Contract Formation

Samples of Contracts

Did you bring any samples from your work?

2015 Charles M Hewitt Master Teacher Competition

OK, Let’s Start the Quiz

Charles M Hewitt Master Teacher Competition

Question 1

I’m the sheriff of an old western town. The town’s bank has just been robbed by Jesse James. I post a notice saying “Wanted Dead or Alive – Jesse James. $5,000 Reward.” The next day, you see the reward poster, find and shoot Jesse James, and bring his body to my office. Was there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 2

Suppose you come to my office with the dead body of Jesse James. I congratulate you for capturing such a public menace. On the way out of my office, you see the reward poster for the first time, and come back asking for the $5,000. Was there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 3

I say, “I want to sell my car.” You say, “I want to buy it.” Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 4

I say, “I am going to sell my car for $10,000.” You say, “I will buy it. Here’s a check for $10,000.” Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 5

I send you a letter offering to sell you my car for $10,000. Before the letter arrives, you send me a letter offering to buy my car for $10,000. My letter reaches you, and your letter reaches me, on the same day. Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 6

I send you an unsolicited email offering to sell you my car for $10,000 and stating that if I do not hear from you by Thursday, I am assuming that you have accepted my offer. You read the email and delete it. I don’t hear from you by Thursday. Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 7

You’re interested in buying my car. We talk on the phone and I tell you that I will consider what price I want to sell the car for, and will send you an offer by email. In our phone conversation, we agree that if you don’t respond to my offer by Friday, I can assume that you have accepted my offer. I immediately send you an email offering to sell my car for $10,000, which states our understanding that if I don’t hear from you by Friday, I can assume that you have accepted my offer. You read the email and throw delete it. I don’t hear from you by Friday. Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 8

I send you a letter on Tuesday offering to sell you my car for $10,000, giving you until Saturday to accept or reject my offer. The letter reaches you on Wednesday. On Friday, I am killed in an auto accident. On Saturday, not knowing that I have died, you deposit in a mailbox a letter that indicates acceptance of my offer. Is there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 9

Same facts, except I was killed on Sunday and your acceptance letter reaches my house on Monday. Is there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 10

I say to you, “If you paint my house on Saturday, I will pay you $1,000.” You don’t respond, but on Saturday you come by and paint my house. Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 11

I own an office equipment company and have had a very bad day. I say to you, my top sales person, “I offer you this business for $25.” You say, “I accept your offer.” Do we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 12

I invite you to me house for dinner and you accept my invitation. You show up at the appointed time, carrying a bottle of my favorite wine, which cost you $32.99. I’m not at home, having decided instead to go to Las Vegas. Did we have a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 13

A clothing store advertised leather jackets in the following way: “Normally priced at $350, today only $150.” You come to the store in response to the advertisement, select a jacket and take out $150 in cash to pay for it. The store clerk refuses to take your cash, saying that the price is $300. Was there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 14

Joseph Smith says to his son James, “In consideration of the fact that you received an A in your business law course, I promise to pay you $1,000 in two weeks.” Is there a contract?

2015 Charles M Hewitt Master Teacher Competition

Question 15

A fire breaks out in the College of Business building. The dean immediately calls the fire department and says that the CoB building is on fire, and if they come and put it out, the CoB will donate a brand new fire truck to the fire department. The fire department gets there in three minutes, and puts out the fire with little damage to the building. Is there a contract between the College of Business and the fire department?

2015 Charles M Hewitt Master Teacher Competition

Question 16

I hire you as an employee, agreeing to pay you $1,000 per week for a full year. After six months, you are doing such a great job, that I increase your salary to $1,500 per week. One month later, you fail to complete a very important project on time, and I reduce your pay back to $1,000 for the remainder of the one-year term of employment. Can you successfully sue me for the difference between what you would have received under the $1,500 per week salary and the $1,000 salary during the remainder of your one-year employment period?

Contracts - Promise

Benefits Society to Enforce Promises Common law based on state law Common Law v. UCC Contract an agreement that can be enforced in court, formed

by two or more parties who agree to perform or to refrain from performing some act now or in the future.

A college freshmen whose boyfriend broke their prom date sued the boyfriend for the cost of her unused prom dress. MN case.

Should MN court enforce this promise, why or why not? What about the promise to take her to the dance? What about a promise to call someone after a first date?

Contract law reflects society’s decisions on what promises will be enforced and what promises will not.

$200

Covered in Quiz

Express v. Implied Contracts

Fully and explicitly stated in writing or orally

Examples– finance agreement for a

car– bargained for item at a

garage sale

Conduct creates a contract

Implied in Fact Implied In Law (covered

at end of unit – skip here)

– Quasi Contract– unjust enrichment

Express Contract Implied Contract

Covered in Quiz

Types of Contracts

Bilateral Contract– Promise for a promise– Example: John agrees to buy Sara’s horse for $500, but

neither John does not have the money on him and Sara’s horse is at a distant farm.

Unilateral Contract– Promise for an Act– Example: I will pay $1,000 if you paint my house.– Revocation– Substantially Undertaken

LEASE

Covered in Quiz

Executed versus Executory

Executed is a completed contract Executory is a contract that still must be

completed

Requirements of a Contract

The four requirements that constitute what are known as the elements of a contract are:

AGREEMENT CONSIDERATION

CAPACITY LEGALITY

Lucy v. Zehmer

Sale of Farm. Lucy and Zehmer had known each other for 15-20 years. Lucy always wanted to buy Zehmer’s farm, but Zehmer never wanted to sell. One night they met at a restaurant, and while consuming alcohol, wrote up an agreement on the purchase of the farm. Lucy then went to court to enforce the agreement, but Zehmer argued he was intoxicated at the time.

Objective Theory of Contracts. How does the court’s decision in this case relate to the objective theory of contracts? Contract written on restaurant’s bill form.

Three Requirements of the Offer

IntentThere must be a serious, objective intention by the offeror to become bound by the offer.

Nonoffer situations include:(a) expressions of opinion; (b) statements of intention; (c) preliminary negotiations; and (d) advertisements, catalogues, and circulars.

DefinitenessThe terms of the offer must be sufficiently definite to be ascertainable by the parties or by a court.

CommunicationThe offer must be communicated to the offeree.

How Intent to Form a Contract Is Measured in Other Countries

Courts in some nations give more weight to subjective intentions.

U.S.—routinely adhere to the objective theory of contracts. France—French law civil code prefers the subjective

interpretation of contracts. What problems may arise when a court attempts to look at the

subjective basis of a contract?

Termination of the Offer

An offer can be terminated by:Action of the Parties

An offer can be revoked or rejected at any time

before acceptance without liability. A counteroffer is a

rejection of the original offer and the making of

a new offer.

Operation of Law

An offer can terminate by (a) lapse of time, (b)

destruction of the specific subject matter of the offer, (c) death or

incompetence of the parties, or (d)

supervening illegality.

Drama in the law Drama in the law

Acceptance

Unequivocal Acceptance (mirror image rule) Communication of Acceptance Mode and Timeliness of acceptance (mail box rule)

John

Tia

JillOffers Bike to Jill for $100

Tia Accepts

Consideration

Legally Sufficient Bargained for Exchange Detrimental to the Promisee or Beneficial to

the Promisor– Gifts

“in consideration for …agreed to be legally adequate”

Hamer v. Sidway (1891)

$5,000 for no drinking, smoking, Is there a contract? Consideration? In refusing to pay, the executor of the estate argued

that the promise resulted in neither a benefit to the uncle nor a detriment to the nephew (since it was good for him). What did the court rule?

How might one argue that this contract also benefited the promisor (Story, Sr.)?

Sufficiency of Consideration

To be legally sufficient, consideration must involve a legal detriment to the promisee, a legal benefit to the promisor, or both.

One incurs a legal detriment by doing something that one had no prior legal duty to do.

Contracts Lacking Consideration

A number of so-called contracts may lack the necessary consideration to make them legally binding.

These include:– Contracts to perform a Preexisting Duty– Contracts based on Past Consideration– Contracts containing Illusory Promises

Heye v. American Golf Corp. , p. 212• Heye signed a 20 page employment agreement that stated she agrees to arbitrate claims. • Heye sued for sexual discrimination in court and American Golf filed motion to compel arbitration• Employment agreement also stated that “the Company reserves the right to amend .. Rescind... Any policy…• What is the consideration?

Capacity

The third element required for the formation of a contract is contractual capacity, the legal ability to enter into a contractual relationship.

Three types of people who do not have the capacity to enter a contract are:

Minors Intoxicated Persons

Mentally Incompetent

Persons

Minors --

Disaffirmance Return of Goods Damages Necessity Ratification

Intoxicated Persons

Lack Mental Capacity Impaired to the extent that the person did not

comprehend the legal consequences

Mentally Incompetent Persons

Contract Void: If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed.

Contract Voidable: If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.

Contract Valid: If person is able to understand the nature and effect of entering into a contract yet lack capacity to engage in other activities.

Contracts Contrary to StatuteUSURY

Occurs when a lender makes a loan at an interest rate above the

lawful maximum. The maximum rate of interest varies

from state to state.

GAMBLINGGambling contracts that

contravene (go against) state statutes are deemed illegal and

thus void.

LICENSING STATUTESContracts entered into by

persons who do not have a license, when one is required by statute, will not be enforceable unless the underlying purpose of

the statute is to raise government revenues.

SABBATH LAWSLaws prohibiting the formation or the performance of certain

contracts on Sunday. Such laws vary widely from state to state, and many states do not enforce

them.

Contrary to Public Policy and Quasi Contract

Contrary to Public Policy– Restraint of trade

Covenant not to compete– Unconscionable

Procedural Element (contracts of adhesion). Substantive Element (very bad deal).

– Exculpatory Clauses (covered in remedies) Quasi Contract - Implied In Law

– Quasi Contract– unjust enrichment

Tobacco Case in Book• Settled for $11 Billion• 12 attorneys 25% share = $2.8 billion• $7,716 per hour for every hour since they took the case – 24 hours a day, 7 days a week• “patently ridiculous”

New Roof• Fisher was on vacation when he received a call saying

that a roofer had taken off his roof by mistake.• Does roofer owe him a new roof?• What if roofer put on the new roof and sued for payment

– what’s the claim? Should the roofer win?

Third Party Rights

There are two important exceptions to the rule of privity of contract:– Assignment– Delegation

Assignments Assignor/Assignee. An assignment is the transfer of rights

under a contract to a third party. The party assigning the rights is the assignor, and the party to whom the rights are assigned is the assignee.

Assignee Can Demand Performance. The assignee has a right to demand performance from the other original party to the contract.

Generally, all rights can be assigned, except in the following circumstances:– When assignment is expressly prohibited by statute (for example,

worker’s compensation benefits).– When a contract is personal in nature (unless all that remains is a

money payment).– Where the assignment will materially increase or alter the risk or

duties of the obligor.– If a contract stipulates the right cannot be assigned, then ordinarily

it cannot be assigned.

Delegation

Defined. A delegation is the transfer of duties under a contract to a third party (the delegate), who then assumes the obligation of performing the contractual duties previously held by the one making the delegation (the delegator).

Delegator Still Obligated. A valid delegation of duties does not relieve the delegator of obligations under the contract.– If the delegatee fails to perform, the delegator is still liable to

the obligee.

Third Party Beneficiaries

Intended beneficiary One for whose benefit a

contract is created. When the promissor fails to perform as promised, the third party can sue the promissor directly. (Examples of third party beneficiaries are creditor beneficiaries and donee beneficiaries.)

Incidental beneficiary A third party who indirectly

benefits from a contract but for whose benefit the contract was not specifically intended. Incidental beneficiaries have no rights to the benefits received and cannot sue to have the contract enforced.

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Promise: there must be a promise. Justifiable Reliance: the promise must cause the

promisee to take an action that he or she would not otherwise have taken.

Foreseeability: the action taken in reliance on the promise must be reasonably foreseeable by the promisor.

Injustice: a promise that has been reasonably relied on will give rise to relief only if the failure to do so would cause injustice.

Promissory Estoppel

Current Event - Matt

RS and Treasury Issue Final Debt/Equity Regulations

http://www.lexology.com/library/detail.aspx?g=b20ce4c2-d68f-40ac-b6db-acf1f9d7ffca

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How to sign a legal document - when you are an agent/employee

Add company name - it’s usually printed in the agreement

Printed Name

Signature

Title

Effective Date of Agreement: This is newer style signature block that is simpler to understand

Common Contract Clauses- focusing on sale of goods

Standard Clauses Product (quality, etc.) Price Quantity Time of payment Time and place of delivery Cost of delivery/Arrangement Risk of Loss (next slide) Term/Termination Tax Obligations Representations and

Warranties Title/Insurance (next slide) Documents required (e.g. Letter of

Credit)

Especially Important for Int’l Contracts Choice of

language Choice of forum Choice of law

(CISG v. U.S. law – next slide)

Force Majeure Arbitration Currency Letters of Credit

(separate contracts – next slide)

Boilerplate Titles/Headings

Clause Severability Integration/Entire

Agreement Notices Counterparts Announcements/

Confidentiality Assignment/Delegation

Additional Detail

Letters of Credit Reps and

Warranties

ROL– FOB Seller’s Place

of Business– FOB Buyer’s Place

of Business Title Choice of law/forum

United Nationals Convention on Contracts for the International Sale of Goods (CISG)

Expert Agreed to Provisions. Compromise between common law, civil law, and socialist law.

Compared to U.S.’s UCC Article 2– Mirror image rule under

common law Changes accepted under

UCC Most changes considered

“material” under CISG– Statute of Frauds

UCC - $500 USIG – no writing required

– Price – required under CISG – not under UCC

Acceptance – mailbox rule under common law and UCC – when received under CISG.

CISG Signatories

Time to meet for contract negotiation/signing