ES 2.00 UNDERSTAND CONTRACT LAW https://www.youtube.com/watch?v=Hi4fOXfqJJw Obj. 2.01 Understand the elements and characteristics of a contract

Notes: Understand Contract Law BL 2.01 Notes Organizer Understand Contract Law Handout/Open from the teacher/class webpage Students will complete the matching activity in class or as homework. Use this activity to ensure that all students have a basic understanding of ethics and sources of law. https://www.youtube.com/watch?v=Hi4fOXfqJJw

Elements of a Contract Offer Acceptance Genuine Agreement/Assent Consideration Capacity Legality All elements MUST be present to be an enforceable contract.

OFFER Proposal by one party to another with intent to create a legal binding agreement Offeror Makes the offer Offeree Offer made to this person

Requirements of an Offer Serious Intent Must intend to make the offer Advertisements? No serious intent Known as an invitation to negotiate Definite and Certain Must use definite words Communicated to the Offeree Phone, fax, Internet, letter, etc

Termination of Offer Revocation – Taking back of an offer by offeror Rejection – Refusal by the offeree Counteroffer – Any change in the terms of the offer Death – Offeror dies Insanity – Offeror is declared insane Expiration of Time – If the offeror puts a time limit on the offer and it has passed Destruction of the subject matter

Options & Firm Offers Option – the offeree gives the offeror something of value in return for a promise to keep the offer open for a set period of time Firm Offer – a written offer for goods that states the period of time during which the offer will stay open No additional consideration is required Maximum period of time set by the UCC – 3 months Offeror must be a merchant who deals in related goods on a daily basis

Activity 1: Contract Law--Offers BL 2.01 Activity 1-Use the following scenario to answer the questions at the bottom. (Use PPT Notes)

Activity 1: Contract Law--Offers Bob called Kevin and told him he would sell 10 of his baseball cards for $50.  Who is the offeror? Who is the offeree? Is this an offer? Why or why not? Bob Kevin No Class participation Not definite and certain

Activity 1: Contract Law--Offers Marsha’s car broke down. She yells out I should sell this car for $50 right now. Her friend, Ashley, says “ok, I’ll buy it” and gives her $50. Who is the offeror? Who is the offeree? Is this an offer? Why or why not? Marsha Ashley No No serious intent

Activity 1: Contract Law--Offers While at home alone, Carla decides to sell her computer to Mike for $500, so that she can buy a new one. Who is the offeror? Who is the offeree? Is this an offer? Why or why not? Carla Mike No Not communicated to offeree

Activity 2: Contract Law--Offers BL 2.01 Activity Read the scenarios and answer the questions. (Use PPT Notes) Handout.

ACCEPTANCE Unqualified willingness by the offeree to go along with the offer Mirror Image Rule Terms of the acceptance must match exactly (mirror) the terms of the offer Any change means there is no acceptance (counteroffer)

Methods of Acceptance Bilateral Acceptance Unilateral Acceptance Offer is accepted by offeree through communication of the promise to the offeror Only requires giving a promise to perform, not performance itself Most offers are bilateral Unilateral Acceptance Offeror promises something in return for offeree’s performance and indicates that performance represents acceptance Silence as Acceptance Does not represent acceptance Offeror cannot word offer in a way that silence would be considered acceptance https://www.youtube.com/watch?v=oMNQHZgO-xQ

Bilateral Acceptance Examples of bilateral contracts are present in everyday life. You're entering this type of agreement every time you make a purchase at your favorite store, order a meal at a restaurant, receive treatment from your doctor or even checkout a book at your library. In each circumstance, you've promised a certain action to another person or party in response to that person or party's action.

Unilateral Acceptance You might see examples of unilateral contracts every day, too; one of the most common instances is a reward contract. Pretend you've lost your dog. You place an advertisement in the newspaper or online offering a $100 reward to the person who returns your missing pooch. By offering the reward, you're offering a unilateral contract. You promise to pay should anyone fulfill the obligation of returning your dog. You're the only person who has taken any action in this contract, as no one is specifically responsible or obligated to finding your dog passed on this interaction. Another common example of a unilateral contract is with insurance contracts. The insurance company promises it will pay the insured person a specific amount of money in case a certain event happens. If the event doesn't happen, the company won't have to pay.

Activity 3: Contract Law—Offers & Acceptances BL 2.01 Fill in the blanks with the correct termination of offer term. (Use PPT Notes) Handout/www.quia.com

GENUINE AGREEMENT (ASSENT) A valid offer has been made by the offeror, and a valid acceptance has been exercised by the offeree Several causes for genuine agreement to be lacking in a contract Duress Undue Influence Unilateral or Mutual Mistake https://www.youtube.com/watch?v=AsZn_BJ5bWk Innocent Misrepresentation Fraudulent Misrepresentation

Duress Overcoming a person’s free will by use of force or by threat of force or bodily harm Threats of Illegal Conduct Threats to Report Crimes Threats to Sue Threats to sue made for purpose unrelated to the suit Economic Duress Threats to a person’s business or income

Undue Influence Unfair and improper persuasive pressure within a relationship of trust Must be able to prove: Relationship of trust, confidence or authority Unfair persuasion

Unilateral Mistake An error on the part of one of the parties Does not affect validity of the contract Cannot get out of contract Nature of the Agreement Signing a contract you don’t understand or have not read Signing a contract in a language you don’t understand

Mutual Mistake (Bilateral Mistake) Both parties are mistaken about an important fact Impossibility of Performance Contract is impossible to perform Contract is void Subject Matter Either party can void contract Existing Law Contract is valid Parties are expected to know the law

Innocent Misrepresentation Innocent statement of supposed fact that turns out to be false Statement must be one of fact Statement must be material Statement must be relied upon Injured party has the right to rescind (take back) the offer No rights to damages

Fraudulent Misrepresentation Party to a contract deliberately makes an untrue statement of fact Deliberate: Done with or marked by full consciousness of the nature and effects; intentional Deception: The fact or state of being deceived Gain: To secure as profit or reward In order to prove fraud, you must prove the above 3 definitions

Proving Fraudulent Misrepresentation Untrue statement of fact Must be one of fact, not opinion Active concealment Silence – may stay silent about defects except when: statement is about material facts True statement is made false by subsequent events One party knows the other party has made a basic mistaken assumption Materiality Statement would cause reasonable person to contract If one party knows the other party would rely on the statement If one party knows the statement is false

Proving Fraudulent Misrepresentation Reasonable Reliance One party must reasonable rely on statement Intentional or reckless One party deliberately lies or conceals a material fact One party recklessly makes a false statement of fact, without knowing whether it is true or false Statement must be intended to induce party to enter into contract Resulting Loss Must cause an injury

Activity 4: Contract Law—Genuine Agreement BL 2.01 Directions: Label each scenario with the genuine agreement issue being addressed. (Use PPT Notes) Handout/www.quia.com

CAPACITY Legal ability to enter into a contract Minors Mentally Incapacitated Intoxicated A person serving a prison sentence lacks capacity.

Minors Minor – not yet reached legal age (age of majority) NC Age of Majority – 18 years old Emancipation - severing of the parent-child relationship Formal – court decree Informal – arises from the conduct of the minor and the parent Parent and minor agree that parent will end support Minor gets married Minor moves out of family home Minor joins armed forces Minor gives birth Minor takes on full-time employment Ratification – agreeing to be bound by a contract that could be avoided Contracts made by minors are voidable; minors may disaffirm (or avoid being bound by) contracts

Mentally Incapacitated Lacking the ability to understand the consequences of his or her contractual acts Severe mental illness Severe mental retardation Severe senility Contracts made by mentally incapacitated are usually void unless involving necessaries.

Intoxicated People under the influence of drugs or alcohol Intoxication is a voluntary act. Most courts are reluctant to consider contracts entered into by intoxicated individuals as voidable. Must be so intoxicated that the person did not know they were contracting.

CONSIDERATION Exchange of benefits and detriments by the parties to an agreements Requirements of consideration: Must involve a bargained-for exchange (promise made in return for another promise) Must involve something of value Benefits and detriments must be legal Benefits Something that a party was not previously entitled to receive Detriments Any loss suffered; anything given up Forbearance Not doing something that you have the right to do

Activity 5: Contract Law—Genuine Agreement BL 2.01 Directions: Match the terms to their examples. (Use PPT Notes) Handout/www.quia.com Word Bank: Unilateral Mistake Bilateral Mistake Fraud Innocent Misrepresentation Duress Undue Influence Emancipation Ratification Capacity Mentally Incapacitated Intoxicated Necessaries

Adequacy of Consideration Courts don’t look at adequacy or value of an agreement unless it is “unconscionable” Unconscionable So grossly unfair or oppressive that it would shock the conscience of the court So lop-sided that the average person would not agree to terms

Nominal Consideration Token amount in a written contract where either the parties cannot or do not wish to state the amount

Agreements without Consideration Promise to make a gift Gifts have no consideration Cannot be enforced Gift that has been given Doesn’t have to be returned Donor – Gives the gift Donee – Accepts the gift

Illusory Promises Clause or wording that allows party to escape from legal obligation Termination clause Illusory – clause to allow termination of contract for any reason Not illusory – termination only allowed after a change in defined circumstances Output Contracts Agreement to purchase all of a specific producer’s product Requirements Contracts Agreement to supply all of the needs of a specific buyer Output & Requirements contracts are recognized by the courts as having consideration by implying fair dealing.

Existing Duty Existing Public Duty Existing Private Duty No detriment Obligation to obey the law Existing Private Duty If a person is already under legal duty to do something, another promise to do that same thing does not furnish consideration for a new contract.

Past Performance An act that has already been performed cannot be consideration in a contract.

Exceptions to Consideration Promises to charitable organizations Gift or Pledge for future contribution Enforceable as consideration if organization identifies the pledge for a specific use and acts in reliance on the pledge Promises covered by the UCC Firm offers Good faith modification of contract Promises discharged in bankruptcy

Exceptions to Consideration Promises barred from collection Promissory Estoppel Rely on what a person said Elements: Promise must bring action or forbearance One who gave no consideration must have relied on the promise Injustice can be avoided only enforcing the promise

LEGALITY

Illegal Contracts Licensing Civil & Criminal Usury Gambling Agreements to commit a crime/tort are illegal Usury State sets a max interest rate Interest – fee the borrower pays to the lender for using the money Usury - charging too high of an interest rate Gambling Legal gambling varies from state to state Licensing States require that persons in certain occupations obtain a license to practice that occupation Doctors, plumbers, barbers, lawyers, funeral directors

Illegal Contracts Public policy Agreements that unreasonably restrain trade Takes away the ability to do business with others Agreements not to compete Restrictive covenant - agreement not to compete in a region for a period of time Only legal for a short period of time and small geographic region Agreements for price fixing Price Fixing - competitors agree on certain price ranges within which they will sell their products

Illegal Contracts Public policy (continued) Agreements to eliminate competitive bidding (or bid rigging) Bid - offer to buy or sell goods or services at a stated price Bid rigging – competitors agree that one bidder will have low bid for a certain job….low bidder sets bid higher than would if real competition Agreements to obstruct justice Anything that delays or prevents justice Agreements to induce breach of duty or fraud Influencing persons who hold positions of high trust for private gain Agreements to interfere with marriage Damage, destroy, or discourage good family relationships

Statute of Frauds Requires that certain contracts be in writing to be enforceable Contracts to buy and sell goods for a price of $500 or more Contracts to buy and sell real property Contracts that require more than one year to complete Promises to pay the debt of another Promises to give something of value in return for marriage

CHARACTERISTICS OF A CONTRACT Valid, void, voidable, unenforceable Express or implied Bilateral or unilateral Oral or written

Valid, Void, Voidable, Unenforceable Valid contract Includes all elements recognized by the courts Legally binding Void contract Without legal effect Contracts missing one or more elements Voidable contract One or more parties can get out of contract for some legal reason Contract lacks genuine assent, contracts with minors Unenforceable contract Contract that court will not uphold, usually because of some rule of law Statute of limitations has expired

Express or implied Express Implied Contract statement that may be written or oral Implied Contract that comes about from the actions of the parties

Bilateral or Unilateral Contains two promises Most contracts are bilateral Unilateral Contains a promise by only one person to do something if, and when, the other party performs a certain act Reward offer is most common unilateral contract

Oral or written Oral Written Created by two or more people speaking to each other Written contract terms are written so that both parties know the exact terms Provides proof of existence for the contract Certain contract are required by the Statute of Frauds to be in writing

Activity 7: Contract Debate Process: Group students into teams and assign topic for debate. You should have a team debating for and a team debating against the topic. Teams research and plan three questions for the other team. Allow 10 minutes or this could be a homework assignment for students. Introduction of issue (3 minutes per team) Teacher asks each team questions. Teams have two minutes to answer, with each team getting a one minute rebuttal. Conclusion (3 minutes per team) Class Discussion (5 minutes)

Activity 8: Contract Law—Legality BL 2.01 Directions: Summarize the legal issues in each scenario. List the 5 types of agreements that have to be in writing and give an example of each. Partner

Activity 9: Contract Law—Characteristics of a Cotnract BL 2.01 Directions: Match the terms to their examples. (Use PPT Notes) Handout/www.quia.com

Activity 10: Contract Law—Characteristics of a Cotnract BL 2.01 Directions: Identify which characteristic is being presented in the scenario. (Use PPT Notes) Handout https://www.youtube.com/watch?v=XFO6HmsKFTU