Business Law Chapter 11
E- contract
A contract that is formed electronically Must meet the same basic requirements to be a valid contract Seller/ licensor usually sets the terms Clicking is effective as an acceptance Unread terms are binding
Option Contract
A contract under which the offeror cannot revoke the offer for an agreed upon time period because the offeree has given consideration for the offer to remain open Frequently occurs in real estate transactions
Agreement
A mutual understanding or meetings of the minds between two or more parties regarding the terms of a contract Essential element for contract formation Evidenced by two events: offer and acceptance
Counteroffer
A rejection of the original offer and the simultaneous making of a new offer
Partnering Agreement
Agreement between a seller and a buyer who frequently do business with each other whereby they agree in advance on the terms and conditions that will apply to all future electronic transactions The agreement is comparable to a master agreement involving traditional transactions
Shrink-Wrap Agreement
Agreement whose terms are included inside a box in which goods are packaged (shrink-wrap refers to the plastic that covers the box) Agreement is between the manufacturer and end-user/ consumer A recipient who opens the box is told that she or he agrees to the terms by keeping the product which came in the box Ex: Box in which iMac comes to your home Similarly, when the purchaser opens a software package, she or he agrees to abide by the terms of the limited license agreement
Click-on Agreements
An agreement that results when an online buyer clicks on "I agree" or otherwise indicates asset to be bound by the terms of an offer Acceptance can be communicated via conduct Common law does not require parties to have read all of the terms in a contract for it to be effective
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 Include encrypted digital signatures, names at the ends of e-mail messages, and clicks on a web page if the click includes the identification of the person
What is NOT an offer
Anger: "This car is a piece of junk, I'd take $500 to get rid of it" Drunk person: "I'll give you my car for another beer" Statement of future intent: " I PLAN to sell my stock in IBM for $150 per share" Preliminary negotiations: "Would you sell your property" "No, I wouldn't sell my property for less than $1 million" Advertisements (online or print): treated as invitations to negotiate, not offers, in most cases because they are not definite enough
Ways to avoid potential legal disputes
Be cautious when drafting a memorandum that outlines a preliminary agreement or understanding with another party If all the major terms are included, a court might hold that the agreement is binding even though you intended it only to be a tentative agreement
Mailbox Rule
Common law rule that acceptance takes effort (and thus completes the formation of the contract) at the time the offeree sends or delivers the acceptance via the communication mode expressly or impliedly authorized by the offeror Must comply with the stipulated method of sending notices
E-Sign Act and Uniform Electronic Transactions Act
Most states have laws governing e-signatures and other aspects of electronic transactions but they differ In 1999, UETA promulgated and adopted, at least in part, by 48 states In 2000, Congress enacted the electronic signatures in global and national commerce act (E-Sign act) An electronic signature is valid as long as parties agreed to e-signatures E-contract can be enforces Does not apply to some types of documents including Divorces, evictions, forclosures, wills, etc. Significantly expanded contracting online and electronically
Irrevocable offer
Offer that cannot be easily revoked by the offeror Increasingly courts refuse to allow the revocation of an offer by the offeror if the offeree has changed position because of justifiable reliance on the offer Ex: Company takes out financing to fund the purchase
Summary re. Timing
Offer- when received Acceptance- when sent (mailbox rule, effective even if lost in the mail) Rejection- when received Revocation- when received
Termination by operation of law
Offeree's ability to accept offer can be terminated by operation of law through the occurrence of any of the following events: Lapse of time: Expiration of time period specified in the offer or a reasonable period of time (if not specified) Destruction of the specific subject matter of the offer Death or incompetence of the offeror or the offeree A statue or court decision that makes an offer illegal automatically terminates the offer
Mirror Image Rule
Offeree's acceptance of the offer must match the offeror's offer exactly If the acceptance materially changes or adds to the terms of the original offer, it will not be considered an acceptance --> it will be considered a counteroffer
Termination of the offer
Once an offer is made by offeror, the offer has the power to transform it into a binding, legal agreement if he or she accepts the offer- but an offer does not last forever
Kelly tells Matthew that she will sell him one of her motorcycles at some time in the future. Matthew eagerly accepts. Do they have a valid contract?
Probably not, because the terms are not definite The terms are not definite. Kelly has not clarified which motorcycle she will sell, nor has she set a price. Without those terms, a court probably would find that there is no contract.
Offer
Promise or commitment to perform or refrain from performing some specific act in the future Three elements are necessary for an offer to be effective: 1. Intention 2. Definiteness 3. Communication
Termination by action of the OFEREE
Rejection of the offer by offer's words or conduct Acquiring about an offer ("is that your best offer?") is not a rejection A subsequent attempt by offered to accept the offer is treated as a new offer
Ryan sends Michael a letter of intent for the purchase of a tract of land. The letter of intent outlines the purchase price, the legal description, and the financing terms. A paragraph is included that states that the letter of intent is a non-binding agreement, and is an offer to enter into negotiations.
The letter of intent is an invitation to negotiate, which is not an offer.
Offer: Communication
The offer must be communicated to the offeree
Offer: Definiteness
The terms of the offer must be reasonably certain, or definite so that the parties and the court can ascertain the terms of the contract and identify: The parties The object or subject matter of the contract (and quantity, when appropriate), including the work to be performed The consideration to be paid The time of payment, delivery, or performance
Acceptance
The voluntary act by the offer that shows assent (or agreement with) the terms of the offer Can be communicated in words or by conduct (in some limited cases, silence can be deemed an acceptance Must be unequivocal (mirror image rule: no conditions for acceptance permitted, otherwise it will be treated as a counteroffer) Ex: "I accept if you do this..." is NOT equivocal Must be communicated to the offeror by offeree or offeree's agent before offer is terminated
Offer: Intention
There must be a SERIOUS, objective intention by the offeror Determined based on what a reasonable person in the offeree's position would conclude the offeror's words and actions meant Not determined by the subjective beliefs of the offeror Offers made in obvious anger, jest, or undue excitement do not meet this requirement
Revocation
Withdrawal of an offer by the efferor Unless the offer is irrevocable, the offeror can revoke at any time Offeror needs to communicate the revocation either by words or actions Offeror can communicate revocation via an agent Typically becomes effective when offeree receives it
McKenna offers to sell Lori her collection of hand-painted European tiles. Before Lori has a chance to accept, McKenna says, "Sorry, I changed my mind. I'm not going to sell the tiles." McKenna has just made:
a revocation. McKenna revoked (took back) her offer. Since she did so before it was accepted, the offer was effectively terminated.
Diana tells Crystal, "I think I'll sell that camping gear I bought for hiking the Pacific Trail for $250. I'm never going to make that trip." This constitutes:
a statement of future intent. This is a statement of future intent. The wording chosen by Diana expresses only her reasoning and intention; it lacks the definiteness required to make it an offer.
Sarah tells Jake that she is thinking about buying a car. Jake replies that he would like to sell Sarah one of his cars in a few weeks for a really good price. Jake has made:
a statement that is not a valid offer for lack of definiteness. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy. Jake's terms are too indefinite to constitute a valid offer.
Kristin contracts with Jacob to buy a car through an online auction service. All of their negotiations and transactions are conducted electronically. None of their communications ever mention the Uniform Electronic Transactions Act (UETA), which was adopted by their state in its entirety in 2001. Their contract is:
automatically covered by the UETA The parties' agreement to conduct business electronically can be implied from their conduct. Because Kristin and Jacob clearly agreed to electronic transactions and did not expressly opt out of the UETA's provisions, their contract is automatically covered by the UETA.
RexCo and Wilkinson Motors agree to contract online. Both companies agree to an encryption security procedure to verify changes in electronic documents and correct errors. RexCo sends a message to Wilkinson Motors that contains an error, because RexCo's information-processing system erroneously changed the language of the document. Wilkinson Motors will:
be able to avoid the effect of the error. If two parties have agreed to a security procedure and one party does not detect an error because he or she did not follow the procedure, the conforming party can legally avoid the effect of the change or error.
To download software for his Internet connection, Nelson had to click on several boxes on the Web site that stated "I agree" or "I accept." Nelson did not read the accompanying text before clicking on the boxes. In the event of a dispute between Nelson and the service provider, the contract terms will:
be considered the terms of a binding contract. There is no requirement that the parties to a contract must read all of the terms for the terms to be enforceable. A court will likely find that Nelson agreed to the contract terms when he clicked on the boxes.
Exilware designs software, which it frequently sells to Avertron, the maker of hardware systems. Exilware is in New Hampshire, and Avertron is in Arizona. Because the companies often conduct business via the Internet, they have formed a partnering agreement. When a dispute arises over a delivery date, the court will probably:
look to the terms of the partnering agreement to determine the parties' intent. Because the parties freely entered into and negotiated their partnering agreement, the court will give it great weight when settling a dispute over contract terms.
The doctrine that prevents an offeror from revoking an offer once the offeree has justifiably relied to his detriment or has begun performance is known as:
promissory estoppel. Promissory estoppel is an equitable doctrine allowing a court to estop (bar) an offeror from revoking an offer if an offeree has begun performance or has otherwise detrimentally relied on the offer.
KJ Games, in Colorado, designs computer games that it markets and sells to customers via the Internet. A click-on agreement accompanies every download; no game can be installed on a buyer's computer if the buyer does not click on the words "I agree" when prompted. The click-on agreement clearly states in capital letters that all disputes will be settled in Colorado's state courts. Buyers of KJ's games are most likely:
required to file any lawsuits in Colorado. Buyers of KJ's games will most likely be required to file any lawsuits they might have in Colorado. The contract clearly specifies that Colorado courts will resolve any disputes that arise under the contract; this is a forum-selection clause. Generally, forum-selection clauses are enforced, even though they may impose a burden on buyers.
Philip receives a mail-order catalogue featuring a new style of water shoes that look perfect for river kayaking. He calls to order a pair and is told that the shoes are sold out. Philip can now:
try somewhere else; the catalogue did not make an effective offer. Philip must look elsewhere for the shoes. The catalogue listing, like any advertisement, was an invitation to negotiate, not a valid offer, because the catalogue company has no way of knowing who will read the listing. Philip's attempt to order the shoes was an offer. Since the company has no more shoes, it is free to refuse the offer.
Expect Big Things Company and ABC Data are in a state that has enacted a modified version of the Uniform Electronic Transaction Act (UETA). The act passed by their state contains a procedure for the acceptance of electronic signatures that differs slightly from the one provided by the federal Electronic Signatures in Global and National Commerce (E-SIGN) Act. If the two companies form an e-contract using an e-signature procedure that complies with the state's version of UETA, their signatures will be
valid only if the state's procedures are consistent with the E-SIGN Act, and the state's law does not give greater legal effect to one type of technology. The E-SIGN Act provides that if a state has enacted the uniform version of the UETA (without modification), the state's law will not be preempted. If the state has enacted a modified version of the UETA, the E-SIGN Act will not preempt the state's law if the state's procedures and requirements are consistent with the provisions of the E-SIGN Act, and if the state does not give greater legal effect to one type of technology.
Chloe buys a product from Good Times, Inc., that includes a shrink-wrap agreement. After using the product, she decides it is defective and sues Good Times. If the court determines that Chloe learned of the shrink-wrap terms after the contract was finalized, it may conclude that the terms were proposals for additional terms, which then:
were not a part of the contract unless Chloe expressly agreed to them If a court finds that Chloe learned of the shrink-wrap terms after the parties entered into their contract, the additional terms will not be considered part of the contract unless Chloe expressly agreed to them.