CONTRACTS!
What makes a contract?
CONTRACTS
WHAT YOU WILL LEARN
How to identify a contract’s elements
How to identify valid, void, voidable &
unenforceable contracts
How to distinguish between express & implied
contracts
How to identify unilateral & bilateral contracts
How to distinguish between oral & written
contracts
CONTRACTS
PRE-LEARNING QUESTION
What contracts have you had to sign?
What contracts will you probably sign in the
future?
ELEMENTS OF A
CONTRACT
There are six elements of a contract.
1.
2.
3.
4.
5.
6.
Offer
Acceptance
Genuine assent/agreement
Consideration
Capacity
Legality
ELEMENTS OF A
CONTRACT
There are TWO sides to a contract
1. Offeror – the person (party) proposing the
contract
2. Offeree – the person (party) the offer is
made to
3. Offer – a proposal by offeror to do
something provided the offeree does or
refrains from doing something in return
1. Offer
ELEMENTS OF A
CONTRACT
2. Acceptance
An
is a proposal by one party
to another intended to create a
legally binding agreement.
An
is the second
party’s unqualified willingness to go
along with the first party’s proposal.
ELEMENTS OF A
CONTRACT
3. Genuine Assent (Agreement)
4. Legality
If a valid offer is met by a valid
acceptance, a genuine agreement
exists.
Legality means that people can
only enter into contracts for legal
purposes. People cannot enter into
contracts to commit illegal acts.
ELEMENTS OF A
CONTRACT
5. Consideration
6. Capacity
Consideration is the exchange of
things of value. What the promisor
demands and must receive.
Capacity is the legal ability to enter
a contract.
Types
of
Contracts
Executed & Executory contracts
Executed contract is one that has
been fully performed (completed).
Executory contract is one that has
not been fully performed yet.
Types of Contracts
Express Contract is one that has all terms
stated in writing or orally spoken.
Implied-in-Fact Contract does not have
its terms expressly stated but can be
inferred from the action of both parties.
Implied-at-Law Contract is not really a
contract but is created by the law to enforce
a contract into existence.
Types of Contracts
Oral or Written
An oral contract is created by word
of mouth and comes into existence
when two or more people form a
contract by speaking to each other.
They are valid contracts! BUT…
It is desirable to put contracts in
writing!!!
Types of Contracts
Unilateral contract has the offeror
promising something in return for the
offeree’s performance
Bilateral contract both parties exchange
promises to do something
Contracts
The 3 Requirements of an Offer
1.
2.
3.
Made Seriously the offer must have
been made with intent
(no joking! Can’t be made in anger)
Communicated the contract must
be communicated to the offeree
(someone not being offered the
contract can not jump in and take it)
Terms are definite the terms must
be complete and not vague
Contracts
The 3 Requirements of an Offer
Invitation to Negotiate
This happens when a store, for example,
initiates a bargain but not a definite
contract – ads on TV
Social Agreements
Agreements between friends are not
usually seen as legal obligations – go to
the movies tonight
Contracts
The 3 Requirements of an Offer
Complete Contracts
1. Proper legal description of the item
2. Price
3. Quantity
4. Date for delivery of possession
All of these things must be present and clearly
identified (at minimum) to create a valid
offer.
Contracts
Ending An Offer
Revocation
Withdrawing an offer before it is accepted
Rejection
Refusal to accept an offer by the offeree
Expiration of Time
Offers end when a reasonable length of time
passes
Death or Insanity
Contracts
Accepting An Offer!!
The acceptance must match the offer. This
means:
•
Comes from the person to whom the
offer was made
•
Matches the terms of the offer exactly
(also called the mirror image rule)
•
Be communicated to the offeror
If the acceptance doesn’t match the offer, it
may be a counteroffer
Contracts
COUNTEROFFERS
Counteroffers are made by the offeree back
to the offeror
•
Rejects the original offer
•
Creates a new offer
•
Makes the offeree the new offeror
Roles have now reversed!
Contracts
When is Acceptance effective?
Offers are effective the moment it is
received.
Acceptance is effective the moment it is
SENT
The way to control this is for the offeror to
require a certain method of responding
acceptance (mail, fax, email, etc.)
Courts generally say acceptance is effective
when sent by the same means or faster
used for the offer.
Contracts
When is Acceptance effective?
Offers are effective the moment it is
received.
Acceptance is effective the moment it is
SENT
The way to control this is for the offeror to
require a certain method of responding
acceptance (mail, fax, email, etc.)
Courts generally say acceptance is effective
when sent by the same means or faster
used for the offer.
Contracts
Mistakes
Unilateral Mistake – when only 1 party holds
an incorrect belief about the facts or law
related to a contract
Example: I have $40k to buy a car. I buy a $40k car.
Dealer then says I owe 8% tax. My mistake!
Mutual Mistake – (bilateral mistake) when both
parties have an incorrect belief about an
important fact or applicable law
Example: We both think land being sold is 40 acres. It
is then measured and found to be 30 acres. We
both were wrong.
Contracts
Mistakes
VOID – a contract without any legal effect
MATERIAL FACTS – facts that influence the parties’
decisions about a contract
Contracts
Misrepresentation
Can be innocently done (didn’t know it was untrue)
or fraudulently done (knew it was untrue but
said it anyway) – a contract without any legal
effect
NOTE:
Mistakes void a contract (it has no legal
effect).
Misrepresentation allows the injured party to
make a contract voidable which means they
can cancel the contract and receive damages.
Contracts
Misrepresentation
To prove in court you must show:
1. false representation of fact
2. the statement is key to the transaction
3. Victim reasonably relied on the statement
Contracts
FRAUD
Fraud is misrepresentation that was:
1. done intentionally or recklessly
2. caused an injury (physical or emotional)
To prove in court you must show both things above
PLUS the 3 things for misrepresentation:
3. false representation of fact
4. the statement is key to the transaction
5. Victim reasonably relied on the statement
PLUS the two statements in green above.
Contracts
FRAUD
Remedies for Fraud
If a seller innocently misrepresents a material fact,
the buyer may avoid (cancel) the contract.
If fraud is established in court, the buyer can also
recover damages!
Contracts
DURESS
When one party is forced to enter into a contract
through threats or actions. This includes:
1.
Threats of illegal conduct or crime
2.
Tort-like conduct
3.
Threats to sue if the other party won’t settle a
suit
4.
Threats to use economic power to negotiate a
favorable settlement
Contracts
UNDUE INFLUENCE
When a person uses their influence or power to
pressure someone into a contract
1.
Parent – child
2.
Child – elderly parent
3.
Attorney – client
4.
Physician – patient
This action results in the loss of free will of the person
entering the contract.
Note: persuasion or nagging does not count!
Contracts
CAPACITY
RECAP: 5 elements of a contract are:
1.
OFFER
2.
ACCEPTANCE
3.
GENUINE ASSENT/AGREEMENT
4.
LEGALITY
5.
CONSIDERATION
6.
CAPACITY
Contracts
CAPACITY
Contractual capacity = the ability to understand the
consequences of a contract
Note: This doesn’t mean understand the TERMS of the
contract, just the CONSEQUENCES
Special parties with contractual rights include:
1.
Minors
2.
Intoxicated individuals
3.
Mentally impaired
Incapacitated – the parties above who lack capacity
Contracts
CAPACITY
Minors are said to be under the age of majority
Majority – in most states it is 18 years old (some states
it is 19 or 21)
Minor – a person who has not yet reached their
majority
Minority – the state of being below the age of majority
(ends the day BEFORE your 18th birthday in IL)
Contracts
CAPACITY
Scope of Authority
IN business, the person with the greatest authority
should be the one to sign a contract. They have
the greatest capacity.
However an employer can give someone capacity to enter a
contract. Certain people may have capacity in certain
areas.
Example: Barnes & Noble – café manager has capacity to
purchase café goods, trade book manager has
capacity to purchase books to sell, etc.
Contracts
CAPACITY & MINORS
I’m under majority! I don’t want to be held to this
contract!!!!
Lucky for you!
Disaffirmance – a refusal to be bound by a previous legal
commitment
1.
Can happen anytime while still under incapacity
2.
Can happen within a reasonable time after attaining
capacity (reaching majority, for example)
If you disaffirm a contract, you must return anything of value!
Contracts
CAPACITY & MINORS
I’m under majority! I don’t want to be held to this
contract!!!!
The law shields minors when they make
contracts to protect them from unscrupulous
adults. Minors may be vulnerable because of
Immaturity
Inexperience
Lack of education
Naïveté
Contracts
CAPACITY & MINORS
YES! I am now 18!!!!!
After reaching the age of majority, a
person can ratify, or approve,
contracts made during minority.
Contracts
CAPACITY & MINORS
I’m a minor…I still have to pay for that??
A minor is held responsible for the
fair value of necessaries.
Necessaries, or necessities,
include food, clothing, shelter, and
medical care.
Contracts
CAPACITY & EXCEPTIONS
You are a what?
Other classes of persons lack the capacity to enter
into certain types of contracts.
1. Convicts—people convicted of a crime.
2. Aliens—people who are living in this country but owe
their allegiance to another country.
3. Enemy aliens—some foreign-born persons
designated as such during time of war.