The area of law that you are probably interacting with the most at your age and will continue to interact with during your life is contract law. People your age are buying products like clothes and electronics. In addition you’re paying people to provide services like getting your hair highlighted or having work done on your car. That is why it is so important that you have a basic understanding of contract law. A contract is an agreement between two people for some type of service or product. There are many legal precedents that have been established by courts and recognized principles of contract law that determine an individual’s rights and duties under a contract. There are many areas of contract law that protect people who enter into contracts. The sad problem is that many people know very little about contract law and the parts of contract law that can protect them. The goal of this portion of the site is to give you a basic understanding of some of the basic principles of contract law. The Basic Structure of a Contract Contracts will have three pieces: an offer, acceptance, and consideration. A contract begins with an offer. An offer is any words or behavior that shows the person wants to enter into a contract. Example: “Chuck says to his neighbor Bob, will you paint my house for $1,200.00?” The person who makes the offer is called the offeror. The next step in the contract process is the acceptance. An important thing to remember is that only the person who was given the offer can accept the offer. This person who has the power to accept the offer is called the offeree. So in our example only Bob could accept the offer to paint Chuck’s house. The other neighbor, Ed, couldn’t accept the offer. The offeree on the acceptance end of the contract may accept by either a promise to perform or by actually performing whatever they needed to do under the contract. An important thing to remember about acceptance is that the person accepting (the offeree) can’t change the terms of the contract. The acceptance must be the same as the offer. The acceptance must mirror the offer. This is called the mirror image rule. If the person accepting has changed any of the terms of the contract it is a counter offer. So in our example if Bob says he will paint the house for $1,400.00 that would be a counteroffer and now Chuck would have the power to accept Bob’s counteroffer. What if the person who made the offer decides they don’t want to enter into a contract? How can they cancel the offer? There are a few ways that the offeror who made the offer can revoke the power of acceptance. First, they can simply revoke the offer by telling the person they don’t want to enter into a contract. Second, if either of the people die the offer no longer exists. Third, there a was specified time period to accept and the offeree didn’t accept before time expired. The person who had the power of acceptance (offeree) can cancel an offer by rejecting the offer or by making a counter offer. The final piece of a contract is consideration. Every contract must be supported by consideration. Consideration is something of value that the parties have each given up to fulfill the contract. In our example, Bob is giving up his time and labor to paint the house. The homeowner is giving up $1,200.00. Another way used to describe consideration is that both sides in a contract get some type of benefit. Bob is getting the $1,200.00 and the homeowner is getting a freshly painted house. Nearly anyone can enter into a contract. However, there are principles of contract law that make businesses and individuals less likely to enter into contracts with minors. Minors can enter into contracts. However, it is very difficult for a business or person to sue a minor over a contract because contracts with minors are usually voidable. Voidable means the minor can cancel the contract at any time. We will discuss minors and contracts in greater detail a little later. The second category of individuals who have a limited ability to enter into contracts are people who are mentally incompetent. This might be someone with a mental illness, senility, mental retardation or who is drunk. A test used to determine if someone is mentally incompetent lists two ways a person might be found mentally incompetent. First, The person is unable to understand in a reasonable manner the nature and consequences of the contract. Second, the person acts in a strange way in relation to the contract and the other person knows of the mental condition For example, if you are at a party and you see an intoxicated person you know and offer to detail their car for $200.00. The next day you detail their car and try to get the money. You will have very little chance of getting the money because you knew they were intoxicated (mentally incompetent) at the time you made the offer and they accepted. If some business or person enters into a contract with one of these people who don’t have the mental capacity to enter into contracts the business or person who entered into the contract will usually lose if they try to enforce the contract and/or sue the mentally incompetent person. Contracts can be made orally and don’t need to be written down. However, there are some special contracts that MUST be in writing. The portion of contract law that refers to these special contracts that must be written down is called the STATUTE OF FRAUDS. The contracts included in the statute of frauds are: 1. A contract to pay someone’s debt, 2. A contract that is related to a marriage, 3. A contract for the sale of a piece of land or some ownership interest in a piece of land, 4. Any contract that cannot be performed within one year from its making, and 5. A contract for the sale of goods that is over $500.00. Keep in mind ORAL contracts can be very hard to enforce because they aren’t written down. Contracts for goods are covered by the Uniform Commercial Code. The items that are listed above are goods. Goods are all things that are movable at the time the contract is made. The sale of goods is covered by Article 2 of the Uniform Commercial Code. The Uniform Commercial Code has been adopted by all of the states in some form. The main benefit to understanding this part of contract law is because when you go shopping and buy goods there are some warranties that are created by the Uniform Commercial Code that protect you the shopper. Businesses will rarely if ever explain these warranties to you so make sure you read the segment on warranties in this contract portion of the website carefully. There are some contracts that can’t be entered into because they are illegal. The first obvious types of contract in this area are contracts for illegal products or illegal activities. You can’t enter into a contract to sell cocaine. Cocaine is illegal! Most states have laws that forbid unlicensed gambling. Therefore, contracts made in relation to gambling are illegal. Another area of illegal contracts are contracts related to loans. Sometimes people that loan money to other people charge very high interest rates. An interest rate is the amount that the borrower is charged to borrow the money. People who charge high interest rates to loan money are sometimes called loan sharks. However, there are usury laws that limit the amount of interest that can be charged on a loan. If you think you are being charged an extremely high amount of interest, check your state’s usury law to see the maximum amount of interest that can be charged on a loan. There is a principle that has existed in common law called the infancy doctrine. The common law is all the legal decisions and principles that were brought from England. The infancy doctrine states that contracts entered into by minors are voidable by the minor. That means that the minor could choose to ignore the contract if they wanted to or the minor could choose to honor the contract. The principle was designed to protect minors and to hurt companies that enter into contracts with minors. However, there was an exception that was built into the infancy doctrine. The exception was for necessaries. Necessaries are things that a child would need for survival like food, clothing, and shelter. Minors will be responsible for paying for these things. The reason this exception to the rule was created was because the courts wanted businesses to know that they would be able to collect if they gave a minor food or shelter. This was done because they didn’t want minors to starve. There are quite a few cases where courts have had to determine whether or not something was a necessary. If a minor has entered into a contract for a non-necessary, the minor can avoid the contract. This means the minor can get out of the contract (avoidance). For example, an electronics store allows you to buy a 42 inch plasma television on time. You send them the first payment but decide you’d rather go to Mexico for spring break and stop paying for the television. The store wants the money for the television. Because the purchaser was a minor, they can’t be held responsible for the contract. The most the minor would need to do would be return the television. When you have to give back the value of something or all that remains of something it is called restitution. There are differences between the states. Some states make minors more responsible for what they receive while other states punish businesses by not holding minors responsible for what they have received from the business. If a minor misrepresents their age in a contract, the minor will usually be responsible for the contract. In some states that are more minor friendly the minor will only need to give back whatever they have received or the value of what they have received. What happens when I turn 18? When you turn 18, there are some things that you need to understand. First, if you don’t disaffirm (say you don’t want to be responsible for the contract) within a reasonable time of your 18th birthday you will be responsible for the contract. When you turn 18 you can ratify the contract by telling the other party that you want to be responsible for the contract. You can also ratify the contract by your conduct. If you turn 18 and keep accepting products from or sending payments to the company, your conduct indicates that you want to be responsible for the contract. In most states minors who have been emancipated are still not held responsible for the contracts they make. Emancipation is when you petition the court to be given legal responsibility for yourself before you are eighteen or the age of majority in your state. When you are emancipated your parents no longer have any legal control or responsibility over you or your actions. However, because emancipated minors are on their own, more of their contracts will be considered for necessaries so the emancipated minor will be responsible for the contracts. Adhesion contracts are contracts that don’t allow one person in the contract to bargain or negotiate for terms or conditions in the contract. Contracts should be the result of two parties bargaining over the terms of the contract. However, in many situations this doesn’t occur. There are many contracts that people enter into where they have very little bargaining power. The prepared contracts that businesses use with all of their customers that come through the door and don’t provide the customer with any real way or hope of negotiating any of the terms are called adhesion contracts. Adhesion contracts are unfair and usually courts will not honor parts of a contract or in some situations the whole contract if the court thinks the person was being taken advantage of by the contract. To void the contract usually the customer must show that the contract is an adhesion contract and that the contract or part of the contract at issue is extremely unreasonable. To determine whether a contract is an adhesion contract the court looks at whether the contract was on a standardized form (you’re not allowed to negotiate) and was there a great deal of difference between the two parties when it comes to understanding the law and the business’s particular industry or trade. If you think you have been the victim of an adhesion contract remember the law is on your side. If you wish to pursue it see if there are any free legal service organizations available or call your local bar association. What’s a bar association? Not a bunch of attorneys drinking like my students initially think. All attorneys must pass the bar examination and be licensed by the state bar association. Attorneys in a geographic area will often have their own local bar association where they meet and discuss legal issues. If you can’t find an attorney call your state attorney general. The attorney general is your state’s top law enforcement official and the attorney general’s office usually investigates business fraud and wrongdoing. Most state websites will have a link to the attorney general’s office. Most states have passed consumer protection laws. These laws list business practices that are illegal. If you think you have been taken advantage of and the business has violated your state’s consumer protection act, mention it when you confront them and try to get your money back or a replacement product. If they ignore you because of your age, notify your state attorney general’s office. The attorney general is your state’s head law enforcement official and the attorney general’s office usually investigates business fraud and wrongdoing. Most state websites will have a link to the attorney general’s office. There are a few different things that you can do if the other party is not fulfilling their side of the contract. In this section we will look at the options that are available if the other party is not fulfilling their side of the contract. Equitable Remedies – Make them do it or stop them from doing it. There are two primary types of equitable remedies. The first is specific performance. Specific performance is when a court orders someone to do something. For example, a court might order a company to deliver a piece of machinery another firm had purchased from them but hadn’t recieved. The second type of equitable remedy is an injunction. An injunction is an order that directs a party to stop doing something. For example, Suzy sells her popular restaurant to Bob and in the sale contract it says Suzy will not open a restaurant within 40 miles of her old restaurant. Suzy opens a new restaurant two blocks from her old restaurant. Bob could ask the court to grant an injunction to make Suzy close the new restaurant. There are a few different types of contract damages that are available to people who are part of a breached contract. A breached contract is when one of the parties doesn’t do what they were supposed to do under the terms of the contract. The first type is expectation damages. Expectation damages are designed to put the injured person in the position they would have been in if the contract had been performed. Expectation damages will include any profit they would have made had the contract been fully performed. The second type of damages are reliance damages. Reliance damages are designed to put the injured party in the position that they would have been in had the contract never been made. It is usually the amount of money that the injured party has spent getting ready to perform the contract or has already performed of the contract. The third type of damages is restitution damages. Restitution damages are the value of any goods or services the other party has already received from the injured party. The fourth type of damages is consequential damages. Consequential damages occur when the parties contracting know what will happen if one party breaches. Then it is possible to award consequential damages for the lost revenue or harm caused by the breach. For example, I own Metro Air Limousine service and Al’s Oil Service does all the routine maintenance for me on my cars. If I sent 6 of my 30 cars to Al’s on the Monday before Thanksgiving and told him I needed the cars by Wednesday morning and he didn’t return them until Friday morning. I have lost 1/5 of my Thanksgiving airport revenue. I would try to recover the lost revenue from Al’s because he knows I’m an airport limousine company and I told him I needed the cars by Wednesday. The last type of contract damages are liquidated damages. Liquidated damages are damage clauses that are put in the contract when it is negotiated that say what will happen if either side breaches the contract. There are three primary warranties that are used in contract law. Express warranties are the explicit promise or guarantee by the seller that the goods will have certain qualities. It might be based on a description of the product, or a sample/model of the product. These are the warranties that you typically find written on paper and included in the box or stated by the seller. A seller can disclaim express warranties as long as he does so in a clear and reasonable way. Implied warranties are created by the Uniform Commercial Code. Therefore, you won’t get them on a piece of paper in the box and the seller is rarely if ever going to tell you about these warranties. The first implied warranty is the implied warranty of merchantability. This warranty guarantees that the goods will be fit for the ordinary purposes for which such goods are used. Section 2-314 of the Uniform Commercial Code states the goods must “run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved”. For example if I buy a set of steak knives off the television. The handles shouldn’t break off the fourth time I use them. The second implied warranty is the implied warranty of fitness for a particular purpose. This implied warranty is created when “ the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s judgment to select or furnish suitable goods” For example, if you go to a radiator shop and tell them you need a radiator that will keep your car engine form overheating because you live in L.A. and you sit in lots of traffic. If they put a radiator in and the car overheats in traffic, you will be able to get a refund or a replacement because you were relying on their radiator expertise to sell you a suitable radiator and they didn’t. It is very difficult to disclaim an implied warranties. Any disclaimers related to implied warranties must be very conspicuous so buyers see the disclaimer. A Federal law, the Magnuson-Moss Act, provides that where a written warranty is made to a consumer, the seller may not disclaim or modify any implied warranty.
Contracts
Who can enter into a contract?
Can I have an oral contract or do all contracts need to be written down?
Contracts for Goods like Clothes, MP3 players, Drums, Make-Up.
Illegal Contracts
Kids and Contracts
Avoidance and Restitution
What if I told them I was 18?
Emancipation
Unfair Contracts Adhesion Contracts
Consumer Protection
They Break the Contract: What remedies are available?
What damages can I get if they breach the contract?
Did that broken product have a warranty?
Express Warranties
Implied Warranties
