Contracts
A contract
is based
on promises
voluntarily
made
Do all
promises
give rise to
contractual
obligations?
•Offer
•Acceptance
•Consideration
•Capacity
•Legality
•Unilateral and bilateral
•Expressed and implied
•Valid
•Void and voidable
•Unenforceable
PROMISE
FOR AN
ACT
Reward is
an example
PROMISE
FOR A
PROMISE
ART AGREES TO PAINT HOUSE
AND BOB AGREES TO PAY $1,000.
Bill and Linda meet at a party. He was
74, and she was 49. A month later, they
started to talk about marriage. Linda was
concerned about quitting her job, and Bill
said he would give her whatever she
needed. One day, she walked into the
bathroom with a handwritten note
containing financial terms for a marriage,
and he signed it. They got married, but Bill
filed for divorce 1 ½ years later.
What is the
issue?
Does the contract given to
and signed by the
husband in the bathroom
constitute a valid and
enforceable agreement
that was freely
entered into?
What kind of
agreement was it,
unilateral or
bilateral?
It was unilateral
because it was an
agreement to
marry
.
How did the
court rule?
To be enforceable, the agreement must
be freely entered into without duress or
undue influence. When marriage is
contemplated, the parties must do so
knowing of the assets of the other. In this
case, the parties never disclosed their
assets, liabilities or income. The husband
also never had the chance to consult an
attorney. Therefore, the agreement is not
enforceable.
•Stated in direct
terms
•Can be written
or oral
I will sell you my
sports car for $25,000
When you
go to the
doctor, you
impliedly
agree to pay
for services.
Plaintiffs cared for the decedent for
several months before he died. They
claimed they were promised payment
for services. Defendant maintains that
they are a family member so services
were gratuitously rendered.
Contract implied-in–fact is to prevent
unjust result. Normally, there is a presumption
that services rendered by a family member
are free. However, contract may be implied
when service are performed with expectation
of payment. In this case, plaintiffs can point
to no evidence that they agreed upon a
price with the decedent, what form
payment would take, or when payment
would be made, so a contract should
not be implied.
Satisfies all
requirements of
an enforceable
agreement
Binds one party
but gives the other
option to withdraw
Element of
contract has
no legal force
or effect
ILLEGAL
CONTRACT
Satisfies elements of
a valid contract but
won't be enforced
by court
Most contracts
are oral in nature
and can be
enforceable.
The major problem
with oral contracts is
proving the existence
of the agreement.
Oral contracts
require the courts
to assess the
credibility of the
parties.
Are agreements where
people pool their money
to buy lottery tickets
enforceable or illegal
betting contracts?
Two sisters signed an
agreement that they would
share the winnings in
a lottery. A winning ticket
was bought for $500,000 and
one of the sisters did not
get a share and sued.
What is the law
in Connecticut
on betting
contracts?
All wagers in which
the consideration
is money won or
bet shall be void.
What did
the plaintiff
argue?
The agreement was not
a betting contract but a
mutual agreement to
share profits from legal
forms of gambling.
What did
the court
say?
The law was not applicable to
this case because the parties
were not betting but promising to
share equally in the winnings
they received from
legalized gambling.
Proposal by one party to
another manifesting an
intention to enter into a
valid contract
•Intent to contract
•Terms must be definite
•Offer must be
communicated
This is an
objective
test
Plaintiff purchased 15 cans of Pepsi
and then borrowed $700,000
which he sent to Pepsi in exchange
for the jet. Pepsi sent the money
back claiming that their ad
was only a joke.
“No objective person could reasonably
conclude that commercial actually
offered consumer a Harrier Jet. The
possibility that it could be bought
for $700,000 was the first clue that
the deal was too good to be true.”
•Subject matter
•Quantity
•Price
Advertisement
at a stated price is
merely invitation
to negotiate
FRAUDULENT
ADVERTISING
IS ILLEGAL
How long
does an offer
stay open?
An offer can be
revoked anytime
before its acceptance,
or it can terminated by
its own terms.
I will give you 5 days
to make up your mind.
At the end of that
period, the offer
terminates.
An acceptance is
a manifestation
by the offeree to
be bound by the
terms of the offer.
Acceptance is valid
only when it has
been communicated
to the offeror and
is unconditional.
I can’t afford
$1,000 but I will
give you $800.
A counter offer rejects
the original offer and
becomes an offer that
the other person can
accept or reject.
The defendant refused to pay
on a life insurance policy
following a fatal car accident.
The carrier argued that a
contract was not formed
before the husband's death.
The defendant offered accidental death
insurance with a mortgage.
Once enrolled, the insured would
get a certificate that had an effective date.
The plaintiff mailed the form on April 5 and
was killed on April 22. Carrier argued that
form was only an offer to contract that
was accepted with the issuance of the
policy.
An insurance application is an
offer which the insurer may accept
or reject. In this case, however, a
reasonable person would have
thought that the enrollment form
was the offer that she would
accept by completing and mailing
the form back. This was an
enrollment form and not an
application.
Can
constitute
acceptance?
CAN I MAIL YOU AN INSURANCE
POLICY AND SAY “IF I DON’T HEAR
FROM YOU, WE HAVE A DEAL”?
Offeror has no
power to impose
duty upon offeree
to act.
RECORD CLUB
If a person makes
the highest
bid at an auction, is that
bid a mere offer or
an acceptance?
Well…it depends.
•With Reserve
•Without Reserve
2/1 make offer
2/2 receive offer
2/3 mail acceptance
2/4 mail revocation
2/5 receive revocation
2/6 receive acceptance
What is the effect of a fax
to the agent of a seller to
the agent of the buyer
when there is no record
of the receipt for the
transmission?
The agent for the buyer claims
that he faxed an agreement
of sale to the seller but had no
proof that the transmission
went through. The seller
claims that he called and said
that he no longer wanted to
sell the property.
What is
the law
on faxes?
Acceptance by telephone or
fax is governed by the same
rules as when the parties are in
each other’s presence. The
communication must be
substantially instantaneous and
the communication must
be two way.
For the communication to be two-way, one
party must be able to readily determine that
the offeree is aware of the communication. If
not, then the mailbox rule will apply. Since
there was no proof in this case that
the fax was sent, the burden is on the party
who sent the transmission to prove it. The
burden has not been meet in this case, so
there is no contract.
THAT SOMETHING
MUST HAVE
LEGAL VALUE
BENEFIT
CAN BE A
SERVICE
BENEFIT DOES
NOT HAVE
TO BE
ECONOMIC
•Illusory promise
•Moral obligation
•Past consideration
An illusory promise
is one in which the
act of performance
is left solely up to
one party.
I will buy as many
books from you
as I want at $10
a book.
A moral obligation
is insufficient to
support
consideration.
A parent promise to
give his son $1,000
out of love and
affection.
Past consideration
is a current promise
to pay for
something in the
past.
Jim promises on his
death bed to give
John $10,000 for the
help he has given
over the years.
BUILDER AGREED TO DO
NOTHING MORE FOR
PROMISE TO PAY
MORE MONEY
Is the cosigner of a
loan, primarily or
secondarily liable
in case of a default?
•Surety
•Guarantor
Elvis agreed to pay for the divorce of the
mother of his former girlfriend and to pay
off the mortgage on her home.
Plaintiff then filed for divorce and
agreed to give her husband the equity in
her house for his turning over the deed
to her. Presley then died before
paying the obligations and the Estate
refused to honor the agreement.
Why is Elvis’ promise to pay
the obligations of his
mother’s girlfriend
supported by
consideration?
A promise which a person
should reasonably expect to
induce action or forbearance
on the part of the other and
which does induce such
action is binding if injustice
can be avoided only by
enforcement of the promise.
While Presley’s promise induced
the plaintiff to assume the
mortgage as part of the
settlement agreement, it was
not binding until approved
by the court. So, the plaintiff's
reliance was not justified.
A party who does
have capacity to
contract but lacks
mutual assent to
bargain.
Mere
psychological
or emotional
problems are not
enough.
CHILD MUST DISAFFIRM
WITHIN REASONABLE
TIME AFTER
REACHING MAJORITY
Milicic was an 18 year old basketball
player and the second round pick of the
Detroit Pistons. He entered into an
endorsement contract when he was 16
whereby the defendant would pay Milicic
money and products in exchange for
endorsements. Four days after he turned 18,
Milicic tried to buy out his contract, but the
defendant refused. He then disaffirmed the
contract and began returning everything he
had received.
Pennsylvania allows minors
to disaffirm a contract unless
it is for a necessary as long
as it is done within a
reasonable time after
reaching majority.
Milicic was a child living
in a foreign country when
he signed the contract.
Minors should not
be bound by their
mistakes.
.
An illegal contract is
one that calls for the
performance of a
crime, tort or is against
public policy.
An illegal
contract is
void
Is an unlicensed
entity that performs
services without a
license void?
The person may
be precluded from
recovering a fee
for his services.
Farrell was an architect who worked on
a condo project of the defendant for
25% of the profits. Some of the work was
done in Michigan where he was
licensed, and some of the work was
done in Idaho were he was not licensed.
Farrell was fired, and the defendant
refused to pay him, claiming that the
contract was illegal since Farrell was not
licensed in that state.
Idaho does not allow a court
to aid a party to an illegal
contract. The state requires
an architect to be licensed
in order to practice in that
state.
.
Such statutes must
be narrowly
construed. Since Farrell was not
licensed in Idaho before 2/17/04,
service rendered before then were
illegal. His services after getting
a license were legal, and he is
entitled to payment for them.
PROBLEM THREE - B
Estelle played in a tournament.
A hole in one was rewarded
with a car. Estelle’s ball was
rolling into the hole when a frog
jumped out and hit the ball. The
judge disallowed
the shot.
Contract says judge
shall be sole arbiter
of dispute
Contest rules say judge
makes final decision over
disputes, and he ruled the shot
no good. “In and through”
means “completely through.”
The decision of the judge is binding
unless fraud, gross mistake
or lack of good faith.
ELECTRONIC SIGNATURE IN GLOBAL
AND NATIONAL COMMERCE ACT
Electronic
signature
is valid
•Specially made goods
•Goods received by buyer
•Person admits oral contract
•Unjust enrichment
The purpose of the Code is to
make uniform laws involving
commercial transactions
involving sales, banking
and secured transactions.
The Code has
nothing to do
with real estate
transactions.
Article Two deals
with the sale
of goods.
A merchant is
a person who deals
with goods of
that kind.
Joe brings his wife’s engagement
ring to the jeweler to have it reset
as a surprise gift. The merchant
mistakenly sells the ring to a
customer. Can Joe get the
ring back?
Section 2-403 provides that anyone
who gives possession of goods
to a merchant who deals
in goods of that kind provides
that business with the power to
transfer all rights of the owner
to a buyer in the ordinary
course of business.
Why is this
the rule?
•It protects the innocent buyer
who believes the merchant
has legal title to the goods
because they are in the
merchant’s possession.
•The concept allows for the free
flow of commerce.
What would happen if you
brought a car to a mechanic
to fix a flat tire and the gas
station sells the car to
someone?
Gas station is not in
the business of selling
cars, so the original
owner would be able to
get the car back.
Who bears the risk
of loss when the
goods are damaged
or lost is important.
Surprisingly,
it does not
depend on
who owns
the goods.
Section 2-509 governs
who has the risk of
loss in the absence
of an agreement.
Need to determine
if it is a shipment
or destination
contract.
When the contract
requires the seller to ship
the goods, risk of loss will
pass to the buyer when
conforming goods are
delivered to the carrier.
When the contract requires
the seller to deliver the
goods to a specific
destination, the risk of loss
will not pass until the goods
are delivered to that
destination.
Tyler’s Sports Bar and Grill
ordered 100 cases of imported
beer from a vendor in Baltimore
FOB Shipment. The beer is picked
up by a trucking company at the
seller’s place of business, the
truck overturns en route, and the
beer is destroyed. Who has the
risk of loss?
Since this is a shipment
contract, the risk of loss
passed to the buyer as
soon as the beer was
given to the trucking
company.
If it was a destination
contract, the risk of
loss remains with the
seller until the beer is
delivered to Tyler’s Bar.
When the goods are
delivered to a third
person to hold, this
is a bailment and
the third person is a
bailee.
When the goods are subject to
a bill of lading, the risk of loss
passes to the buyer upon
receipt of the documents.
If the goods are not
covered by documents
of title, then the risk
passes to the buyer
when the bailee tells the
buyer that the buyer has
the right to possession.
The last rule is when the
goods are in possession of
the seller and the buyer is
to pick them up at the
store. If the seller is a
merchant, the risk passes
to the buyer only on
receipt of the goods.
Tyler’s buys 2 large
screen televisions from
Best Buy. The boxes
don’t fit into Joe’s car
so the store agrees
to hold them while Joe
rents a truck. Before Joe
can pick them up, there
is a fire in the store
and the televisions
are destroyed. Who
has the risk of loss?
The seller is a merchant,
so the risk passes to the
buyer only on receipt of
the goods. The goods
were not yet picked up
so the store is
responsible.
Suppose Joe buys
a television from his
neighbor and tells
the seller that he will
pick up the set the
following week.
A thief breaks into
the house and steals
the set. Who has the
risk of loss?
In this case, the
neighbor is not a
merchant so the risk
passed to the buyer
at the time of sale.
Wilson
vs.
Brawn
Page 198
Plaintiff bought items from
Brawn’s catalog and paid an
insurance fee. He then sued
the seller, claiming that the fee
was illegal since the buyer did
not need the insurance since it
did not have the risk of loss.
A shipment contract is the normal
contract in the absence of an
agreement to the contrary. The
term CIF means that the price
includes the cost, insurance and
freight. This is a shipment contract
and risk of loss passes upon
delivery to the shipper. The buyer
bears the risk of loss in transit.
Under the Uniform
Commercial Code,
every contract under
the Code imposes an
obligation of good
faith.
For instance, if an element
of the contract is missing,
such as the price, the
Code mandates that the
price will be what is
reasonable at the time of
delivery.
If one of the parties to the
contract is a merchant, the
UCC states that an offer by the
merchant to buy or sell goods
which states that the offer will
remain open is not revocable
even though no consideration
is paid for the promise.
Certain types
of contracts
must be in
writing and
be signed.
Purpose is to
prevent perjury
when no
agreement
ever existed
in the first place.
•Cannot be performed in
one year
•Sale or lease of land
•Liable for debt of another
•Sale of goods over $500
Businesses act through
their agents whether it is
an employee or third
party, and these agents
have the power to enter
into contracts on behalf
of their principles.
Apparent authority
involves those cases where
the master’s conduct
would lead a reasonable
person to conclude that
the agent is clothed with
authority to act on the
master’s behalf.
Is a mortgage broker
acting on behalf of the
bank in order to bind that
institution under the theory
of apparent authority or is
the broker merely a middle
man?
Gaines
vs.
Kelly
Kelly signed an agreement with
Thompson to assist him in obtaining
financing for land. Thompson went to
Gaines, an officer of the bank, about the
transaction. Gaines gave him a loan
application that was given to Kelly and
returned completed. The bank issued a
30 day commitment upon receipt of a
title report. The report showed that Kelly
did not have an ownership interest in the
land, and no additional evidence was
given by Kelly.
What did
Kelly
argue?
Kelly said that Thompson
said during the loan
application that the loan
was a done deal and that he
relied upon this
false statement to his
determent.
What is the
law on
agency?
Apparent authority is based
upon estoppel, arising from
the principal knowingly
permitting an agent to hold
himself out as having
authority to act on the
principal's behalf.
Thompson did locate the mortgage
company and brought the parties together.
However, there is no evidence that he had
any role in the negotiations. Instead,
he merely acted as a middleman. There
was also no evidence shown that
Thompson had apparent authority
to commit the funds or to
obligate the bank.