Intro to Law Javier Ruiz Galindo Jr Chapter 10 Legality Consent and Writing Contract that is illegal is void and unenforceable A gambling contract is illegal unless it is specifically authorized by state statute Morality is a significant part of contract legality A court will no assist either party to an illegal agreement Legality Restraint of Trade To be valid an agreement not to compete must be ancillary to a legitimate bargain Ancillary means that the noncompetition agreement must be part of a larger agreement Two most common are sale of business and an employment relationship Sale of Business o When a noncompete agreement is ancillary to the sale of a business it is enforceable if reasonable in time geographic area and scope of activity Employment o Courts look at the reasonableness of restrictions placed on an employee s future work o A noncompete clause in an employment contract is generally reasonable and enforceable only to the extent necessary to protect Trade secrets Confidential information Customer lists developed over an extended period Exculpatory Clauses one that attempts to release you from liability in the event of injury to another party Generally unenforceable when it attempts to exclude an intentional tort or gross negligence negligence o Gross Negligence carelessness far greater than ordinary Generally unenforceable when the affect activity is in public interest such as medical care public transportation or some Generally unenforceable when the parties have greatly unequal Generally unenforceable unless the clause is clearly written and essential service bargaining power readily visible Unconscionable Contracts An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness such as no man in his senses and not under delusion would make on the one hand and as no honest and fair man would accept on the other o Oppression one party uses superior power to force a contract on the weaker party o Surprise the weaker party did not fully understand the consequences of its agreement Legal Capacity the legal ability to enter into a contract Minors a minor is someone under the age of 18 o A voidable contract may be canceled by the party who lacks capacity only the party lacking capacity Disaffirmance notifying the other party that you refuse to be bound by the agreement o Can be done for any reason at all Restitution Restoring the other party to its original position o A minor who disaffirms a contract must return the consideration he has received to the extent he is able Mentally Impaired Persons o A person suffers from a mental impairment if by reason of mental illness or defect is unable to understand the nature and consequences of the transaction o Also schizophrenia or mental retardation o A party suffering a mental impairment generally creates only a voidable contract Similar rules apply to intoxication Reality of Consent Rescind to cancel the agreement o Argue that you did not truly consent because you lacked essential information Misrepresentation and Fraud o Misrepresentation when a party to a contract says something that is factually wrong Innocent misrepresentation if the owner believes the statement to be true and has good reason for that Fraudulent misrepresentation if the owner knows it belief is false Do not have to show both o To rescind a contract based on misrepresentation or fraud a part must show three things There was a false statement of fact Does not have to be lie Opinion is not a statement of fact Puffery realize it s a sales pitch exaggeration The statement was fraud or material Fraudulent if the maker intended to induce the other party to contract either knowing that her words were false or uncertain that they were true The statement was material if the maker expected the other party to rely on her words in reaching the agreement Fraud indicates a bad faith statement whereas material representation signifies that the words were inaccurate and effective The injured person justifiably relied on the statement Injured party must show that she actually did rely on the false statement and that her reliance was reasonable o Plaintiff s Remedy for Misrep Or Fraud If the maker s statement is fraudulent the injured party generally has a choice of rescinding the contract or suing for damages Material only rescission o Special Problems Silence o Mistake A seller who knows something that the buyer does not know is often required to divulge it Nondisclosure of a fact amounts to misrepresentation when Disclosure is necessary to correct a previous assertion Disclosure would correct a basic mistaken assumption that the other party is relying on Bilateral Mistake occurs when both parties negotiate based on the same factual error If the parties contract based on an important factual error the contract is voidable by the injured party Error must be factual Conscious uncertainty no rescission is permitted where one of the parties knows he is taking on a risk Unilateral Mistake only one party enters mistaken Written Contracts To provide a court with the best possible evidence of whether the parties intended to make a contract Agreements that must be in writing are those o For any interest in land o That cannot be performed within one year o To pay the debt of another o May be an executor of an estate o Made in consideration of marriage and o For the sale of goods worth 500 or more Agreements for an interest in land o Mortgage an easement and a lease o Exception full performance by the seller o Exception part performance by the buyer Promise to pay the debt of another o When on person agrees to pay the debt of another as a favor to that debtor it is called collateral promise Sale of Goods o Quantity must be written What the Writing Must Contain Must be signed by the defendant defined broadly Must state with reasonable certainty the name of each party the subject matter of the agreement and all the essential terms and promises Parol Evidence refers to anything apart from the written contract itself that was said done or written before the parties signed the agreement or as they signed it Integrated contract a writing that the parties intend as the final complete extension of their agreement The Parol Evidence Rule when two parties make an integrated contract neither one may use parol evidence to contradict vary or add to its terms Chapter 11 Conclusion to Contracts Third Party Beneficiary someone who was not a party to the