mgmt ex 3 b law

Agreement: B. Intention

the offeror must manifest his or her objective, serious intention to be bound by the terms of the offer Book: "The first requirement for an effective offer is a serious intent on the part of the offeror. Serious intent is not determined by the subjective intentions, beliefs, and assumptions of the offeror. Rather, it is determined by what a reasonable person in the offeree's position would conclude that the offeror's words and actions meant. Offers made in obvious anger, jest, or undue excitement do not meet the serious-and-objective-intent test. A reasonable person would realize that such offers were not made seriously. Because these offers are not effective, an offeree's acceptance does not create an agreement."

legality A. contracts contrary to statute 4) Licensing Status

a. All states have statutes that require license 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 a statute is regulatory (to protect the public from unauthorized practitioners [such as nurse, layers, real estate brokers, CPA, etc.]), contracts are void and unenforceable. 3) if the purpose of statute is merely revenue raising - to raise government revenue, contracts are enforceable.

Termination of the Offer

"4 ways: a. laps of time 1. if the duration of an offer is stated in the offer, the offer terminates after expiration of the stated period of time. 2. if the duration of an offer is not stated in the offer, the offer lapses after a reasonable period of time. b. destruction of the subject matter of the offer. c. death or incompetency of the offeror or offeree. d. Supervening illegality of proposed contract as a result of legislation or judicial decision - Example 12.13: Shane Lee offers to lend Sue Kim $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.) [action of party] . revocation . rejection . counteroffer [by operations of law] . lapse of time . destruction of the subject matter . death or incompetence of the offeror or offeree . supervening illegality Book: "The offeror's act of revoking, or withdrawing, an offer is known as revocation. Unless an offer is irrevocable, the offeror usually can revoke the offer, as long as the revocation is communicated to the offeree before the offeree accepts."

A. Online contract formation

(part of modern contracts - example leases) 1. online offers: under the control of the seller exclusively; the offer needs to be very clear and specific terms 2. online acceptance: a. click-on agreements: - clicking on boxes "agree" - binding acceptance most of the time b. Browse-Wrap Terms - buried in other types of things - non-binding typically - taking action to download -> when you download, you accept the offer

A. Legally sufficient consideration exist when either:

- the promisee incurs a legal detriment; - 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 so; or b. By refraining or promising to refrain from doing something that he or she (the promisee) 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 or the contract. 3. It is not necessary that an economic or material loss be incurred by the promisee or and economic material benefit by received by the promisor. Landmark case: . Religious uncle offers 15 year old nephew $5,000 if he engages in "righteous behaviour" until 21 . When nephew turned 21 uncle offered to get the money now or to keep it in account, nephew keeps it in account . now nefue begins gambling and attaches the money to the account . uncle dies and the case issue is if there was an underlying contract/ was there consideration present... was there a bargain present? . uncle gives $ and nephew gives up stuff within his legal right. . the creditor wins the case

B. Bargained for exchange

. what distinguishes a contract from a gift? a gift is one sided; in a contract both sides are giving and receiving. BOOK: "The second element of consideration is that it must provide the basis for the bargain struck between the contracting parties. That is, 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. This element of bargained-for exchange distinguishes contracts from gifts."

b. 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 the contract [it is about the effect of the substance on the individual, not about the number of drinks] 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 parson 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.

Elements of a Valid Contract

1. Agreement - the mutual assent and agreement of the parties must be evidenced by and offer and an acceptance. 2. Consideration - Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration must be exchanged for a contractual promise. 3. Contractual capacity - each party to a contract must be recognized as being legally competent to enter into contracts. - if their drunk or mentally impaired they will not have it 4. Legality - the purpose and subject matter of the contract must not be contrary to law or public policy. - drug dealers aren't protected

legality A. contracts contrary to statute 1) contracts to commit crimes

1. Contracts to commit crimes a. agreements are void b. if the purpose/ performance of the contract becomes illegal because of the enactment of a statute after the contract has been entered into, the parties are discharged from their obligations by operation of law.

B. E-Signitures

1. E-SIGN ACT (Electronic Signatures in Global and National Commerce Act of 2000) a. No contract, record, or signature may be denied legal effect solely because it is in electronic 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: [prof said all will be on test] these transactions can not be created electronically 1. Court Papers 2. Divorce decrees 3. Evictions 4. Foreclosures 5. Health insurance terminations 6. Prenuptial agreements 7. Wills - in Tx to have a valid will executed they have to be sitting with a witness to show the person was of sound mind e. E-Sighn Act says if a state has adopted UETA without modification, then that state law stands. If state has modified UETA, then E-SIGHN 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."

C. Agreements that lack consideration

1. Pre-existing Duty Rule a. Doing something that one already had a legally duty to do or promising to do what one already has a legal duty to do is not legally sufficient consideration for and other person's promise. b. if a party is already bounded by a contract to perform a certain duty, that duty cannot serve as consideration for a second contract [cannot re-negotify after the fact] Example: prof holds grades hostage for more money than is in the contract... even if the school says yes, the new bargain is not enforceable 2. Exceptions to the Preexisting Duty Rule: a. unforeseen difficulties - ex. something occurs that might make you have to pay more b. rescission and new contract - contract in place and two parties can mutually agree to rescind, or cancel, their contract and agree to walk away, we can come back later and renegotiate book "The law recognizes that two parties can mutually agree to rescind, or cancel, their contract, at least to the extent that it is executory (still to be carried out). Rescission is the unmaking of a contract so as to return the parties to the positions they occupied before the contract was made. 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."

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. some contracts have to be written and signed by the party to be sued Book: The contract must be in whatever form the law requires. Some contracts must be in writing to be enforceable. Book: "Even if all of the four requirements of a valid contract are satisfied, a contract may be unenforceable if the following requirements are not met. These requirements typically are raised as defenses to the enforceability of an otherwise valid contract."

Objective facts may include:

1. Words: What the party said when entering into the contract. 2. Actions: How the party acted or appeared (intent may be manifested by conduct as well as by oral or written words). 3. Circumstances: The circumstances surrounding the transaction.

C. Definition 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. The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land. c. The consideration to be paid. d. The time of payment, delivery, or performance - can be left out to have a valid contract book: "The second requirement for an effective offer involves the definiteness of its terms. An offer must have reasonably definite terms so that a court can determine if a breach has occurred and give an appropriate remedy. The specific terms required depend, of course, on the type of contract. Generally, a contract must include the following terms, either expressed in the contract or capable of being reasonably inferred from it:" 3. courts are willing to supply missing reasonable terms when the parties have clearly manifested their intent to form a contract 4. But when parties have tried to use a term but the meaning is vague, courts will not supply a "reasonable" term in its place.

Bilateral v. unilateral

1. bilateral contract: reciprocal promises are exchanged by the parties so that the promises of one party is exchanged for the promise of the other - promise for a promise - offeree can accept simply by promising to perform EXAMPLE: Prof is selling watch and buyer says they will buy the watch. agreement is present when promise is reciprocated - does not have to use the word "promise" 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 - performance for a act - offeree can accept the offer only by completing the contract performance - under control of offeror EXAMPLE: after you build me a fence i'll pay you $100. you have to do the action for the contract to be formed. Contract is not formed until action is performed by offeree.

c. mentally incompetent persons

1. court declared 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 cansidered 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 - case 12.28 Black v. Duffile Annabelle Duffie was mildly mentally retarded and suffering from dementia. She had lived with her brother, Jerome, for her entire life. When Jerome died, he left Annabelle his property, including 180 acres near Hope, Arkansas, valued at more than $400,000. Less than three months later, Annabelle signed a deed granting her interest in the land to Charles and Joanne Black for $150,000. Later, when Annabelle's nephew, Jack, was appointed to be her legal guardian, he filed a lawsuit against the Blacks seeking to void the land deal because of Annabelle's lack of mental competence. The trial court ordered the Blacks to return the property to Annabelle, and a state appellate court affirmed. The evidence showed that Annabelle had been incompetent her entire life. She lacked the cognitive ability to make the complex financial decisions involved in selling property. Therefore, the contract was voidable. 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 guardian or other representative, when one is appointed. 4. Non-adjudicated Incompetent Persons can have Lucid Intervals where every contract formed is valad 5. Ratification can occur after the incompetent period and during a lucid intervle; 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

Acceptance

1. the offeree accepts the offer when the offeree unequivocally manifest his or her willingness and intentions to assent to the terms of the offer. 2. acceptance must be unequivocal (mirror image rule=acceptance os exact offer; counter offer= not acceptance). 3. silence as acceptance. a. ordinarily, the offeree must exhibit his or her agreement to be bound with the words or other overt conduct b. exceptions: 1. the offeree accepts the benefit of the offered service or goods when the offeree had an opportunity to reject the offered service or goods and know that such services or goods were offered with the exceptions or compensations; or 2. there was a similar prior course of dealings - parties contracts have been done before 4. communication of acceptance a. if a unilateral contract is contemplated, acceptance if affected when the performance is completed; notification of the acceptance is not necessary b. if a bilateral contract is contemplated, acceptance is effective when the offeree gives the request promise. 5. mode and timeliness of acceptance in a bilateral contracts a. an acceptance is timely if it is sent prior to the termination of the offer (""Mailbox rule) b. authorized means of acceptance 1. express means of acceptance 2. implied means of acceptance offeree can accept by and reasonable means. often means offeree can use the same or a faster means. c. acceptance will not be effective until the acceptance is received by the offeror, IF THE ACCEPTANCE IS SENT IN A MANNER THAT IS NOT EXPRESSLY OR IMPLIEDLY AUTHORIZED.

D. Communication

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 Example: you find and return a lost puppy with a $100 reward for the person who finds it. you didn't know about the reward. you do not get reward legally bc you did not know the offer was being made. 3. an offer may be made to a specific offeree to whom it is communicated 4. offers can certainly be public

Consideration

A. Legally sufficient consideration exist when either: - the promisee incurs a legal detriment; - the promisor receives a legal benefit; or - both. B. Bargained for exchange C. Agreements that lack consideration D. Past consideration E. Illusory Promises F. Settlements of Claims G. Promissory Estoppel

E-Contract

A. Online contract formation B. E-Signitures

Legality

A. contracts contrary to statute 1) contracts to commit crimes 2) usury 3) gambling 4) Licensing Status B. Contracts contrary to public policy 1) contracts in restraint of trade 2) Unconscionable Contracts or Clauses 3) Exculpatory Clauses 4) discriminatory contracts book: "The final requirement for a contract to be valid and enforceable is that it must be formed for a legal purpose. A contract to do something that is prohibited by federal or state statutory law is illegal and, as such, void from the outset and thus unenforceable. Additionally, a contract to commit a tortious act (such as an agreement to engage in fraud) is contrary to public policy and therefore illegal and unenforceable."

The functions of contract law

A. contracts create expectations as to how parties 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 the law are built. D. 2 main sources of contract law - ch. 12 and 13 teach you the common law rules relevant to contract formation, performance, breach and remedies.

Agreement

A. requirements to offer B. intention C. definition of terms D. communication E. termination of the offer F. acceptance

CONTRACT HYPOTHETICAL: Anthony is confined to his bed. He calls a friend and offers to sell her his watch for $100. If his friend wishes to accept, she puts red paper on her front window. The following day she put paper in the window. does he have a bilateral or unilateral contract?

Bilateral, method of acceptance is the red paper.

Discriminatory contracts

Book: "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. For instance, if a property owner promises in a contract not to sell the property to a member of a particular race, the contract is unenforceable. The public policy underlying these prohibitions is very strong, and the courts are quick to invalidate discriminatory contracts." pge 95 of book no notes were written

Case in point 12.1 Weston v. Cornell University

Cornell University in New York offered Leslie Weston an associate professorship for an initial term of five years. The offer letter described the position as being "with tenure," but it stated that the offer of tenure would have to be confirmed by the university's review process after she was hired. For a variety of reasons, Weston delayed her tenure submission for five years and, when she finally submitted it, she was not awarded tenure. Cornell gave Weston a two-year extension, this time as an "associate professor without tenure," to allow her an opportunity to improve and resubmit her tenure package. Although she resubmitted her tenure request, it was again denied, resulting in her eventual termination. Weston sued Cornell for breach of contract, and lost. The court held that Cornell's two-year extension of Weston's position had clearly modified the original contract by stating that she was working as an associate professor "without tenure." Weston's subjective beliefs and unsupported arguments regarding the modification of her employment agreement were irrelevant.

Enforceable V. Unenforceable contracts

Enforceable V. Unenforceable contracts 1. valid contract - all elements that are necessary to form a contract are present a. valid contracts can be enforceable or unenforceable b. why is a valid contract unenforceable? 2. Voidable contract 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. - if the contract is avoided, both parties are released from it. If it is ratified, both parties must fully perform their respective legal obligations. - For instance, contracts made by minors generally are voidable at the option of the minor (with certain exceptions). Contracts made by mentally incompetent persons and intoxicated persons may also be voidable. 3. Void contract A. Agreement has no legal effect and is not really a contract B. no legal obligation exist on the part of either party - A contract can be void because one of the parties was determined by a court to be mentally incompetent, for instance, or because the purpose of the contract was illegal.

legality B. Contracts contrary to public policy 3) Exculpatory Clauses

Exculpatory Clauses - statements in contracts that release a party from liability in the event of 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 not reasonable 2) do not violate public policy 3) do not protect parties from liability for intentional misconduct 4) language used is unambiguous 5) parties have relatively equal bargaining positions Examples: health clubs, amusement parks, ski resorts, ski-diving, etc.

Executed v. Executory contracts

Executed v. Executory contracts - Contracts are also classified according to the degree to which they have been performed. 1. Executed contracts: A contract that has been fully performed on both sides is called an executed contract 2. Executory contracts: A contract that has not been fully performed by the parties is called an executory contract. - If one party has fully performed but the other has not, the contract is said to be executed on the one side and executory on the other, but the contract is still classified as executory.

Express v. Implied Contract

Express v. Implied Contract 1. Express Contract - the terms of the agreement are fully and explicitly stated in oral or written words. - examples: A signed lease for an apartment or a house is an express written contract. - If one classmate calls another on the phone and agrees to buy her textbooks from last semester for $200, an express oral contract has been made. 2. Implied Contract - the terms of the agreement are inferred from the conduct of the parties. - examples: a guy mows lown without asking and you don't stop him, Pi knew Delta was mowing the lawn and didn't stop him three steps to establish an implied contract - you know you will pay the doctor without knowing the charge before the contract 1. plaintiff has to furnished service or property or a good 2. plaintiff expected to be paid and the defendant should have known that 3. defendant had an opportunity to reject goods and services and did not - Note that a contract may be a mixture of an express contract and an implied contract.

concept summary 12.1 - Formation - Performance - Enforceability

Formation: Bilateral—A promise for a promise. Unilateral—A promise for an act—that is, acceptance is the completed performance of the act. Formal—Requires a special form for creation. Informal—Requires no special form for creation. Express—Formed by words, such as oral, written, or a combination. Implied—Formed by the conduct of the parties. Performance: Executed—A fully performed contract. Executory—A contract not fully performed. Enforceability: Valid—The contract has the necessary contractual elements: agreement (offer and acceptance), consideration, legal capacity of the parties, and legal purpose. Unenforceable—A contract exists, but it cannot be enforced because of a legal defense. Voidable—One party has the option of avoiding or enforcing the contractual obligation. Void—No contract exists, or there is a contract without legal obligations.

CONTRACT HYPOTHETICAL: Sara tells Joe, "after you mow my lawn, I'll pay you $4". joe responds with, "I accept your offer." is there a contact? is so is it bilateral or unilateral?

No contract, it is unilateral - once action is performed we have a contract

D. Past consideration

Past consideration - is not consideration book: "Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained-for exchange is missing. In short, you can bargain for something to take place now or in the future but not for something that has already taken place. Therefore, past consideration is no consideration." Non-compete agreements: new employee v. existing employee - not to compete with employer for a certain amount of time - needs to be placed before employee works there - if asked after employee works there, there needs to be something for employee... ex. stocks book: "In a variety of situations, an employer will often ask a new employee to sign a noncompete agreement, also called a covenant not to compete. Under such an agreement, the employee agrees not to compete with the employer for a certain period of time after the employment relationship ends. When a current employee is required to sign a noncompete agreement, his or her employment is not sufficient consideration for the agreement, because the individual is already employed. To be valid, the agreement requires new consideration."

Types of Contracts

Relevant terms: - offeror: is the party making the offer to enter contract. - offeree: is the party who, if interested in the offer, may except the contract A. Bilateral v. Unilateral contract 1. bilateral contract: reciprocal promises are exchanged by the parties so that the promises of one party is exchanged for the promise of the other - promise for a promise - offeree can accept simply by promising to perform EXAMPLE: Prof is selling watch and buyer says they will buy the watch. agreement is present when promise is reciprocated - does not have to use the word "promise" 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 - performance for a act - offeree can accept the offer only by completing the contract performance - under control of offeror EXAMPLE: after you build me a fence i'll pay you $100. you have to do the action for the contract to be formed. Contract is not formed until action is performed by offeree. B. Express v. Implied Contract 1. Express Contract - the terms of the agreement are fully and explicitly stated in oral or written words. - examples: A signed lease for an apartment or a house is an express written contract. - If one classmate calls another on the phone and agrees to buy her textbooks from last semester for $200, an express oral contract has been made. 2. Implied Contract - the terms of the agreement are inferred from the conduct of the parties. - examples: a guy mows lown without asking and you don't stop him, Pi knew Delta was mowing the lawn and didn't stop him three steps to establish an implied contract - you know you will pay the doctor without knowing the charge before the contract 1. plaintiff has to furnished service or property or a good 2. plaintiff expected to be paid and the defendant should have known that 3. defendant had an opportunity to reject goods and services and did not - Note that a contract may be a mixture of an express contract and an implied contract. C. Executed v. Executory contracts - Contracts are also classified according to the degree to which they have been performed. 1. Executed contracts: A contract that has been fully performed on both sides is called an executed contract 2. Executory contracts: A contract that has not been fully performed by the parties is called an executory contract. - If one party has fully performed but the other has not, the contract is said to be executed on the one side and executory on the other, but the contract is still classified as executory. D. Formal versus Informal Contracts we will only learn about informal which is everything that doesn't fall under formal E. Enforsable V. Unenforsable contracts 1. valid contract - all elements that are necessary to form a contract are present a. valid contracts can be enforceable or unenforceable b. why is a valid contract unedforsable? 2. Voidable contract 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. - if the contract is avoided, both parties are released from it. If it is ratified, both parties must fully perform their respective legal obligations. - For instance, contracts made by minors generally are voidable at the option of the minor (with certain exceptions). Contracts made by mentally incompetent persons and intoxicated persons may also be voidable. 3. Void contract A. Agreement has no legal effect and is not really a contract B. no legal obligation exist on the part of either party - A contract can be void because one of the parties was determined by a court to be mentally incompetent, for instance, or because the purpose of the contract was illegal.

Definition of a contract

a contract is an agreement that can be enforced in court/ by law between 2 or more parties who agree to perform or to refrain from performing some act now or in the future.

legality B. Contracts contrary to public policy 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 "shocks the conscience" of the court. book: "bargains are so oppressive that the courts relieve innocent parties of part or all of their duties. Such bargains are deemed unconscionable

situations where intent may be lacking:

a. expression of opinion b. statements of intention to make an offer in the future - "I'm thinking about" c. preliminary negotiations, request to negotiate - "are you thinking about"... invites you in d. invitations to bid e. advertisement, catalogues, circulators, and price list f. live and online auctions

legality A. contracts contrary to statute 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 statutes that regulate gambling, but in a few states gambling is lawful.

legality B. Contracts contrary to public policy 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, this agreement is void because it is against a strong public policy favoring free, fair competition. b. Exception: 1) the covenant not to compete is ancillary (secondary) to an otherwise enforceable contract; and it is 2) reasonable based on: a. time [technology is typically 6 months and employment is usually 1-2 yrs] b. geographic area c. scope c. Example: contract for the sale of a business 1) the seller of a business agrees not to open another competing store within the area 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 aria covered. d. Example: employment contracts 1) a covenant that is 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 area restrictions are reasonable. 3) california prohibits enforcement of non-compete agreements 4) Texas requires additional consideration in exchange for signing the non-compete agreement to be enforceable

a. minors

a. minors - are under the age of 18 and not emancipated 1. general rule - parents are generally not liable for breach of contract entered by a minor and not liable for torts committed by a minor - minors can enter contracts as long as its legal 2. minors have the right to disaffirm a. disaffirmance is general [disaffirmance=right to get out of it] 1) words or conduct can be used by minor to express intent to be bound 2) minors may disaffirm contracts during minority and for reasonable period of time after attaining the age of majority 3) a minor who is exercising his or her right of disaffirmance must disaffirm the entire contract 4) the contract is voidable by the minor but not by the adult b. minor's obligation on disaffirmance 1) generally, if a minor disaffirms, each party must make restitution by returning the consideration received from the other party. 2) Majority of states [inc. Tx] - minor must only return goods that are in minor's possession or control. even if goods are damaged, minor still has the right to disaffirm. ex. if minor crashes car they can take it back and get all $ back. 3) Some states say- if goods are damaged the minor is required to compensate adult with "reasonable amount" What if the minor misrepresented their age [fake id]? doesn't matter in most states. What if the minor bought "necessaries" like food? minors are allowed to disaffirm, but minor is charged of legal amount (not insurance)

legality A. contracts contrary to statute 2) usury

a. usury statutes 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. b. exceptions [based on risk] 1) borrower is a corporation 2) borrower needs a small load [less than $10,000] book: "Although 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. In a few states, the lender can recover the principal amount of the loan but no interest. In addition, states can make exceptions to facilitate business transactions. For instance, nearly all states allow higher-interest-rate loans for borrowers who could not otherwise obtain funds because of the risk being assumed by the lenders."

legality B. 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 - some contracts w private parties are not enforceable if they have a negative impact on society Examples include a contract to commit an immoral act, such as selling a child, and a contract that prohibits marriage. Business contracts that may be against public policy include contracts in restraint of trade and unconscionable contracts or clauses.

Classic Case 12.1 Lucy v. Zehmer

backgrownd: W. O. Lucy, the plaintiff, filed a suit against A. H. and Ida Zehmer, the defendants, to compel the Zehmers to transfer title of their property, known as the Ferguson Farm, to the Lucys (W. O. and his wife) for $50,000, as the Zehmers had allegedly agreed to do. Lucy had known A. H. Zehmer for fifteen or twenty years and for the last eight years or so had been anxious to buy the Ferguson Farm from him. One night, Lucy stopped to visit the Zehmers in the combination restaurant, filling station, and motor court they operated. While there, Lucy tried to buy the Ferguson Farm once again. This time he tried a new approach. 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. he wrote and rewrote the contract to include his wife in the language of court: In his testimony, Zehmer claimed that he "was high as a Georgia pine," and that the transaction "was just a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most." That claim is inconsistent with his attempt to testify in great detail as to what was said and what was done. The appearance of the contract, the fact that it was under discussion for forty minutes or more before it was signed; Lucy's objection to the first draft because it was written in the singular, and he wanted Mrs. Zehmer to sign it also; the rewriting to meet that objection and the signing by Mrs. Zehmer; the discussion of what was to be included in the sale, the provision for the examination of the title, the completeness of the instrument that was executed, the taking possession of it by Lucy with no request or suggestion by either of the defendants that he give it back, are facts which furnish persuasive evidence that the execution of the contract was a serious business transaction rather than a casual, jesting matter as defendants now contend. What was the court referring to when it said "the objective meaning" of one of the parties' words and acts? Generally, objective is thought of as in opposition to subjective. The objective meaning of a contract is found in the words of that contract. The subjective meaning may be found in the minds of the parties in question, but cannot be proved. In the field of contracts, as generally elsewhere, we must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. [Emphasis added.] Whether the writing signed by the defendants and now sought to be enforced by the complainants was the result of a serious offer by Lucy and a serious acceptance by the defendants, or was a serious offer by Lucy and an acceptance in secret jest by the defendants, in either event it constituted a binding contract of sale between the parties.

significance in bilateral vs. unilateral

difference of a formed contract and nothing

Capacity

lacking ability to enter into a contract relationship; capacity is lacking or questionable with minors, intoxicated persons and the mentally incompetent a. minors b. intoxicated persons c. mentally incompetent persons

ended page 95 on X. form

on 27-7 of cengage

E. Illusory Promises

promise that depends solely upon the whim or wish of the promisor are not enforceable example: The president of Tuscan Corporation says to her employees, "If profits continue to be high, everyone will get a 10 percent bonus at the end of the year—if management agrees." This is an illusory promise, or no promise at all, because performance depends solely on the discretion of management. There is no bargained-for consideration. The statement indicates only that management may or may not do something in the future. Therefore, even though the employees work hard and profits remain high, the company is not obligated to pay the bonus now or later."

Agreement: A. requirements of the offer

requirements of the offer - promise to do something or refrain from something 1. The offeror must have a serious intention to become bound by the offer. 2. definite terms: 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. 3. Communication: The offer must be communicated to the offeree. book: "One of the four essential elements for contract formation is agreement—the parties must agree on the terms of the contract and manifest to each other their mutual assent (agreement) to the same bargain. Ordinarily, agreement is evidenced by two events: an offer and an acceptance. One party offers a certain bargain to another party, who then accepts that bargain. Once an agreement is reached, if the other elements of a contract (consideration, capacity, and legality) are present, a valid contract is formed." "Once an effective offer has been made, the offeree's acceptance of that offer creates a legally binding contract (providing the other essential elements for a valid and enforceable contract are present)."

F. Settlements of Claims

settlement of claim must be supported by legally sufficient consideration - arguments are contracts - how is consideration in each? 1. Accord and Satisfaction - unliquidated debts between creditor and debtor may be settled by the debtor offering to pay and creditor accepting less than the creditor originally claimed. - In an accord and satisfaction, a debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed. - you need creditor and debtor, typically creditor gets more - The accord is the agreement - Satisfaction is the performance (usually payment) that takes place after the accord is executed. 2. Relese - three requirements a. good faith b. signed c. consideration is given e. covenant not to sue 3. Covenant Not to Sue: Unlike a release, a covenant not to sue does not always bar further recovery. The parties simply substitute a contractual obligation for some other type of legal action based on a valid claim. Suppose that, in Example 12.26, Lupe agrees with Dexter not to sue for damages in a tort action if he will pay for the damage to her car. If Dexter fails to pay for the repairs, Lupe can bring an action against him for breach of contract. case 12.13: Already, LLC v. Nike, Inc. - As the following case illustrates, a covenant not to sue can form the basis for a dismissal of the claims of either party to the covenant. - Background and Facts Nike, Inc., designs, makes, and sells athletic footwear, including a line of shoes known as "Air Force 1." Already, LLC, also designs and markets athletic footwear, including the "Sugar" and "Soulja Boy" lines. Nike filed a suit in a federal district court against Already, alleging that Soulja Boys and Sugars infringed the Air Force 1 trademark. Already filed a counterclaim, contending that the Air Force 1 trademark was invalid. - While the suit was pending, Nike issued a covenant not to sue. Nike promised not to raise any trademark claims against Already or any affiliated entity based on Already's existing footwear designs or any future Already designs that constituted a "colorable imitation" of Already's current products. Nike then filed a motion to dismiss its own claims and to dismiss Already's counterclaim. Already opposed the dismissal of its counterclaim, but the court granted Nike's motion. The U.S. Court of Appeals for the Second Circuit affirmed. Already appealed to the United States Supreme Court. book: "Businesspersons and others often enter into contracts to settle legal claims. It is important to understand the nature of consideration given in these kinds of settlement agreements, or contracts. A claim may be settled through an accord and satisfaction, a release, or a covenant not to sue."

Objective theory of Contracts

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. BOOK: "In determining whether a contract has been formed, the element of intent is of prime importance. In contract law, intent is determined by what is called the objective theory of contracts, not by the personal or subjective intent, or belief, of a party."

G. Promissory Estoppel (detrimental reliance)

used with promises which are otherwise UNenforceable; like promises without consideration - way to fix harsh unfairness of contract law - promise to donate to a charity (gift) and pledge to cause charity to get loan can be enforceable 5 elements generally required for the doctrine to: 1. clear and definite promise 2. promisor expected the promisee to rely on the promise 3. promisee 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