Legs Exam 2

Chapter 9:

  • Contract: a set of legally enforceable promises

    • Common Law (case law): STATE LAW

    • Uniform Commercial Code: applicable to transactions involving the sale of goods.

    • Elements: agreement, consideration, legal purpose, capacity

  • How Created?

    • Express: A contract in which all the terms are outlined in either written or spoken words.

    • Implied: A contract that arises not from words of agreement but from the conduct of the parties.

    • Quasi-Contract: implied-in-law contract

  • What the offeror wants:

    • Bilateral: A promise exchanged for a promise.

    • Unilateral: A promise exchanged for an act.

  • Do we have a good contract?

    • Valid: A term applied to a contract that includes all four elements of a contract: agreement (offer and acceptance), consideration, contractual capacity, and legal object.

    • Void: A term applied to a contract that is not valid because its object is illegal or it has some defect that is so serious that it is not a contract.

    • Voidable: A term applied to a contract that one or both parties can either withdraw from or enforce (no breach).

  • How much has been done?

    • Executed: Fully performed

    • Executory: Not all terms have been fully performed

The Agreement: needs an offer and acceptance

  • Offeror has to display a manifestation to be bound (words or actions)

    • Intent: objective, “reasonable person” standard (jokes are not intents)

      • Refer to Lucy V. Zehmer: A party’s words meant something different from his thoughts. While being intoxicated, there was a note made to sell the farm. Zehmer was joking about selling the farm, while Lucy was serious about the contract. Lucy sued Zehmer for not selling to him and upholding their note. Zehmer claimed to not have subjective intent. Lucy lost; and appealed.

      • Not offers: preliminary negotiations and advertisements do not constitute offers (when requesting quotes or bids)

    • Lefkowitz v. Surplus Store: sets the acceptance rule when ads were considered offers. The ad was so clear and had terms.

  • Pepsi Case: Left qualifying details out. It was not reasonable.

Termination of the offer:

  1. Revocation by Offeror: The Offereror is the master of the offer and can revoke at any time (before there is an acception)

  2. Rejection by Offeree: once it is rejected, it is terminated

  3. Death or Incapacity of the Offeror: if they die, terminates immediately

  4. Destruction/Subsequent Illegality of Subject Matter of Offer:

  5. Lapse of time/failure of conditions: Doesnt respond before reasonable time has passed

Hypothetical 3: Keith and TV screen ad. 299 tv, was a mistake. The manager offered to sell it for 2,499 instead of 2,999 (actual price)...this was a counteroffer. Keith rejects that offer.

Hypothetical 4: Garrity (receiver owner), Simmons (friend/initial discussion), Yang (interested in buying receiver). Is there a contract between Garrity and Yang? Missing conversation between offeror and offeree (in beginning). Edward Yang makes the offer, and Bill Simmons rejects it.

Acceptance of the Offer:

  1. Represents the offeree” 's intent to be bound by the terms of the offer

  2. Terms of acceptance must be identical to the terms of the offer

    1. Mirror-Image Rule: The principle that holds that the terms of the acceptance must mirror the terms of the offer; if the terms of the acceptance do not mirror the terms of the offer, no contract is formed, and the attempted acceptance is a counteroffer.

  3. Effective when communicated by the offeree to the offeror

Mailbox Rule: Acceptance by mail is effective when placed in the mailbox, but revocation of the offer is effective only when received by the offeree.

Chapter 10

Consideration: what a person will receive in return for performing a contract obligation

  • Hammer V. Sidway: Uncle promised nephew 5,000 if he quit smoking by 21. My uncle died before then.

Promissory Estoppel: The one exception to the rule of consideration;

  1. One party makes a promise knowing the other party will rely on it

  2. The other party relies on it

  3. The only way to avoid injustice is to enforce the promise

Rules:

  1. The court seldom considers the adequacy of consideration

  2. An illusory promise is no consideration at all

  3. Preexisting Duty: A promise to do something that you are already obligated to do is not a valid consideration

    1. The performance of an existing contractual duty is not a good consideration

    2. Exception: Unforeseen circumstances, additional work, UCC-sale of goods

Hypo 1: Joe (employment issues). Joe sued Mike for promissory estoppel.

Chapter 11: Capacity

  • Contractual Capacity: the mental ability to understand the rights and obligations of the contract

    • Including how to comply with the terms of the agreement

  • Full Capacity= Valid

  • Limited Capacity= Voidable

    • Minors, Mentally Disabled, Intoxicated

  • No Capacity= Void

Ohio Revised Code: Statute; Full age to contract is 18 or more (Limited capacity)

  • Dissaffirm: Minors' right, before and until a reasonable time after reaching the age of majority, to avoid their contracts

What do minors need to disaffirm?

  • Show intent, words/actions, to rescind an offer

  • Return any consideration received (in minors' possession)

Contract for necessaries: a possible contract exception; need for necessities

Minor’s Right to Ratify:

  • Ratification: accept the terms of the contract after reaching the age of majority

    • Express: orally or written

    • Implied: taking action with intent to ratify a contract

Parental Liability: Parents are not liable for contracts made by minor-aged children

  • Parents are legally obligated to provide necessities

  • In most states, parents are not liable for their children's tort

    • Exception: failure to properly supervise child, subjecting others to unreasonable risk of harm from the child

Lopez v Kmart: Wage, Hour Laws; Arbitration

Plaintiff: Lopez (employee)

Defendant: Kmart (employer)

Court: Federal Court (US); Trial Court (original and general jurisdiction)

  • Fighting over more than 75,000; concurrent jurisdiction; diversity of citizenship

Emancipated Minors: asking courts to legally be separated from parents

Mental Incapacity: limited or full capacity (case by case)

  • Depends on the extent they understand the nature and obligations of the contract

Adult Competency Presumption: Burden of proof on the party claiming mental incapacity to prove it

Intoxicated Persons: at the time of the contract, does the sober party know the intoxicated person is unable to understand the transaction?

Individuals cannot contract:

  • Those adjudicated insane

  • Those adjudicated habitually intoxicated

  • Those with appointed legal guardians

What is an illegal contract?

  • Contracts with no legal purpose and/or subject matter

  • Contracts violating statutes

General Rule: when an agreement is illegal, it is ruled as void.

In Pari Delecto: both parties are equally responsible for the illegal agreement

  • Neither party can enforce or recover damages

Unenforceable Contracts:

  • Against public policy: societies best interest

  • Unconscionable: so unfair that it is “void of conscience”

    • Procedural Conscionability: conditions that would impair one party’s understanding of a contract's terms

      • Consider: Adhesion Contracts: A contract created by a party to an agreement that is presented to the other party on a take-it or- leave-it basis (valid) (can be challenged; but rare)

    • Substantive Unconscionability: Overly harsh or lopsided substance in a contract

Covenant not to Compete: An agreement not to compete against a party for a set period of time within a designated geographic area.

  • May occur in the sale of an ongoing business or an employment agreement

Sentient Jet V. Mackenzie: Three salesmen signed a non-compete agreement “They promise to not work for competing employer for 1 year and confidential info can't go with you”. Two of them left to work for a competitor (took client lists with them). The company sued them and sought an injunction (ban them from working with competitors). The jury ended up ruling in favor of the company and was given 200,000 each for breaking their non-compete.

Chapter 13:

Mistake: misunderstandings regarding material facts of the contract at the time the agreement made 

  • Unilateral Mistake: The result of an error by one party about a material fact 

  • Mutual Mistake: The result of an error by both parties about a material fact if: 

    • Basic assumption about the subject matter 

    • Material effect on agreement 

    • Adverse effect on the party who did not agree to bear the risk. 


Innocent Misrepresentation: A false statement about a fact material to an agreement that the person who made the statement believed to be true

  • Person lacked scienter: intent or knowledge 

Negligent Misrepresentation: Negligent untruthful assertion of material fact 

Fraudulent Misrepresentation: Intentional untruthful assertion 


Examples: 

  1. Bill wants to sell his old radio. To sweeten the deal he says, “it's practically new”. But he knows it's 5 years old with problems. 

  2. Nick buys a car from Greg. Nick does not know that Greg turned back the odometer. Nick sells the car to Jake who learns about the actual mileage. Nick’s representation was what what type? 

  3. Brian tries to sell a house to Carrie. Carrie wants a quiet house. Brian says the house is quiet but there is a noisy construction site next door. 


Undue Influence: The dominant party uses persuasive efforts that interfere with the free choice of contract terms (doctor-patient, attorney-client) 

  • Ex: Jim is an elderly man who lives with his nephew Phil. Jim is totally dependent on Phil’s support. Phil tells Jim that unless he transfers a tract of land Jim owns to Phil for 35% below market value, Phil will no longer support or take care of Jim. Jim enters the K.