Text № 12 When You Make a Contract

 

People enter into contracts every day. Most are simple at fairs, prompt transactions that are soon forgotten. Ordering a newspaper or magazine creates a contract. Agreeing to buy a new or used automobile binds the purchaser to a contract. Credit accounts are premised on the existence of a contract. Even using the telephone or turning on a ra­dio implies an acceptance of one’s legal obligation to pay the telephone and electric utilities for the service they provide.

Generally defined, a contract is a promise which creates a legal obligation. A contract seldom presents legal difficulties and rarely does it require litigation in court. How-ever, an occasional legal problem can arise. These difficult contracts create the legal cases comprising the law of contracts. The concerned individual is in a better position to avoid legal problems in his personal and business af-fairs if he is aware of these basic contract principles.

Essentially, a contract is a promise that can be enforced by a court of law. Most often, it is an agreement between two or more persons in which each promises to do or not to do a certain act. Once a contract is created, each person has a duty to perform that act which he promised to do. If one party fails to carry out his promise, the other has a legal right to go into court and seek one or two remedies. He can ask to he awarded damages, the monetary amount equal to the injury he has suffered because the other party broke his promise, or specific performance, a direct command from the court ordering the other party to carry out his promise.

The principles and examples given in this chapter will explain each of the elements of an enforceable contract.

Essentials of a contract

To be valid and enforceable, a contract must be an agreement made by two or more persons who are legally capable of entering into a contract. It consists of an offer, an acceptance of that offer, and promises supported by consideration. In addition, there must be no law declaring the agreement null and void.

Legal capacity to contract. In order for a contract to be legally binding, the persons making the contract must be capable of entering into such an agreement. In other words, they must have the «legal capacity to contract». If they are not legally capable, the contract is unenforceable, and sometimes null and void. However, there is an important distinction between .the two results. If one or both of the parties is legally incapacitated, the contract may in some instances be void; in other instances it may be void-able. When a person has been declared legally insane, any contract he enters into is void. The agreement is not legally binding because his guardian has possession and control of all his property rights and business interests, including his right and ability to enter into a contract.

In most other instances, the contract is avoidable. Thus, if one of the parties has a partial legal infirmity, he can avoid the legal effect of a previous agreement. Examples of limited legal incapacity include minors, drunks, and insane persons who have not yet been legally determined. The contracts of a minor, in most states a person under twenty-one, are avoidable at his option. However, the mi-nor retains his right to hold the adult to his contract.

Jimmy, age 17, signs a contract with Dick’s Used Car Lot to purchase a ‘55 jalopy. After signing the contract, he decides against the purchase. He can legally avoid the contract by telling the salesman that he is a minor. Suppose, however, that, after the contract is signed, the salesman determines that the car is worth twice the value of the amount in the contract. The salesman cannot avoid the performance of the contract because Jimmy is a minor. He is bound by the terms of the agreement which Jimmy can fully enforce against the used car lot.

There are some exceptions that alleviate the harshness of this one-sided rule. For example, a minor will, be held liable for the necessaries furnished him. To illustrate: Jimmy, in need of essential clothing, signs a contract for several outfits. If these items are necessary, he cannot later avoid liability by pleading that he is a minor. He will still be liable for the reasonable value of the clothing. In many states a minor is also held responsible for his contracts when he misrepresents to the other party that he is an adult, and his appearance supports the statement. Jimmy goes into Acme Jeweler’s and states the he is twenty-two years old. The owner decides that he looks at least twenty-three. They then sign a contract for the purchase of a $200 ring. Since the owner reasonably relied on the minor’s state­ments, Jimmy may not be permitted to avoid liability by pleading that he is a minor. Jimmy may be held to his cont­ract although he is under the legal age to contract.

An insane person who enters into a contract can avoid its performance after he has regained his reasoning powers. He can also avoid liability while he is temporarily insane if his legal representative files a notice that the contract will not be performed.

A person who enters a contract while drunk also has a power of avoidance. This is based on the theory that his drunkenness rendered him incapable of understanding the nature and effect of a contract. Therefore, he is permit­ted, at his option, to avoid the terms of an otherwise legal and binding contract.

Offer. The person who makes the offer to contract is called the «offeror». The person to whom it is addressed is called the «offeree». An offer is a promise, but it is a promise conditioned by the acceptance of the offeree. An offer must promise the performance or nonperformance of a spe­cific act. The essential terms of the offer must be stated, and the offeree must be aware of the offer.

Jones says to Smith: «If you promise to write a book, I promise to give you $10,000». Smith makes that promise. Jone’s statement is an offer. Smith’s acceptance creates a legally enforceable contract.

It must be remembered that an offer is not the same as a «preliminary negotiation». If Sam’s Sport Shop has a tennis racket with a ten dollar price tag in its window, this does not constitute an offer to sell. It is merely an «invitat-ion» to come in and negotiate further. In this case, it would be the customer who actually makes the offer by saying, in effect, «If you give me that tennis racket, I will give you ten dollars».

Another requirement for a valid offer is that the terms of the offer be stated definitely. If the terms are too indefinite, there can be no acceptance and therefore no contract. If Able says to Baker, «Work for me, and I will give you a share of the profits of the business», Able has not made a valid offer because the terms of employment are too vague. No objective standard can be used to determine a «share» of the profits. Therefore, any attempted accep­tance of that statement would not create an enforceable contract.

An offer is not valid forever. If it is withdrawn before someone accepts, a later attempted acceptance will not create a contract. However, the notice of withdrawal must be made known to the same peopleas was the offer. Once they are aware of its withdrawal, they can no longer legal­ly accept the offer.

The offer usually terminates upon the expiration of a reasonable time, normally the months, or upon the ex­piration of its express terms, «This offer is valid through December 31, 1974». The offer may be terminated before either of these times under the following conditions. Express withdrawal by the offeror;

• Express rejection by the offeree;

• The death of the offeror;

• Passage of a law that makes the proposed contract illegal.

Occasionally, the offeror will unearth new facts that increase the value of the property he has offered to sell. As a result he may withdraw his offer:

Jones offers to sell his farm for $500 per acre to Murphy. Be­fore Murphy has decided whether or not to accept the offer, Jones discovers oil on the property and decides that he does not want to sell the property at the earlier price. Once Murphy is aware of this fact, he can no longer legally accept Jones’s previous offer. The offer has been withdrawn.

The offer would also be terminated if Jones died before Murphy was able to accept the terms of the offer. No cont­ract would be created because the offer was automatical­ly terminated upon the death of Jones.

Acceptance. An acceptance is the manifestation of agreement to the terms of the offer. This consent can be accomplished by word or deed. For example, if the offer was «I promise to pay you $200 if you promise to paint my house», the acceptance is made by promising to paint the house. The contract comes into existence at the time the promise to paint the house is made. On the other hand, if the offer was «I promise to pay you $200 if you paint my house», the acceptance is made by the actual painting of the house. The contract comes into existence at the time the house is actually painted. These examples illustrate the principle that the means of acceptance is conditioned by the terms of the offer. Since the offeror will be legally bound by a contract, this rule permits him to name the conditions under which he will contract. Any other rule would permit the offeree to change the terms of the contract without the offeror’s consent to additional or different terms. Another important rule of contract law prevents a per­son from accepting the terms of an offer if he is not aware of its existence. The classic example of this rule is the «wanted poster» advertising a bounty for the return of a fugitive from justice. If the person who returns the out­law is unaware of the reward, he cannot create an enfor­ceable contract to have the reward money paid to him.

Dodge City Coach Lines offers $500 for the return of John Bart. Tex Williams, unaware of the reward poster, captures Bart and returns him to justice. Since Williams is un­aware of the reward offer, no contract is created. If Dodge City Coach Lines refuses to pay, Williams cannot recover in a lawsuit brought to enforce payment of the reward. On the other hand, if Williams is aware of the reward and returned Bart to justice with the reward money in mind, a valid contract has been created. If Coach Lines refuses to pay the reward money voluntarily, Williams can take them to court and force them to pay.

Another special rule regulating the acceptance of contracts stems from our heavy dependence on modern methods of communications. The acceptance of the offer is valid at the time the assent is deposited for communication, not when the assent is actually communicated to the offeror. For example:

Baker writes Carroll and offers to pay fifty-seven cents per carton of shotgun shells. Two days later, Carroll sends a letter to Baker in which he agrees to sell him the shells at that price. The contract comes into existence at the time the letter of acceptance is deposited in the mailbox. There is no requirement that the acceptance be received by the offeror (Baker) before a contract comes into existence.

Another important role to remember is that silence, by itself, never constitutes acceptance of a contract. A person cannot create a contract by making the following offer: «I promise to sell you membership in the ABC Book Club. If you desire to join, do nothing, and you will automatically be enrolled». In this situation, the recipient’s silence would not create a contract. A person making an offer to contract cannot unilaterally impose upon the offeree the duty to reply in order to reject the offer. This is an im­portant rule to remember when dealing with slick-selling artists who are attempting to impose a contractual obliga­tion upon you.

Consideration. This is often a confusing term. It is defined as the act or forbearance from an act that constitu­tes the inducement for the contracting party to enter into a contract. Since a contract is essentially a promise, some­thing should be given in return to hold the promisor to his promise. That which is given in return is called «consideration». The following examples illustrate what is meant. by this term.

Thomas says to Jones: «I promise to pay you $200 if you fix my car». If Jones fixes the car, a valid contract is created and Thomas will be held to the terms of his promise. In this case, the act of fixing the car constitutes the «consideration».

Thomas says to Jones: «I promise to pay you $200 if you promise to fix my car». If Jones promises to fix the car, there is a valid contract and Thomas will be held to the terms of his promise. Jones’s promise binds Thomas to the terms. Thus, Jones’s, promise is the «consideration» for the con-tract.

Notice that consideration can be a promise or an act It can also be a forbearance from acting, as in the following example:

Thomas says to Jones: «I promise to pay you $200 if you do not build a ‘grudge wall’ between our respective properties for the next two years». If during that period Jones refrains from building the wall, a valid contract will be created and Thomas will be held to the terms of his promise. Jones’s forbearance from constructing a wall to which he is legally entitled constitutes the consideration for this contract.

According to the law, consideration must have two essential elements: It must have value, and it must be bar­gained for and given in exchange for the promise. We have already discussed several examples which demonstrate the principle of consideration. There is no contract if the act is not bargained for, as in those situations in which the promisor is merely asking the other person to do what that person already must do. Suppose Powell promises Roberts $100 if Roberts «tells the truth» at a trial in which he is a witness for Powell. This would be an unenforceable agreement because it lacks consideration. Since everyone has a duty to tell the truth, Roberts would not be performing any act for which Powell has bargained.

Because no consideration is present, there is no contract when Alice’s grandfather tells her: «I promise to give you $1,000» This is a bare promise. Alice does not have to promise anything, do anything, or refrain from doing any­thing. Therefore, since nothing is to be given in return for the grandfather’s promise, there is no enforceable contract.

The other requirement is that the consideration have some value. It does not have to be a fair bargain, however, since the law guarantees a person’s right to contract to whatever terms he desires. If the interested parties agree to the terms, the law is not permitted to rewrite or negate the intentions of the contractors in an attempt to make a «fair» contract.

Most people are aware that many contracts which they sign contain a phrase «in consideration of $1.00 and other valuable considerations.» Normally, the law will uphold contracts where one dollar is the consideration -no matter what it is exchanged for. This is based on the theory that one dollar has some value. Although it may not be a fair exchange, the law will not ordinarily inquire into the «fairness» of the contract. An exception to this law is in the exchange of fixed values.

Jones promises to pay Williams $200 if Williams promises to pay Jones $1.00. In this case, the exchange is inadequate on the face of the agreement. Therefore, the law will not enforce this contract.

This area of «consideration» is one of the most confusing aspects of the law of contracts since there are many excep­tions and additions to the simple principles which have been outlined above. Once a person is familiar with these prin­ciples, he will be able to recognize a problem in this area when one arises in his personal or business affairs. Then he can secure competent legal advice to help him find a sa­tisfactory solution to the problem.

 

Tasks for the text:

1. Read the title of the text and say what the text is about.

2. Divide the text into some parts and name each part.

3. Make up the plan of the text.

4. Find the sentences in each part which contain the main idea.

5. Say what new facts and information you have found out from the text.

6. Give a brief summary of the text.

 

Text №13 Types of contracts

There are many types of contracts. They can be written or oral, express or implied, valid, void or avoidable. Some contracts include several types. For example, there can be avoidable express contract.

Written and oral. The old saying that it has to be in writing to be of any legal value had its origin in the Statute of Frauds. The rule was first enacted in England, later adopted in the United States, and still later partially mo­dified, by the Uniform Commercial Code, which is now in effect in every state but Louisiana.

Many people believe that an oral agreement is not valid. On the contrary, most oral contracts are valid and fully enforceable. Their sole disadvantage is that they are more difficult to prove. The only contracts which must be in writing are those specifically enumerated by the law.

Thus, the following contracts must be written:

· A contract for the sale of land or for the transfer of an interest in land; for example, a lease of land for more than one year.

• Any contract that is not to be performed within one year of the making of the contract. For example, «A» and «B» contract that «B» shall store «A’s» property for two years. This contract can be fully performed only in two years; it cannot be performed within one year.

• A contract to guarantee the payment of a debt. Able owes Baker $200, but he refuses to pay. Baker is prepared to sue Able for the money. Crow (Able’s good friend) vi­- sits Baker and asks him not to sue Able. Crow says that if Able does not pay the debt within one month, then he (Crow) will pay it. This is a valid contract, but it must be in writing to be enforceable.

• Any contract made by an executor or administrator of an estate in which he promises to pay a debt of the de­ ceased with his own money is subject to the Statute of Frauds. This contract must be in writing in order to be legally enforceable.

• A contract for the sale of goods for the price of $500 or more must be in writing. Also, it must have been signed by the person against whom the enforcement is made. For instance, Andrews agrees to buy a sailboat from Donaldson’s Boat Sales for $2,000. This contract must be in writing. If either Donaldson or Andrews hopes to recover m the event that the other backs out of the deal, he must insist upon a signed written contract.

The Statute of Frauds has spawned an enormous amount of litigation involving both the applicability of the law to specific situations and the legitimacy of particular types of written contracts. Courts often regard the Statute. as a necessary evil and attempt to bypass it if possible. By doing so, the court gives legal effect to the parties’ agreement or contract.

Formal contract. This type of contract essentially has been bypassed by the mod Its basis was the promisor’s seal imprinted on wax. These contracts were called formal because of the great solemnity or formality which traditionally attended the attaching of a man’s seal to the document. Today, most states have abolished the legal efficacy of formal contracts. How-ever, if the contract is subject to the Statute of Frauds, it still must be in writing.

Express and implied contracts. In an express contract the terms of the contracting parties’ promises are clearly outlined. Each side states what he will do. For example, «A» agrees to pay «B» twenty dollars if «B» caters a din­ner party. An implied contract is one in which the terms are filled in by the conduct of the parties. Thus, a person who goes to a dentist implies that he promises to pay for the work, although there is no express mention of fees or any other terms. It is important to remember that there is no difference in the legal efficacy of express contracts and contracts implied in fact.

Unilateral and bilateral. There is no difference in the legal effect of a unilateral or a bilateral contract. It is the content that differentiates the two. In a unilateral contract, the promise of one person is given in exchange for an act of the other person. Jones promises to pay Smith if Smith paints Jones’s house. States differ on whether there is a legally binding contract before the house is painted.

In a bilateral contract, the promise of one person is given in exchange for the promise of the other person. Jones promises to pay Smith if Smith promises to paint Jones’s house. The legally binding obligation arises as soon as the promise to paint is made, not when the house is actually painted.

The difference between these two contracts is very important in the conduct of one’s daily affairs. Important legal questions are determined by whether there is an actual creation of a contract. The existence of the contract will be determined by the terms of the promise and whether the act or promise was actually made.

Void, voidable, and valid. A void contract is one which the law will not uphold, In fact, in the eyes of the law, the «contract» does not exist. Neither party to the contract can change this. A voidable contract is valid, but its vali­dity can be avoided by one of the parties to the contract. Voidable contracts include those of infants, minors, drunks, or insane persons.

Valid contracts are those which contain all the essentia! elements of a contract: offer, acceptance, legally capable parties, and consideration. Not all valid contracts are en­forceable in a court of law, however. Contracts which are required to be in writing under the Statute of Frauds are still valid even if they are not written. The Statute of Frauds merely provides that no legal action can be taken upon that type of contract if it is not written.

Executory and executed. These terms refer to the time relative to the completion of the contract. A contract in which the respective acts have not yet been performed is called an executory contract. Once the acts have been completed, it is referred to as an executed contract.

Baker promises to landscape Carr’s home. Carr promises to pay Baker when the work is completed. At this point, there is an executory contract, fully enforceable in a court of law. Once Baker landscapes the home and Carr pays him the agreed-upon price, the respective performances have been accomplished and the contract has been executed. At this point there is no need for enforcement, because the contract has already been performed.

The importance in knowing the different types of con­tracts lies not in their intrinsic worth; rather, it lies in the fact that a person who is untrained in the law can use a basic knowledge of contract principles to recognize a legal problem when he is confronted by one. With the information in this chapter, he can also avoid legal pro­blems by utilizing, beforehand, the rules of contracts.

 

Tasks for the text:

1. Read the title of the text and say what the text is about.

2. Divide the text into some parts and name each part.

3. Make up the plan of the text.

4. Find the sentences in each part which contain the main idea.

5. Say what new facts and information you have found out from the text.

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