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Basic Business Law (BPP432/80) 2006 Fall Quarter Instructor: David Oliveiri Week 2: Facilitating Exchange; Value of Contracts; Creating Enforceable Rights.

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Presentation on theme: "Basic Business Law (BPP432/80) 2006 Fall Quarter Instructor: David Oliveiri Week 2: Facilitating Exchange; Value of Contracts; Creating Enforceable Rights."— Presentation transcript:

1 Basic Business Law (BPP432/80) 2006 Fall Quarter Instructor: David Oliveiri Week 2: Facilitating Exchange; Value of Contracts; Creating Enforceable Rights – Mutual Assent Requirement

2 Agenda: Learnings Economic Rationale for Contracts The “Laws” of Contracts Some Definitions Legal Contract Requirements, Generally Mutual Assent Requirements = O+A Summary; Q&A

3 Learnings: Understand Why We Have Contracts and Contract Rules Understand Where to Find Applicable Contract Law (Rules) Understand What a Contract is and Why it Matters to Satisfy Legal Contract Requirements Understand the Requirements for Mutual Assent, and Exceptions Understand Practical Details of Offers and Acceptances and Impacts on Effective Deal- Making, Business Value

4 Economic Context for Contracts Prevalence of Exchange Relationships Simple Economic Exchange Model: 2 Commodities (X+Y), 2 Consumers (A+B) A.0.S B.S.0 Y Y X X Trade If? Trade Until?

5 Economic Context of Contracts Complexity of Satisfying Mutual Benefit Sheer Volume: Billions of Commodities, Billions of ConsumersSheer Volume: Billions of Commodities, Billions of Consumers OpportunismOpportunism Multi-Party IssuesMulti-Party Issues Why Rules/Legal Process? Lower Information CostsLower Information Costs Lower Transactions CostsLower Transactions Costs “Monetize” Rights“Monetize” Rights

6 Sources of Contract “Law” and Rules Common Law Judge- Made DecisionsJudge- Made Decisions Primarily, State-LawPrimarily, State-Law Statutes -- The Uniform Commercial Code – Sales of “Goods” – All 50 States Business Significance: Set of Default Rules State Law Federal Law

7 Law Governing Contracts: How This Works Sale of goods? General contract law governs No Specific provision of UCC applicable? Yes UCC governs Yes No

8 What is a Contract?

9 Contract = Promise or set of promises of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.” Are all promises contracts? Do all contracts require a promise? Are the following contracts? “I’ll pay you $10,000 if you quit your bartender job and get an MBA.”“I’ll pay you $10,000 if you quit your bartender job and get an MBA.” Ordering and eating a meal in a restaurant?Ordering and eating a meal in a restaurant?

10 Standard Requirements of Contract Formation Mutual Assent - “Meeting of the Minds” Consideration Legality of Object Capacity of Parties

11 Some More Definitions and Distinctions “Express Contract” vs. “Implied Contract” [“Lease” vs. “Pumping Gas”] “Unilateral Contract” vs. “Bilateral Contract” [“When You Get Your MBA” vs. “I Promise to Get My MBA”] “Executed Contract” vs. “Executory Contract” [“Completed” vs. “In Process”] “Formal Contract” vs. “Informal Contract” [“Deed” or “Draft” vs. …] “Valid,” “Void,” “Voidable,” and “Unenforceable” Contracts

12 Validity of Agreements Mutual Assent? Consideration? Yes Capacity? Yes Free from Invalidating Conduct? Yes Void No Void or Voidable No Yes Subject Matter Legal? Statutes of Fraud Satisfied? Yes Unenforceable No

13 When Contract Requirements Not Met Not Contracts, But Still May Be Enforceable – “At Equity!” Promissory Estoppel Lease in default. “Don’t worry. I’ll hold off.” Improvements. Quasi Contracts Lease for Office. Cleaning Service Contract Expires, But…

14 Mutual Assent (“Meeting of the Minds”) Mutual Assent = Offer + Acceptance Business Dealings are Complex: Content and Time Dimensions Also, Impacts of Technology- Internet Commerce, s, Faxes, Electronic Signatures, Bots B A Talk Talk Negotiation (Idle) (Focused) Time No Contract Contract

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16 Napster Terms of Use (4/25/06) “To view all of our Website Terms, please click HERE.” Napster Website Services Terms of Use Agreement- 6 Page Printout Selected Terms “By using any Web Services you agree to be bound by these Terms of Use, whether or not you register as a member.”“By using any Web Services you agree to be bound by these Terms of Use, whether or not you register as a member.” Any modification of Terms “shall be effective upon posting by Napster.”Any modification of Terms “shall be effective upon posting by Napster.” “Your use of Streams is subject to all of the limitations described below…you may not download Streams or attempt to ‘catch’ or copy Streams in any way.”“Your use of Streams is subject to all of the limitations described below…you may not download Streams or attempt to ‘catch’ or copy Streams in any way.” In the event of a dispute, “you agree to personal jurisdiction…in the state and federal courts, State of California, City of Los Angeles.”In the event of a dispute, “you agree to personal jurisdiction…in the state and federal courts, State of California, City of Los Angeles.” “You agree to indemnify…Napster…from any loss including reasonable attorneys’ fees…”“You agree to indemnify…Napster…from any loss including reasonable attorneys’ fees…” Objectives of Napster? Your Reactions as Users? Mission Accomplished?

17 Offers Offeror is “Master of the Offer.” Basic requirements Communication = Send + ReceiveCommunication = Send + Receive “I think I’m going to hire Sally!” IntentIntent Story of Doug, Dave, and Bubble Puppy 1. Preliminary Negotiations and Letter of Intent 2. Advertisements [S&R 10—Lefkowitz Case (p.183), Problem 17] DefinitenessDefiniteness 1. Open Terms 2. Output and Requirements Contracts

18 Duration of Revocable Offers Offer Effective No Offer OFFER OPEN Offer Terminated Lapse of time Death Revocation Incompetency Rejection Destruction of subject matter Counteroffer Subsequent illegality No Offer

19 Effects Upon Duration of Offers Offers Remain “Open” Till Accepted, OR… –Rejection –Lapse of Time Possibilities: Time Not Stated in Offer; Date Certain; Time Period Specified –Revocation Exceptions: Option Contracts [S&R 10-Problem 13]; Firm Offers under UCC [S&R 10-Problem 5]; Statutory Irrevocability; Irrevocable Offers of Unilateral Contracts; Promissory Estoppel –Counteroffer When offeree purports to accept an offer, but adds conditions and qualifications; such conditional acceptance is not binding on the offeror. Acceptance must be a “mirror image.” Is a counteroffer an end to negotiation? Complicating factors are silence, study, elapsed time. [S&R 10-Problem 3] –Death/Incompetency –Destruction of Subject Matter –Subsequent Illegality [S&R 10-Problem 2]

20 Acceptance of Offers Once accepted, a valid offer becomes a contract, the defining moment of obligation for both parties. Until then, … –[Example: Fairmount Glass Case – Give me “lowest price you can make us for 10 carloads of Mason green jars, complete, with caps, packed 1 dozen to a case.” Reply – “we quote you Mason fruit jars …pints $4.50, quarts $5…for immediate acceptance and shipment no later than 5/15.” Purchaser then ordered “10 carloads per quotation.” Seller’s inventory depleted, “impossible to book order.” Valid offer and acceptance?] Communication of Acceptance –General Rule – Word or Conduct –Silence Not Acceptance! –Effective Moment [S&R 10 – Problem 6] -- Stipulated Provisions in Offer, Authorized Means, Unauthorized Means –Acceptance Following Prior Rejection Variant Acceptances [S&R 10 – Problem 14] – Common Law vs. UCC Treatment

21 How All This Works OffereesOfferor Offer? Acceptance? Rejection? Revocation? Counter Offer?

22 Offer and Acceptance -- Summary

23 Gateway

24 Mutual Assent in Cyberspace Shrinkwrap Licenses – ProCd v. Zeidenberg, Gateway Computers Clickwrap Licenses – Hotmail, Microsoft Security Updates Browsewrap Licenses – Napster Business Implications – Feasibility of Business Model, Content of Agreement vs. Presentation, Law vs. Marketing

25 Summary; Q&A Contracts and Enforceable Contract Rules Help Businesses “Monetize” Rights Contract Default Rules are State-Law Driven Enforceability Depends on Whether Legal Contract Requirements are Met Contracts Require a “Meeting of the Minds,” Defined Through Mutual Assent Rules New Technology Forces A Reinterpretation of Classic Mutual Assent Rules


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