MGMT 217 1st Edition Lecture 10Last lecture notes: CONTRACTS OVERVIEWA. Defined-an enforceable promiseB. Sources of Contract Law1. Common law2. Uniform Commercial Code (UCC)-applies only to goodsC. Classifications1. Express or Implied2. Executed or Executory3. Valid, Void, Voidable, UnenforceableD. Elements of a K (contract)1. Mutual Assenta) Offerb) Acceptance2. Consideration3. Capacity4. LegalityII. CREATING THE KThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.A. Mutual Assent1. Offera) Elements(1) SeriousSee, Lucy v. Zehmer (“friends” agree? to sell farm)(2) Certain(3) Communicatedb) Advertisements are usually not offersc) Offeror(1) Party who makes the offer to the offeree.(2) Master of the offerd) Duration of the offer(1) Offer’s terms(2) Offeror revokes the offer-exceptions(a) Option contract (common law)(b) Firm offer rule (U.C.C.)(i) Made by a merchant(ii) Written(3) Rejection by the offeree(a) Counteroffer(b) Mere inquiry(4) Operation of law (Automatic termination)(a) Death of either party(b) Incapacity of either party(c) Subsequent illegality(d) Destruction of the subject matter(e) Reasonable time2. Acceptancea) Mirror Image Rule (Common Law)mere inquiries do not violate the mirror image ruleb) Communication of acceptance(1) Timeliness-mailbox rule, acceptances valid when sent(2) Method(a) Authorized(b) ReasonableB. Formation Defenses1. Duress-a party agrees to a contract against their will2. Undue influencea) Trusted partyb) Unfair persuasion3. Frauda) Misrepresentation of a material factb) Justifiable reliancec) Scienter (intent)4. Misrepresentation-same as fraud, except scienter is not requiredLecture Outline 5. Mistakea) Mistake of material fact, not valueb) Types of mistake(1) Mutual mistake-both parties are mistaken (India/London cotton case)(2) Unilateral mistake(a) Only one of the parties is mistaken(b) Usually not a valid defense, unless non-mistaken party knowingly takes advantage of the mistake.c) Issues of Mistake(1) Allocation of Risk(a) Parties should anticipate problems and allocate the risk.(b) Where risk of loss is not allocated courts may impose the loss on the party is the best position toavoid the mistake.(2) Mistake of fact or mistake of value?Consider the following cases:Farmer A agrees to sell Farmer B a cow. Farmer A stated that the cow was barren. Farmer B purchased the cow anyway and later the cow was impregnated and had a calf. Should Farmer A be able to void the contract and get the cow back?Seller agrees to sell a stone to buyer for $1.00. Later it is discovered the stone was really a diamond. Neither party knew at the time of the sale that the stone was a diamond. If Seller sues to avoid the contract, what result?C. Consideration1. Promise for a promise- Promises of gifts are not enforceable2. Legal valuea) Does the promise have value in the eyes of the law.b) Promises that lack value(1) Preexisting duty(2) No legal rightD. Capacity-party must understand the seriousness nature of the bargain, parties who may lack capacity include:1. Minors2. The mentally incompetenta) Adjudicated incompetentb) Mentally infirm3. Intoxicated individualsE. Legality1. Contracts that violate statutes2. Public policya) Contracts that restrain trade(1) Covenants not to compete(a) Legitimate employer interest?(b) Covenant reasonable, i.e. not overly restrictive?See,Comedy Club v. Improv West (Covenant restricts comedy Club from opening clubs in the U.S. until 2019.)(2) Sale of a businessb) Unconscionable contracts(1) Contracts that are so fundamentally unfair they shock the conscience of the court.(2) Excessively harsh terms (usually not enough by itself)(3) Unequal bargaining powerConsider the following:Williams went to the Walker-Thomas Furniture Store and purchased furniture on credit. A few months later, William returned to the store and purchased additional furniture on credit. During each purchase, Williams signed a revolving credit agreement, which provided that no furniture was paid off until all furniture was paid off. A few months later Williams missed a payment, and pursuant to the terms of the credit agreement Walker-Thomas repossessed the furniture. Williams claims the contract is unconscionable. Result?c) Exculpatory clauses` -clauses that attempt to relieve a party of liability due to negligence(1) Must be clear and conspicuous(2) Usually enforced for non-essential businessesF. Writing Issues1. The Statute of Fraudsa) Generally, oral contracts are enforceable, but the Statute of Frauds requires that certain contracts be in writing, or that there is written evidence of their existence.b) Contracts that require a writing(1) Contracts involving the transfer of real estate(2) Promises to pay the debts of another(3) Contracts that by their terms cannot be completed within 1 year(4) Contracts for the sale of goods for $500 or more.c) Sufficient writing(1) Identifies parties(2) Identifies the nature of the contract(3) Signed by the party to be charged (sued)Lecture:Mistake of Value vs. Mistake of fact: a mistake of fact is when you make a mistake about a material thing a mistake of value is when a party mistakes the value of something, which can be subjective. In the case of a mutual mistake, either party can take the loss, unless one party was in a better position to avoid the mistake than the other.In order for a contract to be enforceable, you must give one thing of value for another. Something of value can be not doing something you have a right to do or doing something that you did not already have to do. Things that do not have value in the eyes of the lawPreexisting duty: Something you had to do anywayNo legal right: something you are not allowed to do, something illegal. Minors and people who were incompetent (e.g intoxicated, mentally infirm) when they made the contract can back out of contract if they want