© 2005 West Legal Studies in Business A Division of Thomson Learning 1 Food for Thought of the Day “Human beings, by changing the inner attitudes of their minds, can change the outer aspects of their lives.” -William James

© 2005 West Legal Studies in Business A Division of Thomson Learning 2 Welcome to Introduction to Business BUS 002 Agenda TOPIC: Contracts: Nature, Classification, Agreement, and Consideration Check-Ins: Questions, Comments, Reflections, AhHa Moments FYI Article – –“They Call This Intellectual Property?” source: Forbes Contracts –Four Requirements –Types of Contracts Presentation: Real Estate Contracts by Demetria Summers Reflection Emancipate

© 2005 West Legal Studies in Business A Division of Thomson Learning 3 What is a contract? What are the four basic elements necessary to the formation of a valid, contract? What are the various types of contracts? What are the requirements of an offer? How can an offer be accepted? What are the elements of consideration? Learning Objectives

© 2005 West Legal Studies in Business A Division of Thomson Learning 4 Terms Contract Promise Promisor Promisee Offer Offeror Offeree Agreement Acceptance Breach

© 2005 West Legal Studies in Business A Division of Thomson Learning 5 Contracts Function of Contracts –Creates rights and duties between parties. –Ensures compliance with a promise –Provides stability and predictability for buyers and sellers in the marketplace. Parties: –Promisor (makes the promise) –Promisee (accepts the promise). –the Offeror (makes the offer) –the Offeree (accepts the offer).

© 2005 West Legal Studies in Business A Division of Thomson Learning 6 Definition of a Contract –An agreement between two or more competent parties to perform or to refrain from performing some act now or in the future. –Agreement that can be enforced in court. –Failure to perform results in breach and damages.

© 2005 West Legal Studies in Business A Division of Thomson Learning 7 Requirements of a Contract A valid, enforceable contract includes: –Agreement. A legal offer and an acceptance –Consideration. Something of value given or promised to convince a party to agree to the deal. –Capacity. Both parties must be legally competent (i.e. intoxication, mentally competent) –Legality. Contract’s purpose must be to accomplish some goal that is legal and not against public policy. (i.e. Baby for Sale p. 245) Defenses to formation and enforceability of a contract include: –Lacking because of mistake, fraudulent misrepresentation, undue influence, or duress –Agreement not in the form the law requires (e.g., written, under seal).

© 2005 West Legal Studies in Business A Division of Thomson Learning 8 Types of Contracts Bilateral Contracts. –A promise for a promise (e.g., X promises to deliver a car to Y, and Y promises to pay X an agreed price). Unilateral Contracts. –A promise for a act (e.g., X offers Y $25 to mow X’s yard). –Revocation of Offer: the offer is irrevocable once the Offeree substantially performs the act. –Ardito v. City of Providence (2003) p. 205.

© 2005 West Legal Studies in Business A Division of Thomson Learning 9 Types of Contracts Formal vs. Informal Contracts –Formal: A contract that requires a special form or method of formation (creation) in order to be enforceable. e.g, recognizance, invoice –Informal: A contract that does not require a specified form or method of formation in order to be valid. Executed vs. Executory Contracts –Executed: fully performed by both sides. –Executory: at least one of the parties has not performed.

© 2005 West Legal Studies in Business A Division of Thomson Learning 10 Types of Contracts Express vs. Implied Contracts –Express: terms of contract are set forth either in writing or orally. –Implied-in-Fact: based on conduct. Plaintiff furnished service or product. Plaintiff expects to be compensated. Defendant had a chance to reject and did not. –Implied-in-Law (Quasi Contract). Fictional, created by court to avoid unjust enrichment at the expense of others.

© 2005 West Legal Studies in Business A Division of Thomson Learning 11 Contract Enforceability Valid Contract. –Four Elements necessary for contract formation: Agreement Consideration Legal Purposes Parties have legal capacity Voidable Contract. –Valid contract that is legally defective and can be avoided (rescinded) by one of the parties. (e.g., a contract entered into under duress or under false pretenses) Void Contract. –No contract at all. (e.g., a contract entered into for an illegal purpose);

© 2005 West Legal Studies in Business A Division of Thomson Learning 12 Agreement : Offer Agreement = Offer and Acceptance. An offer is the Offeror’s promise to perform. An offer requires Serious objective (specific target) intention. An offer requires –Reasonably definite terms. –Communication to Offeree.

© 2005 West Legal Studies in Business A Division of Thomson Learning 13 Offer Termination of Offer. –Time lapses, offer expires –By Act of the Parties. –Destruction of Subject Matter –Revocation by Offeror (unless irrevocable). –Rejection by Offeree (or counteroffer). –Operation of Law (destruction, death). Not an offer are: Opinions are not offers. Good Intentions are not offers. Preliminary Negotiations are not offers. Agreements to agree on future terms of a contract are not offers. –Lucy v. Zehmer (1954) p. 211.

© 2005 West Legal Studies in Business A Division of Thomson Learning 14 Agreement: Acceptance Voluntary act by Offeree that shows agreement to terms of original offer. Unequivocal (clear – no other meaning) Acceptance: “Mirror Image” Rule. –Offeree must unequivocally (clearly) accept offer. –Additional terms may be considered a counteroffer. Acceptance by Silence. –Acts consistent with acceptance (e.g. Accepted good or services linked to offer) –Prior Dealings: must accept or reject offer or be bound by silence.

© 2005 West Legal Studies in Business A Division of Thomson Learning 15 Agreement: Acceptance Communication of Acceptance. –Authorized Means of Communication is either express or implied by form of offer (e.g., U.S. mail, fax, ). –“Mailbox Rule”: Offeree accepts offer when the acceptance is dispatched to Offeror in the form it was received, unless offer requires a different method (e.g., Fed-Ex, or receipt by Offeror).

© 2005 West Legal Studies in Business A Division of Thomson Learning 16 Consideration Something of value given or promised to convince a party to agree to the deal. Elements are: –Something of legally sufficient value given in exchange for a promise and –That is bargained for between the parties.

© 2005 West Legal Studies in Business A Division of Thomson Learning 17 Consideration Contracts that Lack Consideration: –Pre-Existing Duty. –Unforeseen Difficulties. –Past Consideration. Acts already taken place –Illusory Promises. Uncertain (unclear) terms Settlement of Claims: –Accord and Satisfaction. (pay small amount of what’s owed to settle ex. Credit card debt) –Release. Party forfeits right to a legal claim –Covenant Not to Sue. Another agreement in exchange not to sue.

© 2005 West Legal Studies in Business A Division of Thomson Learning 18 Real Estate Contract Presentation by Demetria Summers

© 2005 West Legal Studies in Business A Division of Thomson Learning 19 Promissory Estoppel (Detrimental Reliance) Promissory Estoppel. When a person relies on the promise of another even if it was insufficient to form the basis of a valid, legally binding contract. Promisor is “estopped” (precluded) from revoking the promise. There must be: –Clear and definite promise with substantial reliance. –Justice is served by enforcement of the promise.

© 2005 West Legal Studies in Business A Division of Thomson Learning 20 Breach of Contract The failure, without legal excuse, of a promisor to perform the obligations of a contract. Damages for Breach: –Compensatory (to cover direct losses and costs) –Consequential (to cover indirect and foreseeable looses) –Punitive (to punish and deter wrongdoing) –Nominal (to recognize wrongdoing when no monetary loss is shown) See Exhibit 9-4 p. 291 –Rescission – Return non-breaching party to original form –Restitution – Return all goods, property, money –Reformation – Allows contract to be re-written to reflect the parties’ intentions

© 2005 West Legal Studies in Business A Division of Thomson Learning 21 What do you think? View the Video “Offer & Acceptance” Did I just sale my car? In groups of 3-4, answer the following questions? Has a contract been formed? Has there been a valid offer and acceptance? Has the contract been formed yet? Oscar and Maria have now begun negotiations on Maria's truck. What mistakes did Vinny make in the video that Oscar and Maria should avoid in their negotiations?

© 2005 West Legal Studies in Business A Division of Thomson Learning 22 Reflection How might today’s content impact my practice in business? What implications might today’s content have on the local, state, national, and global communities? What have I learned about law and business that will influence my practice?