Business Law Final Exam Chapter 9 Contracts 04 29 2014 Contract A promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty Objective Theory of Contracts A party s intention to enter a legally binding agreement or contract is judged by outward objective facts as interpreted by a reasonable person rather than the party s own subjective intentions In Contract law intent is determined by this theory not by the personal or subjective intent or belief of a party 4 Requirements for a legally binding agreement 1 Agreement Includes an offer and an acceptance 2 Consideration Any promises made by the parties to the contract must be supported by legally sufficient and bargained for consideration something of value received or promised such as money to convince a person to make a deal 3 Contractual capacity Law must recognize both parties as possessing characteristics that qualify them as competent parties 4 Legality the contracts purpose must be to accomplish some goal that is legal and not against public policy 2 Defenses to the Enforceability of a Contract 1 Voluntary Consent the consent of both parties must be voluntary 2 Form contract must be in whatever form that the law requires Difference between an Bilateral and Unilateral Contract A Bilateral mutual contract happens if the offeree can accept simply by promising to perform o It s a promise for a promise contract comes into existence the second the promises are exchanged o I will give you this beer today if you promise to pay me by next Friday A Unilateral Contract happens if the offer is phrased so that the offeree can accept the offer only by completing the contract performance o It s a promise for an act o If you drive my car to NY I will give you 1000 Formal Vs Informal Contracts Formal require a special form or method of creation o EX letters of credit Informal simple no special form required o EX All other kinds of contracts Express Vs Implied Contracts Express directly states its terms of the agreement o Ex lease for apt Implied Conduct of the parties rather than their words creates and defines the terms of the contract Voidable Vs Unenforceable Vs Void Contracts Voidable valid but can be avoided by one or both parties Unenforceable contract that cannot be enforced due to certain o Ratify make valid legal defenses against it o Valid obligations Void No contract exists or there is a contract without legal o Not valid Revocation the offerors act of withdrawing revoking an offer Difference between a contract and a promise A promise ripens into an agreement only after an offer is accepted but every promise is not necessarily an agreement There is difference between the contract and a promise as a valid contract creates obligation and is capable of enforcement in law Whereas a mere promise to render service or to hand over certain property moveable or immoveable to a person without any consideration may not create a contractual obligation to be enforced in law Offers Counteroffers Mirror Image Rule Offer An offer is a promise or commitment to do or refrain from doing some specified action in the future o The parties to a contract are the offeror the one who makes an offer or proposal to another party and the offeree the one to whom the offer or proposal is made Counteroffer rejection of the original offer and the simultaneous making of a new offer Mirror Image Rule At common law This rule requires the offeree s acceptance to match the offeror s offer exactly the mirror of the offer o Any change in or addition to the terms of the original offer automatically terminates the offer and substitutes the counter offer o This offer would still need to be accepted but if the original offeror does accept the terms of the counteroffer a valid contract is created How to Timely Accept an Offer The best practices Acceptance is a voluntary act by the offeree that shows assent agreement to the terms of an offer The offeree s act may consist of words or conduct The acceptance must be unequivocal mirror image rule and must be communicated to the offeror In bilateral contracts acceptance must be timely This generally means the contract is timely if it is made before the offer is terminated Acceptance takes effect at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror This is called the MailBox Rule and is what the majority of courts follow o Under this rule if the authorized mode of communication is the mail then an acceptance becomes valid when it is dispatched not when it is received by offeror o The mail box rule does not apply to instantaneous forms of communication such as when the parties are dealing face to face by telephone or by fax The Three Elements that are Necessary for an Offer to be Effective 1 The offeror must have a serious intention to become bound by the offer 2 The terms of the offer must be reasonably certain or definite so that the parties and the court can ascertain the terms of the contract 3 The offer must by communicated to the offeree Therefore the following common statements are NOT offers An expression of opinion is not an offer It does not indicate an intention to enter into a binding agreement A statement of an intention to do something in the future statement of future intent is not an offer If a business man says I plan to sell my stock in Novation Inc for 150 dollars a share no contract is created A request or invitation to negotiate is not an offer It only expresses a willingness to discuss the possibility of entering into a contract In general advertisements are treated not as offers to contract but as invitations to negotiate Agreements to agree are also not offers Types of Contracts that are Void Contrary to Statute Contracts to commit a crime Usury A lender who makes a loan at an interest rate above the lawful maximum commits usury These contracts are void Contracts in restraint of trade Gambling Unconscionable Contracts Deemed unconscionable because Contracts they are so unscrupulous or grossly unfair as to be void of conscience o Procedural Contracts assumed to be reasonably intelligent o Adhesion Contract Take it or leave it basis contract language or reading issues and not Exculpatory Clauses These release a party from liability in the event of monetary or physical injury no matter who is at fault o These are often deemed contrary to public policy and are
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