Chapter 10- Contracts:

A contract is a legally binding agreement between 2 or more parties who agree to perform
or to refrain from performing some act now or in the future. Also a promise the breach of
which the law gives a remedy or the performance of which the law recognizes a duty
INTENT is a key element. Intent is determined by
o !hat the parties said" not what they were sub#ectively thinking
o $ow the parties acted or appeared
o %ircumstances around the formation of &
The key is showing the court there was an intent
&nown as mutual assent 'or meeting of the minds(
A contract involves 2 parties 'at least(
o )fferor person making the offer to form a contract
o )fferee person who has the right to accept or re#ect the offer
* valid elements 're+uirements( of a contract 'must meet all *(must have mutual
assent
o Agreement an offer and an acceptance. )ne party must offer to enter into a legal
agreement" and another party must accept the terms of the offer.
o %onsideration ,romise must be supported by bargained-for consideration
'something of value received or promised" such as money" to convince a person to
make a deal( that is legally sufficient.
.oth sides must give something up
/ust be money or something of value to induce a person to contract.
%an0t be gratuitous or a moral obligation 'love" support" gifts" etc.(.
%an also be a promise to do or not to do something.
Anything with legal value
o %ontractual %apacity .oth parties entering into the contract must have the
contractual capacity to do so1 the law must recognize them as possessing
characteristics that +ualify them as competent parties. Mutual assent. /ust be
in their 2right mind3. The law must recognize parties as competent to be able to
contract. In other words" they can0t be drunk.
No mutual assent if one party was not in their right mind
No legal capacity by law to contract if the party is under 45 'unless
emancipated(
%an0t if one party is senile or has Alzheimer0s
o 6egality /ust be for a legal purpose. /ust be lawful1 not against public policy
%an0t have a & to ship illegal drugs for e7ample
/ust have genuineness of assent /utual agreement to enter a & must be genuine and
can0t be induced by mistake" fraud" or duress.
o /utual meeting of the minds must know what it is and that there is acceptance.
.e specific.
o The contract must also be in whatever form the law re+uires 'for e7ample" some
contracts must be in writing to be enforceable like with real property(
Types of contracts
o .ilateral vs. unilateral difference is when the contract is actually formed.
.ilateral 2promise for a promise.3 )fferee need only promise to perform.
8nilateral 2promise for an act.3 )fferee must perform. The contract
isn0t formed until the act has actually started. 9ou accept the offer at the
time you begin the act. )nce you start the act" you have a valid contract
and you can0t revoke or take back the offer. $owever" the contract can be
undone if both parties agree.
o :ormal vs. informal
:ormal re+uires a special form or method to create a contract. :or
e7ample" contracts under seal" or a written check
Informal all other contracts that aren0t classified above. /ost contracts
are informal. :or e7ample" the purchase of a car" or payment for medical
services. 8sually based on substance rather than their form.
o E7press vs. implied-in-fact
E7press terms e7pressed orally or in writing. ')ral or written agreement(.
:or e7ample" signed credit card agreement or a verbal agreement to sell
your used te7t books.
Implied-in-fact implied from conduct" rather than words. %ertain
re+uirements must be met for an implied-in-fact contract to arise
,laintiff provided property or service
,laintiff e7pected to get paid and defendant should have known
;efendant was given an opportunity to re#ect property or service
and failed to do so
:or e7ample" you sit down in a barber chair and ask for a haircut.
The barber starts to cut your hair. It is an implied contract that the
barber will perform and you will pay.
o E7ecuted vs. e7ecutory
E7ecuted has been performed on both sides. Nothing is owed and it is
fully complete
E7ecutory one side has fully performed but the other side hasn0t fulfilled
their & obligation. Not fully complete
o Implied-in-6aw contracts ':ictional or +uasi &( Not actual contracts. <uasi
contracts are fictional contracts created by courts and imposed on parties in the
interests of fairness and #ustice. Imposed to avoid 2un#ust enrichment3 'one party
getting an unfair benefit(. This is not a good solution" because the #udge wasn0t
present when the original contract was formed" so it0s all in the proof. '<uasi
contract is fictional or resembling a real contract(
<uantum /eruit 2as much as he deserves.3 The remedycompensation
owed under his 2contract3. %an0t use </ with forced benefits" a mistake"
or where an actual contract already e7ists.
If you know something is a mistake but you do nothing to fi7 it"
</ is applied 'to get rid of un#ust enrichment(. If you give notice
and they force the benefit on you" you are not legally bound to pay.
o =alid" =oid" =oidable" 8nenforceable
=alid & /eets all * re+uirements 'agreement" consideration" capacity"
and legality(. >>%apacity is always presumed. =alid contracts may be
enforceable" voidable" or unenforceable.
=oid & has no legal effect and neither party is liable.
=oidable & A valid contract but one that can be avoided at the option of
one or both of the parties. The party having the option can elect to avoid
'both parties released( or ratify 'both parties bound?make valid(. :or
e7ample" if a car dealership sells a car to a minor" and right after
purchasing the car" the minor crashes it" the minor can choose to avoid 'or
undo( the contract and get their money back. The contract is avoided
because a contract with a minor is void.
8nenforceable & A valid contract that cannot be enforced due to legal
defense" .8T parties can perform voluntarily. It is a valid contract
rendered unenforceable by some statute or law. :or e7ample" certain
contracts must be in writing" and if they are not" they will not be
enforceable. Also" for e7ample" if one party asks another to go to %anada
and pick up prescription drugs for a fee" but the law says this is illegal" this
contract is unenforceable. If the law changes mid-contract" at the time of
the change" the contract ends.
,lain /eaning @ule if the terms of a contract are clear" no e7trinsic 'or outside(
evidence can be brought in to prove a different meaning. The contract is enforced as
read. !ords are given their ordinary" common usage" unless clearly stated otherwise.
Ambiguous 'or unclear( Terms %ourts look at what was e7pressed in the contract and try
to determine intent. !ords are given their ordinary" common usage. The contract will be
looked at as a whole" not in separate parts. $andwritten or typewritten terms prevail over
preprinted terms 'like in a lease(. Apecific words will be given priority over general
words. 6ook at prior dealings" trade usage" and course at performance.
>:irst thing to look at is intent. If a landlord changes a term in a contract after
you have already left and you don0t know" you aren0t held responsible
>It0s all in the detail. )ne word can change the entire answer
Chapter 11- Agreement:
Agreement: a meeting of 2 or more minds in regard to the terms of a contract. /utual
assent to the same bargain. @e+uires valid offer and valid acceptance.
Offer: a promise or commitment to perform or refrain from doing some specified future
act. &ey is to look at intent. T$E@E A@E B @E<8I@E/ENTA T) AN )::E@
1. )fferor must seriously intend to be bound by the offer
2. Terms must be reasonably certain or definite 'must be clear(
. %ommunication of the offer to the offeree
!ords like 2I think3" 2I bet3" etc do not bind parties. :uture intent doesn0t bind either
Atatements that are !OT offers
o )pinions '2I think3" 2I bet3(
o :uture intent '2I plan3(
o ,reliminary negotiations 'A re+uest or invitation to negotiate is not an offer. It
only e7presses a willingness to discuss the possibility of entering into a contract(1
agreements to agree 'that is" agreements to agree to the material terms of a
contract at some future date(
o Agreements to agree may be enforceable agreements if it is clear that the partied
inten"e" to #e #oun" 'emphasis is on the parties intent rather than on form(
o Auction 'simply an invitation asking bidders to submit offers(.
o Cudged by ob#ective standard outward manifestations that a reasonable person
could presume 'what a reasonable person in the offeree0s position would think(
Anything that is or can be permanent in nature is a valid contract. All outward
manifestations showed there was intent to be bound
6ucy vs. Dehmer
)ther offer caveats include offers made in
o Anger" #est" or undue e7citement. In any of these situations" the offeror showed
no intent to be bound by their proclamation. They do not meet the intent test
because a reasonable person would realize that a serious offer was not being
made. In bargain for e7change" both sides have to give something up
Advertisements generally not real offers" but instead invitations to come in and make an
offer or negotiate. The rationale here is that it is impossible to contract with every
offeree.
o /innesota Aurplus e7ample the /innesota Aurplus store put an ad in the paper
saying they would sell a fur for a set price to the first person who came in to buy
it. A man went in and offered the price listed" and the store refused to sell it to
him. They said that" not only was it simply a ploy to get people to come in to the
store" but also the store will only sell to women. The man sued and won. $e won
because the offer 'the advertisement(" in saying 4
st
come first served" was definite
in who they were selling to. $e also won a lot of damages for gender
discrimination. If an ad ever says" for e7ample" 4E T=s to the first people who
come in to buy them" the store is legally bound to fulfill this offer.
Trell vs. American Association for the Advancement of Acience
;efiniteness of terms $the 2
n"
re%uirement for an effecti&e offer'. A contract must
have * definite terms that must be e7pressed in the contract or capable of being
reasonably inferred
4. Identity of parties
2. Identification of ob#ect or sub#ect matter '+uantity or work to be performed(
B. %onsideration to be paid
*. Time of payment" delivery" and performance
o If you are a merchant" you must meet all * terms. If you are an individual" you
don0t have to have all * terms" but you must still be definite.
o .aer vs. %hase case about Aopranos T= show. No definiteness of terms were set"
so it showed no true intent to contract.
%ommunication $thir" re%uirement for an effecti&e offer'
o The offeree must have knowledge of the offer
o )ne cannot agree to a bargain without knowing that it e7ists
o Fives offeree the power to form a valid" binding &
o )nly )::E@EE can accept 'unless it is a guardian on behalf of an individual(. If
someone has an agent" the agent has the power to accept on the offeree0s behalf
o They have the power to say yes or no.
o )ral contracts can bind you
o @ewards individuals that already have a pree(isting "uty to perform 'like a
person in the military who finds )sama bin 6aden" or a police officer who finds a
lost dog(" cannot accept rewards. :or an individual to be able to accept the
reward" they must have pree7isting knowledge of the reward" and then have to do
the thing asked.
TE@/INATI)N ): T$E )::E@
@evocation to @evoke
o )fferor withdraws the offer
o %ommunicates the withdrawal
o /ust be done before acceptance by the offeree
o ,ublic offers re+uire public revocation. They are in effect once received
Irrevocable offers
o )ption contract the offer is open for a period of time. ,aying a price to hold
something open 'like a real estate contract(. ,revalent among merchants
o At will you can be hired or fired for any reason as long as it0s not an illegal
reason. )klahoma is an 2at will3 state.
o ;etrimental @elianceG,romissory Estoppel you gave something up based on an
offer. 9ou relied to your detriment on someone0s promise. If there is no bargain
for e7change" you can0t claim detrimental reliance
!hen a promisor has made an offer to the promisee" and the promisee has
relied to their detriment on that promise" they can claim the doctrine of
promissory estoppel. To estop means to bar" impede" or preclude someone
from doing something. Thus" promissory estoppel means that the
promisor 'the offeror( is barred from revoking the offer because the
offeree has already changed her actions in reliance on the offer.
:or e7ample" a woman rents her apartment from a landlady for
many years. After time has gone by" the lady tells her landlady that
she plans to look for a cheaper apartment because this one has
become too e7pensive for her. The landlady promises to reduce
the rent in the ne7t lease. In reliance on the promise" she continues
to live there and does not look at other apartments. 6ater" the
landlady changes her mind on the price. $e cannot revoke his
promise because the tenant has relied on the promise to reduce her
rent. $ad the promise not been made" she would0ve relocated" and
looked for another apartment.
@e#ection The )::E@EE terminates the offer. In+uiries or clarification are not
necessarily a re#ection. It must be e7pressed. @e#ection is effective when @E%EI=E;.
%ounteroffer a re#ection of the original offer and a new offer given by offeree
o /aterial change" additions" deletions" etc. are considered counteroffers.
o A counteroffer turns the tables. The original offeror becomes the offeree.
o 2/irror image rule3H acceptance must match the offer e7actly.
Termination of an offer by )peration of 6aw
o 6apse of time if a time period e7pires" or no time is specified" but it has been a
reasonable time period 'for e7ample" a person has until :riday at noon to accept
the offer to buy a house" and if the time e7pires" the house is open for sale to any
potential buyers(
o ;estruction of the sub#ect matter 'for e7ample" selling books" but they got wet
before I could get them to the offeree(
o ;eath or incompetence does not apply to irrevocable contracts
o Aubse+uent illegality in the middle of a contract" the law changes and the action
involved becomes illegalit becomes a subse+uent illegality
Acceptance the voluntary act by the offeree 'in either words or conduct( which indicates
assent 'agreement( to the terms of the offer set by the offeror.
o To e7ercise the power of acceptance effectively" the offeree must accept
une+uivocally. This is the mirror image rule. If the acceptance is sub#ect to new
conditions or if the terms of the acceptance change the original offer" the
acceptance may be deemed a counteroffer that implicitly re#ects the original offer.
2I accept the offer" #ut I wish I could have gotten a better price3
effective acceptance
2I accept" but can you shave the priceI3effective acceptance
2I accept the offer #ut only if I can pay on ninety days0 credit3not an
une+uivocal acceptance?in fact" it operates as a counteroffer" re#ecting
the original offer.
o Acceptance must be definite and communicated to the offeror. /ust be vocal or
in writing
2I accept1 please send a written contract.3 The offeree is re+uesting a
written contract but is not making it a condition for acceptance.
Therefore" the acceptance is effective even without the written contract.
2I accept if you send a written contract.3 The acceptance is e7pressly
conditioned on the re+uest for writing" and the statement is not an
acceptance #ut a counteroffer.
o The wording of acceptance is important. )O*+ "oes not mean acceptance #y
law.
o :or e7ample 2I accept if you will take J4EE off the price3. This is a counteroffer.
Ailence as Acceptance Ailence is generally not acceptance" even if the & says so.
o ,(ceptions Implied-in-fact contracts" unilateral contracts" prior dealings 'like
regular shipments(. >>under the 8%% 'for merchants(
Chapter 12- Consi"eration:
Consi"eration: the 2thing of value3 given for the promise 'like money or a promise to
do or not to do something(.
2 elements are needed to have consideration
1. -omething of legal &alue must #e gi&en
2. Must #e #argaine" for e(change did both sides give something upI If
they did" it has consideration.
.egal /alue $element 1' Aomething of legally sufficient value may consist of $1' a
promise to do something that one has no prior legal duty to do1 $2' the performance of an
action that one is otherwise not obligated to undertake1 $' the refraining from an action
that one has a legal right to undertake 'forbearance(. A contract is supported by legal
value if the promisee suffers a legal detriment. :or e7ample
o If you stop smoking" I0ll wash your car
o If you paint my garage" I0ll give you JKEE
o If you don0t drink" smoke" or play cards for money until you are 24" I will pay you
JKEEE. $amer vs. AidwayLhe gave something up that he had the legal right to
do. 0f you gi&e up a right1 that is #argain for e(change1 an" un"er the law1
consi"eration. In return for a promise to pay" he refrained from pursuing harmful
habits 'forbearance( that he was legally entitled to partake in.
o .oth sides must give something upyou do this for me" I0ll do this for you
.argained for e7change 'element 2(e7change where the parties engage in
communications that lead to an enforceable &. /ust be something tangible. I give you
money" you give me product. >%ourts don0t care about the ade+uacy of consideration.
o :or e7ample" a manufacturer and a retailer sit and negotiate on a contract price"
then agree to the contract price. 2I0ll pay you JKEEE for 2EE widgets3
o 2I promise to buy all your oranges for 2 years if you promise to sell me all you
grow3
o %ANN)T .E A FI:T Elvis case mother-in-law lost because he was giving
her money as a gift. $is offer was gratuitous. There was no bargain for e7change
'and therefore" no consideration( because she was getting a divorce and a possible
monetary gift" but he wasn0t getting anything.
Nominal consideration %an be as low as J4. This is where a parent may sell property to
a son or daughter for J4.EE. 'must be in writing if it0s property(.
Ade+uacy of consideration normally courts won0t look at ade+uacy unless it 2shocks the
conscientious of the court3fraud" divorce case" bankruptcy.
%ontracts lacking consideration
4. ,ree7isting duty a promise that one has already made or has a legal duty to do 'a person
already had a legal obligation to do something.(
o E.g. A person in the military finds )sama .in 6aden. They cannot collect the
reward because it is already their pree7isting duty. Also" with a reward to capture
criminals or turn in lost or stolen items" there is a pree7isting duty for officers" so
they also can0t collect the reward.
o ,ree7isting duty is often seen when you have a contract on something. :or
e7ample" you have a contract with a construction company to construct a building"
and in your contract" there is a set amount that you will pay them. B months into
the process" they can0t ask for more money because they already have a
pree7isting duty to perform the action under contract.
>>>The e7ception would be unforeseen difficulties 'like finding hazardous
waste on the construction site. .ad luck in the marketplace 'like inflation
or increased gas prices( does not count as unforeseen difficulty. Neither
does a natural disaster. In the case of a true unforeseen difficulty" the
individual can barter to get more money. If you agree" you owe.
o New promises based on pree7isting duty can be enforced if
There are unforeseen difficulties
The parties rescind '2undo3( the contract and make a new one as long as it
is still e7ecutory. .oth parties must agree
2. ,ast %onsideration promises made in return for action or events that have already
occurred are also unenforceable and lacking in consideration
o :or e7ample" you work for a company for 2K years and they say 2we0ll pay you a
J2K"EEE bonus because you were such a good employee3. This is not enforceable
because it is simply a gift" and it has already happened. 9ou could get the money"
for e7ample" if you can prove that because you were promised the money" you
relied to your detriment 'promissory estoppel or detrimental reliance( on the
promise of the money. It0s all in the proof. 9ou might win if you had an email
promising you the money because you have been such a valuable employee.
B. Illegal %onsideration a promise made to refrain from doing an illegal act. In this case" a
contract could not be formed.
o :or e7ample" you can0t be forced to do something against your will.
o 2I will not give you a raise unless you promise to sign over your stock
options3considered duress or blackmail
o 2I promise not to fire you if you sign these bogus e7pense reports3think about
the woman who married the e7ecutive and later found out about the fraud and
embezzlement 'travel e7pense reports(
*. Illusory ,romises contract where either one or both of the parties can choose not to
perform their obligation under the contract.
o :or e7ample boss says 2you0ve worked hard" if profits remain high" you all get a
4EM bonus at the end of the year I: T$E /ANAFE/ENT T$IN&A IT0A
!A@@ANTE;3no true intent to #e #oun" 'it was illusory" or wishy-washy(
o !ords like 2I might3" 2I0ll consider3" or 2I0ll think about3 are not words of intent.
They are illusory
K. /oral )bligations promises made out of a sense of moral obligation are unenforcea#le.
o :or e7ample 2if you promise to love my daughter and marry her" I0ll give you J3
o 2promise me that you won0t sell the house after I0m gone and you can have it3
o .o&e is !OT consi"eration. If it0s not consideration" then why is marriage a
contractI $ow is marriage a contract if moral obligation cannot be used as
considerationI :or a contract to be legal" you must have consideration. To
legally end the union 'the contract(" you must get a divorce.
)ption to %ancel %lause a clause in a business & that allows both parties an 2out3
o %ontract with )8 to work for 2 years" we both sign a & that allows )8 to cancel
with a NE-day ,AI; notice both parties have consideration 'bargain for
e7change?both parties give something up(" because I0m giving up my #ob" while
they are giving up NE days of pay.
.est Efforts %ontract clause that states both parties will give their best efforts in
achieving the ob#ective of the &. :or e7ample" in real estate" I may agree to keep my
house clean" if the real estate agent agrees to advertise my house to the best of their
ability.
Accord and Aatisfaction 'settlement of claims(
o Accord an agreement where the parties agree to accept terms that differ from the
original contract.
o Aatisfaction the performance of the accord. 'when the accord has been reached(
o :or e7ample go to the doctor. 9ou agree to a service. They tell you an estimated
price. 9ou have the procedure" and later realize something is wrong. If you
dispute the bill" you can write a check for less than the original and write ,AI; IN
:866 on the memo line. If they cash the check" the contract is fulfilled. They
have accepted your accord.
@eleases 'settlement of claims(
o .ars any additional or future recovery beyond the terms stated in the lease.
o @eleases are big in business. They release each other from liability 'hold each
other to the agreement" while at the same time giving each other an 2out3(
%ovenant not to sue you can agree in a contract not to sue if certain conditions happen.
o ,@).6E/H some states do not allow you to contract away liability
,romises enforceable without %onsideration 'e7ceptions to the general rule that promises
must be supported by consideration(
o '4( ,romises to pay debts barred by statute of limitations creditors have to sue
within a certain time period. If they don0t" the suit is barred" but the debtor can
agree to pay their debt 'for e7ample" if they are trying to get a home loan(" and
once they promise to pay" they are legally bound.
o '2( %haritable %ontributions if you promise to leave )8 JK million" and )8
2,.0,- on that gift to start a new wing on the business schooleven though it0s
a gift" the school has relied to their detriment on the promise" and therefore" it is a
& that will be enforced.
,romissory Estoppel a doctrine that does not allow one party to withdraw its promise if
it will adversely affect a promisee that #ustifiably relied on the promise or changed their
position in reliance on the problem. A&A ;etrimental @eliance
* key elements to promissory estoppel
o '4( ,romisor made a promise
o '2( ,romisor should have reasonably e7pected to induce the promisee to rely on
the promise 'is it reasonable to rely on that promiseI(
o 'B( The promisee relied on the promise
o '*( In#ustice would be caused if the promise was not enforced
Chapter 1- Capacity an" .egality:
%apacity the mental ability to comprehend 'a person has to be in their right mind to
contract(.
%ontractual %apacity the legal ability to enter into a valid &. %ourts generally presume
contract capacity
B notable e7ceptions /inority" Into7ication" Insanity
/inors Age of ma#ority in all states is 45. At this age" you are allowed to make a legal
contract that is binding on you. An emancipated minor 'where a child0s parent or
guardian relin+uishes legal right to control the child or the child moves out on their own(
is a legal adult. In )klahoma" we don0t favor emancipation" because the court wants to
protect minors.
o /inors can enter contracts as long as the sub#ect matter is legal for minors.
o >>>%ontracts made with a minor are &oi"a#le at the minor3s "iscretion 'while
the adult parties remain bound(. This rule is put in place to protect minors.
o ;isaffirmH minor can legally avoid a contract at any time until they reach the age
of ma#ority or a reasonable time afterwards. They need only manifest intent N)T
to be bound. They have to disaffirm the entire &?not parts of it.
o /inors and disaffirmance
/a#ority @uleH a minor need only return the goods or other consideration
even if it is damaged or used
/inority @uleH a minor must pay for depreciation or wear and tear. This
is a growing trend due to the fact that minors have taken advantage of the
rule" although in )klahoma" the ma#ority rule stands.
o E7ceptions to ;isaffirmance necessaries and misrepresentation of age
Necessaries food" shelter" clothing" medical care. ':or e7ample" if you
order food" even if you0re a minor you still have to pay for it(. The minor
is still liable for reasonable value even if disaffirm. This could come into
play when parents kick their kid out of the house. @e+uirements for
necessaries
/ust be necessary for minor0s subsistence
=alue must be up to minor0s standard of living
/inor must not be under the care of a parent or guardian who is
re+uired to supply it.
/isrepresentation of age /any states do not allow disaffirmance at all.
Aome states do not allow if engaged in business as an adult. Aome states
do not allow unless consideration can be returned. 8n#ust enrichment
issue.
o @atification Accept and give legal force to obligation that is otherwise
unenforceable. /inor can ratify when reaches ma#ority
E7pressH orally or in writing
ImpliedH shows intent to abide through possession" use" or payment
o /inors and parents Feneral rule is that parents are N)T liable for minor0s
contracts. %an0t come after the parent to pay for a car. E7ceptions include
If the parent happened to co-sign
If the parent fails to control willful" malicious" or grossly negligent acts of
children
%are and upkeepnecessaries
o 9ale vs. Estate $arun :ountain
Into7ication %ondition in which a person0s normal capacity to act or think is inhibited
by alcohol or drugs. %ourts will look at ob#ective factors to determine whether a
contracting party was too into7icated to understand the legal conse+uences of the
contract. If so
o The contract is voidable at the option of the into7icated party.
o The into7icated party can "isaffirm but must return consideration.
)@
o The into7icated party can ratify when sober and take on the obligations of the
contract.
In a case like 6ucy v. Dehmer" a reasonable person watching them
would0ve viewed it as a contract. !hen Dehmer testified" he was too
specific. $e knew too many details. 9ou have to be able to prove that you
were too into7icated to know what you were doing.
The time the contract was formed is important
/ental Incompetence
o =oid a"4u"icate" mentally incompetent with court appointed guardian or power
of attorney. In this situation" the contract is void. ,eriod. )nly person who can &
for a mentally incompetent person is their guardian.
o =oidable not a"4u"icate" mentally incompetent but unable to understand a
contract or its conse+uences. $ere" the party claiming insanity can avoid the
contract" but they have to have proof.
o =alid otherwise incompetent person understands the contract
/ay lack the capacity for other purposes or have lucid intervals
'temporary restoration of competence(. It is on that person to prove that
they didn0t understand.
6egality contracts must be 6EFA6. '%an0t kill your professor(.
o If a contract is legal to begin with" but the law changes" it becomes an
unenforcea#le contract. 'for e7ample" prescription drugs from %anada(
6egality contrary to statute 'N)T )N TEAT(
o 8sury above legal interest rates
o Fambling %ontracts generally illegal and =)I;
o Aabbath 'Aunday( 6aws cannot write certain contracts on Aunday
o ,rofessional 6icensing validity depends on purpose of license
o %riminal %ontract A6!A9A =)I;
%ontrary to ,ublic ,olicy @estraints of Trade
o @estriction on sale of business agreement not to open a competing business
o >>>>>%ovenant not to compete agreement not to engage in the same business
activity after you leave the employ of another. ,mployer has to gi&e you
something e(tra if you sign a co&enant not to compete.
must be a reasonable time frame" such as 2 to B years
must be reasonable geographic area" like a 2E mile radius
must be ancillary 'or secondary( to a valid contract 'aka you must be
getting something in return for signing the contract" like e7tra pay or
vacation time(
Too @estrictive?=)I;
%ovenant0s not to compete are against public policy.
Applies to businesses and employees
;uration" geographic restriction must not be e7tensive
o >>>8nconscionable contracts void of conscience. Ahocks the conscience of the
court 'terms are too hard or too harsh(. 2 Types:
,roceduralHhow terms are part of the contract
Amall print" 2legalese3
Adhesion %ontracts" 2take it or leave it3
AubstantiveHeffect of the contract is oppressive or harsh
)nly one party benefits
)ne party has no remedy for breach
Chapter 15- 6enuineness of Assent:
The biggest thing in this chapter to keep in mindH 2/eeting of the minds3 'M7T7A.
A--,!T' did that occurI %an someone claim mistakeI If so" can they rescind the
contractI
M0-TA*,-:
8nilateral those made by one party
o /ust be material
o Feneral @ule party that makes mistake does not get any relief from contract
o E7ceptions
If the other party knew or should have known that a mistake of fact was
made" the contract is not enforceable
If there is a mathematical mistake made without gross negligence
If the mistake is so serious that enforcing the contract would be
unconscionable
/utual /istakes where both parties to a contract make a mistake. Two types
o /utual mistake of fact must be material in nature. Also" can #e rescin"e".
:or e7ample Cack and Cill enter a contract where Cill is selling Cack a
painting that #oth believe to be a =an Fogh. 6ater" Cack finds out that the
painting is a fake. Cack may rescind the contract and get his purchase
price back. Mistake is of the T80!6 they contracte" for. 9oth
parties thought the actual thing was something else.
E.g. @affles vs. !ichelhausa word or term in a & may be sub#ect to
more than one interpretation. $ere it was the ship 2,eerless3.
o /utual mistake of value if it0s a mistake as to value" it usually can0t be rescinded
'because the party should0ve known(. If a mutual mistake as to the future market
value or the +uality of the ob#ect of the contract is a mistake of /A.7," either
party can usually enforce the contract.
:or e7ample Freg buys a picture frame at .eth0s garage sale for J4E.
6ater he takes it home and finds out that there is an original copy of the
constitution of the 8.A. .eth %ANN)T rescind the sale because of the
mistake in value of the frame. It0s a mistake as to value?not as to the
picture frame. 9oth parties knew they were #uying:selling a frame.
8e meant to #uy a frame1 an" she meant to sell a frame. They 4ust
"i"n3t know it was &alua#le. -o this is only a mistake as to &alue1 an"
cannot #e un"one.
;rau"ulent Misrepresentation: 5 elements to ;rau": the biggest thing is that you
must prove that the person INTEN;E; T) ;E%EI=E 9)8.
o Misrepresentation of fact occurs 'fact must be material(
o The wrongdoer must inten" to "ecei&e the innocent party
o The innocent party must have 4ustifia#ility relie" on misrepresentation
o The innocent party was in4ure"
Types of :raud $< T=>,-':
o ;rau" in the 0nception: '4( person is deceived as to the nature of his act and
doesn0t know what he is signing 'e.g. you take a will to a dying relative and tell
them it is medical papers they0re signing when actually it0s a will leaving
everything to you.(
o ;rau" in the 0n"ucement: '2( the party knows what he is signing but has been
fraudulently induced to enter into the contract 'e.g. I talk you into investing in a
business" but in reality I take off with your money.( under false pretenses.
>Think ,onzi Achemes 'fraudulent investment operation that pays returns to
separate investors from their own money or money paid by subse+uent investors"
rather than from any actual profit earned(
o ;rau" #y Con"uct: 'B( where the deceiving party conceals a material fact and
keeps the other party from learning about it 'e.g. Eric contracts with 6emon %ar
Aales to buy a new car. The car has actually been used by the dealer as a ;emo
car" but the 6emon %ar salesman turned back the odometer to show that it has
barely been driven and thus is 2new3 for the purposes of the law.( $ere" the party
at fault "oes something by conduct to deceive you" like changing a spreadsheet.
.ased on the person0s conduct.
o Misrepresentation of .aw: '*( does not ordinarily entitle party to relief from
contract because at common law" parties to contract are supposed to know state
and local laws 'e.g. Cill wants to sell her property to Coe. Coe asks Cill if there are
any restrictions on the property. Ahe says no" but there are in fact restrictions. $e
buys the land. $e will most likely not #e a#le to rescin". EO%E,TI)NH if
person making the representation is a professional or has a higher knowledge.(
This instance doesn0t entitle the innocent party to relief" because they should0ve
known better.
o Misrepresentation #y -ilence: 'K( ordinarily?neither party to a contract has a
duty to come forward to disclose facts 'e.g. you have an accident in your car and
the right side is totally damaged. )nce repaired" it looks and runs the e7act same.
This is okLas long as they don0t ask" you don0t have to disclose.(
EO%E,TI)NA
If non-disclosure would cause bodily harm
There0s a fiduciary responsibilityL'fiduciary is like attorney-client"
doctor-patient" teacher-student" etc. type of relationship(
If a statute re+uires disclosure
Intent to ;eceive $2
n"
element to frau"ulent misrepresentation':
o 'T80!* 9O!7- ?7,-T0O!@80!TAA' The )-cienter+@guilty knowle"ge
@or the intent necessary to deceive a person. /ust have guilty knowledge
associated with the intent to deceiveLyou have to know what you0re doing in
order to deceive.
o %an be found if a person states or implies that the statement is made as to personal
knowledge or personal investigation '+uestion becomeswhat0s the difference
between personal knowledge and opinionI(
@eliance on /isrepresentation $
r"
element':
o A person has to C8ATI:IA.69 @E69 on the fact '#ustifiable reliance(
@unner and shoe store e7ample
o Again" it must be a material fact
o !hat would a reasonable person believe in the situationI
o @easonable minds can differ soLI
Types of )!on-;rau"+:
o Innocent misrepresentation if a person states a fact honestly and believes it" it0s
not fraud. %an0t find the intent to deceive %ontract CA! #e rescin"e"
o Negligent misrepresentation when a party makes a representation through
carelessness" it will still #e consi"ere" frau"ulent misrepresentation. no
scienter involved" but you were reckless 'negligent( :raud
7n"ue 0nfluence: arises from a fi"uciary 'fiduciary duty H a relationship in which one
person is under a duty to act for the benefit of another on matters within the scope of the
relationship?the highest duty you have to someone(" or special relationship between
the parties. The essential feature is that the party taken advantage of "oes not e(ercise
free will and the persuasion is so pervasive or severe as to leave the party with a feeling
of helplessness 'e.g. attorney induces a long time client into selling property to the
attorney0s friend under market value.( using your influence against someone" to tell
them to do something they wouldn0t ordinarily do on their own. A6!A9A ,@EA8/E
T$E@E IA 8N;8E IN:68EN%E
o Issues with undue influence
If a & is so beneficial to one individual that has a special relationship" then
,@EA8/E; undue influence
6ooked at strongly in wills and trusts
@elative age of the parties is considered
Buress: occurs when one of the parties is :)@%E; into an agreement by threats or
force> 'different than the book(. ;uress can be defined as blackmail or e7tortion. Aame
type of thing as undue influence" but with duress" there is no special relationship.
Anything against your will is considered duress 'not voluntarily acting with mutual
assent(.
o E.g. .ob and Coe are in a car accident. Coe has no insurance but many assets.
.ob is willing to settle the claim out of court form JKEEE. Coe refuses. After
bickering" .ob says give me JKEEE right now or I0ll sue you for JKE"EEE.
A"hesion Contract an" 7nconsciona#ility:
o Adhesion %ontractsH those that are written to the e7clusivity of one side. 8sually
a 2take it or leave it basis3. 'like an apartment leaseyou have no bargaining
power(
o Need to show superior bargaining power by one side over another
o >>>8nconscionableH so egregious that a court would not uphold it. It is
something so ridiculously favorable to one side that a court won0t uphold it.
o $ere" you don0t e7ercise free will to do something.
9ou v. .est .uy best buy will win because they have better bargaining
power
&E9A T) %$A,TE@
o :raud and its elements
o :raud and its types
o 6ook for intent
o /istakes come in 2 forms?know them and who can and cannot rescind the &
=alue v. thing
o MA*, -72, T8,2, 0- 0!T,!T TO B,C,0/,AAA