LS311 – Business Law ILS311 – Business Law I

Seminar Presentation

UNIT 4Contracts – Part I

Chapter 7: Nature and Classification

Chapter 8: Agreement and Consideration

Chapter 9: Capacity and Legality

 

Unit 4Unit 4

• Three (3) items to complete in Unit 4. They are: – Unit 4 Written Assignment (40 points)– Unit 4 DB (20 points) – Unit 4 Case Study (20 points)

• Let’s discuss the Unit 4 Written Assignment.

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Unit 4 Written AssignmentUnit 4 Written AssignmentCase Scenario Case Scenario

• Carrie offered to sell a set of legal encyclopedias to Antonio for $300.00.

• Antonio said that he would think about her offer and let her know his decision the next day.

• Norvel, who had overheard the conversation between Carrie and Antonio, said to Carrie, "I accept your offer," and Carrie gave Norvel the books.

• The next day, Antonio, who had no idea that Carrie had already sold the books to Norvel, told Carrie that he accepted her offer.

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Unit 4 Written Assignment Unit 4 Written Assignment Questions to AnswerQuestions to Answer

• For your Assignment answer the following questions: – Is Carrie obligated to sell the encyclopedias to

Norvel? Why or why not?– Has Carrie breached a valid contract with

Antonio? Explain.• Note: Your assignment must include a title

page, the paper itself (the discussion) and a reference page

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ContractsContracts

What is a contract? A contract is an agreement that can be enforced in court. It is formed by two or more parties who agree to perform or to refrain from performing some act now or in the future.

What is the objective theory of contracts? The objective theory of contracts is that a party’s intent to enter into a contract is determined by objective facts, as interpreted by a reasonable person, rather than by the party’s subjective thoughts.

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Key Terms Key Terms

• Contract – (KT.) Agreement that can be enforced in court.

• Promise – A declaration that something either will or will not happen in the future.

• Promisor – The person making the promise.

• Promisee – The person whom the promise is made to.

• Offeror – The person making the offer.

• Offeree – The person whom the offer is made to.

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Requirements of a Valid Requirements of a Valid Contract: 4 Elements Contract: 4 Elements

• Agreement – There must be an Offer and Acceptance. One party must offer to enter into a legal agreement and another party must accept the terms of the offer.

• Consideration – Promises must be supported by legally sufficient & bargained-for consideration.

• Contractual Capacity – Both parties entering into a Contract must have the “contractual capacity” to do so.

• Legality – The Contract’s purpose must be to accomplish some goal that is legal and not against public policy. (For example, a court will not enforce a contract to grow & sell marijuana).

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Contracts: Formation Defenses Contracts: Formation Defenses

• HOWEVER…even if all of these elements exist, a KT may be UNENFORCEABLE if the following requirements are NOT met. A party will assert them as DEFENSES to the formation or enforcement of a contract. They are: – Genuineness of Assent – The apparent consent of

both parties must be “genuine”. – Form – The contract must be in whatever form the

law requires. (For example, some contracts must be in writing to be enforceable).

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Contract ClassificationsContract Classifications

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Quasi Contracts Quasi Contracts

• Quasi Contracts (also known as implied-in-law KTs) – (quasi is Latin for “as if” or “analogous to”) Are not true KTs. The do not arise from any agreement (express or implied) between the parties themselves.

• Rather, quasi KTs are fictional contracts created by courts “as if” the parties had entered into an actual contract.

• Quasi KTs are imposed to avoid the unjust enrichment of one party at the expense of another. – Unjust enrichment – individuals should not be allowed to profit or

enrich themselves inequitably at the expense of others. – For example: A doctor renders aid to an unconscious man. The

doctor can recover the cost of the aid from the man even if the man was unaware of the aid.

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Quasi Contracts: Quasi Contracts: Limitations on Recovery Limitations on Recovery

• In some situations, if you obtain a benefit unnecessarily or as a result of misconduct or negligence, the quasi-KT principle cannot be invoked. Meaning you would not be held liable.

• For example: If you take your car to the carwash and just ask for a wash BUT they also end up changing your oil, you CANNOT be forced to pay for that added benefit.

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Interpreting ContractsInterpreting Contracts

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Elements of an Agreement Elements of an Agreement (Chapter 8) (Chapter 8)

Offer(1)a serious, objective intent by the offeror(2)reasonably certain, or definite terms (3)communication of the offer to the offeree

Acceptance(1)voluntary act on the part of the offeree that shows

assent, or agreement, to the terms of an offer(2)unequivocal(3)timely communicated to the offeror

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Non-offersNon-offers

• Expressions of opinion

• Statements of intent

• Preliminary negotiations

• Advertisements

• Catalogs

• Circulars

• Auction sellers (the bidder is the offeror) 

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Termination of the OfferTermination of the Offer

• An offer may be terminated prior to acceptance by either:– Action of the Parties; or by – Operation of Law.

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Termination of Offer: Termination of Offer: By Action of the Parties By Action of the Parties

• An offer can be terminated by the Action of the Parties in any of 3 ways by:

– Revocation of the Offer by the Offeror.– Rejection of the Offer by the Offeree.– Counteroffer by the Offeree.

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Revocation Revocation

– Exceptions:• Irrevocable Offers.• Option Contract: Promise to hold an offer open

for a specified period of time in return of consideration.

• Detrimental Reliance or Promissory Estoppel where Offeree relies on offer to his or her detriment, thus Offeror is barred from revoking the offer.

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Termination of Offer: Termination of Offer: By Operation of Law By Operation of Law

• Lapse of Time.– Offer terminates by law when the period of time

specified in the offer has passed.– If no time period for acceptance is specified, the

offer terminates at the end of a reasonable period of time.

• Destruction of the Subject Matter.• Death or Incompetence of the Offeror or Offeree.• Supervening Illegality of the Proposed Contract.

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Acceptance Acceptance

• Remember: An agreement is evidenced by two events: – An Offer (Intention, Definiteness, & Communication) and– An Acceptance.

• Acceptance:– A voluntary act (expressed or implied) by the Offeree that shows

assent, or agreement, to the terms of an Offer.• Who can Accept?

– Except in special circumstances (i.e. – Burger Baby offers $5,000 to “any person” who could swim…), only the person to whom the offer is made or that person’s agent can accept the offer and create a binding contract.

• The Acceptance must be:– Unequivocal and– Communicated to the Offeror.

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ConsiderationConsideration

• Value exchanged for a promise

• Legal sufficiency– a promise to do something that one has no prior

legal duty to do, – performance of an act that one is otherwise not

obligated to do, or – refraining from an act that one has a right to do.

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Contracts that Lack Contracts that Lack ConsiderationConsideration

• 3 Situations in which the parties’ promises or actions do not qualify as contractual consideration– Preexisting Duty - Generally, a promise to do what one already has a

legal duty to do is not consideration. • Exceptions:

– Unforeseen Difficulties– Rescission and New Contract

– Past Consideration – Promises made in return for actions or events that have already taken place are unenforceable.

– Illusory Promises - Promisor has not definitely promised to do anything (no promise at all).

• For example: I say to the class “All of you have worked hard, and if everyone continues to come to class, 5 points will be added to your final grade – if the Business Administration Chair thinks it’s ok! It’s illusory – w/o consideration & unenforceable.

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Promissory Estoppel Promissory Estoppel (Chapter 8) (Chapter 8)

• Detrimental reliance

• Offeror is estopped from revoking promise even in the absence of consideration

• Elements

(1) a clear and definite promise;

(2) justifiable reliance on the promise; and

(3) reliance of a substantial and definite character.

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Contract ProblemsContract Problems

• Void Contract– not a valid contract– no contract

• Voidable Contract– a valid contract – can be avoided at the option of one or both parties

• Unenforceable Contract – cannot be enforced because of certain legal defenses

against it

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EnforceabilityEnforceability

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Capacity IssuesCapacity Issues

• Minors– Fraud – Insurance contracts

• Intoxication – Voidable at the option of that person– Reason and judgment must be impaired to the extent that he

did not comprehend the legal consequences of the contract.

• Mental Incompetence – Not previously adjudged voidable – Must comprehended the nature, purpose, and consequences

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Seminar Case DiscussionSeminar Case Discussion

• Kalen is a 17-year-old minor • Contracted to rent an apartment for one year at $500/

month• Working at a convenience store to be self supporting• Paying monthly rent for 4 months• Moves out after month 4, when still a minor

The landlord wants to hold Kalen liable for the balance of the payments due under the lease. Can he? Discuss the issues.

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Questions & RemindersQuestions & Reminders

•Questions on Unit 4 material?•Next Seminar: Unit 5, Wednesday, September 21st •Remember to complete all Assignments

– Unit Review Quiz (NOT for a grade)

– Discussion (See Discussion Board Posting Requirements)

– Written Assignment

– Case Analysis

•Office Hours: Thursdays 7-9PM (ET) •Have a great week!

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