Legally Binding Agreements CONTRACTS Legally Binding Agreements

Intro to Contracts A contract is an agreement between 2+ people to exchange something of value Contract legally binds parties to do what they promise Not always written A party who fails to live up to such promise has breached the contract When you buy something, a legal contract is formed

Elements of a Contract Contract must have certain elements to be legally binding There must be an offer by one party and acceptance by another Offer must be directed at a specific person Menu at restaurant is not an offer, but when you place your order AND they start cooking your food… The law infers acceptance through certain actions

Elements of a Contract For contract to be valid, there must be exchange of consideration Something of value is given for something else of value Does not need to be of same/similar value Law allows people to make good AND bad deals People entering into contract must also be competent to make contracts Cannot be drunk, mentally ill Agreements to do something illegal are not enforceable

Minors & Contracts Minors may make contracts Generally, however, minors cannot be forced to carry out promises May cancel or refuse to honor contracts Major contracts usually require adult cosigner Responsible for making payments if minor can’t or won’t

Minors & Contracts Minors may, however, be held to contracts involving necessities Food, clothing, shelter, medical aid In most states, minors who continue to make contract once reaching age of majority is considered to have ratified (formally approved) the contract Can no longer be cancelled

Written & Oral Contracts Contracts may be written or oral (spoken) Certain contracts MUST be in writing to be enforceable: Sale of land or real estate Sale of goods over $500 Agreements to pay another person’s debt Agreements for services that will not be performed within one year from date of agreement

Written & Oral Contracts Law favors written contracts Oral contracts can be difficult to prove Usually a good idea to get agreement down in writing If written contract exists, courts won’t consider promises made prior to signing of contract

Illegal Contracts: Illegal products/services Courts will not enforce contracts that are illegal or against public policy Ex: Sale of illegal drugs

Illegal Contracts: Unconscionable Contracts Courts sometimes find a contract is SO unfair, harsh, and oppressive that it should not be enforced Contract is said to be unconscionable More likely to find contract unconscionable when… Consumer is presented with contract on “take-it-or-leave-it” basis There is very uneven bargaining power between parties

Illegal Contracts: Fraudulent Contracts Fraud is grounds for invalidation of a contract False statement about an important fact made to persuade person to agree to contract Ex: sports memorabilia salesperson fakes a famous baseball player’s signature Salespeople may not lie about product’s feature but are not required to volunteer negative aspects of product unless asked

Breach of Contract When one party fails to carry out its end of bargain, there is a breach of contract Three remedies for breach of consumer contract: Expectation damages Rescission & restitution Specific performance

Remedy #1: Expectation Damages You can sue for expectation damages Difference in value that would be expected if (1) breaching party fulfilled its promise & (2) value of what injured party actually received Ex: If you order 10 books worth $10 each, but company only sends 6, expectation damages would be $40. Difference in value between what was promised ($100) and what was received ($60)

Remedy #2: Rescission & Restitution You may also ask court to cancel (rescind) the contract and order defendant refund any money already paid (restitution) Releases you from any further contractual obligations, but plaintiff expected to return any benefit already received from contract You order cookware set, but pan melts first time used. You may seek rescission & restitution, but will need to return set

Remedy #3: Specific performance When suing for specific performance, buyer asks court to order seller to carry out specific terms of contract Ex: You ordered a sweatshirt that was never delivered. Court could order company to deliver sweatshirt.