List the things you think you would need to have in a contract for it to be valid. Describe a contract that you have been in, or one that you have heard about. What made it a contract? What we have done: Constitutional Law, Criminal Law, Civil Law-Torts. Today: The elements and classes of contracts This Unit: Entering into Contracts, Fraud and Misrepresentation of Contracts, Contractual Capacity What to look forward to: Jerry Springer, Judge Judy, Jeopardy Re-Match, Field Trip to U of D Mercy January 18th SWBAT describe the 6 elements to make a contract SWBAT differentiate between the major classes of contracts SWBAT know when and how a contract legally comes into existence SWBAT know how an offer can come to an end Contracts pervade our life! In order to move on with business law content we must first know and the nature, purpose, and effect of contracts Understand contract law is necessary to understand the law of sales, consumer law, agency law, property law, employment law, corporate law, computer law, and much more Raise your hand if you think you are currently subject to any contract agreements NOT SURE?? Are you a current party to: A credit card agreement? A grocery story “club” card agreement? A library member? An agreement to sell something to a friend for money? An agreement to buy something from a friend for money? A movie rental agreement Any form of signed agreement relating to a job? A book contract for a class? An agreement for senior dues? A private email account? If yes, you may be a party to a binding legal contract… if you are over 18 (we’ll talk about how age matters in a bit) Offer: Showing a willingness to enter into a bargain in such a way that another person would interpret that they could accept and it would conclude the negotiations. Can be through words or actions. Advertisements can be offers. Negotiations are not offers. Buyers have to be able to walk away from estimates or price quotes. Definition: any agreement enforceable by law Contracts must have six elements in order for the contract to be legally binding! Let’s find out what they are… Offer- a proposal made by one party (the offeror) to another party (the offeree) indicating a willingness to enter a contract 2. Acceptance- the agreement of the offeree to be bound by the terms of the offer Does this scenario satisfy the first 2 elements? 1. Hey Joe, I offer to sell you my I-pod If not, what do we need to add? 3. Genuine Agreement- Offer and acceptance MUST come together to create genuine agreement, or a “meeting of the mind”. Agreement can be destroyed by: Fraud Misrepresentation Duress Mistake Undue Influence – I’ll go over these in detail later on in the unit… Consideration- The exchange of things of value. 4. This mutual exchange binds the parties together Capacity- The legal ability to enter into a contract. 5. Groups who are usually excluded Minors Mentally Incompetent Drugged or drunk individuals Legality- People cannot enter a contract that involves illegal acts- 6. For example: I can’t sue you for not setting my ex’s house on fire even though I paid you $1000 to do so. Contracts can be created in different ways and can assume diverse forms. A contract can be described by ANY of the following characteristics: Valid, void, voidable, or unenforceable Express or implied Bilateral or unilateral Oral or written Let’s take a look at what these actually mean. Valid: legally good, legally binding Void: no legal effect (it could be missing one of the 6 elements) Voidable contract: when a party to a contract is able to void or cancel a contract for some LEGAL reason (ex: a contract between 2 minors can be voidable by either of them) Unenforceable contract: a contract that the court will not uphold, generally b/c of some rule of law, such as the statute of limitations Express contract: is stated in words and may be either oral or written Implied contract: comes about from the actions of the parties. People often enter into implied contracts without even exchanging one word Example: If I pull up to the gas station and start pumping gas, the implied contract is that I will pay for that gas. Bilateral contract: contains two promises. One party promises to do something in exchange for the other’s promise to do something else. An act performed at request Ex: if a friend says “I’ll sell you my old I-Phone for $50”, and you say “I’ll buy it”., a bilateral contract comes into existence Unilateral contract: A promise by only one person to do something , if and when the other party performs some act A promise made Ex: A reward Ex: I will sell you my I-phone IF you give me the case before noon tomorrow Oral contract: A contract can be created by word of mouth and comes into existence when two or more people form a contract by speaking to each other One person usually offers to do something, and the other party agrees to do something else in return Written contract: this assures both parties know the exact terms of the contract and also provides PROOF that the agreement was made (we will discuss which contracts MUST be in writing at a later date) Offeror- person making the offer Offeree- person who receives the offer An offer has 3 basic requirements. It must be: 1. Made seriously 2. Definite and certain 3. Communicated to the offeree Let’s find out about these… 1. 2. 3. Serious intent: An offer MUST be made with the intention of entering into a legal obligation (An offer made in the heat of an argument or a joke would NOT meet this requirement) Definite and Certain: an offer must be definite and certain to be enforceable (If I said I’d provide a “some” of something, who’s to say what that some is? Communication to the offeree- phone, email, etc. The second element of a legally binding contract is acceptance of the offer by the offeree. As is the case of the offer, certain basic requirements must be met: The acceptance must be unconditional The acceptance must follow the rules regarding the method of acceptance Unconditional Acceptance: The acceptance must not change the terms of the original offer in any way. Unless… there is a: 1. Counteroffer: In a counteroffer, the original offeror is not obligated to go along, and no contract results. Instead, the offeror becomes an offeree and may accept or reject the counteroffer Methods of Acceptance: the time at which an acceptance takes place is important b/c that is when it comes into existence 2. Face to face or telephone- at that time Separated by distance- an acceptance that must be sent over long distances is effective when it is SENT. 1. 2. 3. 4. 5. Revocation- the taking back of an offer by the offeror. This MUST be done before an acceptance of the offer Rejection- refusal of an offer by the offeree Counteroffer- ends the first offer Expiration of time- if a time limit is set, the acceptance must be made within that time Death or insanity- if the offeror dies or become insane before the offer is accepted, the offer comes to an end (this is an offer, not a contract) Contracts occur all day long and we don’t even realize it. Let’s look at some examples. At the end of the clip, be ready to tell me if there is an (1) offer and an (2) acceptance Hardcore Pawn: Deals on the Bus Hardcore Pawn: Weird Tan Lady Real case: If you give someone an engagement ring and the engagement is broken, is the person who received the ring legally binded to give the ring back? Discuss whether there was a valid offer and acceptance with your group. Explain your answers on your handout. 8 minutes. 1. Ever-tite v. Green- The court ordered that the homeowner pay for transporting the materials, but not for the roofing itself. 2. Ciaramella v. RDA Since the settlement was just an outline and there were uncertain terms, the court did not enforce it. 3. Carlil v. Carbonic Smoke Ball- The company did not say the person had to notify of acceptance, so the person’s performance was enough. Think-Pair-Share Read the fact pattern on your work sheet to yourself, then spend about 3 minutes explaining whether you think one party breached the contract, and what the court should do, if anything. Then, you will share with your group for about 5 minutes. Hawkins v. McGee- The court said that you can recover damages for the difference between what you expected to get in the contract and what you actually got. In this case, Sam would be able to recover the difference in value between a good hand and a hairy hand. Doctors and lawyers would work together to determine that value. Practice- Have one member of your table read the following facts out loud, then discuss whether the contract should be declared void for any of the reasons discussed above. 5 minutes. Discuss the issues, but you are not required to write them down. We will hear each group’s opinion at the end of 5 minutes. We will divide into 6 groups. You will have the rest of class to draft a contract. Each group will get a sample contract, a fact pattern, and will have the choice to draft either an oral or written contract. For an oral contract, write a dialogue between the parties that would create a valid contract. For a written contract, use the sample written contract for suggestions.