Slide 1 - McCombs School of Business - The University of Texas at by pengxiang

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									Contracts
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Definition
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A promise that the law will enforce.
Common law once required all contracts to be in writing, with a seal affixed. Later, some payment was required before a contract could be enforced. Mutual promises became enforceable in the 1600’s. By the 1900’s, courts began to consider the fairness of contracts before enforcing them.

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Development of Contract Law
   

Types of Contracts
(or Agreements)
Bilateral
vs. Unilateral Executory Valid vs. Unenforceable

Express vs. Executed
vs. Voidable

vs. Implied

vs.

Void

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Bilateral and Unilateral Contracts
Bilateral: both parties make a promise.  Unilateral: one party makes a promise that the other party can accept only by doing something
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Types of Contracts (cont’d)
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Express and Implied Contracts  Express: the two parties explicitly state all important terms of their agreement.  Implied: the words and conduct indicate that the parties intended an agreement.

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Executory and Executed Contracts  Executory: when one or more parties has not fulfilled its obligations.  Executed: when all parties have fulfilled their obligations.

Types of Contracts (cont’d)


Valid, Unenforceable, Voidable, and Void Agreements
Valid: satisfies the law’s requirements.  Unenforceable: when the parties intend to form a valid bargain but some rule of law prevents enforcement.  Voidable: when the law permits one party to terminate the agreement.  Void: one that neither party can enforce, usually because the purpose is illegal or one of the parties had no legal authority.
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Sources 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.  In a mixed contract, Article 2 governs only if the primary purpose was the sale of goods.
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Elements of a Contract
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Agreement
offer, and  acceptance
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Consideration
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There has to be bargaining that leads to an exchange between the parties. The contract must be for a lawful purpose.

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Legality
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Capacity
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The parties must be adults of sound mind.

Meeting of the Minds
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The parties can form a contract only if they had a meeting of the minds.  They must understand each other and intend to reach an agreement.  A judge will make an objective assessment of any disagreements about whether a contract was made -- whether or not a reasonable person would conclude that there was an agreement, based on the parties’ conduct. Objective Theory of Contract: Lucy v. Zehmer

Negotiation Terms
JOE Offer Accept or Reject or Counteroffer BOB Accept or Reject or Counteroffer

Offer
An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms.
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Problems with Intent  Invitation to bargain is not an offer.  Price quote is generally not an offer.  An advertisement is generally not an offer.  Placing an item up for auction is not an offer, it is merely a request for an offer. Problems with Definiteness  The term of the offer must be definite.

Definiteness/Invitations to Bargain
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I’ll give a blueberry muffin and a cup of coffee to the first person who shows up next class in class in a full clown suit and makeup. Would you consider showing up in a full clown suit and makeup if I gave you a blueberry muffin and a cup of coffee? I couldn’t take less than $400 for that 1974 Dodge Dart. General common law rule: all important/essential terms (price, quantity, etc.) must be specified. EXCEPTIONS: UCC situations, and where industry practice suggests how the missing terms will be filled in. E.g., seafood restaurant example.

Termination of Offers
 

Termination by Revocation  Effective when the offeree receives it. Firm Offers and Revocability  Common Law Rule  Revocation of a firm offer is effective if the offeree receives it before he accepts.  Option Contract  The offeror may not revoke an offer during the option period.  Sale of Goods  A writing signed by a merchant, offering to hold an offer open, may not be revoked.

Termination of Offers (cont’d)
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Termination by Rejection  If an offeree rejects an offer, the rejection immediately terminates the offer. A counteroffer operates as a rejection. Termination by Expiration  When an offer specifies a time limit for acceptance, that period if binding.  If the offer specified no time limit, the offeree has a reasonable period in which to accept.

Acceptance


The offeree must say or do something to accept.
In a bilateral contract, the offeree generally must accept by making a promise.  In a unilateral contract, the offeree must accept by performing.
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Mirror Image Rule (Common Law)
Requires that acceptance be on precisely the same terms as the offer.  Normile v. Miller
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Mirror Image Rule
1.

2.

3.

4.

5.

Stan offers Eric $6 for Eric’s Carl Yastremski rookie baseball card. Eric answers, “ Throw in a bag of cheesie poofs and you’ve got a deal.” Stan responds, “I’ll do you one better. Let’s meet back here in 20 minutes.” In 20 minutes Stan returns with $6 and Eric’s favorite meal – a chicken nugget happy meal. Eric refuses to give Stan the card, saying he’s having second thoughts.

DID STAN AND ERIC HAVE A DEAL?

UCC and the Battle of Forms


Where the UCC applies, an offeree may include in the acceptance terms that are additional to or different from those in the offer.
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Additional terms are those that bring up new issues.
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If both parties are merchants, the additional terms will generally become part of the contract.

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Different terms are those that contradict terms in the offer.
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The majority of states hold that different (contradictory) terms cancel each other out/UCC fills gaps.



Why have this rule? What terms must be agreed upon? What about material alterations? What sorts of terms are “material”?

Communication of Acceptance
 

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Wucherpfennig v. Dooley and Manner of Acceptance  If an offer demands acceptance in a particular medium or manner, the offeree must follow those requirements.  If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium. Time of Acceptance: The Mailbox Rule  An accceptance is generally effective upon dispatch, meaning the moment it is out of the offeree’s control.

Consideration


Bargaining that leads to an exchange of value between the parties. Consideration can be anything that someone might want to bargain for. It is the inducement to make the deal, or the thing that is bargained-for. McInerny v. Charter Golf

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What is the consideration supporting each promise?
Stan agrees to pay Eric $6 for Stan’s baseball card; exchange to take place next Tuesday. 2. Professor promises to give a cup of coffee and a blueberry muffin to the first person to come into class in a full clown suit and makeup. 3. I agree to pay you $500 for your lovely painting, “Dogs Playing Poker (on Velvet)”. 4. I promise to pay my son $100 if he does not watch South Park for one year. 1.

“Bargaining is obligating yourself in order to induce the other side to agree.”


A Bargain and an Exchange

The thing bargained for can be:
another promise or action.  a benefit to the promisor or a detriment to the promisee.  a promise to do something or a promise to refrain from doing something.
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Mutuality of Obligations
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Illusory Promise
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If one party’s promise is conditional, the other party is not bound to the agreement.

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Promise to pay in return for past favors.
  

Is this consideration? Was it bargained-for? Passante v. McWilliam

Preexisting Duty



A promise to which the promisor is already obligated is not consideration.
Exceptions:
 If

the scope of the promisor’s task increases, that increase is consideration.
unforeseen circumstances cause a party to make a promise regarding an unfinished project, that promise is valid consideration. Must be something beyond normal risk assumed by the parties.

 When

Exceptions to the Requirement of Consideration: Promissory Estoppel
  

Promise meant to induce action, On which the promisee reasonably relies To his/her detriment Is enforceable in the absence of consideration

Promissory Estoppel (cont’d)
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Supervisor was pleased with employee’s work In March, Supervisor promised employee that she would get 5% of the company stock as a Christmas bonus Employee turns down several higher paying job offers between March and December Supervisor never made good on that promise Employee sues to enforce the promise.
RESULT?


								
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