Chapter 13 Contracts: Capacity And Legality Miller Cross Bus

Chapter 13contracts Capacity And Legalitymiller Crossbusiness Lawa

Chapter 13 Contracts: Capacity and Legality Miller — Cross BUSINESS LAW Alternate Edition 12th Ed. §1: Contractual Capacity Contractual Capacity. The legal ability to enter into a contractual relationship. Full competence. No competence. Limited competence. Legality. The agreement must not call for the performance of any act that is criminal, tortious, or otherwise opposed to public policy. Minors In most states, a person is no longer a minor for contractual purposes at the age 18. A minor can enter into any contract that an adult can. A contract entered into by a minor is voidable at the option of that minor. Minor’s Right to Disaffirm A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age. Minor must disaffirm the entire contract. Disaffirmance can be expressed or implied. Minor’s Obligations on Disaffirmance Majority rule: minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor’s possession or control. Minority rule: increasing number of states hold the minor must restore the adult to the position held before the contract was made. Exceptions to Minor’s Right to Disaffirm Misrepresentation of Age. Generally, minor can disaffirm the contract. But some states prohibit disaffirmance and hold the minor liable. Contracts for Necessaries. Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services. Exceptions to Minor’s Right to Disaffirm Insurance. Not viewed as necessaries, so minor can disaffirm contract and recover all premiums paid. Loans. Seldom considered to be necessaries. Exception: Loan to a minor for the express purpose of enabling the minor to purchase necessaries. Ratification Occurs when a minor, on or after reaching majority, indicates (expressly or impliedly) an intention to become bound by a contract made as a minor. Executed v. Executory contracts. Parent’s Liability Contracts. Parents not liable (This is why parents are usually required to sign any contract made with a minor). Torts (Statutes Vary): Minors are personally liable for their own torts. Liability imposed on parents only for willful acts of their minor children. Liability imposed on parents for their children negligent acts that result from their parents’ negligence. Intoxication Lack of contractual capacity at the time the contract is being made. Contract can be either voidable or valid. Courts look at objective indications to determine if contract is voidable. If dissaffirmed (voidable): Person has the option to disaffirm, or Person may ratify the contract expressly or impliedly. Mental Incompetence Void: If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed. Voidable: If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences. Valid: If the person is able to understand the nature and effect of entering into a contract yet lacks capacity to engage in other activities. Lucid Interval. §2: Legality A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed). Contract that calls for a tortious act. Contract that calls for an act contrary to public policy. Contracts Contrary to Statute Contracts to Commit a Crime. Usury. Gambling (online). Sabbath (Sunday) Laws. Licensing Statutes. Contracts Contrary to Public Policy Contracts contrary to public policy are void. Unconscionable Contracts or Clauses. Procedural or Substantive Unconscionability. Exculpatory Clauses. Discriminatory Contracts. Contracts for the Commission of a Tort. Contracts Contrary to Public Policy Contracts in Restraint of Trade Anti-Competitive Agreements are void. Exception: Covenant not to Compete and Sale of Business. Exception: Covenant not to Compete in Employment. Contracts Contrary to Public Policy Unconscionable Contracts/Clauses. Exculpatory clauses. Other Contracts Contrary to Public Policy. Contracts that promise to discriminate. Exhibit 13.1 Unconscionability Effect of Illegality Generally, the rule is that the contract is void. Exceptions: Justifiable Ignorance of the Facts. Members of Protected Classes. Withdrawal from an Illegal Agreement. Contract Illegal through Fraud, Duress, or Undue Influence. Severable or Divisible Contracts. Exhibit 13.2 Legality Chapter 12 Contracts: Consideration Miller — Cross BUSINESS LAW Alternate Edition 12th Ed. §1: Elements of Consideration Consideration must have “legally sufficient value” and a “bargain-for-exchange.” “Legal Value” can mean: Promise, Performance, or Forbearance. CASE 12.1 Hamer v. Sidway (1891). Bargain-for-Exchange Second element of consideration: Must provide basis for the bargain. Something of legal value (a promise, or a performance) must be exchanged between the parties. The promise must be either: Legally detrimental to the promisee, or Legally beneficial to the promisor. §2: Adequacy of Consideration A Court will not question the fairness of the bargain if legally sufficient. Law does not protect a person from entering into an unwise contract. In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable. §3: Agreements That Lack Consideration Preexisting Duty. A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. Exceptions: Unforeseen Difficulties. Rescission and New Contract. Consideration Issues Past Consideration is no consideration because the bargained-for exchange element is missing. CASE 12.3 Access Organics, Inc. v. Hernandez (2008). Illusory Promises. Promisor has not definitely promised to do anything (no promise at all). Option-to-Cancel Clauses. Requirements and Output Contracts. §4: Settlement of Claims Debtor offers to pay a lesser amount than the creditor purports to be owed. Accord and Satisfaction. Liquidated Debt. Amount has been ascertained, fixed, agreed on, settled, or exactly determined. Unliquidated Debt. Parties give up legal right to contest the amount in dispute, and thus consideration is given. Settlement of Claims Release bars any further recovery beyond the terms stated in the release. Covenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim. Promissory Estoppel: Must be clear and definite promise. Promisee must justifiably rely on the promise. Reliance is substantial. Justice will be served by enforcing promise. Promises to pay Debts Barred by Statute of Limitations. Charitable Subscriptions. §5: Exceptions to the Consideration Requirement Promises to Pay Debt Barred by a Statute of Limitations. Detrimental Reliance and Promissory Estoppel: Must be definite promise. Promisee must justifiably rely on the promise. Reliance is substantial. Justice will be served by enforcing promise. *Chapter 11 Contracts: Agreement Miller — Cross BUSINESS LAW Alternate Edition 12th Ed. Introduction Agreement = offer and acceptance. Parties must show mutual assent to terms of contract. Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed. §1: Requirements of the Offer Offeror’s serious intention. Definiteness of terms. Communication to Offeree. Contract is judged by what a reasonable person in the Offeree’s position would conclude about the offer. Offers made in anger, jest, or undue excitement are usually not offers. Expressions of opinion are not offers. P. 204 Offer-Serious Intention Offer-Serious Intention Statements of intention, preliminary negotiations, and agreements to agree, are not offers. Advertisements, catalogues, price lists, and circulars are treated as invitations to negotiate, and not as offers. Auctions. Offer-Definiteness of Terms Terms (Expressed or Implied). Identification of the parties. Object or subject matter of the contract. Consideration to be paid. Time of payment, Delivery, or Performance. Offer-Communication Offeree’s knowledge of the offer: Directly by the Offeror, or Use of Agents. §2: Termination of the Offer An offer may be terminated prior to acceptance by either: Action of the Parties; or by Operation of Law. Termination by Action of the Parties Revocation of the Offer by the Offeror: Offer can be withdrawn anytime before Offeree accepts the offer. Effective when the Offeree or Offeree’s agent receive it. Exceptions: Irrevocable Offers. Option Contract: Promise to hold an offer open for a specified period of time in return of consideration. Exceptions (Cont’d): Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer. Detrimental Reliance and Partial Performance where offeree partially performs in response to an offer to form a unilateral contract. Termination by Action of the Parties Rejection of the offer by the Offeree: Rejection by the Offeree (expressed or implied) terminates the offer. Effective only when it is received by the Offeror or Offeror’s agent. A counteroffer by the Offeree is a rejection of the original offer and making of a new offer (“mirror image” rule). Termination by Action of the Parties Termination by Operation of Law Lapse of Time. Offer terminates by law when the period of time specified in the offer has passed. If no time period for acceptance is specified, the offer terminates at the end of a reasonable period of time. Destruction of the Subject Matter. Death or Incompetence of the Offeror or Offeree. Supervening Illegality of the Proposed Contract. §3: Acceptance Acceptance is the: Voluntary act (expressed or implied), by the Offeree that, shows assent (agreement), to the terms of an offer. Unequivocal: The “Mirror Image” Rule. Silence as Acceptance Acceptance of Services by Silence. Sometimes Offeree has a duty to speak. Prior Dealings and Acceptance. Silence can be acceptance if there are prior dealings. Solicited Offers. Offeree has a duty to reject. Mode and Timeliness of Acceptance Mail Box Rule - Acceptance becomes effective on dispatch, providing that authorized means of communication is used. Offeree accepts by using the stipulated means of acceptance. Offeror specifies (expressly or impliedly) how acceptance should be made. Effective when dispatched (mailed, shipped). Authorized Means of Acceptance Exceptions to Mailbox Rule: If acceptance is not properly dispatched by the Offeree. If Offeror specifies that acceptance will not be effective until it is received. If acceptance is sent after rejection, whichever is received first is given effect. Authorized Means of Acceptance Unauthorized Means of Acceptance. Not effective until it is received by the Offeror. If timely sent and dispatched it is considered to have been effective on its dispatch. Chapter 10 Contracts: Nature and Terminology Miller — Cross BUSINESS LAW Alternate Edition 12th Ed. §1: Overview of Contract Law A contract is a: Promise or set of promises, For breach of which, The law provides a remedy, or The performance of which the law in some way recognizes as a duty. A legally binding agreement between two parties who agree to perform or refrain from performing some act. §2: Elements of a Contract Agreement (Offer and Acceptance). Consideration. Something of value Contractual Capacity. Legality. Defenses: Genuineness of assent. Genuine and Voluntary Proper Form. §3: Types of Contracts Bilateral v. Unilateral. Bilateral - Offeree must only promise to perform (“promise for a promise”). Unilateral - Offeree can accept the offer only by completing the contract performance (“a promise for an act”). Irrevocable: Offer cannot be revoked once performance has begun. Express vs. Implied-in-Fact Express: Words (oral or written). Implied In Fact: Conduct creates and defines the terms of the contract. Requirements: PL furnished good or service PL expected to be paid DEF had chance to reject and did not. Contract Performance Executed v. Executory. Executed - A contract that has been fully performed on both sides. Executory - A contract that has not been fully performed on either side. Enforceable but not executed yet Contract Enforceability Valid. Elements: Agreement, consideration, contractual capacity, and legality. Void. No contract. Voidable (unenforceable). Valid contract can be avoided or rescinded. Contract Enforceability §4: Quasi-Contracts Quasi Contracts are implied in law. Fictional contracts created by courts. Imposed on parties for the interest of fairness and justice. Avoids unjust enrichment Equitable remedies. Recovery = Quantum Meruit. Compensation Limitations on Recovery. §5: Interpretation of Contracts Plain Meaning Rule: Courts give terms their obvious or ordinary meaning. The meaning of the terms is determined from the face of the instrument Court cannot consider evidence not contained in the document itself. Extrinsic Evidence Other Rules of Interpretation Ambiguous Terms. If terms are ambiguous, court will attempt to interpret ambiguous contract terms in a reasonable, lawful, effective manner. Contracts are interpreted as a whole. Terms negotiated separately given greater weight. Ordinary, common meaning given. * Interpretation of Contracts Specific wording given greater weight than general language. Written or typewritten given greater weight than preprinted. Ambiguous terms interpreted against the drafter. Trade usage, prior dealing, course of performance to allowed to clarify.