Unit 3 CONTRACT LAW
1
WHAT IS A CONTRACT?
A legally
binding agreement
THAT
requires a bargain
Offer + Consideration = Acceptance
2
WHAT IS IN A CONTRACT?
Offer-- proposal by one party to another
to create legally binding agreement.
Acceptance --- 2nd parties willingness to
go along with lst parties proposal (offer)
Consideration -- whatever is exchanged
for something else
THE BIG QUESTION IN A CONTRACT:
Did everyone give up something?
3
Developer promised to pay Graphic
Designer $5000 for creating certain
promotional materials for Developer's
multimedia work. Graphic Designer
created the materials and delivered them
to Developer, as required in the contract.
Developer admits that the materials
meet the contract specifications.
IS THERE AN OFFER?
IS THERE ACCEPTANCE?
IS THERE CONSIDERATION?
IS THERE A BINDING CONTRACT?
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WHAT ARE THE TWO PARTS
TO AN AGREEMENT?
5
THE EXCHANGE OF
SOMETHING FROM BOTH
PARTIES IS CALLED?
6
CAPACITY
Legal ability to enter a contract
CAPACITY HAS TO DO WITH BEING CAPABLE
Did both parties know what they were doing
when they entered into the contract?
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Capacity continued
INFANCY
If under age of 18, can disaffirm an
agreement if NOT for the necessity of life
WHY 18: BELIEF THAT YOU CAN BE
TAKEN ADVANTAGE OF
What are necessities of life:
food, clothing, shelter, medical care
Disaffirm: deny, terminate
8
CAN SEAN VOID THE
CONTRACT?
• Sean, 17, a snowboarder, signs a longterm endorsement agreement for
sportswear. He endorses the products and
deposits his compensation for the
endorsements for several years. At age
19, he decides he wants to void the
agreement to take a better endorsement
deal. He claims he lacked capacity when
he signed the deal at 17.
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Capacity continued
MENTAL INCAPACITY
Two tests:
1. COGNITIVE TEST
Did you understand the nature and
consequences of the transaction at the time it
was entered into?
2. MOTIVATIONAL OR AFFECTIVE TEST
Because of a mental illness or defect, a person
was unable to act in a reasonable manner with
respect to the transaction. Did the other party
know or should have known of the condition? 10
CAN SMALLEY CONTRACT?
• Mr. Smalley contracted to sell an invention, and
then later claimed that the contract was void
because he lacked capacity. Smalley had been
diagnosed as manic-depressive and had been in
and out of mental hospitals. His doctor stated
that Mr. Smalley was not capable of evaluating
business deals when he was in a "manic" state.
The manic phase of the illness under discussion
is not, however, a weakness of mind rendering a
person incompetent to contract ….
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UNDER WHAT AGE CAN YOU
DISAFFIRM A CONTRACT?
WHAT DOES DISAFFIRM
MEAN?
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TYPES OF CONTRACTS:
EXPRESS CONTRACTS
– CLEAR STATED. KNOW PARTY’S INTENT
TWO TYPES OF EXPRESS CONTRACTS:
1. ORAL –ONLY SPOKEN WORDS
2. WRITTEN CONTRACTS: WRITTEN TERMS
IF YOU DON’T TRUST A PERSON’S WORD, OR
MONEY INVOLVED AND THINK A PROBLEM
WILL ARISE: GET IT IN WRITING
Statute of Limitations on contracts:
ENFORCEMENT: ORAL – 6 YRS. WRITTEN – 15 YRS.
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IMPLIED CONTRACT
RESULTS FROM ACTIONS OF PARTIES
1. LOOK AT THE FACTS
2. CAN RESULT WITHOUT SINGLE WORD
SPOKEN
WHAT ARE THE FACTS YOU LOOK AT?
THE ACTIONS INVOLVED
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QUASI CONTRACT
CONTRACT WOULD HAVE BEEN CREATED EXCEPT
FOR UNFORESEEN CIRCUMSTANCES (TROLLEY
EXAMPLE)
Quasi contracts determined by two things:
1. Facts
2. Law
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WHAT TYPE OF CONTRACT IS CREATED
THROUGH ACTIONS OF PARTIES?
WHAT TYPE OF CONTRACT IS CREATED THROUGH
CLEARLY STATED TERMS EACH PARTY
UNDERSTANDS?
WHAT TYPE OF CONTRACT IS CREATED THROUGH
UNFORESEEN CIRCUMSTANCES -- CONTRACT WOULD
HAVE BEEN CREATED UNDER NORMAL
CIRCUMSTANCES?
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OTHER TYPES OF CONTRACTS
VALID CONTRACT – good contract
Six elements to a good contract:
1.
offer
2.
acceptance
3.
agreement
4.
consideration
5.
capacity
6.
legality
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VOID CONTRACT
Other types of contracts cont.
--contract that is not good
--one element missing would
void contract
VOIDABLE CONTRACT
--defect in contract (legal reason?)
--can continue or void
EXAMPLE: CONTRACT BETWEEN MINOR
AND ADULT WILL VOID CONTRACT FOR
____________ BUT NOT ____________.
Why voidable for minor?_____________
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Other types of contracts cont.
BILATERAL CONTRACT
--two sides – two promises
--promise for a promise
UNILATERAL CONTRACT
--uni means one
-- promise for an act
One person promises to do something if and
when the other person performs some act.
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Other types of contracts cont.
EXECUTED CONTRACT
--completed contract when both parties
FULFILL their part of the bargain.
EXECUTORY CONTRACT
--incomplete contracts
--one party fulfills obligation to contract
--other party has not completed their
part of the bargain.
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COMMON LAW CONTRACTS
VS
MODERN TRENDS OF CONTRACTS
Common Law –
--all contracts must be agreements
--not all agreements enforceable
Modern Trends—
Promissory Estoppel
--If agreement made and you accept
in good faith and injured, can
sue for monetary damages.
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WHAT IS THE DIFFERENCE
BETWEEN A
VOID CONTRACT
AND A
VOIDABLE CONTRACT?
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I OFFER TO PAY YOU $5 IF YOU WASH MY
CAR
UNILATERAL OR BILATERAL CONTRACT?
I WILL SELL YOU MY CANDYBAR FOR $.50,
I WILL BUY YOUR CANDYBAR FOR $.50
UNILATERAL OR BILATERAL CONTRACT?
THIRD PARTY OFFERS TO BUY MY
CANDYBAR FOR $.50
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UNILATERAL OR BILATERAL CONTRACT?
OFFER
A proposal by one party to another party to
enter a contract
OFFEROR
Person making offer
Person who receives the offer OFFEREE
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THREE BASIC REQUIREMENTS
OF A BASIC OFFER:
Offer made to you must be definite and
certain. (ex: newspaper ad, catalog, price
lists – invitations to negotiate NOT OFFERS
HOWEVER, IF AD SAYS ”this price good for
given period” – can hold to that price
2.Offer must be communicated to offeree.
3.Offer must be made seriously and intent to
be enforceable obligation. (I will sell you my
stapler for $5; I will buy your stapler for $5
OFFERS DONE IN JEST OR UNDER EMOTIONAL
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DISTRESS NOT REAL OFFERS.
MAILBOX RULE: APPLIES ONLY TO
ACCEPTANCE
When an offer is sent, acceptance takes place
when it is mailed, faxed, phoned.
E-mail – acceptance takes place when it is
received in readable form in the designated
inbox. It does not have to be opened.
If you want to withdraw an offer, withdrawal
does not take effect until offer is received.
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E-mail
E-mailed
When arrives in readable form at
system designated
received
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EXCEPTION TO MAILBOX RULE:
IF YOU DO NOT RESPOND AS TOLD TO AN OFFER
EX: Please mail your response to our offer
and you fax it.
THE OFFER IS NOT ACCEPTED UNTIL RECEIVED
GENERAL RULE:
UNLESS SPECIFICALLY INDICATED, ANY
REASONABLE MANNER OF ACCEPTANCE IS
ACCEPTABLE UNLESS TOLD OTHERWISE.
EX: If mailed offer, I respond by fax
Acceptance when faxed unless told to mail.29
REVIEW OF MAILBOX EXAMPLE
Receive offer on April 10. Letter dated
April 1, offer says good for 10 days. Good
until _______________
If letter dated April 1 and offer good for 10
days from date of letter. You receive the
letter on April 10. Is offer still good?
___________________
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#1
A makes an offer to B on January 1; A then decides
to revoke the offer on January 2 and puts a letter in
the mail to B revoking the offer; however, B puts a
letter accepting the offer in the mail on January 3,
and does not receive A's revocation letter until
January 4.
WHEN WAS A CONTRACT FORMED?
CAN THE OFFER BE REVOKED?
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#2
A makes an offer to B on January 1, and
initially B intends to reject the offer on
January 2 by putting a letter in the mail to A
rejecting the offer. However, the next day B
changes his mind and sends a fax to A
accepting the offer.
IS THE OFFER REJECTED OR ACCEPTED BY
A?
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REQUIREMENTS FOR ACCEPTANCE
1)Acceptance cannot change terms of original
offer in any way
2)Mirror Image Rule –
acceptance
mirrors
offer.
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COUNTEROFFER
Any change in the terms of the
offer that means the offeree has
not really accepted the offer.
Ex: House on market for $30,000.
$30,00 is too much. I will offer
$25,000 for your house. If
counteroffer made by offeree,
original offeree becomes offeror.
1)If counteroffer made by offeree,
offeror becomes offeree to
accept/reject offer.
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EXCEPTIONS for MERCHANTS
Merchants –can make minor changes as long as it
does not change the basic terms of the contract.
Merchants can revoke an offer before acceptance
Firm Offer
• can be good for max. of 90 days. Terms are: it
must be in writing, it must be clearly stated.
Ex: An event planner extended a firm offer to accept the
company's proposal for a private catered dinner party.
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OFFER AND ACCEPTANCE – OFFER
TERMINATION
1. DURATION STATED IN OFFER – most common way to end
offer
2. NO DURATION STATED IN OFFER – reasonable time
frame one month reasonable
3. DESTRUCTION OF SUBJECT MATTER – unknown to both,
subject matter destroyed
4. DEATH OR INSANTIY OF PARTY -- BEFORE offer
accepted, offeror dies or insane at time of offer. If
offeror dies AFTER offer made, must deal with
guardians or person(s) handling estate
5. SUPERVENING ILLEGALITY – an offer is made and then it
becomes illegal to perform it.
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How do most offers end?
BY ACTION OF THE PARTIES
Revocation of Offer – withdraw offer
Irrevocable Offer – paying someone money to
keep an offer open
Firm Offer - offer good for 3 months if nothing
stated. MUST BE IN WRITING.
Rejection – NO. That ends offer immediately
Counteroffer – ends first offer
Inquiry - As long as one does not say NO, original
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offer is still on the table
LET’S REVIEW WHAT WE ALREADY KNOW
ABOUT CONTRACTS
•Contracts are legal agreements & enforceable
•The age of majority or legal adult age is 18
•The age of minority or minor age is under 18
•Disaffirm means your intention to get out of a
contract
•You cannot disaffirm a contract for necessities of
life: food, clothing, shelter, medical need
•Six elements of a valid contract are: offer,
agreement, acceptance, consideration,
capacity, legality
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DEFECTIVE
AGREEMENT
Genuine agreement
disrupted by fraud,
misrepresentation,
mistake, duress,
undue influence.
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FRAUD
Intentional misrepresentation,
deliberate deception
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MISREPRESENTATION
(1-2)
1. CAN BE INNOCENT
Both parties believed
information provided
was true but it was not true
Ryan puts his summer cottage up for sale. Mary,
interested in buying it, asks if it had termites. Ryan,
unaware of the termite problem, answers NO. Mary buys
the cottage and discovers termites. Can Mary get her
money back?
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MISREPRESENTATION continued (1)
2. INTENTIONAL --CHEAT SOMEONE KNOWINGLY
Andrew’s basement floods every time it rains.
When Stephanie, a potential buyer, asks about
water in the basement, Andrew says the
basement is dry. After the first heavy rain,
Stephanie’s new home basement is flooded. Is
Andrew guilty of a crime? Can Stephanie sue for
damages?
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MISTAKE
1. UNILATERAL MISTAKE
One of the parties makes a mistake on a material fact OR in
judgment, value, or quality out of carelessness.
OR
2. BILATERAL(MUTUAL) MISTAKE
Deals with existence of subject matter.
Contract can be voided
by either party because
both parties mistaken.
Nature of mistake determines whether courts
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will help you.
UNILATERAL OR BILATERAL MISTAKE (1-2-3)
Michael agreed to sell his car to Jon for $1,000. Unknown
to both of them, the car had been totaled the night before
by a tree that fell on the car as it sat on the side of the
street. Unilateral or Bilateral Mistake?
Kierra sent a letter to Melissa offering her a babysitting
job at $15/hr. The letter was delivered to another Melissa
instead. The other Melissa accepted the offer.
Unilateral or bilateral mistake?
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DURESS
Overcoming a person’s will
by: Force; Threat of force;
Threat of bodily harm
“You shoot him or I will shoot you.
You shoot the person to save
yourself.
Your defense: Duress. Will it hold up in a
court of law?
NO—cannot use duress as an excuse for
killing someone.
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UNDUE
INFLUENCE
One party in a
dominating relationship
takes unfair advantage, causing a contract to
be voidable.
Ex: doctor-patient relationship; lawyer-client
relationship; teacher-student relationship
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INFANCY IS A SHIELD
NOT A SWORD
WHAT DOES THAT MEAN?
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MINOR’S RIGHT TO DISAFFIRM
CONTRACT CAUSES
CONTROVERSY
If you take out a contract at 17 and continue
making payments after you turn 18, are you liable
for the contract?
YES - ratified the contract by continuing to make
payments after turning 18.
If you lie about your age are you held to a contract?
YES, If a minor misrepresents their age, they
could be held liable for the contract – fraud.
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RATIFICATION OF MINORS’CONTRACTS
What does ratification mean?
confirming or making something valid
Upon reaching age of majority (18), person can ratify contract
made during minority (under 18).
1. Ratification can be done orally, in writing, or by actions.
52
DOES IT MATTER WHETHER YOU ARE WITH
FRIENDS OR YOUR PARENTS WHEN YOU BUY
ITEMS?
• If you bought an item with
your parent around, your
parents will be held to the
contract.
• If you bought an item
WITHOUT your parents
around, you have the right
to return an item and ask
for your money back.
53
ARE THERE LIMITATIONS
OF MINORS RIGHTS TO
DISAFFIRM CONTRACT
1. Minors have right to disaffirm contracts
even if items damaged or destroyed.
2. After disaffirmed, minor must return
purchased items.
3. Minor cannot disaffirm unfavorable parts
of contract and affirm favorable parts of
contract.
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Gina, one week before her 18th birthday purchased an
iPod from the Apple store and paid $180 cash for the item.
A week after her birthday, she purchased a handheld
police scanner for $95 from Radio Shack and paid cash. A
week after she purchased the police scanner, Gina wished
to disaffirm both contracts and recover $180 from the
Apple store and $95 from Radio Shack. Will Gina be
allowed to disaffirm one, both, or neither of these
contracts assuming that both purchases were within the
guidelines of selling to minors?
(1)
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MINORS
REPONSIBLE FOR ALL
TORTS
1) PARENTS RESPONSIBLE FOR
ACTIONS OF MINORS
2) PARENTS CAN BE SUED UP TO $10,000 FOR PROPERTY
DAMAGES OR PERSONAL DAMAGES SUCH THEFT,
ASSAULT. $15,000 FOR DESECRATION, VANDALISM IF
WANTON (RECKLESS) ACTION
3) MINOR CAN BE SUED AS WELL AS PARENT
4) NON-RESIDENT PARENT CAN BE HELD EQUALLY LIABLE
FOR ACTIONS OF KIDS
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EMANCIPATION AND ABANDONMENT
EMANCIPATION –
ABANDONING
the protection afforded to them as minors.
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OHIO does not have an emancipation law.
As a general rule, a child is “emancipated,” or freed from parental
control, care and custody, upon reaching the age of 18 or upon
graduation from high school if a child turns 18 in his or her senior
year. In Ohio, emancipation also can occur before that time if the
child gets married or joins the military service. While many people
think that someone under 18 can go to court and “get
emancipated,” Ohio law does not provide for such a court order.
Rather, circumstances determine whether or not a person is
emancipated in the eyes of the law.
In the event of divorce or annulment, or discharge from the Armed
Forces before the age of 18, custody of the minor will automatically
revert to the parent who previously had custody over the minor.
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RIGHTS OF MENTALLY IMPAIRED
TO DISAFFIRM
1. No guardian, contract voidable
2. Guardian, contract valid
ROLE OF GUARDIAN:
LOOK AFTER MENTALLY IMPAIRED
PERSON’S AFFAIRS
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INTOXICATED PERSON’S
RIGHT TO DISAFFIRM
Must prove state of mind was impaired
1. unable to understand purpose
2. unable to understand nature or effect of transaction
3. must have been intoxicated at time of contracting
4. responsible for fair value of necessities (food,
clothing, shelter, medical care)
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• Mr. Thackrah, a Utah resident and owner of
$80,000 worth of mining stock, went on a threemonth bender. Mr. T's fondness for alcohol was
well known, and a local bank hired Mr. Haas to
contract with the inebriated Thackrah. Haas did
the deal, getting Thackrah to agree to accept
$1,200 for his mining stock. When he sobered
up (a month later), Thackrah learned that Haas
had turned over the mining shares to a local
bank (apparently the real culprits in the
scheme). Thackrah sued Haas. The case went
all the way to the U.S. Supreme Court.
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ALIENS
PEOPLE LIVING IN THIS COUNTRY BUT
OWE THEIR ALLEGIENCE TO
ANOTHER COUNTRY.
If they don’t speak English,
are they bound to contracts
they enter?
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