Contracts

A contract is based

on promises voluntarily

made

Do all promises

give rise tocontractual

obligations?

•Offer•Acceptance•Consideration•Capacity•Legality

•Unilateral and bilateral •Expressed and implied•Valid•Void and voidable•Unenforceable

PROMISE

FOR ANACT

Reward isan

example

Reward isan

example

PROMISEFOR A

PROMISE

ART AGREES TO PAINT HOUSE AND BOB AGREES TO PAY

$1,000.

ART AGREES TO PAINT HOUSE AND BOB AGREES TO PAY

$1,000.

Bill and Linda meet at a party. He was

74, and she was 49. A month later, they

started to talk about marriage. Linda was

concerned about quitting her job, and Bill said he would give her

whatever she needed. One day, she walked into the bathroom with a

handwritten note containing financial terms for a marriage, and he signed it. They got married, but Bill filed for divorce 1 ½ years later.

What is the issue?

Does the contract given to and signed by

the husband in the bathroom constitute a valid and enforceable agreement that was

freelyentered into?

What kind of agreement was it, unilateral or

bilateral?

It was unilateral because it was

an agreement to

marry.

How did the court

rule?

To be enforceable, the agreement must be freely entered into

without duress or undue influence. When marriage is contemplated,

the parties must do so knowing of the assets of the other. In this

case, the parties never disclosed their assets, liabilities or income. The husband also never had the chance to consult an attorney.

Therefore, the agreement is not enforceable.

•Stated in direct terms•Can be written or oral

I will sell you my sports car for $25,000

When you go to the

doctor, you impliedly

agree to pay for services.

Plaintiffs cared for the decedent for

several months before he died. They

claimed they were promised payment

for services. Defendant maintains that

they are a family member so services

were gratuitously rendered.

Contract implied-in–fact is to prevent unjust result. Normally, there is a presumption

that services rendered by a family member are free. However, contract may be implied

when service are performed with expectation of payment. In this case, plaintiffs can point

to no evidence that they agreed upon a price with the decedent, what form

payment would take, or when payment would be made, so a contract should

not be implied.

Satisfies all requirements

of an

enforceable agreement

Binds one party but gives the other option to withdraw

Element of contract has

no legal force or effect

ILLEGALCONTRACT

Satisfies elements of a valid contract but won't be enforced

by court

Most contractsare oral in nature

and can be enforceable.

The major problem with oral contracts is proving the existence

of the agreement.

Oral contracts require the courts

to assess the credibility of the

parties.

Are agreements where people pool their money

to buy lottery tickets enforceable or illegal

betting contracts?

Two sisters signed an agreement that they would

share the winnings ina lottery. A winning ticket

was bought for $500,000 and one of the sisters did not

get a share and sued.

What is the law in Connecticut

on bettingcontracts?

All wagers in which the consideration is money won or bet shall be void.

What didthe plaintiff

argue?

The agreement was not a betting contract but a

mutual agreement to share profits from legal

forms of gambling.

What didthe court

say?

The law was not applicable tothis case because the parties

were not betting but promising to share equally in the winnings

they received fromlegalized gambling.

Proposal by one party to another manifesting an intention to enter into a

valid contract

•Intent to contract•Terms must be definite•Offer must be communicated

This is an

objective test

Plaintiff purchased 15 cans of Pepsiand then borrowed $700,000

which he sent to Pepsi in exchangefor the jet. Pepsi sent the money

back claiming that their adwas only a joke.

“ No objective person could reasonably conclude that

commercial actually offered consumer a Harrier Jet. The possibility that it could be

bought for $700,000 was the first clue

that the deal was too good to be

true.”

•Subject matter•Quantity•Price

Advertisement at a stated

price is merely

invitationto negotiate

FRAUDULENT

ADVERTISING

IS ILLEGAL

How long does an

offer stay open?

An offer can be revoked anytime

before its acceptance, or it

can terminated by its own terms.

I will give you 5 days

to make up your mind. At the end of

that period, the offer

terminates.

An acceptance is a manifestation by the offeree tobe bound by the

terms of the offer.

Acceptance is valid only when it has

been communicated to the offeror andis unconditional.

I can’t afford $1,000 but I will give you $800.

A counter offer rejectsthe original offer andbecomes an offer that the other person can

accept or reject.

The defendant refused to pay on a life insurance policy

following a fatal car accident. The carrier argued that a contract was not formed

before the husband's death.

The defendant offered accidental death insurance with a mortgage.

Once enrolled, the insured would get a certificate that had an effective date. The plaintiff mailed the form on April 5 and was killed on April 22. Carrier argued that

form was only an offer to contract that was accepted with the issuance of the

policy.

An insurance application is an offer which the insurer

may accept or reject. In this case, however, a reasonable person would have thought

that the enrollment form was the offer that she would

accept by completing and mailing the form back. This was an enrollment form and

not an application.

constituteacceptance?

Can

CAN I MAIL YOU AN INSURANCE POLICY AND SAY “IF I DON’T HEAR

FROM YOU, WE HAVE A DEAL”?

Offeror has no power to impose duty upon offeree

to act.

RECORD CLUB

If a person makes the highest

bid at an auction, is that bid a mere offer or

an acceptance?

Well…it depends.

•With Reserve•Without Reserve

2/1 make offer2/2 receive offer2/3 mail acceptance2/4 mail revocation2/5 receive revocation2/6 receive acceptance

What is the effect of a fax to the agent of a seller to

the agent of the buyer when there is no record

of the receipt for the transmission?

The agent for the buyer claims that he faxed an agreement

of sale to the seller but had noproof that the transmission

went through. The seller claims that he called and saidthat he no longer wanted to

sell the property.

What is the law

on faxes?

Acceptance by telephone orfax is governed by the same

rules as when the parties are in each other’s presence. The

communication must be substantially instantaneous and

the communication must be two way.

For the communication to be two-way, one party must be able to readily determine that the offeree is aware of the communication. If not, then the mailbox rule will apply. Since

there was no proof in this case thatthe fax was sent, the burden is on the partywho sent the transmission to prove it. The burden has not been meet in this case, so

there is no contract.

THAT SOMETHINGMUST HAVE

LEGAL VALUE

BENEFIT CAN BE ASERVICE

BENEFIT DOES

NOT HAVETO BE

ECONOMIC

•Illusory promise•Moral obligation•Past consideration

An illusory promise

is one in which the act of

performance is left solely up to

one party.

I will buy as many books from you

as I want at $10a book.

A moral obligation is

insufficient to support

consideration.

A parent promise to give his son $1,000out of love and

affection.

Past consideration is

a current promise to pay

for something in the past.

Jim promises on his death bed to

give John $10,000 for the

help he has given over the

years.

BUILDER AGREED TO DO NOTHING MORE FOR

PROMISE TO PAY MORE MONEY

Is the cosigner of a loan, primarily

orsecondarily liable

in case of a default?

•Surety•Guarantor

I will giveI will giveyou $100 onyou $100 on

your birthdayyour birthday

Elvis agreed to pay for the divorce of the mother of his former girlfriend and to pay

off the mortgage on her home.Plaintiff then filed for divorce and

agreed to give her husband the equity in her house for his turning over the deed

to her. Presley then died beforepaying the obligations and the Estate

refused to honor the agreement.

Why is Elvis’ promise to pay the obligations of his mother’s girlfriend

supported by consideration?

A promise which a person should reasonably expect to induce action or forbearance on the part of the other and

which does induce such action is binding if injustice

can be avoided only by enforcement of the promise.

While Presley’s promise induced the plaintiff to assume the

mortgage as part of the settlement agreement, it was not binding until approved

by the court. So, the plaintiff's reliance was not justified.

A party who does have capacity to

contract but lacks mutual assent to

bargain.

Mere psychological or emotional

problems are not enough.

CHILD MUST DISAFFIRMWITHIN REASONABLE

TIME AFTER REACHING MAJORITY

Milicic was an 18 year old basketball player and the second round pick of

the Detroit Pistons. He entered into an

endorsement contract when he was 16 whereby the defendant would pay

Milicic money and products in exchange for endorsements. Four days after he turned 18, Milicic tried to buy out his contract, but the defendant refused. He then disaffirmed the contract and began returning everything he had

received.

Pennsylvania allows minors to disaffirm a contract unless it is for a necessary as long

as it is done within a reasonable time after

reaching majority.

Milicic was a child living in a foreign country when he signed the contract.

Minors should notbe bound by their

mistakes.

.An illegal contract is one that calls for the

performance of a crime, tort or is against

public policy.

An illegal contract is

void

Is an unlicensedentity that performs services without a

license void?

The person maybe precluded from

recovering a feefor his services.

Farrell was an architect who worked on a condo project of the defendant for 25% of the profits.

Some of the work was done in Michigan where he was licensed,

and some of the work was done in Idaho were he was not licensed.

Farrell was fired, and the defendant refused to pay him, claiming that the contract was

illegal since Farrell was not licensed in that state.

Idaho does not allow a court to aid a party to an illegal

contract. The state requiresan architect to be licensed in order to practice in that

state.

.Such statutes must be narrowly construed. Since Farrell was not licensed in Idaho before 2/17/04,

service rendered before then wereillegal. His services after getting

a license were legal, and he isentitled to payment for them.

PROBLEM THREE - B

Estelle played in a tournament.A hole in one was rewarded with a car. Estelle’s ball was

rolling into the hole when a frogjumped out and hit the ball. The

judge disallowed the shot.

Contract says judge shall be sole arbiter

of dispute

Contest rules say judge makes final decision over

disputes, and he ruled the shot no good. “In and through”

means “completely through.” The decision of the judge is binding

unless fraud, gross mistake or lack of good faith.

ELECTRONIC SIGNATURE IN GLOBAL AND NATIONAL COMMERCE ACT

Electronic signature

is valid

•Specially made goods•Goods received by buyer•Person admits oral contract•Unjust enrichment

The purpose of the Code is tomake uniform laws involving

commercial transactions involving sales, banking

and secured transactions.

The Code has nothing to do

with real estatetransactions.

Article Two dealswith the sale

of goods.

A merchant isa person who deals

with goods of that kind.

Joe brings his wife’s engagement ring to the jeweler to have it reset as a surprise gift. The merchant

mistakenly sells the ring to a customer. Can Joe get the

ring back?

Section 2-403 provides that anyone who gives possession of goods

to a merchant who deals in goods of that kind provides

that business with the power to transfer all rights of the owner

to a buyer in the ordinary course of business.

Why is this the rule?

•It protects the innocent buyer who believes the merchant has legal title to the goods because they are in the merchant’s possession.•The concept allows for the free flow of commerce.

What would happen if youbrought a car to a mechanic to fix a flat tire and the gas

station sells the car to someone?

Gas station is not in the business of selling

cars, so the original owner would be able to

get the car back.

Who bears the risk of loss when the

goods are damaged or lost is important.

Surprisingly,it does notdepend onwho owns the goods.

Section 2-509 governswho has the risk of loss in the absenceof an agreement.

Need to determineif it is a shipment

or destinationcontract.

When the contract requires the seller to ship the goods, risk

of loss willpass to the buyer when conforming

goods are delivered to the carrier.

When the contract requires the seller to deliver the goods to a specific destination,

the risk of loss will not pass until the goods are delivered to that

destination.

Tyler’s Sports Bar and Grillordered 100 cases of

imported beer from a vendor in Baltimore FOB Shipment. The beer is picked up by a trucking company at the

seller’s place of business, the truck overturns en route,

and the beer is destroyed. Who has the risk of loss?

Since this is a shipment contract,

the risk of loss passed to the buyer as soon as the beer

was given to the trucking company.

If it was a destination

contract, the risk of loss remains with the seller

until the beer is delivered to Tyler’s

Bar.

When the goods are delivered to a third person to

hold, this is a bailment and the third person is a

bailee.

When the goods are subject to a bill of lading, the risk of loss

passes to the buyer upon receipt of the documents.

If the goods are not covered by

documents of title, then the risk passes to the buyer when the bailee tells the

buyer that the buyer has the right to

possession.

The last rule is when the goods are in possession of the

seller and the buyer is to pick them up at the store. If the seller is a

merchant, the risk passes to the buyer

only on receipt of the goods.

Tyler’s buys 2 large screen televisions from Best Buy. The boxes

don’t fit into Joe’s car so the store agrees

to hold them while Joe rents a truck. Before Joe can pick them up, there

is a fire in the store and the televisions are destroyed. Who has the risk of loss?

The seller is a merchant, so the risk passes to the buyer only on receipt of

the goods. The goods were not yet

picked up so the store is responsible.

Suppose Joe buys a television from his neighbor and tells

the seller that he will pick up the set the

following week.A thief breaks into

the house and steals the set. Who has the

risk of loss?

In this case, the neighbor is not a merchant so the risk passed to

the buyer at the time of sale.

Wilsonvs.

BrawnPage 198

Plaintiff bought items from Brawn’s catalog and paid an insurance fee. He then

suedthe seller, claiming that the fee was illegal since

the buyer did not need the insurance since it did not

have the risk of loss.

A shipment contract is the normal contract in the

absence of an agreement to the contrary. The term CIF

means that the price includes the cost, insurance

and freight. This is a shipment contract and risk

of loss passes upon delivery to the shipper. The buyer bears the risk of loss in

transit.

Under the Uniform Commercial Code,

every contract under the Code

imposes an obligation of good

faith.

For instance, if an element of the

contract is missing, such as the price, the Code mandates that

the price will be what is reasonable at the

time of delivery.

If one of the parties to the contract is a

merchant, the UCC states that an offer by the

merchant to buy or sell goods which states that

the offer will remain open is not revocable even

though no consideration is paid for the promise.

Certain types of contracts must be in writing and be signed.

Purpose is to prevent perjury

when no agreement ever existed

in the first place.

•Cannot be performed in one year•Sale or lease of land•Liable for debt of another•Sale of goods over $500

Businesses act through their agents

whether it is an employee or third party, and these agents have the

power to enter into contracts on behalf of their principles.

Apparent authority involves those cases where the master’s

conduct would lead a reasonable person to

conclude that the agent is clothed with

authority to act on the master’s behalf.

Is a mortgage broker acting on behalf of the bank in order to bind that institution under the theory of apparent

authority or is the broker merely a middle

man?

Gainesvs.

Kelly

Kelly signed an agreement with Thompson to assist him in

obtaining financing for land. Thompson went to Gaines, an officer of the bank, about the

transaction. Gaines gave him a loan application that was given to Kelly and returned completed. The bank issued a 30 day commitment upon receipt of a title report. The report showed that Kelly did not

have an ownership interest in the land, and no additional evidence

was given by Kelly.

What did Kelly

argue?

Kelly said that Thompson said during

the loan application that the loan was a done

deal and that he relied upon this

false statement to his determent.

What is the law on agency?

Apparent authority is based upon estoppel,

arising from the principal knowingly

permitting an agent to hold himself out as

having authority to act on the principal's

behalf.

Thompson did locate the mortgage company and brought the parties together. However, there is no evidence that he had

any role in the negotiations. Instead, he merely acted as a middleman. There

was also no evidence shown that Thompson had apparent authority

to commit the funds or to obligate the bank.