CSI BUS 160 Contract Law

Professor Ralph Porzio introduces a lecture on contract law, applicable to Business Law 160 and 260. He explains the two primary sources of law: statutes (black letter law) and common law, which developed in England from feudal times based on judges' common sense and experience. Most contract law, excluding the Uniform Commercial Code for the sale of goods, is derived from common law, emphasizing the concept of precedent (stare decisis).

The first element of a contract is 'mutual assent,' which means an offer and an acceptance of that offer, indicating an agreement. However, mutual assent alone does not constitute a contract; it's merely the first step. An example is given: an offer to walk a dog, and an acceptance, is mutual assent but not yet a binding contract.

The second element is 'capacity to contract,' meaning both parties have the legal ability to enter into a contract. Factors affecting capacity include age (generally 18 and over in the US), intoxication (drugs, medication, alcohol), and unequal bargaining positions (e.g., professor-student dynamics, coercion). Cognitive impairments like Alzheimer's or traumatic brain injury can also affect capacity. A court order declaring someone incompetent removes all capacity to contract, while without such an order, a jury may determine capacity in individual cases.

The third element is 'legality of object or purpose.' The subject of the contract must be legal, ethical, not a tort, and not against public policy. The courts will not enforce agreements for illegal activities (e.g., drug dealing), private gambling (unless it's a legal betting app), commission of a tort (e.g., nuisance), or actions against public policy (e.g., a professor offering a better grade for personal favors, political donations expecting legislative favors).

The fourth element is 'consideration,' which implies a 'quid pro quo' or 'this for that.' It's typically an exchange of value, such as work for payment, or mutual promises (e.g., not suing in exchange for car repair). Consideration usually involves money but can be any bargained-for exchange.

While not all contracts need to be in writing, some must be to be legally enforceable, originating from the English Statute of Frauds. These include contracts for the sale of real estate, matrimonial agreements (prenuptial, postnuptial, separation, divorce agreements), contracts taking longer than one year to complete, contracts for the sale of goods over $500 under the Uniform Commercial Code (UCC) (except in Louisiana, which uses the Napoleonic Code), and agreements to answer for the promise or duty of another (historically from the American Civil War draft abuses).

The lecture revisits definitions from the textbook: - Breach of contract: Failure to perform contractual obligations. - Mutual Assent: Offer must be communicated with intent and be definite. Offers are open for a reasonable time and can be revoked or rejected before acceptance. Death, incompetence, or destruction of subject matter terminates an offer. - Invalidation of Assent: Can occur due to duress (wrongful act or threat), undue influence (unfair persuasion from a dominant position), fraud (misrepresentation), or mistake (misunderstanding of existing fact). - Consideration: Inducement to make a promise enforceable; can involve legal sufficiency or a bargain for exchange, including legal benefits or detriments. Courts consider the sufficiency of consideration but generally don't intervene in 'bad deals.' - Illegal Bargains: Violations of law or statute (e.g., unlicensed massage parlor, illegal drugs), gambling (unless legal), usury (excessive interest rates), restraint of trade, unconscionable contracts, tortious conduct, or corrupting public officials. Courts will not enforce these and may order restitution.

Capacity to contract is detailed, focusing on minors (under 18) and incompetent individuals. Minors can typically disaffirm a contract before their 18th birthday, except for 'necessities' (food, clothing, shelter, medicine). Misrepresenting age doesn't remove a minor's right to disaffirm. Incompetent individuals under a guardianship order have no capacity to contract, rendering agreements void. Those with cognitive issues not under a court order may still disaffirm if they can prove their impairment affected their understanding. Intoxicated persons can also disaffirm if they could not understand the nature and consequences of their actions.

The lecture concludes by distinguishing three types of contracts: - Valid contracts: Meet all five elements (mutual assent, capacity, legality, consideration, and writing if required). Courts enforce these. - Void contracts: The courts will not enforce them as if they never existed. This applies to contracts that are illegal, unethical, tortious, against public policy, or made with someone under a guardianship order. - Voidable contracts: Exist in the 'gray area' where one party lacks full capacity (e.g., due to intoxication, mental health issues, duress, fraud) but is not under a court order. The party with the impaired capacity has the option to disaffirm the contract. Most contract law litigation arises from disputes over voidable contracts, questioning whether a party truly understood the agreement. A key tip is to always get agreements in writing, witnessed, and clearly laid out to avoid potential issues.