Transcript Ch. 5 Elements of a Contract

Ch. 5 Elements of a Contract
Capacity, Consideration, and Legality
Requirements of Capacity
 Capacity - legal ability to enter into a contract.
 Rebuttable Presumption - assume the other
person has the capacity to contract.
 Give examples of people that cannot enter into
a contract?
Contractual Capacity Rules
and Limitations:
People who can disaffirm a contract:
1. Minors
2. Mentally Challenged
3. People under the influence of
drugs/alcohol
4. Other
Rights and Duties of Minors
 Contracts made by minors are
VOIDABLE by the minor.
 Intent to disaffirm (get out of) a
contract can be shown by action or by
statement.
 Minors can disaffirm a contract even if
it is because they used poor
judgment.
Minors
 Can enter a contract and honor it
 But can also get out of a contract.
 WHY?
 Inexperienced, unknowledgeable, immature,
naïve
 Age of Majority - when a minor becomes
an adult (usually 18), day before their
actual birthday
Emancipated Minors
 Minors who no longer are under the
legal control of their parents.
 Must honor their contracts.
 Automatically emancipated if you:
 get married
 set up your own household
 go to court to get emancipated
Lying about your age:
 If you claim to be an adult you are
committing fraud.
 Some states
 Say when minors commit fraud they can be
sued if they try to get out of the contract.
 Other states
 Say minors’ can’t be sued for fraud even if
they lie about their age
 BUT, it is still a criminal offense if they lie to
purchase alcohol or cigarettes.
Disaffirming Contracts
 Minors have to disaffirm the WHOLE
contract
 Minors can enter contracts with other
minors, either party can disaffirm the
contract
Returning Goods
 Minors can return goods they have
purchased - reasonable time
 Might have to still pay for damages,
dirtiness to items
 Can disaffirm a contract after they reach
adulthood if done within a reasonable
time period
 Sometimes, can get out of a contract
even if they don’t have the goods
anymore
Ratification of a Minor’s Contracts
 Ratification - act of agreeing to go along
with a contract that could have been
avoided.
 Minors ratify a contract after they
become an adult.
 Can occur by words or actions.
 X: make a pymt. as an adult.
Exceptions to the General Rule
 Minors must pay the fair value of
necessaries (apts. may be necessary)
 Minors must pay for things required by
law (car insurance)
 Minors who own their own business have
limited capacity
 Married minors are adults
 Minors cannot get out of military
enlistment agreements.
Minors as Drivers
 Driving is a privilege, not a right!
 Requirements to get a license:
 Written test
 Driver’s education course
 Final exam - road test and vision exam
Minors as Students
 Students may be searched if they are
suspected to have broken the law or
school rules
 Students don’t have the same rights as
adult writers/speakers.
 They can be restrained from printing certain
matters in a school newspaper.
Rights/Duties of Parents
 Right to discipline their children
 Right to manage their property
 Parens Patriae Doctrine - protects
children from abusive parents, therefore
the state acts as their parent
 Parents have to provide necessities.
 If parents die, property guardians are
appointed, ends when child reaches age
of majority.
Mentally Challenged
 Mental problem had to make it
impossible for them to understand what
was going on when the contract was
made.
 Doctors determine if someone is mentally
challenged or not.
 Severely mentally challenged - have
guardian - they can’t make contracts on
their own
Under the influence
 Drugs/Alcohol
 Must be too intoxicated you did not know
what you were doing
 Judge/jury will decide that.
Other Limits on Capacity
 Convicts - limited capacity
 Aliens, citizens of other countries who
live in the US - limited capacity
 During wartime, foreign-born people
identified as enemy aliens - denied
certain legal capacities
 Exceptions - Necessities for living (food,
clothing, shelter, medical care, etc…)
Element 5
Consideration
Consideration
 Exchange of benefits and detriments
 Benefit - receiving something
 Detriment - giving something up
3 types of Detriments:
1. Giving up something you have the right
to keep.
2. Doing something that you have the right
not to do.
3. Not doing something that you have the
legal right to do. (FORBEARANCE)
EXAMPLE:
 “I’ll pay you $30 if
you agree to walk my
dog every day this
week.”
 What are the benefits
of each party?
 What are the
detriments of each
party?
3 Characteristics of Consideration
1. Bargained-for-Exchange - when a
promise is made in return for another
promise.
2. something of value - doesn’t matter the
amount as long as it seems fair.
3. Benefits and detriments that make up
consideration must be legal.
Unconscionable Contract
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An agreement where the consideration
is so out of line with the actual value
and so unfair that it is shocking.
2 conditions must be present:
1. Uneven power between the parties.
2. Adhesion Contract - party with all the
power tells the other party to take it or
leave it.
Courts Duty to Adhesion
Contracts
 They will:
 Refuse to enforce the entire
contract.
 Enforce the contract without the
unconscionable clause (if possible)
 Limit the enforcement of that
clause.
Types of Consideration:
1.
2.
3.
4.
Money
Property/Service
Promise not to sue
Charitable Pledges
Problems with Consideration
 Disputed Amounts - not agreeing on the
amount that was owed.
 Settle with Accord and Satisfaction
 Accord - creditor accepting less than
what was billed
 Satisfaction - the agreed to amount
 Read Page 120 Example!
 Undisputed Amounts - agree to the
amount owed.
Exceptions to the
Requirements of Consideration
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1.
2.
3.
4.
5.
Some agreements are valid even
without consideration.
Promises under Seal
Promises after discharge in bankruptcy
Debts ended by the statute of
limitations
Promises enforced by promissory
estoppel
Option
Promises Under Seal
 Seal - a mark or impression placed on a
written contract indicating that it is a
formal agreement.
 Ex: Deeds
 Can be used on any agreement, makes it
enforceable
 No need for Consideration!
Promises after Discharge in
Bankruptcy
 Bankruptcy gets rid of some debts.
 Sometimes people promise to pay their
debts anyway
 Consideration is not required for making
this promise.
Debts Ended by the Statute
of Limitations
 Time limit was set up for suing somebody
and it expires.
 Applied to contracts such as credit cards,
store credit, and sale of goods that fall
under UCC.
 PA - Contracts - 4 years
Contracts Under Seal - 20 years
Sales of goods under UCC - 4 years
Promises Enforced by
Promissory Estoppel
 You make a promise that someone else is
relying on and then break the promise
 They will use Promissory Estoppel to get
compensation for their loss even though
there was no consideration.
 Promissory Estoppel - stop one party
from denying the fact they they made a
promise that hurt the second party.
Elements of
Promissory Estoppel
1. Promise was made
2. Person relies on that promise
3. Person acts in a certain way that
affects their position because of the
promise (Sold a car, house, moved,
took a vacation)
4. Injustice can be avoided only by
enforcing the promise and making up
for the loss.
Option
 Option - one person might pay another
person money to keep an offer open for
a set period of time.
 Firm Offer - when the contract involves
goods, the offer is held open without
money payment
 Requires a written offer saying how long to
keep the offer open (not to exceed 3
months)
Agreements without
Consideration
 Illusory Promises - all parties must do
something in order for the contract to be
real
 Future Gifts and Legacies - person
promises to give a gift in the future or
leave a legacy in a will
 Past Consideration - the act of giving
consideration must happen at the same
time that the contract is made.
Agreements without
Consideration
 Preexisting Duties - act of giving
consideration require a new promise for
every new contract.
 Promise to attend a social engagement attending a social engagement totally
lacks consideration, accepting is not
doing something in exchange for the
promise
Legality
 If contract is illegal, neither party will win
in court - In Pari Delicto - both parties
knew about illegality.
 Exception - when parties are not equally
at fault.
 If you can’t break the contract apart, the
entire contract is void if there are illegal
parts to it.
Agreements that break Statutes
 State legislatures pass laws that make
some agreements illegal because they
violate statutes:
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Civil and Criminal Statutes
Usury Statutes
Gambling Statutes
Licensing Statutes
Sunday Statutes
1. Civil and Criminal Statutes
 Agreements that have one party
committing a tort or a crime are illegal.
2. Usury Statutes
 Charging more than the maximum legal
interest rate.
3. Gambling Statutes
 If you have trouble collecting illegal
gambling winnings you are violating the
law and the court will not enforce the
debt.
 Varies by state as to what type of
gambling is legal
4. Sunday Statutes
 Also called Blue Laws
 Making agreements on Sundays are void.
 If made any day but Sunday is valid but
if accepted on Sunday then it is void.
 If offer made on Sunday and accepted
any other day the contract is valid.
 Why?
 Contracts occur when acceptance occurs.
5. Licensing Statutes
 License - a legal document that grants
permission from the government to do a
certain job.
 What types of jobs do you need a license to
do?
 Why do you need a license to do certain
jobs?
 An agreement with an unlicensed person
working in those certain jobs is illegal.
Agreements Contrary to
Public Policy
 Public Policy - nobody should be allowed
to do something that harms the public.
 Ex: public’s health, safety, welfare
Agreements that
Unreasonably Restrain Trade
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Law protects the right to make a living
Restraint of Trade agreements take
away your ability to do business with
others.
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3 types:
1. Agreements NOT to compete
2. Agreements for Price Fixing
3. Agreements to Defeat Competitive Bidding
Agreements not to Compete
 If someone buys a business, they also
buy the sellers’ goodwill not to compete.
 Restrictive Covenant - the buyer tells the
seller that they won’t open a business
that competes with the buyer in a certain
area and within a certain time period.
Agreements for Price Fixing
 Price Fixing - when competitors agree to
set prices within certain ranges
Agreements to Defeat
Competitive Bidding
 Bid - offer to buy/sell goods/services at a
stated price
 Most government places have to go
through competitive bidding process.
 Lowest bid wins!
Agreements to Obstruct
Justice
 A contract that gets in the way of the
dispensing of justice is illegal.
 Ex: Protect someone from arrest,
encourage lawsuits, give false testimony,
bribe a juror, pay non-experts to testify.
Agreements inducing
Breach of Duty/Fraud
 A person in the position of trust who has
the responsibility to protect the wellbeing of others
 Public officials, Congress
Agreements to Give up the
Right to Litigate/Arbitrate
 Contracts that include clauses that limit
your ability to bring a lawsuit/arbitrate a
claim can be valid.
 If it is offered as a “take it or leave it”,
the clause may not be fair, thus making it
illegal.
Agreements interfering with
Marriage
 Contracts that discourage, damage, or
destroy good family relationships are
illegal.
 Ex: Dad promising money
if his daughter never gets
married - contract is void!
Statute of Frauds
 State law that requires certain contracts
to be in writing to be enforceable.
 WHY?
 Prove that contract exist
 Prove it had certain definite terms
Elements of a Written Contract
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Place
Parties involved
Date
Subject matter
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Price
Terms
Intent of parties
Signatures
Interpreting Contracts
 Handwriting prevails over typewriting,
preprinting or word processing.
 Assumption, handwritten part is most
recent.
 Typewriting or word processing prevails
over preprinting.
 Checks - amount written in words is the
enforceable amount.
Contracts that Must be in Writing
 Contract to pay someone else’s debt
 Contract to pay debts of a person who
has died
 Contracts requiring more than a year to
perform
 Contracts in consideration of marriage
 Contract for the sale of goods ($500+)
 Contract to sell real property
Special Interpretation Rules
1. Parol Evidence Rule - a written
contract should contain everything
that was agreed upon between the
2 parties.
2. Best Evidence Rule - requires the
original agreement be used in
court
3. Real-World Rules - read and
understand an entire document
before you sign
HOMEWORK
Section 5-1 Entire Box
Section 5-2 Entire Box
Page 125, 2-8
DUE TOMORROW!