 https://www.youtube.com/watch?v=hLkcgYj
tw00&feature=related
 REVIEW:
For a contract to be valid… offer,
acceptance, genuine agreement, capacity,
legality, and consideration are required!
 Capacity

The legal ability to enter into a contract.
 The
assumption that another person has the
capacity to contract is called rebuttable
presumption.

The law allows some people to say after the fact
that they did not have the capacity to enter into
a contract.
 According
to the law, several types
of people may have the right to
disaffirm a contract.
 People
with mental impairments
 Minors
 Intoxicated
Persons
 Other limits on capacities
 They
can argue they cannot be bound by the
contract.
 Mental Impairment could mean the
following:



Injury
Physical problem from birth
Psychological problem recently diagnosed
 The
mental problem must have made it
impossible for the person to understand what
was happening when the contract was made.
 Doctors (NOT LAWYERS OR JUDGES)
determine if someone is mentally impaired.
 If
someone is so mentally impaired they
cannot take care of themselves, their
previous contracts will be then declared
VOID. This person would not be able to make
any contracts at all.
 It
IS possible that a contract of a mentally
impaired person is valid.

If the person was not suffering from the
impairment when the contract was made, or if
suffering from the impairment, the person still
knew what he or she was doing at the time, then
the contract is valid.
 Minors
have rights and duties when it comes
to contracts. They may, for example, change
their minds and terminate a contract they
have entered.
 However,
they must be truthful about their
age when making agreement.
 How
does this apply to buying movie tickets?
 Minor
may lie about their age or
misrepresent it by using a fake ID when
buying movie tickets.

This is fraud!
 The
ticket agent can refuse to sell movie
tickets to minors unless they are with an
parent or adult family member.
 Minor

A person who has not yet reached the age of
adulthood.
 MOST
OF THE TIME, Minors are able to enter
into and honor contracts.
 The law allows minors to get out of contracts
due to:




Inexperience
Immaturity
Unknowledgeable
Too Naive
 Sometimes
adults entering contracts with
minors will require a parent to enter into the
contract w minor… offers protection.
 Age

of majority is 18 in most states.
Can legally purchase tobacco products
 Emancipated



Minor
One who is no longer under the legal control of
his or her parents
Automatically emancipated when you get
married or set up your own household
Emancipated minors are responsible for their
own contracts
 Minors
who claim to be adults are
committing fraud
 In some states, minors who lie about their
age and then insist on getting out of a
contract may be sued for fraud
 Other states hold that minors cannot be sued
even if they lie about their age

It is still a criminal offense to lie to get agerestricted products such as cigarettes and
alcohol.
 People
who are under the influence of drugs
or alcohol can sometimes get out of
contracts.
 They
must have been so impaired that they
did not know what they were doing when
they entered the contract.
 This
decision is made by the judge or jury
Convicts
 Aliens, citizens of other countries living in the
United States
 Wartime, foreign born people identified as
enemy aliens may be denied certain legal
capacities

The law makes exceptions when contracts
involve necessary things such as: food, clothing,
shelter, medical care, and other things a person
needs to live.
 It is up to a judge or jury to decide if items are
necessary.

 Contracts
made by minors are voidable by
the minor.
 This means minors have the right to
disaffirm, or avoid their contracts if they
choose.
 Disaffirm


To show the intent not to live up to the contract
This can be shown by action or a statement
 Return




goods
Minors who still have the goods they purchased
when they disaffirm sales contracts must return
those goods within a reasonable amount of time.
Reasonable amount of time is decided by a judge
or jury
The more perishable the item, the less time will
be considered reasonable
Minor can hand over the item or make an offer to
do so

Amounts can be deducted for damage, dirty, tattered,
and torn items
 Minors
cannot pick and choose the parts of
the contracts they want to keep and those
they want to disaffirm.
 Minors
can get out of contracts with other
minors
 If
an adult discovers that the other party is a
minor, the adult has no right to get out of
the contracts for that reason alone.
 Ratification




The act of agreeing to go along with a contracts
that could have been avoided
This can be done by words or action (spoken or
written)
A minor can ratify a contract after becoming an
adult
If a minor makes a payment that is due under a
contract, after becoming an adult, the minor has
ratified the contract
 Some
states hold minors to contracts for
things required by law

Car Insurance
 Some
states say married minors are adults
 Some states treat an apartment rental
agreement as contract for a necessary
(shelter)
 Minors CANNOT get out of military enlistment
agreements
 Driving


is a privilege not a right
Driving is earned and kept under conditions of
good behavior
Minors cannot earn a license until they reach the
age of 16
 Requirements



to earn license
Written test
Driver’s Ed course
Final examination that consists of road tests and
vision exam
 Students
in a school setting may be searched
if school officials have reason to believe the
law or school rules have been broken.
 While
adult speakers and writers are granted
freedom of speech, students may be
restrained from printing certain matters in a
school-sponsored newspaper.
 Parents
have the right to discipline their
children
 Parents have the right to manage their
children’s property
 Adoptive parents have the same rights
 The
law protects children from abusive
parents under the parens patriae doctrine

State can act as child's parent when natural or
adoptive parents cannot or will not perform their
parental duties
 Both
natural and adoptive parents have the
duty to provide their children with
necessaries
 If minors are forced to purchase the
necessaries on their own, the parents will be
liable for the contract.
 If a minor becomes emancipated, the
contract comes to an end
 In
their wills, parents may name guardians
for their minor children.
 Two types of guardians can be appointed by
the parents.


Guardians of the child will act as the parents
would act in relation to the child.
Property guardians will handle the child’s
property.
 This
right ends when the child reaches the
age of majority- 18
 Is
a contract valid if one of its terms breaks
the law?


NO!
Illegality can destroy an otherwise valid
contract. It can also expose people who agree to
the contract to potential charges of criminal
conduct and other legal consequences.
A
court will not help any party to an illegal
contract.
 Neither party can enforce the agreement
 Neither party can get help from the court
 An
exception is made when the parties are
not equally at fault

Courts may help people who are less at fault in
getting back any money or property they may
have lost.
 Illegality



in Entire Agreement
Sometimes a contract cannot be divided into
separate promises and different acts.
If a contract cannot be divided, then anything
illegal within the contract makes the entire
contract illegal.
The whole contract is therefore Void

In pari delicto and Divisible Contracts
If certain promises and actions in contracts can be
performed by themselves, the contract is divisible.
 The courts may enforce parts of the agreement that
are legal and cancel the parts that are not.


Pari Delicto
In equal fault if both parties know the agreement is
illegal
 Court will not help either party


If one party is not aware of the illegality and had
no intent to break the law, then the parties are
NOT in pari delicto. Courts may grant relief to
innocent party.
Civil
and Criminal Statutes
Usury Statutes
Gambling Statutes
Sunday Statutes
Licensing Statutes
• Agreements that require one party to commit a
tort or a crime are illegal!
 Civil



Slander
Libel
Fraud
 Criminal




Burglary
Larceny
Murder
Arson
 Interest
is the fee a borrower pays to a
lender for using money.
 Usury

Charging more than the maximum legal interest
rate
 Each
state has a statute that sets a maximum
legal interest rate that lenders can charge
for loans.
 Charging whatever you want is illegal!
 Before
you sign a contract, the lender must
clearly report the APR to the borrower.
 Illegal



 If
Playing Cards
Betting on sporting events
Entering an office pool for money
you win money gambling but have a hard
time collecting the winnings, the court will
not enforce the debt and may consider you
to be in violation of the law.
 Regulated
Gambling is legal
 Each state has their own laws regarding
gambling
 Giveaway games by stores or businesses for
promotions are legal as long as you don’t
have to buy a ticket or product to
participate.
 Betting at Racetracks are legal in various
states, Illinois being one of them.
 State run lotteries are legal

In the early colonial days, Some American
Colonies passed special Sunday Statutes, also
called Blue Laws, that made agreements made
on Sundays Void.

Example: Buying a Car, buying alcohol, hunting
An offer made on any day but Sunday but
accepted on Sunday is void.
 If an offer is made on Sunday but accepted any
other day, the contract is valid.


In Illinois car dealerships are closed on Sundays.

Blue Law/Sunday Statutes
A
license is a legal document that grants
permission to do a certain job.
 License protect people from dealing with an
unqualified person.
 Occupations that must be licensed:

Nurse, doctor, lawyer, funeral director, barbers,
plumbers, etc.
 An
agreement made with an unlicensed
person working in such job is illegal.

Not all agreements break statutes, but some are
illegal because they break public policy.

The power to regulate the public’s health,
safety, welfare, and morals belong to the
government.

Public Policy


A legal principle that holds that nobody should be
allowed to do something that harms the public.
Public policy allows the courts to get involved to
protect public welfare when other laws do not.
 Agreement
that Unreasonably Restrain Trade
 Agreements Not to Compete
 Agreements for Price Fixing
 Agreements to Defeat Competitive Bidding
 Agreements to Obstruct Justice
 Agreement including Breaching of Duty or
Fraud
 Agreements to Give Up the Right to Litigate
or Arbitrate
 Agreements Interfering with Marriage
 The
law protects the right to make a living.
 If
a contract takes away that right, the law
will label that contract as VOID.
 Restrain
of trade agreements takes away
someone’s ability to do business with others.

When someone buys a business, that person also
buys the seller’s good will not to compete for a
certain period of time.

Ex: Alan sells his t-shirt business to Steve. This
agreement states that Steve will not turn around
and open another t-shirt business to compete
with the business Alan just bought from him.
This is also found in employee contracts.
 Employees agree to not work at a similar
company for a certain period of time after they
leave current employer.
 This protects the employers


Price Fixing

When competitors agree to set prices within certain
ranges.
In some cases, competitors agree on a range of
price for certain products.
 In other cases, manufacturers dictate the price
at which retailers must sell a product.

Price-fixing hurts competition
 The court DOES NOT uphold Price-fixing
agreements because they are contrary to public
policy (nobody should do something to harm the
public).


Bid

Offer to buy or sell a good or service at a stated
price.

Law often requires government to buy and sell
goods or services through competitive bidding.

Competitors submit bids for projects and the
lowest qualified bid wins.
If competitors agree to not bid lowers than a
certain price, then they are not bidding
competitively.
 Agreement would then be unenforceable.

A
contract that gets in the way of dispensing
of justice is illegal


Dispensing- to give or provide
Examples:






Protecting someone from arrest
Encouraging lawsuits
Giving a false testimony
Bribing a juror
Agreement to pay a non expert to testify in court
Agreement to take money to stop legal actions against
person who has committed a crime
 Many
people hold positions of trust and have
a responsibility for the well-being of others.

Ex: Representative in Congress, State senator,
and other public officials.
 These
people owe a duty to work for the best
interest of the public.
 Any
contract that tries to influence these
people for private gain is unenforceable.
 Contracts
may include a clause that limit the
ability of the parties to bring a lawsuit or to
arbitrate a claim.
 Sometimes such clauses are valid
 However, they might be offered on a take-itor-leave-it basis by the party with the most
power.
 The clause must be fair

If it is not fair the court will rule it illegal
 Agreements
that discourage, damage, or
destroy good family relationships are illegal.
 Example:

If Mr. Popson promises to give his daughter
Angela $100,000 if she never gets married, the
contract is void.
Statute
of Fraud
A
state law that requires certain
contracts to be in writing.
 This
is so there is evidence that:
 1. The contract exists
 2. It has certain definitive terms
 Letter
 Sales
slip
 An invoice
 Several words placed on a check
 Requirements


Must identify the place, date, parties, subject
matter, price and terms, and intent of the
parties.
It should also contain the signature of the party
who may be charged
 Courts
will enforce changes to terms that are
handwritten.

The court assumes that the handwritten changes
were placed in writing after the contract was
printed and represents the final intent of the
parties.
 Words,
phrases, and sentences should be
clean and unambiguous (not open to more
than one interpretation).
 Contracts
to pay someone else’s debt
 Contracts to pay debts of a person who had
died
 Contracts requiring more than a year to
perform
 Contracts in consideration of marriage
 Contracts for the sale of goods
 Contracts to sell property
 Must
 The
be in writing to be enforceable
debtor still owes the money, the person
promising to cover only pays if the debtor
fails to pay.
 When
a person dies, somebody has to pay
that person’s debts and divide up the rest of
his or her property among the remaining
relatives.
 Executors and administrators are not
automatically personally responsible for the
debts, although they tend to be close
relatives of the deceased.

They may agree to pay when the estate runs out
of money
 Must
be in writing to be enforceable
 The
year begins when the contracts is made,
not when the performance is to start
 Amount
of time the contract is to last does
not need to be stated in writing
 When
two people marry they enter into a
contract.
 The promises they make to each other are
consideration (something of value) for the
contract.
 In present day law, an agreement between
two people to marry is not enforceable

Either party can break that agreement

A contract for the sale of goods for $500 or more
must be in writing
Furniture
Books
Computers
PDAs
Cultivated crops
Clothing
 Vehicles
 MP3 Players






Uniform Commercial Code- Uniform act that
synchronizes the law of sales
 All the terms of the contract do not need to be
in writing

 Must
be in writing to be enforceable
 Real property

Land and anything permanently attached to the
land
 Example:

Contract to buy or sell a home

Contract consists of an offer that is made by the buyer
and accepted by the seller
Parol
The
Evidence Rule
Best Evidence Rule

Parol Evidence
Parol: Means word of mouth
 Evidence: means anything presented as proof in a
trial

A written contract should contain everything
that was agreed upon between the parties so
neither party can go to court and claim a
contract is incorrect or fails to show the parties’
real intention.
 Parol Evidence rules says oral statements made
before signing a written agreement cannot be
presented in court to change or add to the terms
of that written agreement.

 It
may be introduced to explain some point
that is not clear in writing in the contract.
 It may also be used to show that certain
terms were incorrectly placed in the written
contract.
 It may also be used to show one party tricked
another party.
 Required
that the original written agreement
(rather than a copy) be used as evidence in
court.
 A court does not want to look at copies or
faxed copies of a written agreement.
 Copying can make it easy for a dishonest
person to hide alterations to the original.
 When a contract is reduced to writing, each
party receives an original version of the
contract.
 When
you are asked to sign an order blank,
sales slip, or other printed form, such
document may contain small print on front
or reverse side.
 The words are often difficult to read, and
the language may be hard to understand.
 Often, the small print is not written in your
favor.

Use the following guidelines:
 Read the entire text before signing!
 If you don’t understand something or don’t agree,
cross it out before you sign. The other party should
initial the change. The change is meaningless
unless the other party has initialed it!
 Make changes on printed or word processed forms!
You can use a pen, it doesn’t have to be re-typed.
 Have a lawyer review big contracts/purchases:
house or car
 If you don’t agree with anything written in a
contract, DON’T SIGN IT!
 Capacity
 Void
(avoid)
 Ambiguous
 Usury
 Legality
 Statute of Fraud
 Disaffirm
 Uniform Commercial
Code
 Best Evidence Rule
 Parol Evidence
 Emancipated
Minor
 Age of Majority- 18
 Fraud
 Ratification
 Elements of a
written contract
 Licensing Laws
 Types of contracts
that need to be in
writing