Business Law Contracts

DO NOW What is a contract? Have you ever been in a contract? Explain. What is the importance of contracts? What makes an agreement a contract?

Nature of Contracts Contract Any agreement enforceable by law Not all agreements are contracts Never enter into a contract without understanding the legal responsibilities involved

Theories of Law Equity Theory Will Theory Formalist Theory In the past, courts asked whether the parties to a contract exchanged equal value Will Theory Focused on the exercise of each party’s free will Courts no longer asked if the contract was fair; instead asked: “ Did both parties really agree to these terms?” Formalist Theory Certain fixed elements associated within the contract If all elements exist—a contract exists

Characteristics of a Contract Valid, void, voidable, unenforceable Express or implied Bilateral or unilateral Oral or written Any contract can have characteristics from one or more of these four groups A contract may be valid, expressed, bilateral, and written

The Elements of a Contract 1. Offer 2. Acceptance 3. Genuine Agreement 4. Capacity 5. Consideration 6. Legality

Offer 3 basic requirements Serious intent Definite and certain Offer must be made with the intention of entering into a legal obligation Invitation to negotiate—lecture notes Definite and certain Must be definite and certain to be enforceable Communicated Phone, letter, telegram, fax, email, etc

Acceptance Unconditional acceptance Methods of Acceptance Acceptance must not change the terms of the original offer in any way mirror image rule Methods of Acceptance Time at which an acceptance takes place is important because that is when the contract comes into existence Face to face or over the phone—no issues

Acceptance Methods of Acceptance Special rules Takes place when parties are separated by distance Sometimes an offer specifies that it must be accepted by an action I will give you $50 if you wear a gorilla suit at the football game this weekend. Common law– acceptance is effective when it was sent Can be implied by any reasonable means Past practices, usual method in the trade, customary means in comparable transactions

Acceptance Methods of Acceptance Special rules Cannot impose silence as a means of acceptance unless he or she has previously agreed to this condistion

Practice Discuss whether there was a valid offer and acceptance with your group.

Practice 1. Ever-tite v. Green- The court ordered that the homeowner pay for transporting the materials, but not for the roofing itself. 2. Ciaramella v. RDASince the settlement was just an outline and there were uncertain terms, the court did not enforce it. 3. Carlil v. Carbonic Smoke Ball- The company did not say the person had to notify of acceptance, so the person’s performance was enough.

Consideration Consideration: A contract must include a promise and a return promise. It cannot only go in one direction. Both parties have to get something valuable (a good or service). A promise of a gift is not enforceable because one party gets nothing. The exchange doesn’t have to be equal- one person may value something more than someone else.

Enforcement Substantial Performance- Doing exactly what is in the contract is not always possible, but the parties have to reasonably live up to the terms. If one party does not materially perform, the other party no longer has to perform. Failure to perform is called “breach.”

Enforcement What happens when one party breaches? Damages- The party who is harmed can request money from the other party equal to the loss from the breach. Specific performance- If it is still possible to perform the contract, the court can require the party to perform.