Law of Contracts

WHAT MUST BE IN A CONTRACT? Offer and acceptance Genuine assent Legality Consideration Capacity Writing

REQUIREMENTS OF AN OFFER Contractual intent must be present –Jests –Statements made in anger or terror –Preliminary negotiations –Social agreements Offer must be communicated to the offeree Essential terms must be complete and definite

HOW CAN OFFERS BE ENDED? Revocation by the offeror Time stated in the offer Reasonable length of time Rejection by the offeree Counteroffer Death or insanity of either the offeror or offeree Destruction of the specific subject matter

HOW CAN AN OFFER BE KEPT OPEN? Options Firm offers

WHAT IS REQUIRED OF AN ACCEPTANCE? Only offerees may accept The acceptance must match the offer Acceptance must be communicated to the offeror –Silence, bilateral, unilateral acceptance –Modes of contractual communication –When acceptances are effective

GENUINE ASSENT AND DURESS Genuine assent Duress –Threats of illegal conduct –Threats to report crimes –Threats to sue –Economic threats

UNDUE INFLUENCE AND ASSENT The relationship Unfair persuasion

WHAT ARE THE TYPES OF CONTRACTUAL MISTAKES? Unilateral mistakes Mutual mistakes

WHAT IS MISREPRESENTATION? Untrue statement of fact –Active concealment –Silence Materiality Reasonable reliance

FRAUD The misrepresentation must be intentional or reckless The misrepresentation or concealment must injure

REMEDIES FOR FRAUD Rescission Damages Punitive damages

FOCUS Scenario Jane contracts with Mike to purchase one of his two skateboards. Jane thinks she has bought the red one, a premier skateboard. Mike thinks Jane has bought the blue one, his less valuable skateboard. Question Does a contract exist?

FOCUS Scenario The Thompsons were told that if they did not sign a contract to repay a $2,000 loan at 40 percent interest, their son would be in danger of physical harm. Afraid that their son would be hurt, the Thompsons signed the contract. Questions Is the contract enforceable? Why or why not?

CONSIDERATION Act, forbearance, or promise Trading Legal value Adequacy of consideration Nominal consideration

CIRCUMSTANTIAL CONSIDERATION Illusory promises –Termination clauses

CIRCUMSTANTIAL CONSIDERATION Existing duty –Existing public duty –Existing private duty –Settlement of liquidated debts –Settlement of unliquidated debts –Release –Composition of creditors (continued)

FOCUS Scenario Prof. Feer tells his students: “You have worked hard, and if you continue to perform at this high level, I'll pay for a pizza party at the end of the year—if I think it is warranted.” The students continue to work hard, and class grades are high, but no party is given. Question Can the students enforce the promise?

FALSE CONSIDERATION Mutual gifts Past performance

EXCEPTIONS TO THE REQUIREMENT OF CONSIDERATION Promises to charitable organizations Promises covered by the UCC –Firm offers –Modifications Promises barred from collection by statute –Statute of limitations –Debts discharged in bankruptcy Promissory estoppel

WHAT IS CAPACITY? Protections for those who lack capacity Minors Those mentally incapacitated The intoxicated

WHO HAS CONTRACTUAL CAPACITY IN ORGANIZATIONS? Scope of authority Employer grants authority to employee Assumption of authority based on job title

WHEN CAN DISAFFIRMANCE OCCUR? Any time while still under the incapacity Within a reasonable time after attaining capacity

WHAT MUST BE DONE UPON DISAFFIRMANCE? Loss of value Obligations of party with capacity

DISAFFIRMANCE TIMELINE

CONTRACTS THAT CANNOT BE DISAFFIRMED Court-approved contracts Major commitments Banking contracts Insurance contracts Work-related contracts Sale of realty Apartment rental

CONTRACTUAL EFFECT OF MISREPRESENTING AGE Other party to the contract may collect damages Minor still may be able to disaffirm contract