LSB 3213 1st Edition Lecture 14 Today Finishing discussing the four parts of a contract Agreement Consideration Capacity Legality Law and Entrepreneurship Course LSB 4403 T TH 3 30 4 45 Law and innovation creativity Starting and operating your own business Stock VC crowdfunding IP real estate social The Scenario Will reveal some problems with contract law and how to fix them Larry offers to sell a car to Sally but Sally is hesitant and wants to have a mechanic look at it before she buys it and pays 150 to a mechanic to check the car out The mechanic says that the car looks good and Sally decides to accept Larry s offer and wants to buy the car for 10 000 Larry then decides to sell the car to Jim instead for 12 000 Revocation and Acceptance o Is this a valid sale to Jim o Is this a valid agreement from Sally No Sally and Larry discussed and negotiated but there was no acceptance they didn t communicate acceptance of offer before Larry revokes the offer o Mailbox Rule Would it be different if Sally had texted emailed an acceptance of Larry s offer and Larry didn t see it and then sold the car to Jim then the mailbox rule would apply o The Law Revocation valid when received by offeree Acceptance valid when sent by offeree Can be risky for both parties Solution An option contract could be the best solution These 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 Option Contract o What if Larry promises not to revoke the offer until noon the day after Sally takes the car to the mechanic to be checked out Sally then has until that time to decide whether or not she wants to accept Larry s offer o Is this enforceable Not enforceable because there is no consideration from Sally unenforceable gift Add consideration to create enforceable option contract Example Sally pays Larry 200 to hold the offer open for a certain amount of time until she decides o How much money Any amount o How long to hold the offer open Any reasonable amount of time o Must be bargained for exchange without fraud or coercion Clarify how long the agreement lasts Option Contracts in Business o Mergers Acquisitions M A Facebook considering buying Snapchat Facebook pays snapchat 1 million to allow them a time of 30 days to further research Snapchat before buying the company o Real estate earnest money If you accept an offer to buy a house you often put down a deposit on the house to allow you time to acquire the funds you need check out the house etc after 15 days the money is considered hard not refundable and after 30 days the house is closed and the offer is officially accepted o Option contract buy a due diligence period Equitable Remedies Review Review unjust enrichment when no contract Recall Bob and Jane yard work example Three elements o Benefit received o Opportunity to reject benefit o Detriment suffered expectation of payment Another Equitable Remedy Promissory Estoppel Promissory estoppel when no consideration and thus no contract Court stops you from reneging on promise Three elements o Should promisor reasonably expect reliance o Did promisee reasonably rely o Enforcing promise is only way to avoid injustice Example 1 A family with a large amount of land in Maine the parents promise their children the right to the land once they are adults get married etc The daughter gets married builds a house on a section of the property and then her husband dies The daughter wants to take out a mortgage on the home and the bank asks for a deed for the property The parents however are not happy and refuse to give the land to her They end up in court and the daughter sues to enforce the contracts that the land was hers o Can the daughter obtain ownership Court yes three elements of promissory estoppel are met Daughter reasonably expects the land from her parents Daughter expects reliance on that promise Enforcing the promise to the land is the only way to avoid injustice as the contract claim failed Example 2 A wealthy couple that is very involved at their church and promise 1 million in their will to be given to the church Based on this promise the church takes out a large construction loan for a new wing of the church and then the couple decides not to give the church the money promised o Is this an enforceable promise o Court no contract claim unenforceable gift But promissory estoppel can provide justice Common law o Equitable remedies show flexibility of courts o Contract claims are more reliable stronger because the contract is the law o Equity for sophisticated businesses vs disadvantaged parties Equitable remedies are almost never supported enforced by the courts because businesses should know that they need a contract Capacity Three areas o Contracts with minors o Contracts with mentally disabled o Contracts with intoxicated people The risks o Know when to ask questions legal advice in a business environment for contracts with incapacitated people o Two options that the courts provide Void contracts automatically unenforceable Voidable contracts one party may choose not to be bound by the contract o Example A 17 year old buys an expensive car He may disaffirm the contract Before or after turning 18 o After 18 within a reasonable time for the contract Exception for necessaries o Food medical care clothes etc can t be disaffirmed Can t disaffirm after the minor ratifies the contract o Adds on to the car or even maintenance Illegality Example 1 o Not always as obvious as blatant criminal action o An architecture firm in Oklahoma with license to build only in Oklahoma submits a plan to build an embassy for the United Arab Emirates in Washington DC They win the bid to build the embassy and start making plans and negotiating Later the United Arab Emirates stop contracting with the Oklahoma company and instead hire a local architecture company The Oklahoma sues for breach of contract against the United Arab Emirates Is this an enforceable contract Court no contract due to public policy concern over safety Example 2 o A medical clinic in Illinois All practitioners have the correct licenses to practice medicine however the clinic does not have the correct registration One doctor leaves the clinic to open another clinic across the street but has signed a noncompete contract The clinic sues the doctor Was this an enforceable non compete agreement Court yes enforceable contract because no public policy concern over safety