Ch 9 CONTRACTS

1. Ch 9 CONTRACTS

2. A contract is a: • Promise or set of promises, • And if someone breaches or breaks contract • You can sue and the law may provide remedy • Court wants to determine intent of parties.

3. THE ELEMENTS OF A CONTRACT? • 1. Offer • 2. Acceptance • 3. Consideration • Mental ability to negotiate

4. Offeror & Offeree • Offeror= the person who makes the Offer. • Offeree= the person who receives the Offer. • Buyer- Seller

5. 2 Types of Contracts • 1. Bilateral- Offeree must only promise to perform (“promise for a promise”). (most contracts) • Example:

6. 2. Unilateral - Offeree can accept the offer only by completing the contract performance • (Ad in paper/reward/lottery) • Cannot take back offer or revoked once performance has begun. • Offeree isn’t obligated to do anything, he learns of Offeror’s offer and then performs.

8. Unilateral Contracts: • Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. • After seeing the ad Carlill (P) purchased it and used it as directed. Carlill contracted influenza and made a claim for the reward. • Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract.

9. AGREEMENT. • Agreement = offer and acceptance. • Parties must show mutual understanding to terms of contract.

10. INTENTION OF THE OFFER. Would a reasonable person in the Offeree’s position conclude an offer had been made. • Offers made in anger, jest, or undue excitement are usually not offers.

11. To Terminate an Offer • 1. Revoke Offer; or by • 2 Operation of Law. • (contract can specify that offer ends on a certain date)

12. TERMINATION CONT……. • 1. Revoke Offer: • Offer can be withdrawn anytime before Offeree accepts the offer. • Rejection of the offer by the Offeree: • A counteroffer by the Offeree is a rejection of the original offer and making of a new offer.

13. Example • Offer • Rejection • Counter-Offer

14. B. OPERATION OF LAW • Lapse of Time. • Offer terminates when the period of time specified in the offer has passed. • If no time period for acceptance, offer terminates reasonable period of time. • Destruction of the Subject Matter - car.

15. II. Consideration • CONSIDERATION MUST HAVE A VALUE!

16. 1. Illegal Contract • Illegal contract – never enforceable • The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy.

17. 2. MINOR • Minor – Not enforceable

18. 3. DRUNK- depends • DEPENDS – NOT AUTOMATIC • Lack of mental capacity at the time the contract is being made. • Case 9.1 Lucy v. Zehmer (1954). (if terms are reasonable, it’s okay when drunken and make an offer)

19. Lucy v. Zehmer Case 9.1 • On December 20, 1952, Lucy entered the restaurant owned by Zehmer with a bottle of whiskey in his hand. He and Zehmer consumed a significant quantity of distilled spirits and discussed the possible sale of the farm. Zehmer wrote a note stating simply "We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000.00, title satisfactory to buyer". The note was signed by Zehmer and his wife.

20. Court Ruling – SOLD!!!! • Court ruling that Zehmer was not intoxicated to the point of being unable to comprehend the nature and consequences of the instrument he executed…..

21. ADHESION Contracts • Adhesion Contracts. • Preprinted contract in which the adhering party has no opportunity to negotiate the terms of the contract. • “Standard-form.” • “Take-it-or-leave-it” adhesion contracts. • Binding Arbitration

22. STATUTE OF FRAUDS • To be enforceable, these contract MUST be in writing and signed: • 1. Contracts involving land. • 2. Contracts involving “One Year Rule.” • 3. Promise made for marriage. • 4. Contracts for the sale of goods priced at $500 or more.

23. Must be in Writing • Contract that cannot be completed in one year. Ben agreed to create a reality TV show for a production company. Ben and the production company agreed to split profits equally, however they never wrote down their agreement. 2. Contracts for Marriage 3. Contracts for sale of goods over $500 4. Land / Real Estate Agreement may not be enforceable by Court

24. Question • So does a contract have to be written? • Answer. NO! • ONLY CONTRACTS UNDER THE STATUTE OF FRAUDS MUST BE IN WRITING!

25. Not in writing – what does that mean • So what does this mean for a person running a small business? It means that: • •If you place an oral order for goods in the amount of $1000 and the seller fails to deliver the goods, court won’t enforce agreement because not in writing. • •If you make a contract to purchase land, the contract is not in writing and the seller decides to sell the land to someone else, court will not enforce agreement.

26. WHAT HAPPENS AFTER THE CONTRACT. • Okay, so do we have a CONTRACT. • Now what happens? • What if someone doesn’t do what they are supposed to do? • What if I want to get out of it?

27. Breach- does not complete contract satifactorily • Sue for Damages. • Specific Performance = force other party to complete contract.

28. SPECIFIC PERFORMANCE • Forcing other party to complete contract • Land – sell land • Really, would you want someone to provide a service if they were already upset? May lead to more problems.

29. Duty to Mitigate Damages • When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered.

30. Mitigating Damages • You sign a lease. After 6 months, you move out. Landlord says you owe 6 more months. Landlord has a DUTY to Mitigate (reduce) your damages. Therefore Landlord has to try to rent out YOUR apartment. If they do, then you only owe for damages for time not rented.

31. Except for leases – Must have in contract that you will get attorney fees if the other person breaks or breaches the contract.