpossibility of Performance Contract is impossible to perform Contract is voidSubject MatterEither party can void contract Existing LawContract is validParties are expected to know the lawInnocent MisrepresentationInnocent statement of supposed fact that turns out to be false Statement 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 Fraudulent MisrepresentationParty 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 reward

In order to prove fraud, you must prove the above 3 definitions

Proving Fraudulent MisrepresentationUntrue statement of factMust be one of fact, not opinionActive concealment Silence 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 statement If one party knows the statement is false

Proving Fraudulent MisrepresentationReasonable 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 injuryCAPACITY

Legal ability to enter into a contract

MinorsMentally IncapacitatedIntoxicated

A person serving a prison sentence lacks capacity.MinorsMinor not yet reached legal age (age of majority)NC Age of Majority 18 years old

Emancipation - 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 employment

Ratification 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

Mentally IncapacitatedLacking 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. IntoxicatedPeople under the influence of drugs or alcoholIntoxication 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.

CONSIDERATIONExchange 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 Adequacy of ConsiderationCourts dont look at adequacy or value of an agreement unless it is unconscionableUnconscionableSo grossly unfair or oppressive that it would shock the conscience of the courtSo lop-sided that the average person would not agree to termsNominal ConsiderationToken amount in a written contract where either the parties cannot or do not wish to state the amount

Agreements without ConsiderationPromise to make a giftGifts have no considerationCannot be enforcedGift that has been givenDoesnt have to be returnedDonor Gives the giftDonee Accepts the giftIllusory PromisesClause or wording that allows party to escape from legal obligationTermination clause Illusory 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 producers 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.Existing DutyExisting Public DutyNo detrimentObligation to obey the law Existing 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.Past PerformanceAn act that has already been performed cannot be consideration in a contract.Exceptions 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 offers Good faith modification of contractPromises discharged in bankruptcyExceptions to ConsiderationPromises barred from collectionPromissory EstoppelRely on what a person said Elements:Promise must bring action or forbearanceOne who gave no consideration must have relied on the promiseInjustice can be avoided only enforcing the promise


32Illegal ContractsCivil & Criminal Agreements to commit a crime/tort are illegal Usury State sets a max interest rateInterest fee the borrower pays to the lender for using the money Usury - 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

Illegal ContractsPublic policyAgreements that unreasonably restrain tradeTakes away the ability to do business with others

Agreements not to competeRestrictive 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 fixingPrice Fixing - competitors agree on certain price ranges within which they will sell their products

Illegal ContractsPublic 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 competitionAgreements to obstruct justiceAnything that delays or prevents justiceAgreements to ind