FIN 3054 VT Exam 2 Malone - Contracts ( Intro, Meeting of Minds, Offer)

What is a Contract?

an agreement between two or more persons that is enforceable

What are the Elements of a Contract?

Agreement, Consideration, Legality, Capacity, Form of Contract

I, Danny, will pay you, Stephen, $20 to wash my car. Who is the offeror and who is the offeree?

Danny = Offeror

Stephen = Offeree

What are the types of contracts?

Bilateral, Unilateral, Express, Implied, Executory, Executed

What is a Bilateral contract?

a promise for a promise

What is a Unilateral contract?

one party makes a promise, that the other may only accept through performance

What is an Express contract?

the parties to a contract explicitly state all of the important terms to the contract

What is an Implied contract?

words and/or conduct of the parties indicate that the parties intend to create an enforceable contract

What is an Executory contract?

an agreement where one or more of the parties has not fulfilled their obligations under the contract

What is an Executed contract?

an agreement where both parties have fulfilled all of their requirements under the contract

Contract Enforceability

What does valid mean?

all necessary elements are present making the contract binding and enforceable

What is an Enforceable contact?

a valid contract that can be enforced because there are no preexisting legal defenses

What is a Voidable contract?

is otherwise binding but may be voided at the option of one party

What is an Unenforceable contract?

a contract exists, but it cannot be enforced because of a legal defense

What does Void mean?

no contract exists or it is without legal obligations

Where do we get Contract Law?

Common law, Restatement 2nd of Contracts, Uniform Commercial Code

Common Law

State specific case law regarding contracts, which pertains to all contracts EXCEPT for the sale of goods

Restatement 2nd of Contracts

not directly binding in any state but is persuasive

Uniform Commercial Code

not federal or state law, Article 2 - pertains only to contracts for the sale of goods

Definition of goods in sale of goods (UCC)

tangible, movable items

Define Merchant

one who deals in goods of the kind being sold, one who holds himself out as having skills relating to the goods by his occupation

Merchants under the UCC

merchants are subject to different standards and rules because they have special knowledge of the relevant commercial practices, and often need to have greater flexibility and speed in their transactions

Examples of Merchants

a car dealership selling a car; a car salesman selling his own car to an individual when he represents his knowledge about the car

Good faith

honesty in fact, not a cause of action by itself

Good faith in the case of a Merchant

observing reasonable commercial standards of fair dealing in the trade

Formation Rules

UCC does not completely cancel the common law contract rules

If the UCC does not state a different rule, then the common law rules of contract will apply

Hybrid Contracts (Mixed Contracts)

involve both the sale of goods and the provision of services

- what law is applicable will depend on how the court classifies the contract

Predominant Factor Test

a totality of the circumstances test that asks whether the purpose of the contract is primarily for goods or services

Factors of the Predominant Factor Test

-What is the language of the contract

-The nature of the business of the supplier

-Reasons the parties entered into the contract(what exactly have they bargained to receive)

-Cost involved in contract(i.e. goods vs. services)

Agreement - Meeting of the Minds:

Objective Standard

looks at the contract from the standpoint of a reasonable person when interpreting the formation of a contract--subjective influences ignored

Agreement - Meeting of the Minds: Understanding

are the terms understandable?would a reasonable person understand the terms agreed to?

Agreement - Meeting of the Minds: Intent

how would a reasonable person interpret the words & conduct of each party? would a reasonable person conclude that both intended to enter into a contract, based on their actions?

Legal Policy

aims to ensure that no party is held to a contract that they did not know, or should not have reasonably known, existed

Offeror

person proffering the offer

Offeree

person to whom the offer is presented

Elements of an Offer

1) offeror must intend to enter into a bargain--the offeror's words must ne enough to convince a reasonable person(if they were the offeree) that an offer to enter the present contract had been extended

2) definite terms of the offer must be communicated to the offeree

Offeror's intent to enter into a present bargain

must enter into a "present bargain" even though the duties of performance may be performed in the future

Issues related to an Offeror's intent to enter into a bargain

- invitations to bargain

-price quotes

-letters of intent

-advertisements

Invitation to Bargain

(Solicitation of Offers)

a person making an invitation to bargain does not intend to be bound as soon as it it accepted by the person to whom the statement is addressed

Price Quotes

generally not an offer, but an invitation to bargain (solicitation of offers)

Advertisements

are generally not an offer and consequently are only invitations for offers, UNLESS, the subject matter is for single or limited acceptance that has been communicated to the public at large

Auctions

invitation for offers lead to bids which lead to offers which lead to acceptance

- With reserve

- Without reserve

Termination of Offers

an offeree cannot accept an offer that has been terminated

Termination of an Offer occurs by:

-revocation

-rejection

-expiration

-operation of law

Revocation

offeror can revoke an offer at any time before it has been accepted--effective once the offeree receives it or is published

Revocability of Option Contracts

applies to common law and the UCC(when the offeror is a non-merchant)

---Offeror cannot revoke an offer from which the offeree has paid some consideration to hold the offer open for a period of time (if not for a stated period of time then a reasonable time period)

Revocability of Firm Offers

applies only to those contracts for the sale of goods(UCC)

--no consideration is paid by the offeree, rather the merchant offeror gives express assurance that the offer will be held open in a writing signed by the merchant offeror

--if no time period is stated in the Firm Offer, then it is held for a reasonable time, not exceeding 3 months

Rejection

offer terminates once the offeree rejects the offer

-in common law, Counteroffer = rejection--it becomes a new offer aimed at the original offeror

-Battle of the Forms: under UCC, a change in the definite terms of an offer may not = a rejection by an offeree

Expiration of an Offer

when an offer specified a specific time for acceptance, that period is binding--if no specific time period is stated, the offeree has a reasonable time to accept

Operation of Law

-death or mental incapacity of the offeror terminates the offer(offeree does not have to know of the deat or incapacity for the offer to terminate) (does not revoke an option contract created before the incapacity)

-destruction of the subject matter terminates the offer