LSB 3213 1st Edition Lecture 14 Today:Finishing discussing the four parts of a contract:- Agreement- Consideration- Capacity- LegalityLaw 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, socialThe Scenario: Will reveal some problems with contract law and how to fix themLarry 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 thecar 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 Acceptanceo 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 offero 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 mailboxrule would applyo 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 solutionThese 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 Contracto 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 decideso How much money? Any amounto How long to hold the offer open? Any reasonable amount of timeo Must be bargained-for exchange, without fraud or coercion Clarify how long the agreement lasts - Option Contracts in Businesso 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 companyo 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 acceptedo Option contract: buy a due diligence periodEquitable Remedies-Review- Review: unjust enrichment when no contract- Recall Bob and Jane yard work example- Three elements:o Benefit receivedo Opportunity to reject benefito 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 elementso 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 herso 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 injusticeas 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 promisedo Is this an enforceable promise?o Court: no contract claim (unenforceable gift). But promissory estoppel can provide justice- Common lawo Equitable remedies show flexibility of courtso Contract claims are more reliable/stronger because the contract is the lawo 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 contractCapacity- Three areaso Contracts with minorso Contracts with mentally disabledo Contracts with intoxicated people- The riskso Know when to ask questions/legal advice in a business environment for contractswith incapacitated peopleo Two options that the courts provide Void contracts: automatically unenforceable Voidable contracts: one party may choose not to be bound by the contracto 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 contracto Adds on to the car, or even maintenance- Illegality Example 1: o Not always as obvious as blatant criminal actiono 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