ES 2.00 UNDERSTAND
CONTRACT
LAW
https://www.youtube.com/watch?v=Hi4fOXfqJJw
Obj. 2.01 Understand the elements and
characteristics of a contract
Notes: Understand Contract Law
1.
2.
BL 2.01 Notes Organizer Understand
Contract Law
Handout/Open from the teacher/class
webpage
https://www.youtube.com/watch?v=Hi4fOXfqJJw
Elements of a Contract






Offer
Acceptance
Genuine Agreement/Assent
Consideration
Capacity
Legality
All elements MUST be present to be an enforceable
contract.
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
Requirements of an Offer

Serious Intent
Must intend to make the offer
 Advertisements?




Definite and Certain


No serious intent
Known as an invitation to negotiate
Must use definite words
Communicated to the Offeree

Phone, fax, Internet, letter, etc
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
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
Activity 1: Contract Law--Offers
BL 2.01 Activity 1-Use the following
scenario to answer the questions at the
bottom.
1.
1.
(Use PPT Notes)
Activity 1: Contract Law--Offers

Bob called Kevin and told him he would sell 10 of
his baseball cards for $50.
 Who
is the offeror?
 Who is the offeree?
 Is this an offer?
 Why or why not?
Bob
Kevin
No
Not definite and certain
Activity 1: Contract Law--Offers

Marsha’s car broke down. She yells out I should sell
this car for $50 right now. Her friend, Ashley, says
“ok, I’ll buy it” and gives her $50.
 Who
is the offeror?
 Who is the offeree?
 Is this an offer?
 Why or why not?
Marsha
Ashley
No
No serious intent
Activity 1: Contract Law--Offers

While at home alone, Carla decides to sell her
computer to Mike for $500, so that she can buy a
new one.
 Who
is the offeror?
 Who is the offeree?
 Is this an offer?
 Why or why not?
Carla
Mike
No
Not communicated to offeree
Activity 2: Contract Law--Offers
BL 2.01 Activity Read the scenarios and
answer the questions.
1.
1.
2.
(Use PPT Notes)
Handout.
ACCEPTANCE

•
Unqualified willingness by the offeree to go along
with the offer
Mirror Image Rule
•
•
Terms of the acceptance must match exactly (mirror)
the terms of the offer
Any change means there is no acceptance
(counteroffer)
Methods of Acceptance

Bilateral 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
 https://www.youtube.com/watch?v=oMNQHZgO-xQ

Bilateral Acceptance

Examples of bilateral contracts are present in
everyday life. You're entering this type of
agreement every time you make a purchase at your
favorite store, order a meal at a restaurant, receive
treatment from your doctor or even checkout a book
at your library. In each circumstance, you've
promised a certain action to another person or
party in response to that person or party's action.
Unilateral Acceptance


You might see examples of unilateral contracts every day,
too; one of the most common instances is a reward contract.
Pretend you've lost your dog. You place an advertisement in
the newspaper or online offering a $100 reward to the
person who returns your missing pooch. By offering the
reward, you're offering a unilateral contract. You promise to
pay should anyone fulfill the obligation of returning your
dog. You're the only person who has taken any action in this
contract, as no one is specifically responsible or obligated to
finding your dog passed on this interaction.
Another common example of a unilateral contract is with
insurance contracts. The insurance company promises it will
pay the insured person a specific amount of money in case a
certain event happens. If the event doesn't happen, the
company won't have to pay.
Activity 3: Contract Law—Offers &
Acceptances
BL 2.01 Fill in the blanks with the
correct termination of offer term.
1.
1.
2.
(Use PPT Notes)
Handout/www.quia.com
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
•
•
•
•
•
•
https://www.youtube.com/watch?v=AsZn_BJ5bWk
Innocent Misrepresentation
Fraudulent Misrepresentation
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
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
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
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
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
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
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
Proving Fraudulent Misrepresentation
 Reasonable
 One
Reliance
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
 Must
Loss
cause an injury
Activity 4: Contract Law—Genuine
Agreement
BL 2.01 Directions: Label each
scenario with the genuine agreement
issue being addressed.
1.
1.
2.
(Use PPT Notes)
Handout/www.quia.com
CAPACITY

•
•
•

Legal ability to enter into a contract
Minors
Mentally Incapacitated
Intoxicated
A person serving a prison sentence lacks
capacity.
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

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
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
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.
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.
CONSIDERATION
Exchange of benefits and detriments by the parties to an agreements
 Requirements of consideration:




Benefits


Something that a party was not previously entitled to receive
Detriments


Must involve a bargained-for exchange (promise made in return for
another promise)
Must involve something of value
Benefits and detriments must be legal
Any loss suffered; anything given up
Forbearance

Not doing something that you have the right to do
Activity 5: Contract Law—Genuine
Agreement
2.
BL 2.01 Directions: Match the terms to
their examples. (Use PPT Notes)
Handout/www.quia.com
3.
Word Bank:
1.
Unilateral Mistake
Bilateral Mistake
Fraud
Innocent Misrepresentation Duress
Undue Influence
Emancipation
Ratification
Capacity
Mentally Incapacitated
Intoxicated
Necessaries
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
Nominal Consideration

Token amount in a written contract where either the
parties cannot or do not wish to state the amount
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
Illusory Promises
Clause or wording that allows party to escape from legal
obligation
 Termination clause



Output Contracts


Agreement to purchase all of a specific producer’s product
Requirements Contracts


Illusory – clause to allow termination of contract for any reason
Not illusory – termination only allowed after a change in defined
circumstances
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.
Existing Duty

Existing Public 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.
Past Performance

An act that has already been performed cannot be
consideration in a contract.
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
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
LEGALITY
Illegal Contracts

Civil & Criminal


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


Agreements to commit a crime/tort are illegal
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
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
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


Agreements to induce breach of duty or fraud


Anything that delays or prevents justice
Influencing persons who hold positions of high trust for private gain
Agreements to interfere with marriage

Damage, destroy, or discourage good family relationships
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
CHARACTERISTICS OF A CONTRACT




Valid, void, voidable, unenforceable
Express or implied
Bilateral or unilateral
Oral or written
Valid, Void, Voidable, Unenforceable

Valid contract



Void contract



Includes all elements recognized by the courts
Legally binding
Without legal effect
Contracts missing one or more elements
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
Express or implied

Express
 Contract

statement that may be written or oral
Implied
 Contract
parties
that comes about from the actions of the
Bilateral or Unilateral

Bilateral
 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
Oral or written

Oral
 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
Activity 7: Contract Debate







Process:
Group students into teams and assign topic for debate. You
should have a team debating for and a team debating
against the topic.
Teams research and plan three questions for the other
team. Allow 10 minutes or this could be a homework
assignment for students.
Introduction of issue (3 minutes per team)
Teacher asks each team questions. Teams have two minutes
to answer, with each team getting a one minute rebuttal.
Conclusion (3 minutes per team)
Class Discussion (5 minutes)
Activity 8: Contract Law—Legality
1.
BL 2.01 Directions: Summarize the
legal issues in each scenario. List the 5
types of agreements that have to be in
writing and give an example of each.
2.
Partner
Activity 9: Contract Law—
Characteristics of a Cotnract
1.
2.
BL 2.01 Directions: Match the terms to
their examples. (Use PPT Notes)
Handout/www.quia.com
Activity 10: Contract Law—
Characteristics of a Cotnract
1.
BL 2.01 Directions: Identify which
characteristic is being presented in the
scenario. (Use PPT Notes)
2.
Handout