MANGMT 3540 1st EditionExam # 2 Study Guide Lectures: 9- 13Lecture 9 (October 6)Chapter 7: Introduction to ContractsWhat is a Contract?A contract is a legally enforceable promise or set of promisesWhat are Four Requirements for a Valid Contract?1. Mutual Manifestation of Assent (Consent)- Definition: an outward expression of agreement by all partieso (hence why subjective intent doesn’t matter)- Offer: a specific offer, made by the offeror, requesting something in return.- Acceptance: an expression (by the offeree) of a complete agreement to the offero Complete meaning that the offeree can’t not change (add, delete, modify) any terms of the offer made by the offeror2. Consideration- Definition: something of value given or detriment suffered in exchange for a promiseo Aka “bargained for exchange” or quid pro quo which is the latin term for “thisfor that”- This element is important because consideration is what makes the difference between a contract and a gift!3. Capacity- Certain individuals lack the legal or mental capacity to enter into contracts- If someone lacking capacity does enter into a contract, they may be able to get out of it; however, the person on the other end of the deal who does have capacity cannot use this as a defense- Examples of lack of capacity: minors (under 18), mentally incompetent persons, highly intoxicated persons.4. Legality- This applies to both the terms and the performance of a contract – if either are illegal, the contract is automatically voidWhat are Defenses to a Contract?(if a question on the exam asks “Which of the following are defenses to a contract?” these are the answers you should be looking for! Don’t get creative!)1. Lack of Reality of Consent (Assent)- This describes any situation where consent to a contract is not real or voluntary, usually because it is obtained through a false representation (a lie) or duress (force).- Note: This does NOT include times when one party tries to get out of a contract by saying they were “joking,” “just kidding,” etc. when they entered into the contract.2. Noncompliance with Formalities- “Formalities” say that certain contracts MUST be in writing in order to be enforceable- Examples include (1) contracts for the sale of real estate (no matter how much or howlittle land is involved; it could involves just a few square feet and the contract must still be in writing to be enforced) and (2) contracts for the sale of goods priced at $500 or more.What are Types of Contracts?Bilateral UnilateralDefinition: A promise in exchange for …… a promise (acceptance in this case is a promise)… a completed act (acceptance by performance)Duty of offeror (the one making the offer)Arises on verbal acceptance by the offereeArises when the act is completed by the offereeDuty of offeree (the one who accepts or rejects the offer)Arises when the offeree accepts the offerNo duty to perform!!!Example Josh promises to pay Bill $100if Bill agrees to tutor Josh in Bus Law for the rest of the semester. Once Bill agrees, Josh has a duty to pay him $100 and Bill has a duty to tutor Josh for the rest of the semester.Jessica lost her Bus Law book,so she sends out an email to everyone in the business school saying she will pay $25to whoever returns the book toher. Jessica is the offeror, whoever finds the book and takes the action to return it to her is the offeree. Note that no one has a duty to return Jessica’s book, even if they know where it is. However, if someone does return it, Jessicawill have a duty to pay that person $25. Notes Most contracts are bilateral because they require an act of acceptance to bind both parties. Saying “I will pay you $25 to sell me your book” is a bilateral contract because the other party will agree to the sale as a matter of acceptance and at thatpoint, they are bound to sell you the book and you are bound to pay them. It is not unilateral, because “selling the book” requires some acceptance; it is not something that can just be completed. What are more types of Contracts?- Express: created by specific wordso These are the easiest to identify because one party makes a written or verbal offer and the other party makes a written or verbal acceptanceo Example: Offeror – “I offer to sell you my car for $7,000”; Offeree – “I agree (to buy your car for $7,000)” … the part in (..) need not actually be said.- Implied in Fact: These are created by the conduct of the parties (conduct, not words)o These contracts are incredibly common!o Example: When you go grocery shopping. You accept the store’s offer to sell you groceries at a certain price by choosing those items and giving them to thecashier. You don’t walk up to the cashier and say, “I accept your offer to sell me apples for $2.99/lb. You just bring the cashier the apples and it is implied that you will pay $2.99/lb for them.- Implied in law aka “Quasi Contracts”: These are created when the court recognizesthat some requirement of contracts is missing, but if the court says there is no contract, then one party will be unjustly enriched; thus the court ignores the missing piece and says that there is a contract in order to avoid this injustice.o Example: One day, in west Philadelphia, where you were born and raised, youwere out on the playground (where you spent most of your days). On this day,you were chillin’ out, maxin’, and relaxin’ all cool as you shot some b-ball outside of the school. Unfortunately for you, a couple of guys who were up tono good, started making trouble in your neighborhood. You got in one little fight, well, not so little because you got stabbed. Lucky for you, there was a doctor nearby who came to your aid and provided you with life-saving medical care. Even though you have no contract with this doctor, you must pay him for his services, otherwise you have been unjustly enriched (you are alive when you may not be otherwise). Despite there never being offer, acceptance, or consideration – the court will imply that you have a contract with the doctor and require you to pay him for his help.o PS: If you didn’t catch that reference, you’re failing at life and need to study up: http://www.youtube.com/watch?v=3qHA366oRMsWhat are the Levels of Enforceability?- Valido Enforceable by all partieso Everything is fine with the contract so all parties are in a position to enforce it.- Voido Not enforceable by any party – essentially, it’s as