MGMT 311 Contracts PDF

MGMT 311 Division of Human Resources and Organizational Effectiveness  Chapter 12 Contacts Overview of Contacts Agreement E-Contacts Consideration Capacity Legaility Form-Writing Requirement Third-party rights  Overv...

MGMT 311 Division of Human Resources and Organizational Effectiveness  Chapter 12 Contacts Overview of Contacts Agreement E-Contacts Consideration Capacity Legaility Form-Writing Requirement Third-party rights  Overview of Contacts (K) Common law governs all contracts unless there is a statutory law governing the Contract – Example UCC- which governs K for the sale of goods and services – K- relating to the sale of real estate, employment and insurance are governed by common law What is a K? it “is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty” – It is simply an agreement that can be enforced in court Promise for future action; not done sanctions or compelled to perform Objective Theory of K- in determining whether a contract has been formed, the element of intent must be present. This is called the Objective theory: Factors to consider include – What did the party say when entering the K – How did the party act or appear – What were the circumstances surrounding the transaction Requirements and Defenses to K The are 4 requirements for a valid K to exists: – Agreement- offer and acceptance – Consideration- the promise must be supported by legally sufficient consideration (something of value) – Capacity- both parties must be competent – Legality- the purpose of the K must be legal and not against public policy Defenses to a K- assuming the 4 elements of the K have been established a party may raise a defense to the enforcement of the K. – Voluntary consent- consent of both parties must be voluntary Examples include fraud, undue influence, mistake, or duress – Form- the contract must be in the appropriate form required by law Some K must be in writing  Types of Contracts There are many types of Contracts- They are categorized based upon legal distinctions: Bilateral vs Unilateral K- what must the offeree do to accept the offer and bind the offeror. – Bilateral- the offeree can accept simply by promising to perform No performance is required- simply promise for a promise – Unilateral- the offeree can accept the offer only by completing the K performance Promise for an act- K becomes valid the moment the K is performed – Ex. I will pay you $1K if you paint my house Formal v. Informal – Formal require a special form or method of creation Example- a contract that requires a negotiable instrument – Negotiate instruments includes checks, drafts, promissory notes and CDs – Informal- simple contracts; substance over form Express v. Implied – Expressed-terms are fully and explicitly stated Lease agreement – Implied –also known as implied in fact contract- the conduct of the parties dictates rather expressed statements define the K  Types of Contracts Cont’d Requirements for an Implied K: – Plaintiff furnished some services or property – Plaintiff expected to be paid for the services or property; Defendant knew or should have known payment was expected – The defendant had a chance to reject the services or property and did not. Example- ordering in a restaurant Neighbor’s landscaper starts mowing your lawn A contract may be a mix of express and implied terms – An example- hiring a landscaper to maintain lawn; trim the bushes and clean the gutters. Executed v. Executory Contracts – Executed has been fully performed by both sides – Executory- has not been fully performed by both parties; If one parties has performed and the other has not the K is said to be executed on one side and executory on the other side. Example-Party A agrees to sell a car to party B; Party A delivers the car to party B, but party B does not pay A. Once party B pays A the contract is fully executed. Enforceable v Unenforceable – Not all valid contracts are enforceable-unenforceable is one that cannot be enforced b/c of certain defenses Example- statute/law requires that the K must be in writing; it is a valid K just not enforceable – Voidable contracts-is a valid contract but one that can be avoided at the option of one or both parties. The party having the option can elect either to avoid any duty to perform or to ratify. Contracts entered by minors; some sports contracts contain opt out clauses. – Void contracts is not contract at all  Agreement The parties must agree on the terms and communicate to each other their mutual agreement to the same bargain; traditionally an offer and acceptance Offer is a promise or commitment to do or refrain from doing some specified action. The requirement of an offer: – The offeror must have a serious intention to become bound by the offer; – The terms of the offer must be reasonably certain; – The offer must be communicated to the offeree. Intention- what would a reasonable person in the offeree’s position would conclude the offeror’s word and actions meant – Offers made in anger, jest, or undue excitement do not meet the serious-and-objective intent test  Agreement Cont’d Situations in which Intent may be Lacking: – Expressions of opinion- is not an offer – Statements of future intent- I plan on selling X – Preliminary negotiations- a request or invitation to negotiate is not an offer- how much would give me for my car? – Invitations to bid- invitations to submit bids is not an offer; bids submitted are offers – Advertisement and price lists- are considered invitations to negotiate – Live and online auctions- again invitations to submit offers Agreements to agree-traditionally were not enforceable. – However, now they can be if it is clear that the parties intended to be bound by the agreements- Must look at the intent rather than form. – Preliminary Agreements-can constitute a binding contract if the parties have agreed on all the essential terms and no disputed issues remain to be resolved. Definiteness of terms is the 2nd requirement for effective offer; The terms of the K must express or imply the following: – The identity of the parties; – The identity of the object or subject matter of the K; Including work performed with specific identification of the goods & services – Consideration to be paid; and – The time of payment, delivery, or performance Communication is the 3rd requirement- it must be communicated to the offeree  Termination of the Offer Communication of an offer gives the offeree the power to transform the offer into a binding legal obligation by acceptance. Revocation-is the revoking or w/drawing an offer – Revocation can happen at any point prior to the offeree’s acceptance Revocation may be accomplished in the following ways: – Expressed repudiation of the offer; (I w/draw my offer made on such date) or – Performance of acts that are inconsistent with the existence of the offer and made known to the offeree Ex: ripping up an offer in front of the offeree; selling the property to another party in front of the offeree Option Contract is a contract is created when the offeror promises to hold an offer open for a set time period in return for consideration – The offeror can not revoke the contract until after the option period  Termination of the Offer Cont’d Termination by action of Offeree- if the Offeree rejects the offer by words or actions the offer terminated. – Any subsequent attempt to resurrect the offer is considered a new offer – Inquiries about the firmness of offer does not constitute rejection Is that you best or final offer? Counteroffers-is a rejection of the original offer and the simultaneous making of a new offer – Instead of asking final offer, you respond with a lower price- that would be a counteroffer – Mirror image rule-requires the offeree’s acceptance to match the offeror’s offer exactly and any change will result in a counteroffer. Termination by operation of law- – Lapse of time- an offer terminates automatically when a specified in the offer has been exceed If unstated- a reasonable time period – Destruction of the specific subject matter of the offer – Death or incompetence of the offeror or the offeree – Supervening Illegality- a statute or court decision that makes an offer illegal automatically terminates the offer. A law is passed banning the sale of a product; a law establishing threshold standards for a product  Acceptance Acceptance is the voluntary act by the offeree that shows assent to the terms of the offer. – Can be words or conduct- but must be communicated to the offeror Unequivocal acceptance- mirror imagine rule-acceptance can not impose new conditions or change the terms of the original offer. – Example- I accept your offer but will need 30 days to pay. Silence as Acceptance- silence cannot constitute acceptance even when the offer states it can be. – Unless the offeree has had prior dealing with the offeror Landscaper notifies you they are raising rate effective next month Communication of Acceptance- some K do not require formal acceptance (unilateral), however bilateral K require communication of acceptance – Bilateral is formed when a promise is made rather than when the act is performed  Mode & Timeliness of Acceptance With Bilateral K acceptance must be timely: General rule is acceptance is timely if it is made prior to termination of the offer. Mailbox Rule-aka deposited acceptance rule- if accept mode of transmission is mail, then acceptance is when it is dispatched (mailed). – E-mail is considered sent when it leaves the control of the sender or is received by the recipient An acceptance sent by means not expressly or impliedly authorized normally is not effective until it is received by the offeror. – Carrier Pigeon; uber delivers – Expressed Authorization is when the offeror specifies specifically how the offer is to be accepted is controlling-the K is not formed unless the offeree uses the specific mode of acceptance – If there is no expressed authorized mode of acceptance, then acceptance can be made by any reasonable means Substitute Method of Acceptance- when the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means. – Acceptance is still effective if the substitute method serves the same purpose as the authorized means. – Acceptance by a substitute method is not effective on dispatch, but upon receipt. K calls for delivery by Fed Ex; sent via UPS  E-Contracts E-Contracts must meet the same basic requirements (agreement, consideration, capacity, and legality) – E-contracts disputes usually center around K’s terms and voluntary agreement On-line offers- sellers doing business on the internet need create offers that clearly spell out the terms that will govern the transaction if the offers are accepted. An on-line offer should include the following: – Acceptance of terms- a clause that clearly indicates what constitutes acceptance – Payment- a provision specifying how payment for the goods/services must be made. – Return policy – Disclaimer- a disclaimer of liability for certain use of the goods – Limitation on remedies- a provision specifying the remedies available for the buyer if the goods are found to be defective or if the K is breached. – Privacy policy- a statement indicating how the seller will use the information gathered about the buyer. – Dispute resolution- see next Dispute –Settlement Provisions- possible arbitration clause; the forum and the law (jurisdiction) that will govern any disputes.  On-line Acceptance On-line Acceptance – Click-on Agreements- simply clicking on a box labeled “I accept” or “I agree” The law does not require that the parties read all the terms to be effective – Shrink-wrap agreements-terms are expressed inside the box in which the goods are packaged. Open, read and do not send back you agree. Failure to object to terms after usage may constitute acceptance – Must look at when the contract was formed- ex: telephone purchase with no mention of an arbitration clause – Browse-wrap terms- do not require the buyer/user to agree to the terms prior to use Terms may not be enforceable E-signatures- are legally enforceable under the E-SIGN Act- The Act basically treats electronic signatures/stamps/initials like a signature on paper. To be enforceable: – Contracting party must have agreed to use electronic signatures; and – It must be in a form that can be retained and accurately reproduced Documents exempt from the Act include court papers, divorce decrees, evictions, foreclosures, health insurance terminations, prenups, and wills. The Uniform Electronic Transaction Act- declares that a signature may not be denied legal effect or enforceability, solely because it is in electronic form. Remove barriers for e-commerce – Record is defined as “information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in visual form” UETA only applies electronic records and signatures relating to a transaction – Transaction is defined as an interaction between 2 or more people relating to business, commercial or governmental activities. UETA explicitly does not apply to wills and testamentary trusts  Consideration Consideration is defined as the value given in return for a performance or promise – It is an inducement, price, or motive that cause a party to enter a K – It is generally broken into 2 parts: Legally sufficient value Bargained for exchange Legally Sufficient Value- may take the form in 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 – Refraining from an action that one has a legal right to undertake (forbearance) Bargained-for-exchange-the item of value must be given or promised by the offeror in return for the offeree’s promise, performance, or promise of performance. – The purpose of bargained exchange is to distinguish contracts for gifts  Contracts that lack Consideration Preexisting duty- a promise to do what one has a legal duty to do does not constitute legally sufficient consideration – May imposed by law or may arise out a previous contract A fireman demanding $ from a homeowners for putting out a housefire – If a party is already bound by a K to perform a certain duty, that duty cannot serve as consideration for a second K. Contractor demands additional $ to complete a remodel project that does not require any additional work Unforeseen Difficulties- is the exception to the preexisting duty. – The issues must have been unforeseen at the time the K was formed; – Is the modification fair and equitable in view of the circumstances Rescission & New Contract- law allows the parties to mutually agree to cancel their contract. – Rescission-is the unmaking of a K and returning the parties to positions prior to the K Past Considerations-promises made in return for actions/events that have already happened are unenforceable- No Consideration – Non-compete agreements; certain promises for bonuses Illusory Promises- unenforceable again lack consideration; Not definite  Settlement of Claims People enter contracts to settle legal claims all the time. This may be done so in the following ways: – Accord & Satisfaction; – Release – Covenant not to sue Accord & Satisfaction- a debtor agrees to pay and a creditor agrees to accept a lesser amount than the original amount owed; – Accord is the agreement; – Satisfaction is the performance (payment) that takes place after the accord Can’t be satisfaction w/out the accord happening first Liquidated debt v. unliquidated debts- liquidated debt is one whose amount has been ascertained, fixed, agreed on, determined. Unliquidated debt is the opposite (not fixed/determined) – Liquidated debt is not subject to an accord & agreement- No Consideration; preexisting legal obligation – Unliquidated debt- acceptance of lesser amount operates as consideration Release- is a K where one party forfeits the right to pursue a legal claim against the other party; For a release to be binding it must satisfy the following: – Made in good faith; in writing & signed; some form of consideration Separation agreements Covenant not to Sue-does not always bar further recovery; – obliges a party that could seek damages to refrain from suing the party that it has cause against  Detrimental Reliance Also know as Promissory Estoppel- a person who reasonably and substantially relies on the promise of another may be able to obtain some measure of recovery. – Usually applied when the promise is not an enforceable K- lack of consideration – The courts under promissory estoppel are treating a promise like a contract In order to apply the doctrine of promissory estoppel the following elements are required: – There must be a clear and definite promise; – The promisor should have expected the “promisee” would rely on the promise – The “promisee” reasonably relied on the promise – The “promisee’s” reliance was definite and resulted in substantial detriment – Enforcement of the promise is necessary to avoid injustice If the requirements are met a promise will be enforced even though it is not supported by consideration. – The promisor is estopped (prevented) from asserting lack of consideration as a defense or some other defense (form).  Contractual Capacity Contractual capacity- is the legal ability to enter a contractual relationship – General rule- cts. will presume the existence of contractual capacity Minors- under the age of 18 unless emancipated – Emancipation occurs when a parent/guardian relinquishes the legal right to control a child/minor. – Generally, minors can enter in contracts like adults; but the K are voidable by the minor in certain circumstances. – Disaffirmance-is the legal avoidance or setting a side a K obligation – Unless a minor disaffirms their K obligation the other party/adult is still obligated to perform-adults cannot disaffirm b/c the other party is a minor Intoxication- is a condition in which a person’s normal capacity is inhibited by alcohol or drugs – Contracts entered by an intoxicated person can be voidable – If the person understood the legal consequences of the K, it is enforceable – Cts look at objective indications of the intoxicated person’s condition to determine if he/she possessed the required capacity. – It is difficult to prove a person’s judgement was so severely impaired that they could not comprehend the legal consequences.-Cts rarely void Ks b/c of intoxication Mental Incompetence- K made by mentally incompetent persons can be void, voidable, or valid. If a ct finds a person mentally incompetent any K entered by the person is void. – Only legal guardians may enter K for the individual – If a ct has not found a person to be incompetent but the person was incompetent at the time K was entered into-the K is voidable. To void the K the party must show the individual did not know they were entering into K or lacked the capacity to understand its nature, purpose or consequences. Lucid intervals- have considered legal capacity  Legality Legality or legal purpose is the final requirement for K. Contracts to a commit a crime- is a violation of a statute – Murder for hire- clearly is unenforceable – Contract to pay hush $ by a corporation to cover up violations of environmental laws also unenforceable – When the object/purpose of K is rendered illegal by a statute after the parties entered K, the K is considered discharged by law. Usury- a lender who makes a loan at an interest rate above the lawful maximum rate. – Usurious contracts are illegal; most jurisdiction simply reduce the rate to the lawful max rate Most K terms have statement setting the max rate at the jurisdictional limit Gambling- traditionally gambling K were illegal and unenforceable – Placing an illegal bet with a bookie Licensing Statutes- All states require members of certain professions (lawyers/Doctors) to have a licenses. Whether a K with an unlicensed person is legal and enforceable depends on licensing statute. – If the purpose of the statute is to protect the general public, then K with unlicensed individual is generally illegal and unenforceable.  Contracts Contrary to Public Policy Contracts that are found to be contrary to public policy are unenforceable. – Immoral acts; selling a child; business contracts that restrain trade or unconscionable Contracts that restrain trade- generally violate federal/state antitrust laws – If the restraints are reasonable and not the primary purpose of the K it may be permissible Restrictive Covenants (not to compete) with respective to a sale of business or practice are enforceable if reasonable and only ancillary to the K. – Rational is enables the purchaser to buy the goodwill and reputation of the business w/out the seller opening a new business just down the road. Noncompete agreements in Employment K(assuming consideration)- legal if the following are reasonable: – Period of time and geographic region Or combination thereof Enforcement issues- varies from state to state with Non-Compete Agreements- even if reasonable with respect to time and area – General Principle is an employee has a right to earn a living Texas follows this principle- employee must be compensated in some way California prohibits all non-compete agreements  Contracts Contrary to Public Policy Cont’d Unconscionable K/clauses- generally cts do not look at the equity/fairness of a K, unless the they are deemed unconscionable – Unconscionable- unscrupulous or grossly unfair- the K or Clause will be voided – Procedural often involves the size of print, the language used (legalese), or opportunity to read/understand – Substantive- is when the K/clause are oppressive or overly harsh; cts will look does it deprive one party of the benefits of K agreement or leave the party w/out a remedy for nonperformance by the other Forfeit all profits for missed payment; buyer waives all rights to sue for breach Exculpatory clauses- release one party from liability in the event of injury no matter who is at fault- cts generally find these clause unconscionable violation of public policy – Cts will enforce them when they are reasonable, do not violate public policy and do not protect parties from intentional misconduct. Skydiving example Discriminatory contracts- are K whereby one party promised to discriminate based upon a protect class are contrary to both statute and public policy- unenforceable – Restrictive deed covenants  Form-The Writing Requirement A contract that is otherwise valid may still be unenforceable if it not in the proper form. Statute of Frauds- denies enforceability to certain K that do not comply with the writing requirement. K that must be in writing are: – Transfer of interest in land; – K that cannot by their terms be performed w/in 1 year from the date of agreement – Promises to assume the debts/duty of others/deceased individuals; – Promises made in consideration of marriage; and Outside of the Engagement ring – Under the UCC, K for the sale of goods priced at $500+ K that violate the Statute of Frauds are voidable by a party who chooses not follow through on the agreement  3rd Party Rights Privity of K- states that only the parties to the agreement alone have the rights and liabilities under the agreement. – 3rd parties (nonparty to the K) normally does NOT have right under the K- except for assignments, delegation, & 3rd party beneficiaries Assignment-is the transfer of a contractual right; the assignee only receives those right transfer or all the rights of the assignor; General rule all rights may be assigned; except when: – Prohibited by Statute; – K is personal (requires the party specifically); – The assignment significantly changes the risk or duties of the person contractually obligated to perform; and – The K prohibits assignment. Delegation- is the transfer of contractual duty; duties are not assigned they are delegated; delegation does not generally relieve the delegator from liability under the K. Delegation is prohibited when: – Special trust has been placed in the obligor; – Performance depends on the personal skill/talents of the obligor; – Performance by 3rd party will vary materially from that of the expected oblige under the K; – The K expressly prohibits delegation. Obligee generally can sue the original party and delegate 3rdparty beneficiaries- exception to privity of K; when the parties to a K agree that the K performance is going to directly benefit a 3rd person, that 3rd person becomes an intended 3rd party beneficiary of the K. As a 3rd party beneficiary of the K, they have legal rights to enforce the K. – Party A sells property to party B, but the proceeds from the sale will go to Party C Party C can sue from breach of K  Andrew Barna 518 229 1954 [email protected]