MGMT 224 – CLASSES 2 & 3 - CONTRACTS – Fall 2011
I.
INTRODUCTION – CONTRACTS
A. What is it? An enforceable promise…
B. Types of Contracts:
1. EXPRESS (words) vs. IMPLIED (conduct)
2. Bilateral (promise for promise) or Unilateral (find dog).
3. VOID () vs. VOIDABLE (everything else)
4. Common Law vs. UCC:
a. UCC: Sale of Goods (tangible, movable items)
b. Common Law: Services, Loans, Real Estate
c. CISG: Convention for the International Sale of
Goods (the “international UCC”).
d. Hybrid Contract:Look at Pass case
C. Elements of Contract: All of the following must be
established:
1. Agreement: Consists of Offer and Acceptance
2. Consideration - Value to both sides
3. No Defenses
D. Defenses: That can help a party avoid an otherwise
enforceable contract. We will cover these later on:
1. Invalid Consent: You agreed under wrong assumption
(e.g. Fraud, Misrepresentation, Mistake, Undue
Influence, Duress)
2. Not Written: Violates the Statute of Frauds
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3. No Capacity: No kids, crazies or drunks
4. Illegal: Crime, unlicensed or
E. Let’s look at Lambert on p. 293
F. Sometimes courts will enforce a promise even though there
is no contract…
1. Quasi Contract: Unjust enrichment
2. Promissory Estoppel: Detrimental reliance
II.
ELEMENTS OF A CONTRACT
A. Offer:
1. Explain Offeror vs. Offeree
2. Elements:
a. Must be certain: Normally must include
 ID of parties
 Price
 Subject (inc. time & what is contracted for)
b. Made with intent – Measure objectively
c. Communicated
3. Termination of Offers:
a. Revocation: Offeror, took the offer back (can be
by selling it to someone else, if offeree knows)
b. Rejection/Counter-offer: (distinguish “Inquiry”)
c. Time
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d. Operation of Law (an event):
(1) Death or insanity
(2) Destruction of S. M.
(3) Illegality
e. Let’s look at Family Video Case
4. Offers are usually REVOCABLE….exceptions:
a. Option Contract
b. UCC Firm Offer
(2) Offeror = Merchant (in the business)
(3) Offer Written
(4) Promise to “keep the offer open” (for stated
time or 3-months if no time stated)
c. Performance begins (Unilateral Contracts only)
5. NOT an offer….
 Ads (unless manner of acceptance specified)
 Price Quotes
 Opinions
 Auctions (unless “without reserve”)
B. Acceptance:
1. Elements:
a. Meet Offeror’s Demand (mirror image rule)
b. By Proper Means (specified or same/faster)
c. With Intent…
d. Offer Still Exists (timely)
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2. Meet Offeror’s Demand….
a. Any changes violates the Mirror Image Rule and is
considered a Counter offer.
b. UCC Exception: Variances in the acceptance
become part of the contract, unless the variances
are… (“M.O.P.”)
(1) MATERIAL in nature
(2) OBJECTED to within a reasonable time
(3) PROHIBITED in original offer
c. Let’s look at Standard Bent Glass case – P. 330
3. By Proper Means…
a. Specified in the offer
b. Common Law: Same or faster (penalty)
c. UCC: Any reasonable means
4. Offer Still Available? When are these communications
effective?
a. General Rule: When received (offers,
counteroffers,rejections, revocations)
b. Exception: Mail Box Rule – Acceptances are
valid when dispatched
c. Exceptions to Mail Box Rule:
(1) Slower means – Common Law (on receipt)
(2) Specified in offer (e.g. upon receipt)
(3) Rejection first (then acceptance)
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C. CONSIDERATION:
1. Requires something of value and bargained for
exchange.
2. But watch out...
a. Can be a benefit for both sides, or a
burden/benefit for one side. (Hamer case)
b. Doesn't have to be fair - no such thing as
inadequate consideration
c. Can't use past consideration as basis for
consideration
d. Can't use pre-existing obligation as basis for
consideration. Presents a special issue
regarding MODIFICATIONS:
(1) Common Law: Modifications require separate
consideration.
(2) UCC: All modifications are valid if entered into
in good faith.
3. Liquidated vs. Unliquidated Debts:
(1) Liquidated: Amount is known (so if the Creditor
unilaterally reduces the debt, the modification is not
binding & Creditor can legally renegue.
(2) Unliquidated: Amount is in dispute (then if the
parties “settle” the dispute, the modification is
enforceable as an ACCORD & SATISFACTION).
4. Valid Contracts: Even though consideration may be
questionable, these contracts are enforceable:
a. Charitable Subscriptions
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b. Release (covenant not to sue)
c. Creditors Composition Agreement
d. Exclusivity Contracts: E.g. Output or
Requirements contracts).
e. Renewal of an Extinguished Debt: If debt is
“renewed” after bankruptcy or expiration of
statute of limitations.
D. LEGAL PURPOSE: An illegal contract is VOID - not valid
from the beginning and never can be enforced by either party.
1. If agreement is itself a crime (e.g. a “hit” contract)
2. Practicing without a license (professionals)
3. Usurious loans
E. CAPACITY:
(1) Tested: Minors & Drunks
(2) Can ratify or reaffirm the contract when capacity
returns (majority, or you sober up)
III. DEFENSES
A. REALITY OF CONSENT:
1. Contrast void vs. voidable
2. Primary Issues:
a. Misrepresentation: Must be material and cause
reliance
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b. Can be INNOCENT, NEGLIGENT,
INTENTIONAL
(1) If made with scienter (intent to deceive)
then = FRAUD
(2) Misrep. can be "non-fraudulent" (with no
intent to deceive)
c. Duress: If extreme contract VOID (only one of
these defenses that involves void). If not
extreme, or merely economic, then VOIDABLE.
d. Undue Influence: Trust taken advantage of
through unfair persuasion.
(1) Elements:
 A susceptible party
 Perpetrator exercises “unfair persuasion”
 Unnatural result (party commits to an
unfair deal).
(2) If Contract is with a FIDUCIARY (person of
trust), then the “victim” only needs to prove
that the deal was unfair, then the BURDEN
SHIFTS, and the “perpetrator” has to then
DISPROVE unfair persuasion.
(3) Not all cases of Undue Influence involve a
fiduciary, however. Give school employee
example.
e. Mistake: Must be…
(1) Material
(2) Of Fact
(3) Mutual, unless the other party knew of
mistake or it involves a computational error.
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f. Let’s look at Jordan case on P. 363
B. STATUTE OF FRAUDS:
1. Tested area - Contract must be in writing if it’s got
legs, specifically MY REDS…
M - Marriage
Y - Year of more (only if Impossible to perform in
< 1 year)
R - Real Estate (unless either party performs)
E - Executor personally guarantees an estate debt
D - Debt of Another (only the Secondary Obligor)
S - Sale of Goods of $500+ **
**Note: 4 exceptions: SWAP)
S – Special Goods
W – Written Memo by Merchants (no
objection with 10 days)
A – Admission in Court
P – Performed by either party
2. Let’s review Schaadt case
3. Writing: Must be signed by the defendant.
4. Can be contained in more than 1 writing.
5. Main Purpose Rule: On the “debt of another” – if the
contract has a financial benefit for the “secondary
obligor”, then agreement need not be in writing.
C. Minor Defenses: These will sometimes come up…
1. Statute of Limitations (2 yrs: oral; 4 yrs: written)
2. Impossibility of Performance (destruction, disasters)
3. Novation (replacement substitute contract)
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4. Failure of conditions – Precedent, concurrent,
subsequent
III. REMEDIES
A.
Breach – Can be actual (sue now) or anticipatory (sue
now or wait for actual breach, then sue). Two types:
Legal – Money
B.
Equitable - Other
Legal Damages….
1. Compensatory (normal damages) – ALWAYS
2. Consequential (foreseeable) – SOMETIMES
3. Punitive – NEVER
4. SOME LIMITATIONS/SPECIAL ISSUES:
a. Liquidated Damages Clause: Pre-set damages
are valid IF note excessive (a penalty)
b. Attorneys Fees – Recoverable ONLY if a
clause is in the written contract.
c. Mitigation of Damages – Damaged party must
minimize their damages (e.g. the landlord must
try and find a new tenant)
C.
Equitable: Where LEGAL DAMAGES ARE INADEQUATE
and IRREPERABLE HARM would result.
1. Specific Performance…
a. Land – ALWAYS
b. Goods – SOMETIMES (when unique)
c. Services – NEVER (slavery)
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2. Rescission (cancel the contract): Usually based on
Fraud, duress, etc. or other party’s Breach.
3. Reformation: Redraft the contract.
4. Constructive Trust/Equitable Lien: Defendant buys
property with Plaintiff’s money – Plaintiff can ask for
the property entirely (Constructive Trust) or a portion
(E.L.).
5. Declaratory Relief – Ask for an explanation.
6. DEFENSES:
a. Laches: Unreasonable delay
b. Unclean Hands: Plaintiff acted wrongfully also.
IV. CONTRACTS IN CYBERSPACE
A.
2000 – Electronic Signatures in Global and National
Commerce Act (E-SIGN Act):
1. Electronic Signature is a valid signature.
2. There must be an agreement in the contract that an esignature is valid.
3. N/A to certain documents, such as Wills, Court
papers, foreclosures, etc.
4. Only applies to FEDERALLY REGULATED
transactions though.
5. DOES NOT APPLY to recorded conversations (as a
“signature”)
B.
UNIFORM COMPUTER INFORMATION
TRANSACTIONS ACT (UCITA)
1. Few states have passed it, lots of criticisms.
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2. More comprehensive covering internet contracts,
licensing issues, etc.
3. For e-signatures, has “attribution procedures” where we
can ensure that the person signing IS that person.
UETA – Uniform Electronic Transactions Act.
C.
1.
2.
3.
4.
Adopted by 1/3 of the states roughly.
Adds electronic signatures to the Statute of Frauds.
Requires “attribution procedures” like UCITA.
Recorded conversation CAN BE a “signature.”
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