Business Law Final (Ch 11-19)

Sanctity of Promises

-rooted in our Western tradition -morally important -economic necessity -personal responsibility and "taking care of your own self-interest"

sources of common law

-common law for all contracts except sales and leases -sale and lease contracts

function of contract law

Provides stability and predictability for commerce

definition of a contract

promise or set of promises for breach of which the law provides a remedy for, or the performance of which the law in some way recognizes as duty

objective theory of contracts

-we determine what a contract and/or its terms means by what the parties did, not by what the parties tell us they meant -"actions speak louder than words" -what a contract is or what it means can be inferred from the parties' conduct -determined by the "reasonable person" standard

1. The most important reason courts enforce contracts is/are: a) "a person's word is their bond." (It is the moral thing to do.) b) The law says one will keep one's promises, so you must obey the law. c) Contracts are a foundation of our economy. d) Keeping one's promises shows you can be trusted.

c) Contracts are a foundation of our economy.

T/F: Contract law emphasizes personal responsibility and accountability.

True

What are the 4 elements of a contract?

agreement, consideration (value), contractual capacity, legality

6 types of contracts

1. bilateral

2. unilateral

3. formal

4. informal

5. express

6. implied

a promise for a promise

bilateral contract

a promise for an act

unilateral contract

requires a special form for creation (comes from state code); must be in writing ex: checks

formal contract

requires no special form for creation

informal contract

formed by words; terms are state and out there; either oral or written

express contract

formed by the conduct of the parties; even though they didn't agree to exactly what happened, there was a contract there; very common

implied contract

contract performance

executed, executory

Contract Enforceability

Valid, Void, Voidable

Executed Contract Performance

a contract that has been fully performed on both sides

Executory Contract Performance

a contract that has not been fully performed on either side

Valid Contract Enforceability

agreement, consideration, contractual capacity, legality

Void Contract Enforceability

no contract

Voidable Contract Enforceability

unenforceable

-implied in law -no actual contract exists -equitable remedy created by courts, and imposed on parties in the interest of fairness and justice

Quasi contract

It is a dark and stormy night and a guy is driving and hydroplanes and his car flips and he is in a coma. When he wakes up in a coma, he says he is not paying his hospital bills because he did not say they could help him. This is not fair to doctors, ambulance drivers, etc. This is an example of ________________.

Quasi contract

T/F: An otherwise valid contract may still be unenforceable.

True

Interpretation of Contracts

·-Plain meaning" Rule; However, if terms are unclear or ambiguous, court may admit "extrinsic" (external) evidence. -Contracts are interpreted as a whole. -Terms that are negotiated separately given greater weight. -Words given ordinary, common meaning. -Specific wording given greater weight that general language. -Written, typewritten or handwritten given greater weight than preprinted. -Ambiguous terms interpreted against the drafter. -Trade usage, prior dealing, course of performance to allowed to clarify.

1. A bilateral contract a) Must be in writing b) Is an exchange of a promise for a promise c) Is an exchange of a promise for performance d) a. & b. above e) a. and c. above

b) Is an exchange of a promise for a promise

T/F: Consideration is the respect you pay for other person in a contract.

False- Consideration is value.

agreements consists of ________ and _________________________.

offer acceptance

the two parties of an agreement are the ___________________ and __________________________.

offeror offeree

party who initiates the offer

offeror

party to whom the offer is made

offeree

for an agreement to be made, parties must show _____________ _______________________ assent to terms of the contract.

mutual voluntary

Requirements of the Offer

-offeror's serious intent -definiteness of terms -communication to offeree

Contract is judged by what a reasonable person in the Offeree's position would conclude about the offer

offeror's serious intention

Lucy wanted it more but Zehmer bought it. One Christmas Eve, Lucy brought over drinks and said I will give you $50,000 cash for the Thompson Farm and so he called his wife. Zehmer wrote on a napkin and wrote out the agreement and signed it and then made Lucy sign it as well. They had to sign a napkin a third napkin because it kept getting messed up. The day after Christmas, they went to a lawyer and gave them the contract on a napkin. She gave the lawyer the $50,000 cash and calls the Zehmers. Zehmer says that they didn't think Lucy was serious and he was too drunk. Tried to say he wasn't serious about that deal. This is an example of

offeror's serious intention

expression of opinions are not ___________.

offers

where intent may be lacking

Expressions of Opinion: not offers. Statements made in jest, frustration, or anger. Statements of Future Intent: not offers. Preliminary Negotiations, or Invitations to Negotiate: not offers.

statements of future intent are not ________.

offers

preliminary negotiations, or invitations to negotiate are not _________.

offers

Lowe's offers $10 widgets. 900 people want them, but they only have 100 to sell for $10. They are not required to fulfill the 900 people and so they do not have to accept the people's offer. This is an example of:

advertisements are not offers

§ Mr. Cochran's mother was very short and small. She loved lobster more than anything else in the world. One day when Cochran was in the Navy, he came home with a few $100. His mother comes in one night and asks if he has any money and he said yes in my wallet. She reaches over and pulls out every penny from his wallet and from his sister. She was getting every bit of money in the house. She held up the newspaper and it had an ad for $3.99 for a pound of lobster. She went to the Winn Dixie and said she wanted every bit of lobster, but the man said that it was a mistake and it was supposed to say $13.99. She insisted that she would buy it for $3.99 but the employee said no and went and got the manager. They manager was a nice man and have her the lobster for $3.99. He probably did this to avoid a bad rep from both Cochran's mom and the media. This is an example of:

advertisements are not offers

not an offer, but invitation for offers through auctioneer

auction

Auctions with and without _________.

reserve

with reserve

can withdraw goods

without reserve

cannot withdraw goods

definiteness of terms

-Identification of the parties -Object or subject matter of the contract -Consideration to be paid -Time of payment, delivery, or performance -A court can supply missing terms if the parties intend to form a contract.

T/F: Bill offered to pay Jennifer $100 for her bike if she would paint it blue. Jennifer agreed and painted the bike a beautiful Carolina blue. Bill refused to buy the bike saying it wasn't a manly blue and Jennifer should have known that. Bill wins, Jennifer loses.

False

An offer may be terminated prior to acceptance by either

-action of the parties -operation of the law

Offer can be withdrawn anytime before offeree accepts the offer

Revocation of the offer by the offeror

§ Bill and Joe are lifelong friends. After work every day, they would meet for one day and go their separate ways. Bill bought a bass boat for $30,000 and has only taken it out once. His wife says you either start using it or sell it. Bill knows Joe would love it and says to Joe he would sell it to him for $15,000. Joe was getting a little excited and said let me run this buy the wife. Bill thinks uh oh I didn't tell the wife about it. Bill's wife gets mad that he was selling it to her for only $15,000. He decides to call Joe and revokes his offer. This is valid because Joe had not accepted it yet. § Ex) If the same circumstance happened and Bill calls Joe to revoke the offer but Joe accepts before he revokes the offer. This is an example of:

revocation of the offer by the offeror

3 types of termination by action of parties

-revocation of the offer by the offeror -rejection of the offer by the offeree -counteroffer by the offeree

-Rejection by the Offeree (expressed or implied) terminates the offer -Effective only when it is received by the Offeror or Offeror's agent

rejection of the offer by the offeree

Joe rejects the offer for $15,000 but then goes home and tells his wife he rejected the great offer. She says he is stupid so he goes back to accept but the offer is not there anymore. This is an example of:

rejection of the offer by the offeree

-Rejection of original offer and the simultaneous making of a new offer -Mirror image rule: at common law, any change in terms of automatically terminates the offer and substitutes the counteroffer

counteroffer by the offeror

termination by the action of the parties

-acceptance -revocation -rejection -counteroffer

Death or incompetence of the Offeror or Offeree: ___________________ _______________________ unless it is an irrevocable offer

automatically terminates

Termination by Operation of Law

1. lapse of time

2. destruction of the specific subject matter of the offer

3. death or incompetence of the offeror or the offeree

4. supervening illegality of the proposed contract

T/F: An agreement must have both an offer and acceptance.

True

T/F: Generally, what the parties intended to do matters in determining what a contract means.

False; it is what the parties actually do

1. An offer may be terminated by: a) Operation of the law b) The objective theory of contracts c) Actions of the parties d) All of the above e) A & C only

e) A & C only

acceptance is the

voluntary act (expressed or implied) by the offeree that shows assent (agreement) to the terms of an offer

Mode and Timeliness of Acceptance

general rule & mailbox rule

general rule of acceptance

acceptance is timely if made before offer is terminated

mailbox rule of acceptance

acceptance is effective when offeree places the acceptance in the mailbox (Default Rule)

If the offer calls for a specific way of acceptance that should be the only way you accept. Use an alternative way at your own risk.

substitute method of acceptance

· A warehouse landlord had rented a warehouse to another business. They rented the warehouse during a downtime in the economy for a very good price. The landlord said they have to let them know in writing. The tenant never notified the landlord that they wanted the warehouse. The other tenant arrived but the old tenant was still there. The old tenant said he should have known that the tenant wanted to continue staying there. This is an example of:

substitute method of acceptance

Two business are talking, and one business says "I make this offer to you. You've got until 4:30 on Friday afternoon, March 31st. To accept this offer, you have got to deliver to our office via FedEx. The business is in a rural area and they wait until Thursday afternoon and they don't have a FedEx drop nearby so they use UPS drop box. When the company calls to see if they got the package, they say they did, but they said it was not accepted because it came from UPS. This is an example of:

substitute method of acceptance

Full contract should be available to both parties (at least hyperlink)

agreements in E-contracts

Terms of acceptance should be clear

1. Forum-selection clause

2. Choice of law clause

3. Click on agreements: 'I Agree' 'I Disagree'

what is valid for E-signature technologies

-Any electronic means of agreeing to an electronic contract is valid if it clearly indicates "intent to be bound:" "X" or "check mark" or initials -Digitalized signatures valid -Typing your name is valid -E-signatures and E-documents are valid under Federal law unless the parties both specifically agree otherwise. There are exceptions.

generally, consideration must have

-legally sufficient value -bargained for exchange

T/F: In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract.

FALSE- Consideration means value.

T/F: In contract law if a promise if made, it will be enforced.

FALSE-Just because there is a promise, doesn't mean it will be enforced.

T/F: Consideration has to be essentially equal in any contract.

FALSE

T/F: The most important consideration in determining value is the cost involved.

FALSE- Cost has nothing to do with value.

"legal value" elements

-value (money, property) -promise -performance -forbearance

Not doing something that you have the legal right to do in exchange for something of value

forbearance

Hamer's uncle promised to pay him $10,000 if, when he went off to college, he didn't smoke, drink, cuss, gamble, or womanize. Hamer went to college and didn't do any of these during his 4 years but while he was at college, his uncle passed away, so it got complicated. Hamer said I didn't do anything that I had a legal right to do in those areas because I expected my $10,000 reward. This is an example of:

forbearance

"bargained-for-exchange" elements

-Must provide basis for the bargain -Both parties must be able to say "yes" or "no" -Something of legal value must be exchanged between the parties.

Henry promises not to open his Hank's Lunchbox Café before 10 A.M. if Danni who owns Danni's Danish & Donuts next door promises to close by 1 P.M. Henry's consideration is: a) The destruction of a legal relationship b) The creation of a legal relationship c) A forbearance d) An exchange of money

c) A forbearance

A company specialized in selling Bibles. Cochran's neighbor said he would pay him $2.50 an hour and minimum wage was only $1.75 which he could earn enough money to pay tuition, room/board, and buy a new car. This publishing company would make the students go to a rural area to sell Bibles to illiterate people. Cochran turned down the opportunity because he didn't know how he would sell Bibles to illiterate people. At the end of the summer, his neighbor told him that the he sold so many Bibles because they had pictures and not words. They sold it for $795 and a few weeks later, Cochran went to the store and saw the same Bible for sale for only $49. A couple years later, a federal agency shut them down. This is an example of:

adequacy of consideration

General rule is that

Courts typically will not consider adequacy of consideration

two questions about the adequacy of consideration

1. where is consideration in a contract?

2. why do we have consideration in a contract?

Agreements that lack consideration

-preexisting duty -past consideration -illusory promises -gift promises

promise to do what one already has a legal duty to do does not constitute legally sufficient consideration.

preexisting duty

A general contractor contracts sub-contractors. When the contractor went to the subcontractor, they established a contract. Before the project is over, the general contractor already gives the subcontractor a new project with him. One day, another general contractor comes along and offers the subcontractors double the pay that the other general contractor would pay. They work for the new general contractor but then they only get paid $200,000 so they sue for $400,000. This is an example of:

preexisting duty

past consideration is

not consideration at all

Cochran and his wife's next-door neighbors go on a cruise before COVID hits. Cochran cuts their yard and his wife pays their bills. They finally get back and see that they had cut grass and paid their bills. The neighbor tells Cochran when his paycheck comes in, he will pay Cochran $2,000 for cutting his yard. This is an example of:

past consideration

Promisor has not definitely promised to do anything (no promise at all).

illusory promises

Cochran took his paralegal out and ask her to work more hours in the summer and promised he would pay her a lot more and give her a bonus if they have a good summer. If she didn't get the bonus and she thought it was a good summer, she could not sue him. This is an example of:

illusory promises

One party promises to do something without any promise in return

gift promises

Uncle Chester promises his niece $20,000 for being a sweet girl. This is not consideration at all. This is an example of:

gift promises

Past consideration is consideration.

FALSE

You agree to pay Eddie $1,000 if he quits smoking. This is a valid contract.

TRUE (forbearance)

Settlement of Claims: Accord and Satisfaction

-debtor offers to pay a lesser amount than the creditor purports to be owed -the debt must be in dispute -the accord is the new agreement -the satisfaction occurs when the new agreement is completed (release

Legal ability to enter into a contractual relationship.

contractual capacity

contract capacity is either ________________________ or ____________________________________.

not present subject to special rules

no contractual capacity

incompetency

contractual capacity subject to special rules

minors