Unit 2 Notes

1. Chapters 6-11 Unit 2 Notes

2. Ch. 6 - Contracts • Agreement between 2 or more people • Offer & Acceptance: serious, definite & accepted without change. Can be oral. Acceptance makes the contract. -Offeree can counteroffer, reject or accept. -Offeror can rescind (revoke) anytime before acceptance

3. Contract Law 2. Mutual (genuine) Assent: both parties agree to & understand the contract. 3. Consideration: must be something of value exchanged. -Consideration? A)Joe tells Jack he will give him a ride to work. B)Joe tells Jack he will give him a ride to work in exchange for parking money, consideration has been exchanged.

4. Contract Law 4. Legality: if the purpose of the contract is illegal it may be voided 5. Capacity: -An ability to understand terms of contract ----Corporations and most adults have capacity. -Minors, mentally incompetent and intoxicated do not have capacity & any contracts they enter into are voidable.

5. Legal Form 6. Legal Form – must be in writing if: • Paying money due from an estate • Changing ownership of property • Sale of land • Contracts for over 1 year • Consideration given for Marriage

6. Chapter 7-Genuiness of Assent • Genuine Assent: true & complete agreement • Without this contract is voidable • Injured party can rescind • Ratification: conduct suggesting you intend to be bound by the contract

7. Genuine Assent not present if… • Duress: improper threat to obtain agreement • Examples? • Threats to commit crime or tort • Threats to report a crime, to sue or economic threats • What’s Your Verdict – p. 125

8. Genuine Assent not present if… • Undue Influence: one party in a position of trust and dominates the other party • Relationship • Unfair Persuasion • What’s Your Verdict – p. 126

9. Genuine Assent not present if… • Mistake • Unilateral mistake: one party holds incorrect belief • Failure to read, careless reading – contract valid • Mutual Mistake (bilateral mistake) • Both parties have incorrect material facts, contract void. • Still valid if it involves applicable law. • What’s Your Verdict – p. 128

10. Genuine Assent not present if… • Misrepresentation • Innocent • Fraudulent • Both result in contract being voidable • Misrepresentation if all 3 exists: • Must be one of fact or there is active concealment • Statement is material to transaction or is fraudulent • Victim reasonably relied on statement

11. Chapter 7 • What’s Your Verdict – p. 129 • Page 134 #1-9

12. Chapter 8 - Consideration • 3 requirements of consideration: • Each party must give act or promise to other party • Each party must trade what they contribute • What each party trades must have legal value (be worth something in the value of the law) • Only one party giving consideration = gift • Forbearance: agreement to not do something

13. Adequacy of Consideration • Items traded do not have to be of equal economic value. • Contract voidable if contract is unconscionable (grossly unfair). • Nominal Consideration • Paying $1 for property • Paying an executive a $1,000 salary • Past consideration: acts already performed cannot serve as consideration

14. When Consideration is not Required • Promises to charitable organizations & non-profits • Courts enforce promises even though one party receives nothing of legal value in return • What’s Your Verdict – p. 147 • Firm Offers-covered by UCC • Signed offer bound for 3 months without consideration • Modifications

15. When Consideration is not Required • Statute of Limitations: 3 years to sue over breach of contract or you can no longer sue • Debts discharged in bankruptcy • Example: see legal brief p. 148

16. Promisorry Estoppel • Legal inability of the person who made the false statement to deny it makes it an enforceable promise called "promissory estoppel. • Example: Bernie Blower tells Arthur Artist that Blowhard has a contract to make a movie and wants Artist to paint the background scenery in return for a percentage of the profits. Artist paints, and Blower then admits he needed the scenery to try to get a movie deal which fell through and there are no profits to share. Artist sues and the judge finds that Blower cannot deny a contract with Artist and gives Artist judgment for the value of his work

17. Ch. 9 - Contractual Capacity • Contracts entered into by those lacking capacity are voidable • Disaffirmance: refusal to be bound by contract • What’s Your Verdict – p. 155 • Read page 156

18. Limits on Capacity • After reaching age of majority power to disaffirm is lost • Minors cannot ratifiy contracts unless they emancipate themselves or reach majority • What’s Your Verdict - p. 160 • Courts less likely to allow disaffirmance to which one? • Minor? Mentally Incapacitated? Intoxicated? • Scope of authority: capacity to contract on behalf of business

19. Chapter 10 – Legal Purpose & Written Contracts Illegal Agreements • Agreements that contract for an illegal act are VOID 1. Gambling: illegal except • Casinos • Nevada • Pari-mutel betting: horse & dog tracks • State-run lotteries • Bingo games: for charities like schools & churches

20. Illegal Agreements 2. Usury Laws: most states cap interest rates charged to customers. • Example: Loan sharks charging 50% interest • South Dakota does not & Citi credit card company headquarters there 3. Agreements involving Discrimination 4. Agreements to obstruct justice • Paying for testimony, bribing jurors, compounding a crime (promise to not inform or prosecute in exchange for consideration)

21. Illegal Agreements 5. Agreements made without competency license • Trades such as barbers, plumbers, electricians, lawyers, pharmacists, real estate brokers, etc. 6. Agreements affecting marriage negatively • Ex: for citizenship, to not marry, to divorce, etc. –p. 171 7. Agreements that restrain trade • Price fixing, bid rigging • Resale price maintenance: msrp legal because it’s suggested • Allocation of markets: divide markets & agree where to sell & where not to sell – p. 171

22. Illegal Agreements 8. Agreements not to compete • Exception: Covenant not to compete valid based on: • Geographic area • Time period for the limitation • Employer’s interest protected by the limitation • Others: • Protected victims, excusably ignorant, rescission prior to illegal act, divisible contracts (enforce legal part)

23. Ch. 10 - Statute of Frauds • A contract is within the statute of frauds if it is required to be in writing • Requirements: 1. Names of parties 2. Subject matter description 3. Price 4. Quantity 5. Signature 6. Other essential terms

24. Contracts that must be in writing • To buy or sell goods of $500 or more –p 177-178 • To buy or sell real property • Those that require more than one year to complete - What’s Your Verdict p. 177 • Promises to pay the debt or answer for a legal obligation of another person – In This Case p.179 • Promises to give something of value in return for a promise of marriage.

25. Transfer & Discharge of Obligations • Assignment: Transfer of a right a party may have under a contract to another party • Performance: fulfillment of contractual promises • What’s Your Verdict, page 191. • Other examples? Credit card companies

26. Discharge • Discharge: termination of duties • Most contracts discharged by complete performance • Failure to complete performance is breach of contract

27. 6 ways contracts can be discharged • By performance • By the initial terms • By subsequent agreement • By impossibility of performance • By operation of law • By tender of performance

28. Remedies for breach of contract • Minor breach: monetary damages • Major breach: 1. Rescission & restitution 2. Monetary Damages (Compensatory, consequential, punitive, liquidated) 3. Specific Performance

29. Marriage Contract & Divorce • Prenuptial Agreement • Common Law Marriage • Annulment • In This Case - p. 200 • What’s Your Verdict – p. 202

30. Engagement ring as gift Inter vivos Gift: “between the living” • transfer of property by an agreement between people while they are alive. The contract is completed by delivery of the gift from the donor (giver) to the donee (receiver) and cannot be recovered by the person who donated the gift. Casa Mortis Gift: “gift on the occasion of death” • gift given to another person while on their deathbed. • Gift donor must expect to die imminently from a particular illness or event. • Example: woman is engaged to a man whose mother is dying. She gives the “bride to be” her engagement and wedding ring set which is a family heirloom she wishes to keep in the family. The couple’s marriage falls apart and after divorce, can the man get the rings back so that they remain in his family? • What if the mother recovers from her condition and wants the rings back?

31. Engagement ring as gift – cont’d Conditional Gift: • given to a person provided that they met the condition agreed upon by both parties. • Example: man gives an engagement ring on the promise that the woman marries him. The engagement falls apart, therefore, the condition of marriage did not occur and the ring may be returned to him. However, if he is responsible for the breakup, the laws say that she gets to keep the ring. Unconditional Gift: • Some states say it does not matter who breaks off the engagement, the woman gets to keep the ring • Varies among states