LAW II
CONTRACT LAW
CONTRACT LAW
INTRODUCTION
• CONTRACT: An agreement between two
or more parties that creates obligations
enforceable by law.
• A contract is created any time things of
value are exchanged.
• Contract law was developed to support
and enforce promises that people make in
reliance on the promises or acts of others.
CONTRACT LAW
INTRODUCTION
• A contract gives reasonable assurances to
all parties that the agreements will be
fulfilled.
• The law provides remedies for those who
suffer losses due to other’s failures to
keep contractual promises.
CONTRACT LAW
ELEMENTS OF A CONTRACT
• There are (~) seven major requirements
that must be satisfied before courts will
treat a transaction as a legally enforceable
contract: offer, acceptance, genuine
assent, legality, consideration, capacity,
and sometimes writing.
CONTRACT LAW
OFFER
• OFFER: A proposal by an offeror to do
something, provided the offeree does
something in return.
• OFFEROR: The person who makes an
offer.
• OFFEREE: The person to whom the offer
is made.
• There are three tests that a valid offer
must pass:
CONTRACT LAW
OFFER
A.Contractual intent must be present in the
offer.
• Jest offers are not valid; therefore, an offer
cannot appear to be a joke.
• Statements made in anger or terror are not
legally valid offers.
• Preliminary negotiations such as
newspaper ads are actually invitations to
negotiate, not offers.
CONTRACT LAW
OFFER
• Social agreements do not create legal
obligations.
CONTRACT LAW
OFFER
B.The offer must be communicated to the
offeree.
• A person who is not the intended offeree
cannot accept the offer even if they share
an identical name.
• Rewards cannot be accepted by someone
who has never seen or heard the offer.
CONTRACT LAW
OFFER
C.The essential terms of the offer must be
complete and definite: price, quantity,
terms of payment, date of delivery, etc.
• Offers may be terminated by reasons of
revocation (withdrawal by offeror before it
is accepted), time, rejection, counteroffer,
death/insanity, and/or destruction of
subject matter.
CONTRACT LAW
ACCEPTANCE
• ACCEPTANCE: When an offeree agrees
to a proposal.
• The terms of the offer must be definite and
accepted without change (by the party to
whom it was intended to be offered).
CONTRACT LAW
GENUINE ASSENT
• GENUINE ASSENT: When a valid offer is
met by a valid acceptance and the
agreement is not based on duress, undue
influence, mistake, misrepresentation, or
fraud.
• This element is often referred to as the
“meeting of the minds.”
CONTRACT LAW
GENUINE ASSENT
• DURESS: When one party uses an
improper threat or act of coercion to obtain
an expression of agreement.
• If duress occurs, the contract is voidable.
CONTRACT LAW
GENUINE ASSENT
• UNDUE INFLUENCE: When one party to
the contract is in a position of trust and
wrongfully dominates the other party.
• If undue influence occurs, the contract is
voidable.
• Possible relationships include
attorney/client, husband/wife, parent/child,
physician/patient, etc.
CONTRACT LAW
GENUINE ASSENT
• Mistake is categorized as either unilateral
or bilateral (mutual).
• UNILATERAL MISTAKE: Occurs when
only one party holds an incorrect belief
about the facts related to a contract.
• This generally does not affect the validity
of a contract.
• Therefore, contracts should always be
read carefully before signing.
CONTRACT LAW
GENUINE ASSENT
• BILATERAL MISTAKE: When both
parties have an incorrect belief about an
important fact.
• If a mutual mistake of fact occurs, the
contract is void.
CONTRACT LAW
GENUINE ASSENT
• Misrepresentation is categorized as either
innocent or fraudulent.
• INNOCENT MISREPRESENTATION:
When a party to a contract does not know
that a statement they made is untrue.
• FRAUDULENT MISREPRESENTATION:
When a party to a contract knows that a
statement they made is untrue.
CONTRACT LAW
GENUINE ASSENT
• In both of these situations, the contract
that results is voidable by the party to
whom the misrepresentation is made.
• Statements are considered
misrepresentations by law only if:
A.The untrue statement is one of fact (not
opinion) or there is active concealment.
B.The statement is material to the
transaction or is fraudulent.
C.The victim reasonably relied on the
statement.
CONTRACT LAW
GENUINE ASSENT
• FRAUD: Based on misrepresentation but
also done with intent which results in
injury.
• Therefore, misrepresentation must first be
proven to show fraud plus the elements of
intent and injury.
• If a victim can show fraud, courts will grant
the victim assistance beyond rescission:
compensatory damages and possibly
CONTRACT LAW
punitive damages.
LEGALITY
• LEGALITY: The contractual element
stating that the basis of the agreement by
the parties must be legal in nature.
• An agreement to pay someone to commit
a crime/tort cannot be a contract.
• Contracts involving gambling debts are
usually void except for a few areas in the
U.S., notably Las Vegas and Atlantic City.
CONTRACT LAW
LEGALITY
• But most states do have legalized various
forms of gambling under regulated
conditions such as casinos, state-run
lotteries, and bingo games.
CONTRACT LAW
CONSIDERATION
• CONSIDERATION: The exchange of
things of value that creates the legal bond
between the parties to the contract.
• Examples include money, products,
services, bartered goods, etc.
• A promise to make a gift is generally not
legally enforceable because there is no
consideration.
CONTRACT LAW
CONSIDERATION
• An exception for equal consideration is
promises made to charitable
organizations.
• Courts generally enforce such promises
provided the charity states a specific use
for the money and actually acts in reliance
on the pledge.
CONTRACT LAW
CAPACITY
• CAPACITY: The legal ability to enter a
contract.
• The age of majority to contract in most
states, including Michigan, is 18 years old.
• Minors may make contracts, however.
• As a general rule, minors cannot be forced
to carry out their promises and may
disaffirm (cancel) or refuse to honor their
contracts.
CONTRACT LAW
CAPACITY
• This rule is designed to protect minors
from being taken advantage of because of
their age and lack of experience.
• Minors who cancel contracts usually must
return any goods or consideration still in
their possession.
• Minors are typically held responsible for
contracts that involve necessaries such as
food, clothing, shelter, or medical aid.
CONTRACT LAW
CAPACITY
• Many stores require minors to have a
parent or other adult cosign any major
contract.
• The adult cosigner is responsible for
making payments if the minor does not
honor the deal.
• In most states, a minor who continues
making payments on a contract after
reaching the age of majority is considered
to have ratified the contract.
CONTRACT LAW
CAPACITY
• Once the contract has been ratified, it can
no longer be canceled without some type
of penalty.
• A sufficient mental ability to understand
contracts is also required.
CONTRACT LAW
CAPACITY
• People who are mentally incapacitated
(insanity, mental illness, mentally
challenged) and/or so intoxicated (drunk,
high) ordinarily lack the mental ability to
enter into a contract.
• When an extremely intoxicated person
sobers up, they have the option of
canceling or ratifying a contract made
while inebriated.
CONTRACT LAW
WRITING
• The following agreements must be placed
in WRITING to be fully enforceable in
court:
A.Contracts for the sale of land or real
estate;
B.Contracts for the sale of goods priced at
$500 or more;
C.Contracts for services that require more
than one year to complete;
CONTRACT LAW
WRITING
D.Agreements to give something of value in
return for a promise of marriage; and
E.Agreements to pay another person’s debt.
• Most contracts are actually made through
spoken words or possibly nonverbal
actions.
CONTRACT LAW
WRITING
• An oral contract is just as valid as a written
contract but it’s always preferable to have
a contract in writing and signed by each
party.
• This way it’s much easier to prove the
terms of the contract with specificity.
CONTRACT LAW
WRITING
• EXPRESS CONTRACT: Stated in words
and may be either oral or written.
• IMPLIED CONTRACT: Originates from the
actions of the parties.
CONTRACT LAW
CLASSWORK
CHAPTER 6: OFFER & ACCEPTANCE
• What’s Your Verdict? pg. 107
• 6-1 Assessment, pg. 111 (1-6, 7a, 8, & 9)
• What’s Your Verdict? pg. 112
• 6-2 Assessment, pg. 115 (1-7, & 13-14).
• 6-3 Assessment, pg. 119 (1-2, & 6-7).
CONTRACT LAW
CLASSWORK
CHAPTER 7: GENUINE ASSENT
• What’s Your Verdict? pg. 125
• 7-1 Assessment, pg. 127 (1-3, 7, & 9)
• 7-2 Assessment, pg. 133 (1-2, 4-5, & 7-8).
CHAPTER 8: CONSIDERATION
• What’s Your Verdict? pg. 139
• What’s Your Verdict? pg. 145
• What’s Your Verdict? pg. 147
CONTRACT LAW
CLASSWORK
CHAPTER 9: CAPACITY
• What’s Your Verdict? pg. 155
• 9-1 Assessment, pg. 159 (3-5, & 7-8)
• What’s Your Verdict? pg. 160
• 9-2 Assessment, pg. 163 (1-2 & 6-7).
CHAPTER 10: LEGALITY
• 10-1 Assessment, pg. 174 (1 & 5).
CONTRACT LAW