Chapter 12: Contracts PDF

Chapter 12: Contracts EAXAM 3 Section 12 Select Lecture Status Done Class MGMT 311 Vocab: Types of contracts...

Chapter 12: Contracts EAXAM 3 Section 12 Select Lecture Status Done Class MGMT 311 Vocab: Types of contracts Bilateral—A promise for a promise. Unilateral—A promise for an act; acceptance is the completed performance of the act. Formal—Requires a special form for creation. Formation Informal—Requires no special form for creation. Express—Formed by words (oral, written, or a combination). Implied—Formed by the conduct of the parties. Executed—A fully performed contract. Performance Executory—A contract not fully performed. Enforceability Valid—The contract has the necessary contractual elements: agreement (offer and acceptance), consideration, legal capacity of the parties, and legal purpose. Voidable—One party has the option of avoiding or enforcing the contractual obligation. Chapter 12: Contracts 1  Unenforceable—A contract exists, but it cannot be enforced because of a legal defense. Void—No contract exists, or there is a contract without legal obligations. Methods by Which an Offer Can Be Terminated By Action of the Parties Revocation Rejection Counteroffer By Operation of Law Lapse of time Destruction of the subject matter Death or incompetence of the offeror or offeree Supervening illegality Overview of Contacts Common law governs all contracts unless there is a statutory law governing the Contract Example UCC- which governs K for the sale of goods and services → UCC has modified of general common law contract principles K- relating to the sale of real estate, employment and insurance are governed by common law What is a K? → it “is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty” → it's an agreement where the law will step in if someone doesn't keep their word. It is simply an agreement that can be enforced in court Promise for future action; not done sanctions or compelled (bị buộc phải thực hiện) to perform Chapter 12: Contracts 2  → When someone doesn't fulfill their part of a contract, it's called a breach. If this happens, the other party can ask a court for help. The court might order the person who broke the contract to: Pay money to make up for the breach (called damages) In some cases, actually do what they promised (called specific performance) Objective Theory of K- in determining whether a contract has been formed, the element of intent must be present. This is called the Objective theory: Factors to consider include → This means we don't care about what someone was secretly thinking - we only look at what they actually said and did. What did the party say when entering the K How did the party act or appear What were the circumstances surrounding the transaction Requirements and Defenses to K The are 4 requirements for a valid K to exists: Agreement- offer and acceptance Consideration- the promise must be supported by legally sufficient consideration (something of value) → Both parties must exchange something of value Capacity- both parties must be competent → must be legally able to enter into a contract. Legality- the purpose of the K must be legal and not against public policy → The purpose of the contract must be legal. Defenses to a K- assuming the 4 elements of the K have been established a party may raise a defense to the enforcement of the K. Voluntary consent- consent of both parties must be voluntary Examples include fraud, undue influence, mistake, or duress Form- the contract must be in the appropriate form required by law Chapter 12: Contracts 3  Some K must be in writing Types of Contracts There are many types of Contracts- They are categorized based upon legal distinctions: → group them based on how they're made, carried out, and enforced Bilateral vs Unilateral K- what must the offeree do to accept the offer and bind the offeror. Bilateral- the offeree can accept simply by promising to perform → the offeree only needs to promise to do something → "promise for a promise." No performance is required- simply promise for a promise → The contract starts as soon as both people make their promises. Unilateral- the offeree can accept the offer only by completing the K performance → "promise for an action." Promise for an act- K becomes valid the moment the K is performed → the contract begins when the offeree finishes the required action. Ex. I will pay you $1K if you paint my house Formal v. Informal Formal require a special form or method of creation → the Uniform Commercial Code (UCC) requires them to be written in a certain way Example- a contract that requires a negotiable instrument Negotiate instruments includes checks, drafts, promissory notes and CDs Informal- simple contracts; substance over form → focus more on what's being agreed to rather than how it's written Express v. Implied Expressed-terms are fully and explicitly stated → An express contract is when the terms are clearly stated, either in writing or spoken out loud. Lease agreement Chapter 12: Contracts 4  Implied –also known as implied in fact contract- the conduct of the parties dictates rather expressed statements define the K → It's not based on words, but on how people act. The terms of the agreement are figured out from what the parties do, not what they say. This is sometimes called an implied-in-fact contract. Requirements for an Implied K: Plaintiff furnished some services or property → Someone provides a service or property Plaintiff expected to be paid for the services or property; Defendant knew or should have known payment was expected The defendant had a chance to reject the services or property and did not. →The person receiving the service or property had a chance to say no, but didn't Example- ordering in a restaurant Neighbor’s landscaper starts mowing your lawn A contract may be a mix of express and implied terms → This means some parts of the agreement are clearly stated, while others are understood based on the situation. An example- hiring a landscaper to maintain lawn; trim the bushes and clean the gutters. Executed v. Executory Contracts Executed has been fully performed by both sides Executory- has not been fully performed by both parties; → when one or both parties still have things to do. If one parties has performed and the other has not the K is said to be executed on one side and executory on the other side. Example-Party A agrees to sell a car to party B; Party A delivers the car to party B, but party B does not pay A → As executory contract. Chapter 12: Contracts 5  Once party B pays A the contract is fully executed. Enforceable v Unenforceable Not all valid contracts are enforceable-unenforceable is one that cannot be enforced b/c of certain defenses Example- statute/law requires that the K must be in writing; it is a valid K just not enforceable A valid contract is an agreement that can be enforced in court. It needs four main parts: 1. An agreement (when one person offers something and the other accepts) 2. Something of value exchanged between the parties 3. Both parties must be legally able to make the contract 4. The purpose of the contract must be legal An unenforceable contract is a valid agreement that can't be enforced due to certain legal reasons. It's not unenforceable because someone didn't follow the contract's rules. Instead, some law or rule makes it impossible to enforce. For example, some contracts must be in writing. If they're not written down, they usually can't be enforced, except in rare cases. Voidable contracts-is a valid contract but one that can be avoided at the option of one or both parties. The party having the option can elect either to avoid any duty to perform or to ratify. Contracts entered by minors; some sports contracts contain opt out clauses. Void contracts is not contract at all Avoidable contract is a valid agreement that can be canceled by one or both parties involved. The party with this option can choose to: 1. Cancel their duty to perform the contract, or 2. Confirm (or "ratify") the contract, making it fully valid. Chapter 12: Contracts 6  If the contract is canceled: Both parties are freed from their obligations. If the contract is confirmed: Both parties must fully carry out their legal responsibilities. This type of contract gives flexibility to the parties involved, allowing them to decide whether to proceed with or end the agreement based on their circumstances or preferences. A void contract is not a real contract at all. The words "void" and "contract" don't go together. When a contract is void: No one has to do anything the contract says It's like the contract never existed A contract can be void for reasons like: A court decides one of the people involved can't make decisions for themselves The purpose of the contract is against the law In these cases, it's as if the contract was never made in the first place. Agreement The parties must agree on the terms and communicate to each other their mutual agreement to the same bargain; traditionally an offer and acceptance → When both people agree on the same deal, we call this "mutual assent." Once they agree, if the contract also has these three things, it becomes valid: 1. Consideration (something of value is exchanged) 2. Capacity (both parties are legally able to make a contract) 3. Legality (the purpose of the contract is legal) So, agreement is just the first step. But it's a crucial one in creating a valid contract. Offer is a promise or commitment to do or refrain from doing some specified action. The requirement of an offer: → The person making the offer is called the offeror, and the person receiving it is the offeree. Chapter 12: Contracts 7  The offeror must have a serious intention to become bound by the offer; The terms of the offer must be reasonably certain; The offer must be communicated to the offeree. → When a valid offer is made and the offeree accepts it, a legally binding contract is created. But remember. Intention- what would a reasonable person in the offeree’s position would conclude the offeror’s word and actions meant → Dont judge on the offeror thinking , we are consider on the reasonable understand words and actions Offers made in anger, jest, or undue excitement do not meet the serious- and-objective intent test → Because of this, even if someone tries to accept these offers, they don't create a real agreement. Situations in which Intent may be Lacking: Expressions of opinion- is not an offer → When someone just shares what they think, it's not an offer. They're not trying to make a deal. Statements of future intent- I plan on selling X → Saying "I might do something later" isn't an offer. Preliminary negotiations- a request or invitation to negotiate is not an offer → discuss a possible deal, it's not an offer yet. Asking "Would you sell your farm?" or saying "I wouldn't take less than $18,000 for my car" are just conversation starters, not offers. Invitations to bid- invitations to submit bids is not an offer; bids submitted are offers Advertisement and price lists- are considered invitations to negotiate → like an invitation to start talking about a possible deal. Live and online auctions- again invitations to submit offers → the seller puts an item up for sale, that's not the offer. The people bidding are making the offers. The deal is made when the auctioneer says "sold!" Agreements to agree-traditionally were not enforceable. Chapter 12: Contracts 8  However, now they can be if it is clear that the parties intended to be bound by the agreements- Must look at the intent rather than form. → Now, these agreements can be legally binding if it's clear that both parties meant to be bound by them → Consider focus on the intended rather agreement form Preliminary Agreements-can constitute a binding contract if the parties have agreed on all the essential terms and no disputed issues remain to be resolved. → As a binding contract if all parties agreed on all terms, no unsolved issues → they are bound only in the sense of committed to negotiate the undecided term in good faith for final agreement Definiteness of terms is the 2nd requirement for effective offer→ The offer needs to be clear enough so if someone breaks the deal, a court can figure out what went wrong and how to fix it. The terms of the K must express or imply the following: The identity of the parties; The identity of the object or subject matter of the K → As including work performed with specific identification of the goods & services Consideration to be paid The time of payment, delivery, or performance Communication is the 3rd requirement- it must be communicated to the offeree Termination of the Offer Communication of an offer gives the offeree the power to transform the offer into a binding legal obligation by acceptance. Termination by Action of the Offeror Revocation-is the revoking or w/drawing an offer → Canceling an offer → Revocation can happen at any point prior to the offeree’s acceptance Revocation may be accomplished in the following ways: Expressed repudiation of the offer; (I w/draw my offer made on such date) → Clearly say denied it Chapter 12: Contracts 9  Performance of acts that are inconsistent with the existence of the offer and made known to the offeree → Do action of show the offer is no longer valid as present both parties → Ex: ripping up an offer in front of the offeree; selling the property to another party in front of the offeree Option Contract is a contract is created when the offeror promises to hold an offer open for a set time period in return for consideration → irrevocable offers The offeror can not revoke the contract until after the option period → This happens when the person making the offer promises to keep it open for a set time in exchange for payment. During this time, they can't cancel the offer. Termination by action of Offeree- if the Offeree rejects the offer by words or actions the offer terminated. Any subsequent attempt to resurrect the offer is considered a new offer Inquiries about the firmness of offer does not constitute rejection → Is that you best or final offer Counteroffers-is a rejection of the original offer and the simultaneous making of a new offer → This is when you say no to the original offer and suggest something different instead. Instead of asking final offer, you respond with a lower price- that would be a counteroffer Mirror image rule-requires the offeree’s acceptance to match the offeror’s offer exactly and any change will result in a counteroffer. → This means your acceptance has to match the offer exactly. If you change anything or add something new, it cancels the original offer and becomes a counter-offer instead. The person who made the first offer doesn't have to agree to your counter-offer. But if they do, then you have a valid contract. Termination by operation of law → The person receiving an offer (the offeree) can turn it into a legally binding agreement by accepting it. Chapter 12: Contracts 10  However, this power can end by: Lapse of time- an offer terminates automatically when a specified in the offer has been exceed → If the offer gives a specific date, it ends at midnight on that day. If it's open for a certain number of days, this usually starts when the person receives the offer, not when it's sent. If unstated- a reasonable time period → the offer ends after a reasonable amount of time. What's "reasonable" depends on what's being offered, business conditions, and other factors Destruction of the specific subject matter of the offer → the offer ends automatically if the specific item being offered (such as a car or house) is destroyed before someone accepts the offer. The person who made the offer doesn't have to inform the other party about the destruction for the offer to be terminated. Death or incompetence of the offeror or the offeree Supervening Illegality- a statute or court decision that makes an offer illegal automatically terminates the offer. A law is passed banning the sale of a product; a law establishing threshold standards for a product Acceptance Acceptance is the voluntary act by the offeree that shows assent to the terms of the offer. Can be words or conduct- but must be communicated to the offeror Unequivocal acceptance→ Clear Acceptance→ mirror imagine rule- acceptance can not impose new conditions or change the terms of the original offer. → You can accept an offer even if you're not totally happy with it. Example- I accept your offer but will need 30 days to pay → However, you can't add new conditions or change the original offer when accepting. If you do, it becomes a new offer (called a counteroffer) instead of an acceptance. For instance, "I accept, but only if I can pay in 90 days" is actually a counteroffer, not an acceptance. Chapter 12: Contracts 11  Silence as Acceptance- silence cannot constitute acceptance even when the offer states it can be → offeree don't have obligate to act to reject an offer when no consideration that passed to impose the duty for offeree. Unless the offeree has had prior dealing with the offeror → In these cases, you might need to speak up if you don't agree Landscaper notifies you they are raising rate effective next month Communication of Acceptance- some K do not require formal acceptance (unilateral), however bilateral K require communication of acceptance → If the contract asks for an action, doing the action is usually enough Bilateral is formed when a promise is made rather than when the act is performed →If the contract involves promises, you need to tell the other person you accept The need to notify the offeror about acceptance depends on the type of contract: 1. For unilateral contracts (where one party performs an action): Acceptance is usually clear from the action itself → demonstrated through performance of the requested action. Notification isn't needed unless the law or the offeror requires it → An exchange for a specific action by other party instead of promise 2. For bilateral contracts (where both parties make promises): Communication of acceptance is necessary The contract is formed when the promise is made, not when it's carried out Mode & Timeliness of Acceptance With Bilateral K acceptance must be timely → General rule is acceptance is timely if it is made prior to termination of the offer. Mailbox Rule-aka deposited acceptance rule →If the offer says to use regular mail, the acceptance is valid as soon as it's mailed, not when the other person gets it. Under the Uniform Electronic Transactions Act, an email is considered sent when it leaves the sender's control or reaches the recipient. → It Chapter 12: Contracts 12  means an email acceptance can be valid as soon as it's sent. An acceptance sent by means not expressly or impliedly authorized normally is not effective until it is received by the offeror. Expressed Authorization is when the offeror specifies specifically how the offer is to be accepted is controlling-the K is not formed unless the offeree uses the specific mode of acceptance → Once you use the right method, both parties are bound by the contract. If there is no expressed authorized mode of acceptance, then acceptance can be made by any reasonable means ⇒ There are two ways to communicate acceptance of an offer: explicitly stated by the person making the offer, or implied by the situation. If you use a method that's not approved (explicitly or implicitly), your acceptance usually doesn't count until the person who made the offer receives it. Substitute Method of Acceptance- when the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means. Acceptance is still effective if the substitute method serves the same purpose as the authorized means. Acceptance by a substitute method is not effective on dispatch, but upon receipt. → if it doesn't count right away when you send it. The contract only starts when the person who made the offer gets your acceptance. K calls for delivery by Fed Ex; sent via UPS E-Contacts E-Contracts must meet the same basic requirements (agreement, consideration (Something of value exchanged), capacity (People who are legally able to make contracts), and legality(purpose) ) E-contracts disputes usually center around K’s terms and voluntary agreement →you click "I agree" several times. This means you're agreeing to the rules for using the software. On-line offers- sellers doing business on the internet need create offers that clearly spell out the terms that will govern the transaction if the offers are accepted. An on-line offer should include the following: → This helps buyers Chapter 12: Contracts 13  know what they're agreeing to. The contract should be easy to read, like using a normal-sized font. All parts of the contract should be clear. Acceptance of terms- a clause that clearly indicates what constitutes acceptance → How to accept: Payment- a provision specifying how payment for the goods/services must be made. Return policy Disclaimer- a disclaimer of liability for certain use of the goods →Statements that limit the seller's responsibility. Limitation on remedies- a provision specifying the remedies available for the buyer if the goods are found to be defective or if the K is breached. → What happens if something goes wrong Privacy policy- a statement indicating how the seller will use the information gathered about the buyer. → How the seller will use the buyer's personal information. Dispute resolution → Solving disagreements: How to handle any disputes that might come → any disputes will be solved through arbitration (a process outside of court) in a specific place. The contract might also say which laws will be used to solve disputes. Dispute –Settlement Provisions- possible arbitration clause; the forum and the law (jurisdiction) that will govern any disputes → As include a forum-selection clause. This states where any legal issues will be handled, like which court or location (Choosing a place in advance helps avoid problems later and can prevent the seller from having to go to court in a faraway place) On-line Acceptance The law has guidelines for how people can agree to contracts online. These guidelines come from two main sources: 1. The Restatement (Second) of Contracts: This is a collection of general contract rules. It says people can agree to contracts by: Writing Speaking Chapter 12: Contracts 14  Other actions Even by not doing something 2. The Uniform Commercial Code (UCC): This deals with contracts for buying and selling goods. It says contracts can be made in any way that shows both parties agree. This can include how both parties act. Courts use these rules to decide if someone has accepted a contract online. They look at things like clicking "I agree" buttons or how people use a website or product. Click-on Agreements- simply clicking on a box labeled “I accept” or “I agree” → (also called a click-on license or click-wrap agreement). The law does not require that the parties read all the terms to be effective Shrink-wrap agreements-terms are expressed inside the box in which the goods are packaged. Open, read and do not send back you agree. → a type of contract where the terms are inside the product's box. The name comes from the plastic wrap covering the box. When you open the box and keep the product, you're usually agreeing to these terms. Failure to object to terms after usage may constitute acceptance Must look at when the contract was formed- ex: telephone purchase with no mention of an arbitration clause Browse-wrap terms- do not require the buyer/user to agree to the terms prior to use Terms may not be enforceable E-signatures- are legally enforceable under the E-SIGN Act- The Act basically treats electronic signatures/stamps/initials like a signature on paper. To be enforceable: Contracting party must have agreed to use electronic signatures; and It must be in a form that can be retained and accurately reproduced Chapter 12: Contracts 15  Documents exempt from the Act include court papers, divorce decrees, evictions, foreclosures, health insurance terminations, prenups, and wills. The Uniform Electronic Transaction Act- declares that a signature may not be denied legal effect or enforceability, solely because it is in electronic form. Remove barriers for e-commerce Record is defined as “information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in visual form” UETA only applies electronic records and signatures relating to a transaction Transaction is defined as an interaction between 2 or more people relating to business, commercial or governmental activities. UETA explicitly does not apply to wills and testamentary trusts Consideration Consideration is defined as the value given in return for a performance ( unilateral contract) or promise (bilateral contract) → It is an inducement, price, or motive that cause a party to enter a K It is generally broken into 2 parts: Legally sufficient value Bargained for exchange Legally Sufficient Value- to count as consideration in a contract, it must have legal value: A promise to do something that one has no prior legal duty to do → A promise to do something you're not already required to do. The performance of an action that one is otherwise not obligated to undertake → Doing something you're not already obligated to do. Refraining from an action that one has a legal right to undertake (forbearance) → Agreeing not to do something you have the right to do (this is called forbearance). In two-way contracts, consideration usually means both sides make promises. Chapter 12: Contracts 16  One-way contracts are different. In these, one side makes a promise in exchange for the other side taking an action. Bargained-for-exchange-the item of value must be given or promised by the offeror in return for the offeree’s promise, performance, or promise of performance → that something valuable must be given or promised by the person making the offer. In return, the other person agrees to do something, actually does it, or promises to do it. The purpose of bargained exchange is to distinguish contracts for gifts → In a contract, both sides give something to get something. In a gift, only one person gives something without expecting anything in return. Contracts that lack Consideration Preexisting duty- a promise to do what one has a legal duty to do does not constitute legally sufficient consideration → promising to do something you're already legally required to do doesn't count as valid consideration in a contract as a legal duty come from earlier contract. May imposed by law or may arise out a previous contract A fireman demanding $ from a homeowners for putting out a housefire If a party is already bound by a K to perform a certain duty, that duty cannot serve as consideration for a second K. Contractor demands additional $ to complete a remodel project that does not require any additional work Unforeseen Difficulties- is the exception to the preexisting duty → helps prevent people from demanding extra payment for things they already agreed to do The issues must have been unforeseen at the time the K was formed Is the modification fair and equitable in view of the circumstances → The court will look at whether changing the contract is fair, given the surprise difficulties that neither party saw coming when they first made the deal. Rescission(Canceling) & New Contract- law allows the parties to mutually agree to cancel their contract. Chapter 12: Contracts 17  Rescission-is the unmaking of a K and returning the parties to positions prior to the K → like undoing the contract so both parties go back to where they were before they made the deal. → If a court decides they were just doing their old duties, the new contract won't be valid because it lacks consideration. Past Considerations-promises made in return for actions/events that have already happened are unenforceable- doesn't count as real consideration. Non-compete agreements (covenant not to compete) → they agree not to work for the employer's competitors for a certain time after leaving the job. ; certain promises for bonuses Illusory Promises- unenforceable again lack consideration; Not definite →if a contract's terms are so vague or uncertain that one party hasn't really promised anything concrete, that promise is illusory. It's not a real commitment, so it can't be part of a valid contract. Settlement of Claims People enter contracts to settle legal claims all the time. There are three main ways to settle a claim: Accord & Satisfaction Release Covenant not to sue Accord & Satisfaction- a debtor (someone who owes money) agrees to pay and a creditor ( the person they owe) agrees to accept a lesser amount than the original amount owed; Accord is the agreement; Satisfaction is the performance (payment) that takes place after the accord Can’t be satisfaction w/out the accord happening first / also the original amount owed must be dispute Liquidated debt v. unliquidated debts- liquidated debt is one whose amount has been ascertained, fixed, agreed on, determined. Unliquidated debt is the Chapter 12: Contracts 18  opposite (not fixed/determined) Liquidated debt is not subject to an accord & agreement- No Consideration; preexisting legal obligation →Have to pay the fixt amount, no pay less, so creditor legally ask for pay the rest debt later Unliquidated debt- acceptance of lesser amount operates as consideration →when the exact amount owed isn't clear, and people might reasonably disagree about it →This works because both sides are giving up their right to argue about the amount Release- is a K where one party forfeits the right to pursue a legal claim against the other party →when someone agrees not to sue or seek more money from the other person about a specific issue→ For a release to be binding it must satisfy the following: Made in good faith; in writing & signed; some form of consideration Separation agreements Covenant not to Sue-does not always bar further recovery; A covenant not to sue is a legal agreement where one party promises not to file a lawsuit against another party over a specific issue, even if they have a valid legal claim. Unlike a release, it doesn't always prevent all future legal action. obliges a party that could seek damages to refrain from suing the party that it has cause against →, a covenant not to sue gives people a different way to resolve conflicts. It changes the type of legal action they can take, but doesn't always prevent all future legal action. Detrimental Reliance Also know as Promissory Estoppel- a person who reasonably and substantially relies on the promise of another may be able to obtain some measure of recovery. → It means that if someone reasonably relies on a promise and suffers as a result, they might be able to get some help from the courts. Usually applied when the promise is not an enforceable K- lack of consideration Chapter 12: Contracts 19  The courts under promissory estoppel are treating a promise like a contract In order to apply the doctrine of promissory estoppel the following elements are required: There must be a clear and definite promise The promisor should have expected the “promisee” would rely on the promise The “promisee” reasonably relied on the promise →The person who received the promise reasonably trusted it and did something because of it. The “promisee’s” reliance was definite and resulted in substantial detriment →The person who trusted the promise was seriously affected by doing so Enforcement of the promise is necessary to avoid injustice If the requirements are met a promise will be enforced even though it is not supported by consideration. →This means the person who made the promise can't use the lack of a formal agreement as an excuse. The promisor is estopped (prevented) from asserting lack of consideration as a defense or some other defense (form). Promissory estoppel is similar to another legal idea called "quasi contract." In both cases, courts create contract-like obligations to prevent unfairness, even when there's no real contract. The difference is that in a quasi contract, no promise was made at all. But with promissory estoppel, there was an unenforceable promise that someone relied on, but it wasn't kept.. Contractual Capacity Contractual capacity- is the legal ability to enter a contractual relationship General rule- cts. will presume the existence of contractual capacity Minors- under the age of 18 unless emancipated →This happens when parents or guardians give up their right to control the child. Usually, minors who leave home to support themselves are considered emancipated. Chapter 12: Contracts 20  Emancipation occurs when a parent/guardian relinquishes the legal right to control a child/minor. Generally, minors can enter in contracts like adults; but the K are voidable by the minor in certain circumstances. →they just need to clearly show they don't want to be part of the contract anymore. This is called "disaffirming" the contract. Disaffirmance-is the legal avoidance or setting a side a K obligation →can do this by saying or doing something that shows they don't want to be bound by the contract. Unless a minor disaffirms their K obligation the other party/adult is still obligated to perform-adults cannot disaffirm b/c the other party is a minor minors generally can't decide what happens to any of their property after death. This is called not having the "right of succession." Intoxication- is a condition in which a person’s normal capacity is inhibited by alcohol or drugs Contracts entered by an intoxicated person can be voidable: If the person understood the legal consequences of the K → it is enforceable Cts look at objective indications of the intoxicated person’s condition to determine if he/she possessed the required capacity. It is difficult to prove a person’s judgement was so severely impaired that they could not comprehend the legal consequences.-Cts rarely void Ks b/c of intoxication → It's hard to prove someone was too drunk or high to understand a contract, so courts rarely allow contracts to be canceled because of intoxication. Disaffirmance - Canceling the Contract → must return anything they received from the contract. However, if the contract was for basic necessities, they might still have to pay a fair price for what they received. Ratification -Confirming the Contract → An intoxicated person can choose to keep the contract, As directly say of wanting to keep the contract, or indirectly confirm by not cancelling the contract after wake-up Chapter 12: Contracts 21  Mental Incompetence- K made by mentally incompetent persons can be void, voidable, or valid. If a ct finds a person mentally incompetent any K entered by the person is void. Only legal guardians may enter K for the individual → Void contract →any contract they make is void - it's like it never existed. If a ct has not found a person to be incompetent but the person was incompetent at the time K was entered into →voidable contract → Only the mentally incompetent person can choose to cancel the contract, not the other party. To void the K the party must show the individual did not know they were entering into K or lacked the capacity to understand its nature, purpose or consequences. Lucid intervals- have considered legal capacity → times when they think clearly → If they make a contract during these times, it can be legally binding → As can be valid if they understood what they were doing when they made it. Legality Legality or legal purpose is the final requirement for K. Contracts to a commit a crime- is a violation of a statute → Illegal Contracts that break the law are not allowed Murder for hire- clearly is unenforceable Contract to pay hush $ by a corporation to cover up violations of environmental laws also unenforceable When the object/purpose of K is rendered illegal by a statute after the parties entered K, the K is considered discharged by law. Usury- a lender who makes a loan at an interest rate above the lawful maximum rate. → laws about how much interest lenders can charge on loans. Usurious contracts are illegal; most jurisdiction simply reduce the rate to the lawful max rate Most K terms have statement setting the max rate at the jurisdictional limit Chapter 12: Contracts 22  Gambling- traditionally gambling K were illegal and unenforceable Placing an illegal bet with a bookie → legal as like horse racing, slot machines, and charity bingo Licensing Statutes- All states require members of certain professions (lawyers/Doctors) to have a licenses. Whether a K with an unlicensed person is legal and enforceable depends on licensing statute. If the purpose of the statute is to protect the general public, then K with unlicensed individual is generally illegal and unenforceable Contracts Contrary to Public Policy Contracts that are found to be contrary to public policy are unenforceable. Immoral acts; selling a child; business contracts that restrain trade or unconscionable Contracts that restrain trade →Contracts That Limit Competition- generally violate federal/state antitrust laws → These contracts often break laws about fair competition. If the restraints are reasonable and not the primary purpose of the K it may be permissible Restrictive Covenants (not to compete) with respective to a sale of business or practice are enforceable if reasonable and only ancillary to the K. → Agreements Not to Compete When Selling a Business → agree not to open a similar business nearby for a while after selling the business to other Rational is enables the purchaser to buy the goodwill and reputation of the business w/out the seller opening a new business just down the road. →helps the buyer get the full value of the business they bought, including its reputation and customers. Noncompete agreements in Employment K(assuming consideration) → agreements not to work for competitors or start competing businesses for a certain time after leaving the job.- legal if the following are reasonable: Period of time and geographic region Or combination thereof Chapter 12: Contracts 23  Enforcement issues- varies from state to state with Non-Compete Agreements- even if reasonable with respect to time and area General Principle is an employee has a right to earn a living Texas follows this principle- employee must be compensated in some way California prohibits all non-compete agreements Unconscionable K/clauses →Extremely Unfair Contracts or Terms - generally cts do not look at the equity/fairness of a K, unless the they are deemed unconscionable Unconscionable- unscrupulous or grossly unfair- the K or Clause will be voided → type of situation often involves an adhesion contract, which is a contract written exclusively by one party and presented to the other on a take-it-or-leave-it basis →It takes away important rights from one party Procedural often involves the size of print, the language used (legalese), or opportunity to read/understand → It's hard to read or understand Substantive- is when the K/clause are oppressive or overly harsh; cts will look does it deprive one party of the benefits of K agreement or leave the party w/out a remedy for nonperformance by the other → One party didn't get to negotiate the terms Forfeit all profits for missed payment; buyer waives all rights to sue for breach Exculpatory clauses →Clauses That Remove Responsibility - release one party from liability in the event of injury no matter who is at fault- cts generally find these clause unconscionable violation of public policy →parts of contracts that say one party isn't responsible if something goes wrong, even if it's their fault. -As not allow in rental agreements for business and home, also employment contracts Cts will enforce them when they are reasonable, do not violate public policy and do not protect parties from intentional misconduct. Skydiving example Chapter 12: Contracts 24  Discriminatory contracts- are K whereby one party promised to discriminate based upon a protect class are contrary to both statute and public policy- unenforceable → As it go against both laws and public policy. Restrictive deed covenants Form-Writing Requirement A contract that is otherwise valid may still be unenforceable if it not in the proper form. → doesn't always mean pen and paper - emails can work too, as long as they're "signed" or agreed to by the person being held to the contract Statute of Frauds- denies enforceability to certain K that do not comply with the writing requirement. K that must be in writing are: Transfer of interest in land; K that cannot by their terms be performed w/in 1 year from the date of agreement →Contracts that can't be completed within one year Promises to assume the debts/duty of others/deceased individuals Promises made in consideration of marriage Outside of the Engagement ring Under the UCC (under the Uniform Commercial Code), K for the sale of goods priced at $500+ Third-party rights Privity of K- states that only the parties to the agreement alone have the rights and liabilities under the agreement. 3rd parties (nonparty to the K) normally does NOT have right under the K- except for assignments, delegation, & 3rd party beneficiaries There are two more exceptions: 1. Assignment and delegation: A party can transfer their rights (assignment) or duties (delegation) from the contract to someone else. 2. Third-party beneficiary contract: This is a contract where the parties intend to benefit someone who isn't directly involved in the agreement. Chapter 12: Contracts 25  In a contract between two parties, each side has rights and duties. One party has the right to ask the other to do something, and the other has the duty to do it. When someone transfers their contract rights to a third party, it's called an assignment. When they transfer their duties, it's called a delegation. Both of these happen after the original contract is made. Assignment-is the transfer of a contractual right; the assignee only receives those right transfer or all the rights of the assignor; General rule all rights may be assigned; except when: Prohibited by Statute; K is personal (requires the party specifically) The assignment significantly changes the risk or duties of the person contractually obligated to perform; and The K prohibits assignment. In an assignment, there are two main parties: The assignor is the one giving away their rights. The assignee is the one receiving these rights. Two other important terms are: The obligee is the person who is owed something. The obligor is the person who owes something. The Assignor Loses Their Rights When rights are fully assigned: The assignor no longer has those rights. The assignee can now demand that the other party in the original contract fulfills their obligations. However, the assignee only gets the rights that the assignor had originally, nothing more. Chapter 12: Contracts 26  Delegation- is the transfer of contractual duty; duties are not assigned they are delegated; delegation does not generally relieve the delegator from liability under the K. → The person giving away their duties is the delegator, and the person receiving the duties is the delegatee. Delegation is prohibited when Special trust has been placed in the obligor / Performance depends on the personal skill/talents of the obligor→ When the duty relies on the specific skills or talents of the original person, or when people trust that person specifically to do the job. Performance by 3rd party will vary materially from that of the expected oblige under the K →When someone else doing the job would make a big difference in how it's done or what the result would be. The K expressly prohibits delegation →When the contract specifically says you can't give the duty to someone else. → Obligee generally can sue the original party and delegate 3rd party beneficiaries- exception to privity of K; when the parties to a K agree that the K performance is going to directly benefit a 3rd person, that 3rd person becomes an intended 3rd party beneficiary of the K. ( as someone who isn't part of a contract can still have rights under it. This happens when the contract is meant to help a third person) As a 3rd party beneficiary of the K, they have legal rights to enforce the K. Party A sells property to party B, but the proceeds from the sale will go to Party C Party C can sue from breach of K 1. Two people make a contract. 2. They agree that what they're doing should directly benefit someone else (a third person). 3. This third person then becomes what's called a "third party beneficiary" of the contract. 4. As an "intended beneficiary", this third person now has legal rights. Chapter 12: Contracts 27  5. They can even sue one of the original parties if that party doesn't do what the contract says. —completed—— Chapter 12: Contracts 28