LA 245 Week 12 Notes
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This 10 page Class Notes was uploaded by Frankie Fucci on Tuesday April 12, 2016. The Class Notes belongs to LA 245 at Boston University taught by David Randall in Spring 2016. Since its upload, it has received 14 views. For similar materials see Introduction to Law in Law at Boston University.
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Date Created: 04/12/16
Intro to Contracts (continued) The Agreement Meeting of the Minds o Agreements that have a problem in any of the seven key areas of a contract do not amount to valid contracts o Contracts are formed if parties have a meeting of the minds, this happens when: One side makes an offer and the other makes an acceptance Offer proposes definite terms Acceptance unconditionally agrees to them Offer - how bargaining begins o Offeror: person who makes an offer o Offeree: person to whom an offer is made o Questions that determine if a statement is an offer: Do the offeror's words and actions indicate an intention to make a bargain? Are the terms of the offer reasonable definite? o Statements that Usually don't Amount to Offers: Invitation to bargain Letters of intent: a letter tat summarizes negotiating progress Might help distinguish a serious party from one with a causal interest, summarize the progress made thus far, and assist the parties in securing necessary financing Usually don't create any legal obligation, merely state what parties are considering, not what they've agreed to It is still possible for a letter of intent to bind the parties if its language indicates that the partied intended to be bound Advertisements - generally not an offer, merely a request for offers Seller is free to reject the offer Some ads do count as offers, advertisers should be careful to not be too specific in their ads Carlill v. Carbolic Smoke Ball Company Russian flue in early 1890s Carbolic Smoke Ball Company ran newspaper ad that said: 100 rubles will be rewarded by the company to any person who contracts the influenza after having used the ball three time daily for two weeks according to the printed directions supplied with each ball 1000 rubles is deposited with the Alliance Bank, shewing out sincerity in the matter Carlill purchased it and used it as directed for 2 months, then caught the flu Sued, claiming her response to the ad created a contract with the company and so she was entitled to the money Trial court agreed and the company appealed Issues: Did the advertisement amount to an offer? If so, was the offer accepted? Distinct promise expressed in language which is perfectly unmistakable stating a promise to pay an amount of money While general proposition states that when an offer is made, it is necessary that acceptance be notified BUT in this case, the offeror shews by his language from the nature of the transaction that he does not expect and doesn't require notice of the acceptance apart from notice of the performance Therefore, find that all elements which are necessary to forma binding contact enforceable are present Defendant must perform their promise o Problems with Definiteness Not enough that offeror indicated she intends to enter into an agreement The terms of the offer must also be definite If they are vague, then even if offeree agrees to the deal, a court does not have enough information to enforce it, and there is no contract Termination of Offers o Once an offer has been made, faces only two possible fates (termination or acceptance) If terminated, can never be accepted If accepted, and if there are no problems with any of the five remaining elements on the Contract Checklist, then a valid contract is created o Offers can be terminated in four ways: Termination by Revocation Offer is revoked when offeror takes it back before the offeree accepts In general, offeror may revoke the offer any time before it has been accepted Nadel v. Tom Cat Bakery Company delivery van hit Nadel as she crossed the street, suffered significant injuries and filed suit Before trial, company attorney offered a $100,000 settlement, Nadel refused While jury deliberated they offered it to her again and decided to think about it Later, jury sent note to judge, bakery owner told the lawyer that if the jury had reached a decision he should revoke the settlement offer In the courtroom, bakery's lawyer said that if the note is a verdict, their client wants to take the verdict Nadel's lawyer the said, Nadel will take the settlement Trail court judge had the jury read the verdict, awarded Nadel nothing She appealed claiming that a $100,000 settlement had been reached Issue: Did Nadel's lawyer accept the settlement offer in time? The words of acceptance were uttered too late to be effective By that time, defense counsel had made it clear that if the jury had come to a verdict, the offer was off the table Plaintiff's motion is denied Termination by Rejection If an offeree clearly indicates he doesn't want to take the offer, then he has rejected it If offer is rejected, rejection immediately terminates the offer Counteroffer: when party responds to an offer with a new and different proposal Counteroffer is a rejection Termination by Expiration When an offer specifies a time limit for acceptance, that period is binding If specifies no time limit, the offeree has a reasonable period Reasonable period varies depending upon the type of offer, previous dealings between the parties and any normal trade usage or customary practices in a particular industry Termination by Operation of Law If an offeror dies or becomes mentally incapacitated, the offer terminates automatically Destruction of the subject matter terminates the offer Acceptance o An offeree accepts by saying or doing something that a reasonable person would understand to mean that he definitely wants to take the offer o Offeree must say or do something to accept, offeror cannot accept silence as an acceptance o Mirror Image Rule: requires that acceptance be on precisely the same terms as the offer If the acceptance contains terms that add or contradict the offer, even in minor ways, courts generally consider it a counteroffer Issue: battle of forms o UCC and the Battle of Forms Article 2 of UCC governs contracts when primary purpose is sale of goods (goods are moveable, tangible objects) UCC 2-207 dramatically modified the mirror image rule for the sale of goods An acceptance that adds additional or different terms will often create a contract: For the sale of goods, the most important factor is whether the parties believe they have a binding agreement If their conduct indicated that they have a deal, they probably do If the offeree adds new terms to the offer, a court will probably rely on general principles of the UCC to create a fair contract If a party wants a contract on its terms only, with no changes, it must clearly indicate that o Click-wraps and Shrink-wraps Click-wrap/shrink-wrap agreements are packaged inside may electronic products Often include arbitration clauses As ruled by courts, they are binding Consideration o Contracts must be a two-way street, if one side gets all the benefit and the other side gets nothing, then an agreement lacks consideration and is not an enforceable contract o 3 rules of consideration: Both parties must get something of measureable value from the contract Ex: money, a good, an agreement not to sue, etc. A promise to give something of value counts as consideration Two parties must have bargained for whatever was exchanged and struck a deal o What is Value? Item of value can either be an act or forbearance: Act - party commits an act when she does something she as not legally required to do in the first place Forbearance: refraining from doing something that one has a legal right to do In essence, opposite of an act Hamer v. Sidway William Story promised his nephew that if he didn't drink, use tobacco, swear or gamble until he was 21 (starting at 15), he would give him $5,000 He reached 21 and had done what his Uncle asked, he asked for the money The uncle said he would wait a few more years to give him the money until he was older and able to handle that much money The uncle died without having paid and his estate refused to honor the promise The nephew had transferred his rights in the money, Hamer was the one who sought to collect from the uncle's estate Estate argued that since the nephew had given no consideration for the uncle's promise, there was no enforceable contract Trail court found for the plaintiff and uncle's estate appealed Issue: Did the nephew give consideration for the uncle's promise? Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party or is of any substantial value to anyone It is enough that something is promised, done, forborne, or suffered by the part to whom the promise is made as consideration for the promise made to him It is sufficient that the nephew restricted his lawful freedom of action with certain prescribed limits upon the faith of his uncle's agreement, and now, having fully performed the conditions imposed, it is of no moment whether such performance actually proves a benefit to the promisor, and the court will not inquire into it Executory contracts: where the terms have not been fulfilled Executed contract: where the terms have been fulfilled Importance: when company files for bankruptcy (chapter 11 - reorganization to get breathing space from creditors and then come out of bankruptcy) o If creditor has an executory contract, the trustee of the company has the power to void the contract Valid contract: fully enforceable and contains all element of a contract Meets all requirements of law - offer, acceptance, consideration, legality, capacity, consent Unenforceable agreement is a contract, but there is a defense that may prevent its enforcement Enforcement: power of a court to give the injured party due to the breach of a contract Unenforceable - breaking party has a legal defense that may prevent the court from enforcing the agreement o Ex: some contracts must be in writing, if not in writing then unenforceable But if go through with the oral deal, takes away the right to get out of it later with statute of frauds and it becomes binding Avoidable contact - valid contract that gives one party the right to avoid/get out of it Ex: if under 18 years old, don't have contractual capacity --> you have the power to avoid contracts, to get out of it even after to accept it o Exceptions If you wait until you're 18 to avoid the contract Now a question of did you avoid it in time Most states give some time after you are 18 to avoid if you made the agreement under 18 And have to give back the benefit you received If contract is for necessities of life - some situations where courts would not allow you to avoid it Void agreement: creates no binding legal obligation Could be void because it lacks one of the elements required for a contract Binding legal obligation = an obligation that a court will enforce, that gives you the right to invoke the power of the state to enforce the agreement if the other party doesn't live up to their promises Express contract - explicitly states all contract terms orally or in writing Implied contract - arises from the parties' words and conduct when they show that they intend some aspect of their relationship to be legally enforceable as if they constituted a contract Elusive concept Think of it as a remedy a court might apply if there is a law suit and one party claims they had an agreement that the other party did not hold up o Though no explicit contract, the agreement is implied based on the aspects of their relationship Demasse v. ITT Corporation o Most employee handbooks state on first page that anything in the handbook does not mean there is a contractual relationship, they are still at-will employees o Plaintiffs are arguing that even though there was no actual contract, they still have contract like rights, implied contract o Does the change in the second manual (that they can change anything in the manual whenever they want), change what was in the manual when they were hired Plaintiffs can argue - that the changes in the second manual don't apply to then, only new employees Another argument - the defendant's put in this language to make it clear that they now felt they had the right to make unilateral changes, but that doesn't apply to anything before the changes o Ruled in favor of the employees Non-contractual relationship, but injured party is still entitled to some sort of remedy Promissory Estoppel: defendant promises something to plaintiff and the plaintiff relies on that promise by the defendant to change her position --> she incurs expenses that, without the promise, she would not have incurred o To estop = to be prevented from taking a certain position that is contrary to our prior behavior o Estoppel - situation her you are being prevented from denying the consequences of your prior behavior that has created certain expectations in other people o Remedy - Reliance Damages: to restore the injured party to their pre-negotiation conditions by requiring defendant to compensate plaintiff for however much the plaintiff expended in reasonable reliance on the defendant's promise Quasi-contract ; plaintiff gives some financial benefit to the defendant (ex: goods, services, information, etc.) with the expectation that the plaintiff will be compensated for it in some way o Never reach agreement and defendant walk away without having paid for the benefits o Will defendant be unjustly enriched by not having paid for the benefit, will it receive a windfall (a benefit that falls into its lap without having to work for it) o Remedy - Restitution (quantum meruit = "as much as the party deserves"): get paid back for some benefit that you gave to another party o Source of Contract Law Common Law o Contract law is an area of law that 'grew up' through the common law - thousands of court decisions that relate to the agreements made between people/parties o Uniform Commercial Code (UCC) - section of UCC establishes the law governing contracts for the sale of goods Goods = personal property that is movable at the time of identification at the time contract for sale UCC doesn't cover stocks, construction of real estate, checks/money Statutory law created to solve problem of the multiplicities of state laws that makes it difficult to make commercial transaction Article 2 - governs contracts for the sale of goods When talking about common law of contracts - mostly talking about sale of services, because UCC covers sales of goods UCC changes some common law rules Agreement The parties must have a "meeting of the minds" Courts apply the objective theory of contract formation to determine whether parties intended to form a contract o Objective Theory of Contract Formation: if a third party observing the two parties would reasonably believe that they intend to form a contract, then they formed a contract, even if one party didn't intend to form a contract Agreement's role is to establish the parties did demonstrate their intent to enter into a contract Offer: an act or statement that proposes definite terms, and permits the other party to create a contract by accepting those terms Offeror: person who makes an offer Offeree: the person to whom an offer is made o Has the ability to create a contract by accepting an offer from the offeror An offer requires: o The offeror's intent to make an offer, AND o Reasonably definite terms NOT offers: o Invitations to bargain - soliciting bids/proposals for work, RFP Ex: contractors gather all the contracts for the construction of real estate When contractors send out proposals to tradesmen: Tradesmen who answer that proposal = offeror Contractor who has the power to accept or reject the offer = offeree o Price quotes - many price quotes are sent out to a lot of people, so they can't all be offers because if everyone responded with an agreement, may not have enough inventory to cover all those people o Letters of intent - just meant to gauge the commitment of both parties to possibly make a contract, but not actually a contract in and of itself o Advertisements - just through the lens of contract law, responding to an ad doesn't create a contract Advertisements may still violate consumer protection laws, but that’s not covered under contract law Terminating Offers Revocation o Offeror may revoke offer at any time before offeree accepts it o Effective when offeree receives it Rejection o Offeree's rejection terminates the offer A counteroffer is still a rejection of the original offer and terminates it Effective when offeror receives it Expiration o If offer sets deadline for offeree's acceptance, it is binding By Operation of Law o Offer terminates upon: Destruction of the subject matter, OR Offeror's death or incompetence With limited exceptions, contracts don't terminate when someone dies, one's estate is still liable for the contract "Receives" = when a revocation or rejection is accessible/available to the receiving party Acceptance Offeree's voluntary words/conduct that indicate her assent to the offer's terms Mirror-Image Rule o Offeree's acceptance must be unequivocal o Any change in the offer's terms constitutes a counteroffer Communicating Acceptance Bilateral contract: offeree accepts by making return promise to offeror o Ex: "yes", "I agree", etc. Unilateral contract: offeree accepts by performing the act requested by the offeror o NOT by promising to perform the act, but by performing the requested act Mailbox Rule: acceptance is effective upon dispatch - that is, when it is sent o Ex: if sending an acceptance by mail, once you send letter and it's out of your, the acceptance is in effect By email: when you hit "send" --> acceptance is in effect o This is different than the rules governing effectiveness revocations and rejections Lack of symmetry Ex: mailed an offer to someone before an email revocation is received
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