Slide 1Why Contract Law is ImportantDifferent People View Contracts Differently…Why Contract Law is ImportantWhat is a Contract?Sources of Contract LawContracts: Common Legal IssuesContract FormationOfferContract?AcceptanceOffer and AcceptanceContract?Termination of OffersExpiration – Time is of the EssenceTime is of the Essence, cont’dOutcomeTime of AcceptanceConsiderationOther Elements of an Enforceable Contract (S&B chapter 10)Other Elements of an Enforceable Contract cont’dOther Elements of an Enforceable Contract cont’dOther Elements of an Enforceable Contract cont’dContract or Non-Binding Promise?Contract ChecklistPromissory EstoppelQuasi-contractINTRODUCTION TO CONTRACTSChapter 9, 10, 121/14/19 Dr. Gerlinde Berger-Walliser1Why Contract Law is Important•We enter into, perform, terminate contracts almost every day•Every business function depends on, negotiates, executes, evaluates contracts…•A poorly drafted or not respected contract can have HUGE negative consequences…Different People View Contracts Differently…“Better business through proactive productization and visualization of contracts”, Katri Rekola and Helena Haapio, Contracting Excellence 2(5) June/July 2009.Why Contract Law is Important•A well written contract should be both a legal and management tool•Therefore managers need to participate in contract drafting and•Need basic contract literacyA legal risk management and risk prevention tool Performance guidance toolWhat is a Contract?•A contract is a legally binding agreement•Offer and Acceptance •which mirror each other•enforceable in a court of lawSources of Contract Law•Common Law•Uniform Commercial Code•UCC Article 2 governs the sale of goods. “Goods” means anything moveable, except for money, securities, and certain legal rights.•UCC contains rule supposed to facilitate commerce.•In a mixed contract, Article 2 governs only if the primary purpose was the sale of goods.•Restatement (Second) of ContractsContracts: Common Legal IssuesContract FormationOfferorI sell you this book for $ 50. OffereeOK, I take it.OffereeOK, I take it.OfferOfferAcceptanceAcceptanceOffer•An offer is a proposal to form a contract •The offeror must intend to be bound by the offer and•the offer must be communicated to the offeree•The offer must be “definite” = offeree can accept by simply saying “YES”© BrokenSphere / Wikimedia Commons.Contract?https://www.youtube.com/watch?v=9ZQYQO8s1s8Acceptance•The offeree must intend to accept the offer•The acceptance must be communicated to the offeror, i.e. offeree must say or do something to accept.•Silence usually does not constitute acceptance, unless behavior suggests “implied contract”.Offer and Acceptance•Mirror image rule: Acceptance must be on precisely the same terms as the offer (exceptions under UCC).•“Meeting of the minds”: both parties “mean” the same thing: •Objective assessment – court will evaluate offer and acceptance according to a “reasonable person’s” understandingContract?Jodee Berry, won a beer sales contest at the Panama City Beach Hooters. She believed she had won a new Toyota and happily was escorted to the restaurant's parking lot in a blindfold.But when the blindfold was removed, she found she had won a new toy Yoda — the little green character from the Star Wars movies.After the stunt, Berry quit the restaurant and filed a lawsuit against Gulf Coast Wings, the restaurant's corporate owner,.The restaurant's manager, Jared Blair, has said the whole contest was an April Fools' joke.Termination of Offers•Revocation•Rejection•Counteroffer = Rejection combined with a new offer, the other party has to accept (an acceptance under modification is a counteroffer)•Expiration •Destruction of the subject matterExpiration – Time is of the EssenceIn July 2010, Elvis Dumervil signed a 6-Year player employment contract with the Denver Broncos with guarantied annual earnings of $ 12 million until 2013. Subsequently, the Denver Broncos encountered problems with the $123 million salary cap established for each team by the National Football League (NFL). To meet its salary cap requirements, the Denver Broncos engaged in renegotiations with players to restructure contracts to meet the salary cap.Time is of the Essence, cont’dDumervil and his agent were offered $8 million guaranteed for the 2013 season, which Dumervil intended to accept. Dumervil’ s offer, however, required signed paperwork agreeing to the terms and confirming his position on the roster by 2:00 p.m. Central Time on Friday, March 15, 2013. This duty was left to his agent, Marty Magid.On Friday, March 15, 2013, Magid did not fax the completed paperwork to the Broncos until 2:06 p.m. Central time…..6 MINUTES LATE!OutcomeTime of Acceptance•Would it make a difference if Magid had send the paperwork prior to 2pm, but for technical reasons out of his control they arrived at 2:06 pm?Consideration•There has to be bargaining that leads to an exchange between the parties.•“A promise for a promise” (bilateral contract)•Unilateral contract: One party makes a promise the other party can accept only by doing somethingOther Elements of an Enforceable Contract (S&B chapter 10)•Legality•the object of the contract need to be legal, if not •the contract is void, i.e. neither party can enforce it•Capacity•Minors•Mentally impaired•Intoxicated•Contract is voidableOther Elements of an Enforceable Contract cont’d•Misrepresentation or fraud•Intentional or reckless misrepresentation of facts (not “puffery”, “exaggerated sales talk”)•Material mistake•Reliance•Injured party generally has a choice of rescinding the contract or suing for damages, in some states both•Duress•Contract is voidableOther Elements of an Enforceable Contract cont’d•Bilateral mistake•Contract is voidable•Unilateral mistake•basic factual error and either:(1) enforcing the contract would be unconscionable or (2) the nonmistaken party knew of the error.Other Elements of an Enforceable Contract cont’d•Statute of Frauds•Agreements that must be in writing are those:•For any interest in land•That cannot be performed within one year•To pay the debt of another•Made by an executor of an estate•Made in consideration of marriage; and•For the sale of goods over $500Contract or Non-Binding Promise?Contract Checklist Definite Offer No