1. Contracts Chapter 8

2. Contracts A contract is an agreement that can be enforced in court, formed by two or more competent parties who agree, for consideration, to perform or to refrain from performing some legal act now or in the future. –Objective intent is looked at by the courts

3. Requirements of a Contract Agreement – includes an offer and an acceptance Consideration – any promise by parties must be supported by bargained for consideration Contractual capacity –all parties must have contractual capacity Legality – contract must not accomplish an illegal goal Defenses: no genuine assent and improper form

4. Freedom of Contract Article 1 Section 10 of U.S. Constitution –Grants the Freedom of Contract Also want Freedom from Contracts that are contrary to the public good. –Contracts that are inequitable –Contracts that have an illegal purpose

5. Types of Contracts Bilateral – a promise is given in return for another promise. Offeror makes a promise and offeree accepts by making a promise –I promise to pay you a $100 if you promise to clean my apartment Unilateral – Offer can be accepted by acting without the need for a return promise –I will give you a hundred dollars if you clean my apartment this Saturday.

6. Express vs. Implied Express contracts are stated in words or written Implied contracts – usually referred to as “implied in fact contracts” –I walk up to the counter and throw a Hersheys bar to the cashier. Implied contract that I will buy the candy bar.

7. More Contracts A quasi contract is a legal fiction imposed by courts to prevent unjust enrichment Formal Contracts include contracts like sales for land which must be in writing to be enforceable Informal is any non formal contract Executed Contract: one that has been full performed. Executory: one that has not been fully performed on one side.

8. Contracts Continued Valid Contract has four elements: an agreement (offer and acceptance) 2, sufficient consideration, 3 a legal purpose and 4 by those with contractual capacity Void Contract is one which is not valid Voidable is one that may be voidable at the option of one party

9. Contractual Capacity Minors –General rule is that the contract will be voidable at the option of minor. Exceptions: military service, necessities, all contracts if married Mentally Incompetent –Generally this will fail the capacity requirement Intoxicated Exhibit 8-2.

10. Mutual Agreement Meeting of the minds –Objective theory of contracts not subjective theory Need an offer and acceptance Offer –Offer must manifest an intention to be legally bound –The terms of the offer must be reasonable certain –The offer must be communicated to the offeree. What terms do you need? –Price? –Duration?

11. Lapse of an Offer Offers lapse –At a designated time –After a reasonable amount of time –Destruction of subject matter –Death/ mental incapacity –Constructive notice. Options Contract –Offeree pays to have the offer remain open for a definite period of time Revocation –Must be done in a manner as to put others on notice.

12. Acceptance Common law –Mirror image rule applied Under UCC you can accept by any recognized means and acceptance does not have perfectly mirror the offer. Mailbox Rule –Acceptance made upon dispatch.

13. Reciprocal Consideration Need consideration for a valid contract –Must be freely bargained for Is a gift a valid contract? Consideration may be –A return promise –An act (in unilateral contracts this will be the same as ________) –Forbearance of a legal right Courts do not care about value unless it’s a peppercorn

14. Promissory Estoppel Also called detrimental reliance –Need the following elements Clear and definite promise Promisee must clearly rely on the promise Reliance must be of substantial and definite charactar Justice must be served by promissory estoppel

15. Undue Influence and Duress Undue influence can impair the ability of a party to assent –Example: Therapist convinces you that you would be happier if you sold your 56 Softail to him for $100. Duress – Example: Sign this or I will kill you. –Economic duress – generally not considered There are exceptions though

16. Fraudulent Misrepresentation Fraud used to induce acceptance or assent Three elements needed –Misrepresentation of a material fact must occur –Must be an intent to deceive –Innocent party must justifiably rely on misrep

17. More Mistakes Which one do we care about? –Generally only a MATERIAL bilateral mistake allows the contract to be rescinded –However, 2 exceptions One party knows or should have known that the other party made a mistake Mathematical or bookkeeping mistake

18. Statute of Frauds Demands certain contracts be in writing –Why? –Varies by State but here are some common examples Contracts involving interests in land Contracts that cannot be performed with one year Collateral Contracts to guarantee debt Promises made in consideration of marriage Contracts for the sale of goods that exceeds $500

19. More on Statute of Frauds Makes contract unenforceable in court The one year rule: –Look at possibility of finishing with in one year not the likelihood Exception to the guarantee of debt rule –If the guarantee receives a benefit then it does not have to be in writing. Satisfying the statute of frauds requires written signature and essential terms

20. Third Party Beneficiaries Third party beneficiary – one for whose benefit a promise is made in a contract but who is not a party to the contract Intended beneficiary –The third party for whose benefit the contract was made. –Can sue promisor if contract is breached. –Lawrence v. Fox

21. Types of Intended Beneficiary Creditor Beneficiary Donee Beneficiary –Contract is formed to give gift to a “donee” beneficiary –Life insurance contracts –Can you sue the attorney involved if you’re a donee beneficiary?

22. Illegal Contracts Covenants not to compete –Must be reasonable in length –Must be reasonable in geographical limitation

23. Discharge Most commonly discharged by Performance –What happens with substantial performance? Accord and Satisfaction –Change the requirements but not discharged of original duty until subsequent duty is performed Novation – new contract replaces old contract Recission – put back to original situation Liquidated vs. Punitive damages –One is allowed and one is not. Which one is allowed?

24. Warranties Express v. Implied Warranty of Title: the seller has title and the right to transfer the title. Warranty of Merchantability: promises that goods are fit for their intended use. –Who does this apply to? Warranty of fitness for a particular use: seller says “sure you can use the product for that purpose.”

25. Contract Interpretation Parole Evidence Rule: only look at the plain meaning of the words of the contract unless there is contradictory terms Other rules –Words will be given their ordinary meaning unless trade useage or past behavior signals a departure from plain meaning. –Written words prevail over non written words and typed words carry more significance than handwritten words –Specific terms can carry more weight than general terms