Ch 10: The Formation of Traditional and E-Contracts

Federal Law on 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."22 Act)23 The Electronic Signatures in Global and National Commerce Act (E-SIGN provides that no contract, record, or signature may be "denied legal effect" solely because it is in electronic form. In other words, under this law, an e-signature is as valid as a signature on paper, and an e-document can be as enforceable as a paper one. For an e-signature to be enforceable, the contracting parties must have agreed to use electronic signatures. For an electronic document to be valid, it must be in a form that can be retained and accurately reproduced. The E-SIGN Act does not apply to all types of documents. Contracts and documents that Many e-signatures are legally binding. are exempt include court papers, divorce decrees, evictions, foreclosures, health insurance terminations, prenuptial agreements, and wills.

Unilateral Contracts

- A promise for an act - A contract that results when an offer can be accepted only by the offeree's performance - The Author's name presented but don't accept the offer by promising, but accepted by doing it. Once you start, you create the contract - Only after they complete the act, no legal consequences if not accepting the offer

Unenforceable Contract

- A valid contract rendered unenforceable by some statute or law - Has certain legal defenses against it - 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 - Certain contracts are in in writing and if they are not, they will be not enforceable expect in certain exceptional circumstances

Silence as Acceptance

- An offeree should not be obligated to act affirmatively to reject an offer when no consideration (nothing of value) has passed to the offeree to impose such a duty In some instances, however, the offeree does have a duty to speak, and her or his silence or inaction will operate as an acceptance

Statute of Frauds

- Contracts identified in a statute must have some writing to evidence the contract or w/out the writing the contract is unenforceable - Not enforceable unless evidence is signed or electronically signed - Sale of real property, transfer of property - Contract by its terms cannot be performed in less than year, if it may be performed

Rejection

- If the offeree rejects the offer—by words or by conduct—the offer is terminated. Any subsequent attempt by the offeree to accept will be construed as a new offer, giving the original offeror (now the offeree) the power of acceptance. - Rejection is effective only when it is actually received by the offeror or the offeror's agent

Objective Theory of Contracts

- Obligation interpreted by how others would interpret your actions - An agreement between parties is legally binding if, in the opinion of a reasonable person who is not a party to the contract, an offer has been made and accepted - A theory under which the intent to form a contract will be judged by outward, objective facts as interpreted by a reasonable person, rather than by the parties own subjective intentions Intent judged by: 1. What party said when entering contract 2. How party acted or appeared 3. Circumstances surrounding transaction

Bilateral Contracts

- Promising to do something for each other - Executory, unfinished - A promise for a promise. Type of contract that arises when a promise is given in exchange for a promise

Formal Contracts

- Requires a special form for creation - An agreement that by law requires a specific form for its validity

Informal Contracts

- Requires no special form for creation - A contract that does not require a specific form or method of creation to be valid

Termination of the Offer

- Revocation - Irrevocable Offers - Rejection - Counteroffer (a rejection of the original offer)

Dispute-Settlement Provisions

. Many online contracts also contain a forum-selection clause indicating the forum, or location (such as a court or jurisdiction), in which contract disputes will be resolved. In addition, some online contracts include a choice-of-law clause, specifying that any contract dispute will be settled according to the law of a particular jurisdiction, such as a state or country.

Requirements of a Valid Contract

1. Agreement - Includes OFFER & ACCEPTANCE - One party must offer to enter into a legal agreement and another party must accept the terms of the offer - Definitive expression of commitment - Stated, definitive and communicative to the other party - Offeror - Person making the offer - Offeree - Person considering the offer 2. Consideration - Any promises made by the parties to the contract must be supported by legally sufficient and bargained for consideration (something of value received or promised, such as money, to convince a person to make a deal) - If a consideration involves a worthless item or a misleading promise, it is inadequate 3. Contractual Capacity - Need to have the legal capacity - Know what you're doing - Both parties entering into the contract must have the contractual capacity to do so. - The law must recognize them as possessing characteristics that qualify them as competent parties 4. Legality - Cannot do anything illegal - The contract's purpose must be to accomplish some goal that is legal and not against public policy

Voidable Contracts

1. Minors able to end contracts, adults not Minors lacking capacity 2. Mentally incompetent persons, and intoxicated persons 3. Contracts entered into under duress, fraudulent conditions, or undue influence are voidable 4. A contract that may be legally avoided at the option of oe or both of the parties 5. The party having the option can elect either to avoid any duty to perform or ratify (make valid) the contract

Defenses to the Enforceability of a Contract

1. Voluntary consent - The consent of both parties must be voluntary. For instance, if a contract was formed as a result of fraud, undue influence, mistake, or duress, the contract may not be enforceable 2. Form - Statute of Frauds - The contract must be in whatever form the law requires. Under state laws collectively known as the Statute of Frauds, for instance, certain contracts must be in writing to be enforceable. (An electronic record will qualify as a writing) The writing must be signed by the party against whom enforcement is sought. Contracts involving interests in land, for example, typically are not enforceable without written evidence - A state statute under which certain types of contracts must be in writing to be enforceable

Firm offer

A binding written offer to buy or sell that cannot be revoked for a stipulated period of time or for a reasonable time that in no event exceeds three months Offerree paid fee to keep the offer open Party makes an offer, other parts makes a ch

Exculpatory Clause

A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault

Void Contracts

A contract having no legal force or binding effect Void contract is no contract at all Terms void and contract are contradictory No legal obligation Contract can be void because the purpose of the contract was illegal

express contract

A contract in which the terms of the agreement are fully and explicitly stated in words, oral or written.

Unconscionable Contracts or Clauses

A contract or clause that is void on the basis of public policy b'cuz one party was forced to accept terms that are unfairly burdensome and that unfairly benefit the stronger party Can be unconscionable on either procedural or substantive grounds Procedural unconscionability often involves inconspicuous print, unintelligible language (legalese) or the lack of an opportunity to read the contract or ask questions about its meaning. Substantive unconscionability occurs when contracts, or portions of contract are oppressive or overly harsh

Executed contract

A contract that has been fully performed by both parties

Executory contract

A contract that has not yet been fully performed

Valid Contract

A contract that results when elements necessary for contract formation (agreement, consideration, legal purpose, and contractual capacity) are present.

Usury

A lender who makes a loan at an interest rate above the lawful maximum commits usury Usurious contracts are illegal, most states simply limit the interest that the lender may collect on the contract to the lawful maximum interest rate in that state. Some states lender can recover amount of the loan but no interest Many states exempt corporate loans from the usury laws, and nearly all states allow higher interest rate loans for borrowers who could not otherwise obtain funds

Authorized Means of Acceptance

A means of communicating acceptance can be expressly authorized by the offeror or impliedly authorized by the facts and circumstances of the situation Not effective until received b the offeror Not accepted until offeree uses that specified mode of acceptance Courts can determine whether the mode of acceptance used was reasonable

Agreement

A mutual understanding or meeting of the minds between two or more individuals regarding the terms of a contract An offer and acceptance If elements of a contract (consideration, capacity and legality are present, a valid contract is formed)

Death or Incompetence of the Offeror or Offeree

A offeree's power of acceptance is also terminated when the offeror or offeree dies or is legally incapacitated, unless the offer is irrevocable. This rule applies whether or not the other party had notice of the death or incompetence

Counteroffer

A offeree's response to an offer in which the offeree rejects the original offer and at the same time makes a new offer A rejection of the original offer and the simultaneous making of a new offer Mirror image rule - Common law rule that requires the terms of the offeree's acceptance to exactly match the terms of the offeror's offer for a valid contract to be formed

rescission

A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made.

Supervising Illegality. of Proposed Contract

A statute or court decision that makes an offer illegal automatically terminates the offer. If offer is enacted after Kim accepts the offer, a valid contract is formed, but the contract may still be unenforceable

Contract

Agreement that can be enforced in court A set of promises constituting an agreement between parties, giving each a legal duty to the other and the right to seek a remedy for the breach of the promise or duties

Licensing Statutes

All states require members of certain professions-including physicians, lawyers, real estate brokers, accountants, architects, electricians and stockbrokers—to have licenses. Some obtained only after extensive schooling and examinations, which indicate to the public that a special skill has been acquired Whether contract w/ unlicensed person is legal and enforceable depends on the purpose of the licensing statute If the statute's purpose is to protect the public from unauthorized practitioners (such as unlicensed architects, attorneys, and electricians)

Unequivocal acceptance

An acceptance may be unequivocal even though the offeree expresses dissatisfaction w/ the contract "I accept the offer, but can you give me a better price?" is an effective acceptance - Acceptance cannot impose new conditions or change the terms of the original offer. If it does, the acceptance may be considered a counteroffer, which is a rejection of the original offer. For instance, the statement "I accept the offer but only if I can pay on ninety days' credit" is a counteroffer and not an unequivocal acceptance."

Minors

An adult who enters into a contract with a minor cannot avoid his or her contractual duties on the ground that the minor can do so. Unless the minor exercises the option to disaffirm the contract Disaffirmance To disaffirm, a minor must express his or her intent, through words or conduct not to be bound to the contract Intoxication Condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug

Shrink-Wrap Agreements

An agreement whose terms are expressed in a document located inside a box in which goods (usually software) are packaged Party who opens the box automatically accepts the terms by keeping whatever is in the box Purchaser agrees to abide by the terms of the limited license agreement Not between retailer and buyers but the manufacturer of the hardware or software and the ultimate buyer-useer of the product

Provisions to Include

An important rule to keep in mind is that the offeror (the seller) controls the offer and thus the resulting contract. The seller should therefore anticipate any desired contractual terms and provide for them in the offer. At a minimum, an online offer should include the following provisions: 1. Acceptance of terms. A clause that clearly indicates what constitutes the buyer's agreement to the terms of the offer, such as a box containing the words "I accept" that the buyer can click. 2. Payment. A provision specifying how payment for the goods (including any applicable taxes) must be made. 3. Return policy. A statement of the seller's refund and return policies. Disclaimer. Disclaimers of liability for certain uses of the goods. For instance, an online seller of business forms may add a disclaimer that the seller does not accept responsibility for the buyer's reliance on the forms rather than on an attorney's advice. 5. Limitation on remedies. A provision specifying the remedies available to the buyer if the goods are found to be defective or if the contract is otherwise breached. Any limitation of remedies should be clearly spelled out. 6. Privacy policy. A statement indicating how the seller will use the information gathered about the buyer. 7. Dispute resolution. Provisions relating to dispute settlement.

Termination by Operation of Law

An offer can be terminated by action of the parties in any of the three ways by revocation, by rejection or by counteroffer

Requirements of the Offer

An offer is a promise or commitment to do or refrain from doing some specified action in the future Three Elements for Effective offer 1. The offeror must have a serious intention to become bound by the offer 2. The terms of the offered must be reasonably certain or definite, so that the parties and the court can ascertain the terms of the contract 3. The offer must be communicated to the offeree intention

destruction of specific subject matter of offer

An offer is automatically terminated if the specific subject matter of the oferm(such as a car or house) is destroyed before the offer is accepted

Lapse of time termination

An offer terminates automatically by law when the period of time specified in the offer has passed. If the offer states that it will be left open until June 3, then the offer will terminate at midnight on that day. If the offer states that it will be open for a number of days, this time period normally begins to rn when the offeree receives the offer (not when it is formed or sent) If offer does not specify a time for acceptance, the offer terminates

Shrink-Wrap Agreements and Enforceable Contract Terms

By including the terms w/ the product, the seller proposed a contract They buyer could accept this contract by using the product after having an opportunity to read the terms Buyers failure to object to terms contained within a shrink wrapped software package may constitute an acceptance of the terms by conduct

Mental incompetence

Contracts made by mentally incompetent persons can be void, voidable or valid Only a guardian appointed by the court to represent a mentally incompetent person can enter into binding legal obligations on that person's behalf If a court has not previously judged a person to be mentally incompetent but the person was incompetent all the time the contract was formed, the contract may be voidable Voidable in majority of states if person was unaware of entering into the contract or lacked the mental capacity to comprehend its nature, purpose and consequences

Contracts Contrary to Statute

Contracts to Commit a Crime Any contract to commit a crime is in violation of a statute Selling illegal drugs in violation of criminal laws is unenforceable, as is a contract to cover up a corporation's violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act Sometimes rendered illegal by a statute after the parties entered into the contract. In that situation, the contract is considered to be discharged by law

Contracts Contrary to Public Policy

Contrats to public policy are contracts involving private parties that can have a negative impact on society Contracts to commit immoral act, such as selling a child, and a contract that prohibits marriage. We look here at certain types of business contracts that are often found to be against public policy

When Courts Will Enforce Exculpatory Clauses

Courts do enforce exculpatory clauses if they are reasonable, do not violate public policy, and do not protect parties from liability for inten-tional misconduct. The language used must not be ambiguous, and the parties must have been in relatively equal bargaining positions. S

Reformation

Courts will reform covenants not to compete. If a covenant is found to unreasonable in time or geographic area, the court may convert the terms into reasonable ones and then enforce the reformed covenant Such court actions present a problem, though, in that the judge implicitly becomes a party to the contract Courts usually resort to contract reformation only when necessary to prevent undue burden or hardships

Enforcement Problems

Covenants can be reasonable but some states require employees to receive benefits or be deemed void

Legality

For a contract to be valid and enforceable, must be formed for a legal purpose. Illegal if contract make someone do something that is prohibited by federal or state statutory law Contract to commit a tortious act—such as an agreement to engage in fraudulent misrepresentation is contrary to public policy and therefore illegal and unenforceable

Implied Contract

Formed by the conduct of the parties A contract formed in whole or in part from the conduct of the parties Showed the existence of the contract not by what we said but what we did Acts 1. The plaintiff furnished some service or property 2. The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected 3. The defendant had a chance to reject the services or property and did not

Express Contract

Formed by words Express contract A contract in which the terms of the agreement are stated in words, oral or written A signed lease for an apartment or a house is an express written contract

The Uniform Commercial Code Act (UCC)

Handles commercial transactions, sale and lease of goods. Law for commercial transactions are the problems of the states. Deals and regulates transactions. Rules and commercial code aren't as strict as common laws ARTICLE 2 - SALE OF GOODS (BUYING PRODUCTS) - Merchant - Someone whose in business and knows about it.

Parol Evidence Rule

If it looks like the parties agreed and intend that the document contains all the terms, won't look at evidence outside the document Bars extrinsic evidence, including prior or contemporaneous oral agreements and prior or contemporaneous written agreements Exception: Up to the time the document was created. If later something happened court might look at it Equal dignity rule

Illusory promises

If terms of a 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

Mailbox rule

If the acceptance is communicative to the offeror, either noncompliance with instructions in the offer or if there are no instructions it's communicated the same way the author was communicated. If you do that contract is created when communication has started Common law rule that acceptance takes effect, and thus a contract is formed, at the time the offeree sends or delivers the acceptance using the communication mode expressly or impliedly authorized by the offeror Under this rule, if the authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched (placed in control of the US Postal Service)--not when it is received by the offeror. (note, however, that if the offer stipulates when acceptance will be effective, then the offer will not be effective until the time specified) Rule does not apply to instantaneous forms of communication such as when the parties are dealing face-to-face, by telephone, by text, by video conferencing, or by email.

Exculpatory Clauses Often Violate Public Policy

Most courts view exculpatory clauses with disfavor. Exculpatory clauses found in rental agreements for commercial property are frequently held to be contrary to public policy, and such clauses are almost always unen-forceable in residential property leases. Courts also usually hold that exculpatory clauses are against public policy in the employment contex

Irrevocable Offers

Offers that cannot be withdrawn by the offeror; include offers in the form of an option contract, offers that the offeree partly performed or detrimentally relied on, and firm offers by a merchant under the Uniform Commercial Code.

Agreements That Lack Consideration

Parties promises or actions do not qualify as contractual consideration

Contractual Capacity

Parties to the contract must have contractual capacity—the legal ability to enter into a contractual relationship. Courts generally presume the existence of contractual capacity, but in some situation capacity may be lacking or questionable

Promissory estopple

Person making the offer needs to know that there was a change in position of the offeree in reliance of the author Promise was stopped

Past consideration

Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain Promises made in the past are enforceable Lack consideration in that the element of bargained for exchange is missing Now and in the future but not the past

Legally Sufficient Value

Something of value in the eyes of the law The "something of legally sufficient value" may consist of the following A promise to do something that one has no prior legal duty to do The performance of an action that one is otherwise not obligated to undertake The refraining from an action that one has a legal right to undertake (called a forbearance) Bilateral contract example Seller promises to ship specific goods to the buyer and the buyer promises to pay for those goods. Each of these promises constitutes consideration for the contract Unilateral contract example A promise in return for a performance. "When you finish painting the garage, I will pay you $800." Anita's neighbor paints the garage. The act of painting the garage is the consideration that creates Anita's contractual obligation to pay her neighbor $800 Bargained-for Exchange The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties Items of value must be given or promised by the promisor (offeror) in return for the promisee's primsie, performance or promise of performance

Shrink-Wrap Terms That May Not Be Enforced

Sometimes courts have refused to enforce certain terms in shrinkwrap cuz buyer did not expressly consent to them If a buyer orders a product over the telephone, for instance, and is not informed of an arbitration clause or a forum-selection clause at that time, the buyer clearly has not expressly agreed to these terms. If the buyer discovers the clauses after the contract has been formed, a court may con-clude that those terms were proposals for additional terms and were not part of the contract.

Substitute Method of Acceptance

Sometimes the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means. May be effective if the substituted method serves the same purpose as the authorized means

Gambling

States have deemed gambling contracts illegal and thus void. Today, many states allow certain forms of gambling, such as horse racing, video poker machines, and charity-sponsored bingo In addition, nearly all states allow state-operated lotteries as well as gambling on Native American reservations

The Federal E-SIGN Act and the UETA

The E-SIGN Act refers explicitly to the UETA and provides that if a state has enacted the uniform version of the UETA, it is not preempted by the E-SIGN Act.2 if the state has enacted the UETA without modification, state law will govern. The problem is that many states have enacted nonuniform (modified) versions of the UETA, usually to exclude other areas of state law from the UETA's terms. The E-SIGN Act specifies that those exclusions will be preempted to the extent that they are inconsistent with the E-SIGN Act's provisions.

Scope and Applicability

The UETA does not create new rules for electronic contracts but rather establishes that records, signatures, and contracts may not be denied enforceability solely due to their electronic form. The UETA does not apply to all writings and signatures. covers only electronic records and electronic signatures relating to a transaction between two or more people in a business, commercial, or governmental context. The act specifically does not apply to wills or testamentary trusts or to transactions governed by the UCC (other than those covered by Articles 2 and 2A).26 In addition, the provisions of the UETA allow the states to exclude its application to other areas of law. The UETA does not apply to a transaction unless each of the parties has previously agreed to conduct transactions by electronic means. The agreement may be explicit, or it may be implied by the conduct of the parties and the surrounding circumstances. The parties can agree to opt out of all or some of the terms of the UETA, but if they do not, then the UETA terms will govern their electronic transaction

Acceptance

The act of voluntarily agreeing, through words or conduct to the terms of an offer, thereby creating a contract Communication has to happen before the offer expires

Common Law

The body of unwritten laws based on legal precedents established by the courts. Common law governs all contracts except when it has been modified or replaced by statutory law. Contracts related to services like real estate, employment and insurance for instance are governed by the common law of contracts

reasonable period

The time span of an offer if no termination date is specified

Consideration

The value (such as cash) given in return for a promise or performance in a contractual agreement (bilateral contract or unilateral contract) As lng a consideration is present, the courts generally do not interfere with contracts based on the amount of consideration paid Elements of Consideration: Legally sufficient value must be given in exchange for the promise There must a bargained-for excfhange

Revocation

The withdrawal of a contract offer by the offeror. Unless an offer is irrevocable, it can be revoked at any time prior to acceptance w/out liability - Unless offer is irrevocable - Offeror can revoke the offer by expressly repudiating it or by performing acts that are inconsistent with the existence of the offer and known to the offeree

Click On Agreements

This includes the act of clicking on a box indicating "I accept" or "I agree" to accept an online offer. The agreement resulting from such an acceptance is often called a click-on agreement (sometimes referred to as a click-on license or click-wrap agreement).

Unconscionablility

Type of contract is deemed to be too harsh or oppressive to one of the contracting parties

Preexisting duty

Under most circumstances, a promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. The preexisting legal duty may be imposed by law or may arise out of a previous contract A sheriff, for instance, has a duty to investigate crime and to arrest criminals Unforeseen Difficulties Rescission and New Contract

Executory

a contract that has not been fully performed on either side

Browse-Wrap Terms

can occur in transactions conducted over the Internet. Unlike click-on agreements, however, browse-wrap terms do not require Internet users to assent to the terms before downloading or using software or making a purchase. Does not require the buyer's explicit agreement

Option Contract

contract to hold an offer to make a contract open for a fixed period of time. - A contract under which the offeror cannot revoke the offer for a stipulated time period (because the offeree has given consideration for the offer to remain open) - Takes away offerors power to revoke the offer for the period of time specified in the option - Used frequently with the sale or lease of real estate

Contracts in Restraint of Trade

dversely affect the public policy that favors competition in the economy Such contracts may also violate one or more federal or state antitrust statutes Restraint is recognized and reasonable when it is contained in an ancillary (secondary) clause in a contract. Such restraints are often included in contracts for the sale of an ongoing business and employment contracts Covenants Not to Compete and the Sale of an Ongoing Business Many contracts involve a type of restraint called a covenant not to compete, or a restrictive covenant (promise) A party's contractual promise to refran from competing with another party for a certain period of time and within a certain geographic area Such an agreement enables the purchaser to buy the goodwill and reputation of an ongoin business without have to worry that the seller will open a competing business a block away Covenants Not to Compete in Employment Contracts Ppl in middle or upper level management positions commonly agree not to work for competitors or not to start competing businesses for a specified period of time after termination of employment Legal in most states so long as restriction on competition must protect a legit made business interest and must not be any greater than necessary to protect that interest

The Uniform Electronic Transactions Act

mong other things, the UETA declares that a signature may not be denied legal effect or enforceability solely because it is in electronic form. remove barriers to e-commerce by giving the same Record Information that is either inscribed on a tangible medium or stored in an electronic or other medium and is retrievable. legal effect to electronic records and signatures as is given to paper documents and signatures.

Communication of Acceptance

n a unilateral contract, the full performance of some act is called for (Acceptance is usually evident and notification is therefore unnecessary) Bilateral contract, communication of acceptance is is necessary because acceptance is in the form of a promise

divisive

type of contract that consist of two or more parts and calls for corresponding performances of each part by the parties