CHAPTER 5 HOW CONTRACTS ARISE

Transcription

1 CHAPTER 5 HOW CONTRACTS ARISE 1

2 WHAT IS A CONTRACT? A legally binding agreement Contracts require a bargain Manifestation of Mutual Assent 2

3 MANIFESTATION OF MUTUAL ASSENT Offer Acceptance - Consideration 3

4 WHAT IS IN A CONTRACT? 1. Agreement: offer/acceptance Offer-- proposal by one party to another to create legally binding agreement. Acceptance nd parties willingness to go along with lst parties proposal (offer) 2. Did everyone give up something? 3. Consideration -- whatever is exchanged for something else 4

5 ELEMENTS OF A CONTRACT AGREEMENT OFFER AND ACCEPTANCE CONSIDERATION WHAT IS EXCHANGED FOR SOMETHING ELSE 5

6 Developer promised to pay Graphic Designer $5000 for creating certain promotional materials for Developer's multimedia work. Graphic Designer created the materials and delivered them to Developer, as required in the contract. Developer admits that the materials meet the contract specifications. IS THERE AN OFFER? IS THERE ACCEPTANCE? IS THERE CONSIDERATION? IS THERE A BINDING CONTRACT? 6

7 WHAT ARE THE TWO PARTS TO AN AGREEMENT? 7

8 ANSWER OFFER AND ACCEPTANCE 8

9 THE EXCHANGE OF SOMETHING FROM BOTH PARTIES IS CALLED? 9

10 ANSWER CONSIDERATION YOU HAVE THE RIGHT TO ENTER A CONTRACT AS LONG AS IT IS LEGAL 10

11 CAPACITY Legal ability to enter a contract CAPACITY HAS TO DO WITH BEING CAPABLE Did both parties know what they were doing when they entered into the contract? 11

12 INFANCY If under age of 18, can disaffirm an agreement if NOT for the necessity of life WHY: BELIEF THAT YOU CAN BE TAKEN ADVANTAGE OF What are necessities of life: Capacity continued food, clothing, shelter, medical care Disaffirm: deny, terminate 12

13 Two tests: Capacity continued MENTAL INCAPACITY 1. COGNITIVE TEST Did you understand the nature and consequences of the transaction at the time it was entered into? 2. MOTIVATIONAL OR AFFECTIVE TEST Because of a mental illness or defect, a person was unable to act in a reasonable manner with respect to the transaction. Did the other party know or should have known of the condition? 13

14 UNDER WHAT AGE CAN YOU DISAFFIRM A CONTRACT? WHAT DOES DISAFFIRM MEAN? 14

15 ANSWER 18 TERMINATE 15

16 WHAT ARE THE NECESSITIES OF LIFE? 16

17 ANSWER FOOD, CLOTHING, SHELTER, MEDICAL CARE 17

18 TYPES OF CONTRACTS: EXPRESS CONTRACTS CLEAR STATED. KNOW PARTY S INTENT TWO TYPES OF EXPRESS CONTRACTS: 1. ORAL NOTHING WRITTEN, ONLY SPOKEN WORDS 2. WRITTEN CONTRACT IN WRITING IF YOU DON T TRUST PERSON S WORD, GET IT IN WRITING IF IT INVOLVES: MONEY OR THINK PROBLEM MAY ARISE. ENFORCEMENT: ORAL 6 YRS. WRITTEN 15 YRS. 18

19 IMPLIED CONTRACT RESULTS FROM ACTIONS OF PARTIES 1. LOOK AT THE FACTS 2. CAN RESULT WITHOUT SINGLE WORD SPOKEN WHAT ARE THE FACTS YOU LOOK AT? THE ACTIONS INVOLVED 19

20 QUASI CONTRACT CONTRACT WOULD HAVE BEEN CREATED EXCEPT FOR UNFORESEEN CIRCUMSTANCES (TROLLEY EXAMPLE) Quasi contracts determined by two things: 1. Facts 2. Law 20

21 WHAT TYPE OF CONTRACT IS CREATED THROUGH ACTIONS OF PARTIES? WHAT TYPE OF CONTRACT IS CREATED THROUGH CLEARLY STATED TERMS EACH PARTY UNDERSTANDS? WHAT TYPE OF CONTRACT IS CREATED THROUGH UNFORESEEN CIRCUMSTANCES -- CONTRACT WOULD HAVE BEEN CREATED UNDER NORMAL CIRCUMSTANCES? 21

22 ANSWER IMPLIED EXPRESS QUASI 22

23 OTHER TYPES OF CONTRACTS VALID CONTRACT good contract Six elements to a good contract: 1. offer 2. acceptance 3. agreement 4. consideration 5. capacity 6. legality 23

24 VOID CONTRACT Other types of contracts cont. --contract that is not good --one element missing would void contract VOIDABLE CONTRACT --defect in contract (legal reason?) --can continue or void EXAMPLE: CONTRACT BETWEEN MINOR AND ADULT WILL VOID CONTRACT FOR BUT NOT. Why voidable for minor? 24

25 Other types of contracts cont. BILATERAL CONTRACT --two sides two promises --promise for a promise UNILATERAL CONTRACT --uni means one -- promise for an act One person promises to do something if and when the other person performs some act. 25

26 Other types of contracts cont. EXECUTED CONTRACT --completed contract --completed when both parties complete their part of the bargain. EXECUTORY CONTRACT --incomplete contracts --one party fulfills obligation to contract --other party has not fulfilled obligation to contract 26

27 COMMON LAW CONTRACTS VS MODERN TRENDS OF CONTRACTS Common Law --all contracts must be agreements --not all agreements enforceable Modern Trends Promissory Estoppel --If agreement made and you accept in good faith and injured, can sue for monetary damages. 27

28 WHAT IS THE DIFFERENCE BETWEEN A VOID CONTRACT AND A VOIDABLE CONTRACT? 28

29 ANSWER VOID CONTRACT LACKS ONE OF KEY ELEMENTS OF A GOOD CONTRACT offer, acceptance, agreement, consideration, capacity, legality 29

30 I OFFER TO PAY YOU $5 IF YOU WASH MY CAR UNILATERAL OR BILATERAL CONTRACT? I WILL SELL YOU MY CANDYBAR FOR $.50, I WILL BUY YOUR CANDYBAR FOR $.50 UNILATERAL OR BILATERAL CONTRACT? THIRD PARTY OFFERS TO BUY MY CANDYBAR FOR $ UNILATERAL OR BILATERAL CONTRACT?

31 ANSWER I OFFER TO PAY YOU $5 IF YOU WASH MY CAR UNILATERAL- PROMISE FOR AN ACT I WILL SELL YOU MY CANDYBAR FOR $.50, I WILL BUY YOUR CANDYBAR FOR $.50 BILATERAL CONTRACT PROMISE FOR PROMISE THIRD PARTY OFFERS TO BUY MY CANDYBAR FOR $.50 NO CONTRACT OFFER NOT MADE TO 3 RD PARTY. 31

32 THE OFFER 32

33 OFFER A proposal by one party to another party to enter a contract OFFEROR Person making offer is Person who receives the offer is OFFEREE 33

34 THREE BASIC REQUIREMENTS OF A BASIC OFFER: 1. Offer made to you must be definite and certain. 2.Offer must be communicated to offeree. 3.Offer must be made seriously and intent to be enforceable obligation. OFFERS DONE IN JEST OR UNDER EMOTIONAL DISTRESS NOT REAL OFFERS. 34

35 MAILBOX RULE: APPLIES ONLY TO ACCEPTANCE When an offer is sent, acceptance takes place when it is mailed. Also applies to fax and phone If you want to withdraw an offer, withdrawal does not take effect until offer is received. 35

36 36

37 EXCEPTION TO MAILBOX RULE: IF YOU DO NOT RESPOND AS TOLD TO AN OFFER EX: Please mail your response to our offer and you fax it. THE OFFER IS NOT ACCEPTED UNTIL RECEIVED GENERAL RULE: UNLESS SPECIFICALLY INDICATED, ANY REASONABLE MANNER OF ACCEPTANCE IS ACCEPTABLE UNLESS TOLD OTHERWISE. EX: If mailed offer, I respond by fax Acceptance when faxed unless told to mail. 37

38 REVIEW OF MAILBOX EXAMPLE If offer good for 10 days from date of letter, offer is not good if sent after 10th day no matter when received offer. EX: RECEIVE OFFER ON APRIL 10. LETTER DATED APRIL 5, OFFER SAYS GOOD FOR 10 DAYS. GOOD FOR 10 DAYS FROM? If letter dated April 1 and offer good for 10 days, offer is good from date you received the offer for 10 days. EX: RECEIVE OFFER ON APRIL 3. GOOD UNTIL WHAT DATE? 38

39 WHAT IF OFFEREE CONVEYS ACCEPTANCE BY PONY EXPRESS? WHEN IS ACCEPTANCE EFFECTIVE? 39

40 A makes an offer to B on January 1; A then decides to revoke the offer on January 2 and puts a letter in the mail to B revoking the offer; however, B puts a letter accepting the offer in the mail on January 3, and does not receive A's revocation letter until January 4. WHEN WAS A CONTRACT FORMED? CAN THE OFFER BE REVOKED? 40

41 ANSWER The letter of revocation can be effective only when received, that is January 4 However, the contract was formed on January 3 when the letter of acceptance was posted. It is too late to revoke the offer. 41

42 A makes an offer to B on January 1, and initially B intends to reject the offer on January 2 by putting a letter in the mail to A rejecting the offer. However, the next day B changes his mind and sends a fax to A accepting the offer. IS THE OFFER REJECTED OR ACCEPTED BY A? 42

43 ANSWER In this situation, whichever communication A receives first will govern. 43

44 TWO PARTS TO AGREEMENT: 1st part offer 2 nd part acceptance OFFER + ACCEPTANCE = AGREEMENT 44

45 ACCEPTANCE --2nd parties unqualified willingness to go along with lst parties proposal (offer) --- The agreement of the offeree to be bound by the terms of the offer. 45

46 REQUIREMENTS FOR ACCEPTANCE 1)Unconditional Acceptance acceptance cannot change terms of original offer in any way 2)Mirror Image Rule acceptance mirrors offer. Any change in terms of offer means offeree has not accepted the offer, but made counteroffer. 46

47 COUNTEROFFER Any change in the terms of the offer that means the offeree has not really accepted the offer. Ex: House on market for $30,000. You offer to buy for $25,000 1)If counteroffer made by offeree, original offeree becomes offeror. 2)If counteroffer made by offeree, offeror becomes offeree to accept/reject offer. 47

48 EXCEPTIONS Merchants can make minor changes as long as it does not change the basic terms of the contract. Firm Offer Good for three months, unless something is stated. 48

49 OFFER AND ACCEPTANCE OFFER TERMINATION Operation of Law (5 areas that terminate offer) 1. DURATION STATED IN OFFER most common way to end offer 2. NO DURATION STATED IN OFFER reasonable time frame one month reasonable 3. DESTRUCTION OF SUBJECT MATTER unknown to both, subject matter destroyed 4. DEATH OR INSANTIY OF PARTY -- BEFORE offer accepted, offeror dies or insane at time of offer. If offeror dies AFTER offer made, must deal with guardians or person(s) handling estate 5. SUPERVENING ILLEGALITY an offer is made and then it becomes illegal to perform it. 49

50 How do most offers end? BY ACTION OF THE PARTIES Revocation of Offer withdraw offer Irrevocable Offer paying someone money to keep an offer open Firm Offer - offer good for 3 months if nothing stated Rejection NO. That ends offer immediately Counteroffer ends first offer Inquiry - As long as one does not say NO, original 50 offer is still on the table

51 I WONDER IF ANYONE WILL NOTICE I M BACK GOOD LOOKING BUBBA CHAP. 5 REVIEW 51

52 QUESTION 1 IF I MAKE YOU AN OFFER ON JAN. 1. YOU ACCEPTED ON JAN. 2 AT 10:00. I DIE AT 10:01 ON JANUARY 2. IS THERE A BINDING CONTRACT? 52

53 QUESTION 2 LIST THE SIX ELEMENTS OF A VALID CONTRACT. 53

54 QUESTION 3 WHAT TYPE OF CONTRACT IS CREATED THROUGH CLEARLY STATED TERMS EACH PARTY UNDERSTANDS? 54

55 QUESTION 4 UNDER WHAT AGE CAN YOU DISAFFIRM A CONTRACT? 55

56 QUESTION 5 VOID VS. VOIDABLE TRUE OR FALSE VOID CONTRACTS MEAN THE CONTRACT LACKS ONE OF THE ESSENTIAL SIX ELEMENTS TO BE A VALID CONTRACT. VOIDABLE CONTRACTS MEANS CONTRACT CAN BE TERMINATED BY ONE OF THE PARTIES. 56

57 QUESTION 6 ORAL CONTRACTS ARE ENFORCEABLE UP TO HOW MANY YEARS? 57

58 QUESTION 7 WRITTEN CONTRACTS ARE ENFORCEABLE UP TO HOW MANY YEARS? 58

59 QUESTION 8 WHICH TEST FOR MENTAL CAPACITY EVALUATES WHETHER YOU SHOULD HAVE KNOWN THE OTHER PARTY WAS UNABLE TO ACT IN A REASONABLE MANNER WITH RESPECT TO ENTERING INTO A CONTRACT. COGNITIVE TEST OR MOTIVATIONAL TEST 59

60 QUESTION 9 IN COURT, THE JUDGE WOULD LOOK AT THE FACTS AND LAW TO DETERMINE WHETHER A CONTRACT WOULD HAVE EXISTED EXCEPT FOR UNFORESEEN CIRCUMSTANCES. WHAT TYPE OF CONTRACT ARE WE DESCRIBING? 60

61 QUESTION 10 UNDER THE MAILBOX RULE, WHAT THREE METHODS OF ACCEPTANCE ARE CONSIDERED REASONABLE CREATING A BINDING CONTRACT. 61

62 QUESTION 11 Johnny, I will pay you $50 to mow my yard. What kind of contract is created? unilateral or bilateral contract Johnny, I will sell you my mower for $50. Miss Frank, I will buy your mower for $50. What kind of contract is created? unilateral or bilateral 62

63 QUESTION 12 GRIFFITHS FURNITURE ADVERTISES A DISWASHER IN THE LOCAL NEWSPAPER. THE NEWSPAPER PRINTS THE WRONG PRICE. WHY ISN T GRIFFITHS HELD TO THE PRICE? WHAT IS THE RULE ON NEWSPAPER ADVERTISEMENT? 63

64 QUESTION 13 ACCEPTANCE THAT CHANGES THE TERMS OF THE ORIGINAL OFFER AND TERMINATES THE OFFER IS CALLED? 64

65 QUESTION 14 Carla purchases a new dress for the school dance she was to attend with James. James, however, stands Carla up. Under what rule of law could Carla bring suit against James? 65

66 ANSWER 1 If a person dies or becomes insane AFTER an offer is accepted, OFFEREE must deal with their guardians or persons handling the estate. KEY ELEMENT Does death or insanity end an offer? Yes it does if it has not been accepted yet by offeree. 66

67 ANSWER 2 1. OFFER 2. ACCEPTANCE 3. AGREEMENT 4. CONSIDERATION 5. CAPACITY 6. LEGALITY 67

68 ANSWER 3 EXPRESS CONTRACT 68

69 ANSWER 4 UNDER THE AGE OF 18. AT AGE OF 18, YOU WILL BE HELD TO CONTRACTS. 69

70 ANSWER 5 TRUE VOID CONTRACT BINDS NEITHER PARTY. VOIDABLE CONTRACT BINDS ONE PARTY (USUALLY INVOLVES MINOR) 70

71 ANSWER 6 ORAL CONTRACTS ARE ENFORCEABLE UP TO 6 YEARS. 71

72 ANSWER 7 WRITTEN CONTRACTS ARE ENFORCEABLE UP TO 15 YEARS. 72

73 ANSWER 8 MOTIVATIONAL TEST CONGITIVE TEST (WHICH IS STILL USED TODAY) EVALUATES WHETHER YOU UNDERSTOOD THE NATURE AND CONSEQUENCES OF THE TRANSACTION AT THE TIME YOU ENTERED INTO IT. 73

74 ANSWER 9 QUASI CONTRACT (Remember the Trolley incident) 74

75 ANSWER 10 UNDER THE MAILBOX RULE, THREE METHODS OF ACCEPTANCE THAT ARE CONSIDERED REASONABLE ARE:»PHONE»FAX»MAIL 75

76 ANSWER 11 Bilateral Unilateral 76

77 ANSWER 12 ADVERTISEMENTS ARE INVITATIONS TO NEGOTIATE. ONLY IF THE ERRORS CONTINUE WOULD FALSE ADVERTISING CLAIMS BE INVESTIGATED. 77

78 ANSWER 13 COUNTEROFFER Mike, I will sell you my stapler for $5. Miss Frank, I will give you $3 for your stapler. 78

79 QUESTION 14 PROMISSORY ESTOPPEL 79

80 QUESTION 15 If withdrawing an offer, withdrawal does not take affect until what? 80

81 ANSWER 15 If withdrawing an offer, withdrawal does not take affect until the offer has been received. 81

82 HEY HOW WAS THE REVIEW? MAXIE THE GREAT NOTICE I GOT A NAMEPLATE NOW THEIR WAY OF SAYING SORRY SEE YA!! 82