Mgmt 311 Chapter 12

Consideration

-"the price of the promise" - Hailey -Consideration usually is defined as the value given in return for a promise (in a bilateral contract) or in return for a performance (in a unilateral contract). It is the inducement, price, or motive that causes a party to enter into an agreement. As long as consideration is present, the courts generally do not interfere with contracts based on the amount of consideration paid. -Often, consideration is broken down into two parts: 1) something of legally sufficient value must be given in exchange for the promise 2) there must be a bargained-for exchange

Contract

--> an agreement enforced by law between two or more parties who promise to perform or refrain from performing some act now or in the future **Contractual promises are duties ** A breach of the promises leads to liability because the parties have duties to each other prescribed by the terms of the agreement ** Contracts can be moral or written - both are valid ** Some contracts, even if they are valid, may not be enforceable

E-Contracts --> Online Contract Formation

1. Online Offers -under the control of the seller exclusively -need very clear and specific terms 2. Online Acceptances a. Click-On Agreements -clicking a box that says "I agree" or "I accept" --> binding acceptance; terms were available to you, even if you didn't read them b. Browse-Wrap Terms -downloading software or something on your computer; terms then show up; not viewed as binding acceptance; did not see the terms before installation

Consideration --> Agreements that lack consideration

1. Pre-existing duty rule a. doing something that one already has a legal duty to do or promising to do what one already has a legal duty to do is not legally sufficient consideration for another person's promise i.e If a cop catches a criminal, he/she is not entitled to a reward... if is their duty to catch and turn in criminals b. If a party is already bound by a contract to perform a certain duty, that duty cannot serve as consideration for a second contract 2. Exceptions to the Preexisting Duty Rule: a. Unforeseen difficulties -significant burden needed -Tx recognizes unforeseen difficulties but only for construction b. Rescission and New Contract -Rescission --> the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made -The law recognizes that two parties can mutually agree to rescind, or cancel, their contract, at least to the extent that it is executory. Sometimes, parties rescind a contract and make a new contract at the same time. When this occurs, it is often difficult to determine whether there was consideration for the new contract, or whether the parties had a preexisting duty under the previous contract. If a court finds there was a preexisting duty, then the new contract will be invalid because there was no consideration.

Agreement --> Termination of the Offer by actions of the parties

1. Revocation of the offer by the offeror a. In general, an offer may be revoked by the offeror at any time before acceptance: --> expressly; or --> by acts that are inconsistent with the existence of the offer and are made known to the offeree i.e Hailey has one more puppy for sale; college girl wanted to buy the puppy but needed time to think; acceptance was never made; Hailey says okay and proceeds to sell puppy to the girl's roommate; thus, Hailey's acts are made known to the offeree b. A revocation is effective when received by the offeree --> here and available, such as a text message; doesn't matter if I decide to look at it or not c. Irrevocable offers ** Option Contracts --> An option contract is a separate contract that exists when an offeror has promised to hold the offer open and the offeree has given consideration for this promise of the offeror --> The offer is irrevocable for the period of time that is stated, or if no period is stated, for a reasonable time period -i.e Real Estate Contract has a termination option, called an option clause; offeror gives 3-5 days for the offeree to make a decision; have to have money exchanged (seller keeps the money no matter what); done deal, meaning the seller cannot change their mind and sell to someone else (this would be a breach); only the buyer can change their mind within the 3-5 days --> What if one of the parties dies or becomes incapacitated during the option period? *If either party dies, the contract still holds... it is irrevocable *Death does not terminate the option contract *When people die, representatives take control of the estate *Representatives finish the deal ***This is an exception to the death rule; the option contract survives death*** 2. Rejection of the offer by the offeree a. offeree demonstrates his or her intention not to accept the offer b. rejection is effective when received c. an inquiry made by an offeree is distinguishable from a rejection and does not terminate an offer 3. Counteroffer by the offeree a. a counteroffer is a rejection of an offer and the simultaneous making of a new offer; the counteroffer may be accepted by the original offeror b. a counteroffer terminates the original offer and puts the offeree in the position of counterofferor c. Mirror Image rule: 1) offeree's acceptance must exactly match the offeror's offer (anything that is not a mirror image may be an inquiry or counteroffer) 2) a communication from the offeree which contains a material change in addition to the terms of the origin offer is a counteroffer, which terminates the original offer

Capacity

Legal ability to enter into a contractual relationship; capacity is lacking or questionable with minors, intoxicated persons, and the mentally incompetentd

Offeree

the party who, if interested in the offer, may accept the contract

Offeror

The party making an offer to enter into a contract

Agreement --> Communication

"Two Way Street" 1. The offeror must have the intention of making the terms known to the offeree and those terms must be received by the offeree 2. The offeree must have knowledge of the terms of the offer -i.e Owner loses dog and puts out reward signs; you find the dog and based on its dog tag; legally not entitled to reward if you had no knowledge of the reward flyers 3. An offer may be made to a specific offeree to whom it is communicated 4. Offers can certainly be public

Types of Contracts --> Formal v. Informal

**Everything we do in this class will be informal** 1. Formal Contracts - require a special form or method of creation (formation) to be enforceable -i.e negotiable instruments, such as checks, drafts, certificates of deposit 2. Informal - no special form is required, as the contracts are usually based on their substance rather than their form -also called simple contracts

Types of Contracts --> Express v. Implied Contracts

**Focus on the manner of the agreement** 1. Express Contract - the terms of the agreement are fully and explicitly stated in oral or written words 2. Implied Contract - the terms of the agreement are inferred from the conduct of the parties -Three steps to establish an implied contract: a. plaintiff has to furnish a service or a good b. the plaintiff is expected to be paid and defendant should have known that c. defendant had an opportunity to reject the goods or services -i.e you go to the dentist; you usually don't talk payment before the service, but you know you're going to have to pay -i.e neighbor mows your lawn; you see them but do not stop them; they come knocking on your door wanting to be paid

Types of Contracts --> Bilateral v. Unilateral Contracts

**Focus on the nature of the promises** 1. Bilateral Contract - reciprocal promises are exchanged by the parties so that the promise of one party is exchanged for the promise of the other -"Promise for a promise" -Do not have to say the word "promise" - it is about the verbiage -The contract is formed when agreement is made by both parties -If either party fails to perform, the other can sue for breach i.e "I will sell you my watch for $50" -party one & "I will buy your watch" - party two 2. Unilateral Contract - one party makes a promise in exchange for the other party's actually performing some act or refraining from performing some act -Promise for an act -Have to do an action to accept offer -The contract is not formed until the offeree performs the actions -i.e "When" or "If" or "After" you build my fence, I'll pay you -i.e Contests and lotteries are unilateral

Agreement --> Termination by Operation of Law

**Law will cause the offer to terminate 1. Lapse of time - too much time has gone by -offeror no longer has to wait for the offeree's actions -based on circumstances a. if the duration of an offer is stated in the offer, the offer terminates after expiration of the stated period of time b. if the duration of an offer is not stated in the offer, the offer lapses after a reasonable period of time --> maybe a couple of weeks 2. Destruction of the subject matter of the offer -i.e selling a dog, but the dog dies 3. Death or incompetency of the offeror or the offeree -death generally terminates an offer 4. Supervening illegality of the proposed contract as a result of legislation or judicial decision -a new law makes the contract illegal -i.e Shane offers to lend Sue $10,000 at an annual interest rate of 15 percent. Before Kim can accept the offer, a law is enacted that prohibits interest rates higher than 8 percent. Lee's offer is automatically terminated. (If the statute is enacted after Kim accepts the offer, a valid contract is formed, but the contract may still be unenforceable.)

Consideration --> Past Consideration

**Past consideration is not consideration** -typically see one side has already performed -i.e tell my employees I am going to give them a Christmas Bonus --> the bonus is a gift; employees already performed work; they aren't giving anything now for the bonus, so they aren't legally entitled to it *Non-compete Agreements: new employee v. existing employee: 1) Consideration is valid for new employees who sign non-competes; both employer and employee get something and give something up 2) No consideration for an existing employee if no valid consideration exists -what constitutes valid consideration? -i.e Hailey's son works for a company that is about to go public... before going public, he signs a non-compete in exchange for stock options --> both sides give and receive

Consideration --> Illusory Promises

**Promises that depend solely upon the whim or wish of the promisor are not enforceable -If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory—without consideration and unenforceable. A promise is illusory when it fails to bind the promisor.

Consideration --> Settlements of Claims

**Settlements of claim must be supported by legally sufficient consideration** 1. Accord and Satisfaction - unliquidated debts between creditor and debtor may be settled by the debtor offering to pay and creditor accepting less than creditor originally claimed -The accord is the agreement. In the accord, one party undertakes to give or perform, and the other to accept, in satisfaction of a claim, something other than that on which the parties originally agreed. Satisfaction is the performance (usually payment) that takes place after the accord is executed. A basic rule is that there can be no satisfaction unless there is first an accord. In addition, for accord and satisfaction to occur, the amount of the debt must be in dispute. **If a debt is liquidated, accord and satisfaction cannot take place. A liquidated debt is one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined. 2. Release - A release is a contract in which one party forfeits the right to pursue a legal claim against the other party. It bars any further recovery beyond the terms stated in the release. -3 requirements: a. good faith b. signed c. consideration is given 3. Covenant not to sue - an agreement to substitute a contractual obligation for some other type of legal action based on a valid claim -i.e Already, LLC v. Nike, LLC (US 2013)

Legality --> Contracts contrary to public policy

-an agreement which injures an established interest of society or which has a negative effect on society is void and will not be enforced 1. Contracts in Restraint of Trade a. if two or more parties enter into an agreement in which they exchange mutual promises not to compete with each other and their only objective is to restrict competition, the agreement is void because it is against a strong public policy favoring free, fair competition --> actions that interfere with free market competition b. Exception: 1) The covenant not to compete is ancillary (secondary) to an otherwise enforceable contract 2) reasonable based on time, geographic area, and scope --> geographic area depends on context and market (big metroplex? lots of small towns?) c. Example: Contract for the sale of big business 1) the seller of a business agrees not to open another competing store within the are of the store that he is selling 2) the reasonableness of an ancillary covenant not to compete is determined by the nature of the business, period of duration, and geographic area covered d. Example: Employment Contracts 1) a covenant that an employee will not start a competing business for a certain period after termination of employment 2)such covenant is legal so long as the time period and geographical areas restrictions are reasonable --> 1-2 years is often viewed as reasonable; when dealing with technology, time should be less than 6 months 3) California prohibits enforcement of non-compete agreements 4) Texas requires additional consideration in exchange for signing the non-compete agreement to be enforceable **can enforce a non-compete by injunction 2. Unconscionable Contracts or Clauses a. a contract may be unconscionable if a party who is receiving an unusually greater benefit has superior bargaining power (a "take it" or "leave it" situation) b. a contract may be unconscionable if it "shock the conscience" of the court 3. Exculpatory Clauses - statements in contracts that release a party from liability in the event of a monetary or physical injury no matter who is at fault a. often violate public policy: 1) employment contracts relieving employer of liability for employee's on-the-job injury 2) rental of commercial property 3) residential property leases b. exculpatory clauses are sometimes enforced if: 1) they are reasonable 2) do no violate public policy 3) do not protect parties from liability for intentional misconduct 4) language used in unambiguous 5) parties have relatively equal bargaining positions -i.e amusement parks, ski resorts, sky diving, etc.. 4. Discriminatory Contracts -Contracts in which a party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or disability are contrary to both statute and public policy. They are also unenforceable

Consideration --> Bargained-for Exchange

-the item of value must be given or promised by the promisor (offeror) in return for the promisee's promise, performance, or promise of performance -each side gets something out of the deal -two-way street... need to see both sides giving and both sides receiving (courts do not care if you get a good deal or not) **gifts are not contracts --> there is a lack of consideration bargained for -i.e Mom gives you $100

Consideration --> Legally Sufficient Consideration

-the promisee incurs a legal detriment (what you give up); -the promisor receives a legal benefit; or -both 1. A promisee can incur legal detriment in one of 2 ways a. by doing or promising to do something that he or she (the promisee) had no prior legal duty to do; or b. by refraining or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing 2. A legal benefit is received by a promisor if the promisor received something to which he or she is not entitled, but for the contract 3. It is not necessary that an economic of material loss be incurred by the promisee or an economic or material benefit be received by the promisor **Hamer v. Sidway (NY 1891)** LANDMARK CASE -during this time, there is no drinking, gambling, or smoking age; uncle says to 15 yr old nephew, if he lives righteously for 6 years, he will pay nephew $5000; after six years pass, uncle puts the money in an interest account for nephew; nephew begins living unrighteously and racks up gambling debt; nephew wants to tap into account to pay debts and assigns a creditor (Hamer); at the same time, uncle dies and Sidway takes up account; who actually has the right to the money in the account? Is there a contract for why the money is in the account? Did the uncle put money into account for nephew? money belongs to nephew (according to court) because he gave up the right to engage in legal activities in exchange for money; there is consideration; nephew gave up something and it meant something to his uncle; both sides give and receive something in return; valid contract

Consideration --> Promissory Estoppel (Detrimental Reliance)

-under this doctrine a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery -a court may enforce an otherwise unenforceable promise (like a promise without consideration) to avoid the injustice that would otherwise result. For the promissory estoppel doctrine to be applied, the following five elements are required: 1) Clear and definite promise 2) promisor expected the promisee to rely on the promise 3) promisee's reasonably relied on the promise by acting or refraining from some act 4) Promisee's reliance is definite and resulted in substantial detriment 5) enforcement of the promise is necessary to avoid injustice

Capacity --> Intoxicated Persons

1. A contract is voidable if: it was made by a person who was so intoxicated that his or her judgement was impaired and he or she did not comprehend the nature of the transaction and the legal consequences of entering into the contract a. if the contracting party understands the consequences of the contract, even if he or she is intoxicated, the contract will not be voidable b. the contract will be voidable if the other party to the contract fraudulently induced the person to become intoxicated 2. A contract may be disaffirmed while a person is intoxicated or within a reasonable time after he or she becomes sober a. restitution must be made b. an intoxicated person must pay the reasonable value for necessaries that were furnished -i.e at a party, women sells $1000 watch for $100; next day she sues, claiming that she knew of the watches value but was intoxicated; lady would have a good case based on timing and the fact that a reasonable person would not sell a $1000 watch for $100; it is not just a "good deal"

Agreement --> Definiteness of Terms

1. An offer must have reasonably definite terms so that a court can determine if a breach has occurred 2. In general, the following terms are required: a. identify the parties b. identify the subject matter of the contract c. consideration d. time of payment, delivery, or performance *these terms are usually enough for a valid offer 3. Courts are willing to supply missing reasonable terms when the parties have clearly manifested their intent to form a contract 4. But when the parties have tried to use a term, but the meaning is vague, courts will NOT supply a "reasonable" term in its place

Legality --> Contracts contrary to statue

1. Contracts to commit crimes (i.e selling drugs) a. agreements are void b. if the purpose/performance of the contract becomes illegal because of the enactment of a statue after the contract has been entered into, the parties are discharged from their obligation by operation of law - can have an illegal total contract or illegal part of a contract 2. Usury a. usury statues fix the maximum lawful contract rate of interest that can be charged for a loan of money. The rate varies from state to state, and over time - usually 10-12% b. execptions 1) if the borrower is a corporation 2) the borrower needs a small loan (less than $10,000) * both of these exceptions deal with risk 3. Gambling a. Gambling or wagering is defined as the creation of risk and distribution of property by chance among persons who have given consideration in order to participate b. In general, gambling contracts are illegal and thus void c. All states have statues that regulate gambling, but in few states, gambling is lawful **Gambling can still be seen in contracts because people have gambling debts **Casino gambling is illegal on Tx state land **If I rack up a debt in Oklahoma, the casino can't come sue me in Tx because gambling is illegal in Tx; however, they can sue me in Oklahoma using Long-Arm Jurisdiction 4. Licensing Statues **Enforceability is based on the statue: Revenue Raising v. Regulatory** a. all states have statues that require licenses to be obtained in order to engage in certain trades, professions, or business b. enforceability of contracts made by unlicensed persons 1) some statues expressly provide that contracts which are made by unlicensed persons are void and unenforceable 2) If the purpose of the statue is regulatory (to protect the public from unauthorized practitioners), contracts are void and unenforceable -i.e Regulatory = often doctors, attorneys, CPA's --> to become an attorney, one must graduate from an ABA law school, pass the BAR, have 15 hrs of continuous education per year, pay the state of Tx $200 3) If the purpose of a statue is merely revenue raising - to raise gov't revenue, contracts are enforceable

Capacity --> Mentally Incompetent Persons

1. Court Declared Mentally Incompetent Persons: If a person is declared judicially incompetent, and a guardian is appointed to represent him or her; contracts entered into by him or her are void 2. A person not so adjudicated can be considered mentally incompetent if his or her judgement is impaired because he or she cannot understand or comprehend the nature and effect of a particular transaction -i.e Black v. Duffie 3. A contract that is made by a person who is mentally incompetent (but has not been so adjudicated) is voidable by the mentally incompetent person while he or she is mentally incompetent, or within a reasonable time after regaining mental competency, or by his or her guarding or other representative, when one is appointed 4. Non-adjudicated Incompetent Persons can have lucid intervals where every contract formed is valid -A contract entered into by a mentally incompetent person may also be valid if the person had capacity at the time the contract was formed. Some people who are incompetent due to age or illness have lucid intervals—temporary periods of sufficient intelligence, judgment, and will. During such intervals, they will be considered to have legal capacity to enter into contracts 5. Ratification can occur after the incompetent period and during a lucid interval; or by a guardian 6. A contract for necessaries may be disaffirmed, but the mentally incompetent party is liable for the reasonable value of the necessaries furnished

E-Contracts --> E-Signatures

1. E-SIGN Act (Electronic Signatures in Global National Commerce Act 2000) a. No contract, record, or signature may be denied legal effect solely because it is in electric form b. parties must have agreed to use electronic signatures c. contract must be in a form that can be retained and reproduced d. Exceptions to applicability of E-SIGN Act: **These cannot be created electronically** 1) Court Papers 2) Divorce Decrees 3) Evictions 4) Foreclosures 5) Health insurance terminations 6) Prenuptial agreements 7) Wills e. E-SIGN Act says if a state adopted UETA without modification, the that state law stands; if state has modified UETA, then E-SIGN prevails if state law is inconsistent with it 2. The Uniform Electronic Transactions Act (UETA) of 1999 a. E-signature - "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record" b. Record - "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form" c. Applies only to electronic records and signatures "relating to a transaction"

Types of Contracts --> Executed v. Executory Contracts

1. Executed Contracts - when the contract is fully performed 2. Executory contracts - any point prior to a contract being fully performed

Agreement --> Acceptance

1. The offeree accepts the offer when the offeree unequivocally manifests his or her willingness and intention to assent to the terms of the offer 2. Acceptance must be unequivocal (Mirror Image Rule) -anything that is not unequivocal is either an inquiry or counteroffer 3. Silence as acceptance **The law recognizes actions** a. ordinarily, the offeree must exhibit his or her agreement to be bound with words or other overt conduct, so silence does not constitute acceptance b. Exceptions: -In some instances, however, the offeree does have a duty to speak, and her or his silence or inaction will operate as an acceptance. 1) the offeree accepts the benefit of the offered services or goods when the offeree had an opportunity to reject the offered services or goods and know that such services or goods were offered with the expectation of compensation; or 2)there was a similar prior course of dealings 4. Communication of Acceptance a. If a unilateral contract is contemplated, acceptance is affected when the performance is completed; notification of the acceptance is not necessary **A unilateral contract is a promise for an act; to accept contract, have to complete act b. If a bilateral contract is contemplated, acceptance is effective when the offeree gives the requisite promise **A bilateral contract is a promise for a promise; acceptance of contract when requisite promise is made 5. Mode and Timeliness of Acceptance in Bilateral Contracts a. An acceptance is timely if it is sent prior to the termination of the offer -"Mailbox Rule" --> refers to snail mail; used to put acceptances in the mail; proof of date of acceptance is the postmarked date by the post office b. Authorized means of acceptance 1) Express means of acceptance -have to follow offeror's orders 2) implied means of acceptance -offeree can accept by any reasonable means -often means the offeree can accept in the same method in which the offer was given or by any faster means i.e Offer is sent by mail; can accept by mail or any way that is faster c. Acceptance will not be effective until the acceptance is received by the offeror, IF acceptance is sent in a manner that is not expressly or impliedly authorized

Agreement --> Intention

1. The offeror must manifest his or her objective, serious intention to be bound by the terms of the offer LANDMARK CASE **Lucy v. Zehmer (Vir. 1954)** -Lucy and Zehmer have known each other for 15-20 years, and for the past 5-8 years, Lucy has been anxious to buy the Zehmer's family farm, also known as the Ferguson Farm. One night, the couples are having dinner together. While ther, Lucy tried to buy the Ferguson Farm once again. According to the trial court transcript, Lucy said to Zehmer, "I bet you wouldn't take $50,000 for that place." Zehmer replied, "Yes, I would too; you wouldn't give fifty." Throughout the evening, the conversation returned to the sale of the Ferguson Farm for $50,000. All the while, the men continued to drink whiskey and engage in light conversation. Eventually, Lucy enticed Zehmer to write up an agreement to the effect that the Zehmers would sell the Ferguson Farm to Lucy for $50,000. On a napkin, Zehmer wrote the price, title information, signatures, and etc. Later, Lucy began asking for a deed to the land, and Zehmer refued. Lucy sued Zehmer to compel him to go through with the sale. Zehmer argued that he had been drunk and that the offer had been made in jest and hence was unenforceable. The trial court agreed with Zehmer, and Lucy appealed. -Two main issues: 1. Was serious intent present? a. The court says Mr. Zehmer had serious intent b. What was going on in his head does not matter; it is subjective c. You can't really know what someone was thinking, so we look at writing and at words 2. The parties were drinking a. Did Zehmer have the capacity to make the contract? -DECISION --> The Supreme Court of Appeals of Virginia determined that the writing was an enforceable contract and reversed the ruling of the lower court. The Zehmers were required by court order to follow through with the sale of the Ferguson Farm to the Lucys.

Types of Contracts --> Enforceable v. Unenforceable Contracts

1. Valid Contract - all elements that are necessary to form a contract are present (agreement, consideration, contractual capacity, and legality) a. Valid contracts can be enforceable or uneforceable b. An unenforceable contract is one that cannot be enforced because of certain legal defenses against it. It is not unenforceable because a party failed to satisfy a legal requirement of the contract. Rather, it is a valid contract rendered unenforceable by some statute or law. For instance, certain contracts must be in writing, and if they are not, they will not be enforceable except in certain exceptional circumstances. 2. Voidable Contract a. A valid contract exists but one or more of the parties has the option of avoiding his or her contractual obligation b. the party with the option can elect to void the contract or ratify it *minors have the right to change their mind until they are no longer a minor 3. Void Contract a. agreement has no legal effect and is not really a contract b. no legal obligation exists on the part of either party *can have a court-ordered void contract

Agreement --> Intention

2. Situations where intent may be lacking a. expression of opinion - an expression of opinion is not an offer; it does not indicate an intention to enter into a binding agreement b. statements of intention to make an offer in the future - a statement of intention to do something in the future is not an offer c. preliminary negotiations, requests to negotiate - a request or invitation to negotiate is not an offer; it only expresses a willingness to discuss the possibility of entering into a contract -i.e "Will you sell your farm?" d. Invitations to bid - when a government entity or private firm needs to have construction work done, contractors are invited to submit bids. The invitation to submit bids is not an offer. The bids that contractors submit are offers, however, making the contractors the offerors. The government entity or private firm can then bind the contractor by accepting the bid. e. advertisements, catalogues, circulars, and price lists - are only invitations to get into the store and negotiate f. live and online auctions **buyer is the offeror in these scenarios** -In a live auction, a seller "offers" goods for sale through an auctioneer, but this is not an offer to form a contract. Rather, it is an invitation asking bidders to submit offers. In the context of an auction, a bidder is the offeror, and the auctioneer is the offeree. The offer is accepted when the auctioneer strikes the hammer.

Agreement --> Intention

3. Agreements to Agree and Preliminary Agreements a. Agreements to agree may be valid enforceable agreements (contracts) if it is clear that the parties intended to be bound by the agreements. In other words, the emphasis is on the parties' intent rather than on form. b. A preliminary agreement can constitute a binding contract if the parties have agreed on all essential terms and no disputed issues remain to be resolved. In contrast, if the parties agree on certain major terms but leave other terms open for further negotiation, a preliminary agreement is not binding. The parties are bound only in the sense that they have committed themselves to negotiate the undecided terms in good faith in an effort to reach a final agreement.

Elements of a Valid Contract

A. 4 Requirements of a Valid Contract ***Need ALL 4 elements to have validity*** 1. Agreement - the mutual assent and agreement of the parties must be evidenced by an offer and an acceptance 2. Consideration - legally sufficient and bargained-for consideration must be exchanged for contractual promises 3. Contractual Capacity - each party to the contract must be recognized as being legally competent to enter into contracts --> If the party is an adult, capacity is assumed 4. Legality - the purpose and subject matter of the contract must not be contrary to law or public policy B. Defenses to Enforceability of a Contract **Even if the contract is valid** 1. Voluntary Consent - consent must be voluntary and not based on mistake, fraud, undue influence, or duress 2. Form - some contracts must be in writing and signed by the party being sued

The Function of Contract Law

A. Contracts create expectations as to how parties to agreements will conduct themselves in the future B. If a party to a valid contract does not carry out a promise, a court will enforce the contract and provide some form of relief or remedy to the non-breaching party C. Contract law provides stability and predictability and is the foundation upon which more specialized areas of law are built D. 2 Main Sources of Contract Law - ch. 12 and 13 teach the common law rules relevant to contract formation, performance, breach and remedies

Form - The writing requirement

A. In order to be enforceable, some contractual promises must comply with the Statue of Frauds (designed to help prevent fraud): 1) must be evidenced by a writing; and 2) signed by the party against whom the promises are being enforced (or their authorized agent) --> signed by the defense side of the case B. Contracts the "fall under" or "fall within" the Statue of Frauds: 1. Contracts involving interests of land a. real property includes land and things permanently attached to the land -i.e Mortgages b. other interests in land include mineral interests (oil, gas, etc...), access rights to land (easements) -i.e leases (in Tx, 30 day month-to-month arrangement) 2. The "one-year" rule - contracts that cannot by their terms be performed within one year are under the statue of frauds (need to be in writing) a. possibility of performance --> if there is a slight chance that it can be completed within a year, not under the Statue of Frauds; "not about probability it is about possibility" b. even if performance actually takes more than one year, an oral contract is enforceable as long as performance was possible within one year 3. Collateral Promises a. Definition: secondary promises to answer for the debt or duty of another b. promise must be made director to the creditor to be a collateral promise --> not collateral if third party makes promise to debtor c. i.e Gurantor on a lease; promises by the administrator or executor of an estate to pay a debt of the estate personally—that is, out of her or his own pocket. 4. Promises Made in Consideration of Marriage - unilateral promises to pay money or give property in exchange for promises to marry (prenuptial Agreements) --> helps preserve assets, often seen in second marriages -normally, when you get married, assets are split 50-50; if divorced, assets are split; Prenuptial agreements protect against this 5. Under the uniform Commercial Code, contracts for the sale of goods for a price of $500 or more C. Exceptions to the writing requirements of the statue of frauds: 1. Partial Performance - court can see a party performing a contract, just not following proper form 2. Admission - get party to admit a contract was formed

Capacity --> Minors

A. Minors - chronologically children under the age of 18 and not emancipated -Emancipation: the act of removing minority status and is prescribed by statues (i.e getting married before 18) **Minors can enter into any contract an adult can enter into, as long as it is not against the law for the minor -i.e Alcohol, firearms, etc.. -While a minor, parents have rights to earnings, control, etc 1. General Rule - Parents are generally NOT liable for breaches of contracts entered into by a minor and NOT liable for torts committed by the minor, either 2. Minors have the right to disaffirm a. disaffirmance in general --> words or conduct can be used by minor to express intent not to be bound --> minors may disaffirm contracts during minority and for a reasonable period of time after attaining the age of majority --> a minor who is exercising his or her right of disaffirmance must disaffirm the entire contract --> the contract is voidable by the minor, but not by the adult b. Minor's obligation on disaffirmance --> generally, if a minor disaffirms, each party must make restitution by returning the consideration received from the other party --> Majority of states (including Tx) say minor must only return goods that are in minor's possession or control. Even if goods are damaged, minor still has right to disaffirm. -i.e Car dealership sells new car to minor; minor drives car for a year and gets in a wreck; minor can go back to car dealership, disaffirm, and get their money back --> Minority States (including Tennessee) say if goods are damaged, the minor is required to compensate adult with a "reasonable" amount -i.e Same car dealership example; minor does not get all money back; only gets back money that does not go towards repairing damages *What if the minor misrepresented their age? -doesn't matter... can still get all of their money back -adult may try to sue over fraud *What if the minor bought "necessaries" like food? -necessities --> clothing, food, shelter, EMS -minor does not get money back; can't disaffirm -insurance is not a necessary

Objective Theory of Contracts

A. The apparent intention of a party to enter into a contract is determined by the objective, outward manifestation of his or her assent as it would be interpreted by a reasonable person B. Judge the apparent intention of the parties to the contract by objective factors, including: 1. Words --> spoken or written words 2. Actions --> how the parties act or appear 3. Circumstances

Agreement --> Requirements of the Offer

To have a serious offer there must be: 1. Serious intent by the offeror 2. reasonably certain and definite terms 3. communication *These terms need to be reasonably believable by the offeree