Contract Formation Contract Formation

Group Debate – Internet “Click Group Debate – Internet “Click Through ContractThrough Contract

Question for Class After Debate: What contracts have you entered into recently?

Did you read them? Why?

Contract/Negotation Assignment

Objectives and Structure of Assignment

Improve your understanding of contract law in the international arena. Increase your awareness of the terms and conditions that should be in an international

contract. Introduce you to negotiation and the skills involved in negotiation. Enhance your appreciation of cross cultural business dealings. Refine your oral and written communication skills.

• Negotiation Strategy. Upon receiving the confidential information, the partners will meet and decide their strategy. You must document your strategy and submit a paper. Include in your paper your negotiation approach, your cross-cultural approach, and your target goals (what would you consider a “win” for your company).

• Negotiate a Deal. After you plan a strategy, the parties will meet to negotiate an agreement. You must submit a paper detailing your negotiation. Include the details on your cross cultural negotiation approach (how did it work) and accomplishments compared to planning goals (how did you do compared to how you thought you would do and why).

• Draft a Contract. When an agreement is reached, each team should write a contract documenting the agreement.

• Sign a Contract. The parties should meet to discuss and compare the written contracts. One of the written contracts should be selected for the basis of the final agreement. After any necessary negotiations and changes, the contract should be signed at the bottom as follows:

Obj

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ves

Stru

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Odd # Groups = UFLOWEven # = Hospital

UFLOW Group v.

Curacion Clinica Group

1 2

3 4

5 6

7 8

9 10

11 12

13 14

15 16

17 18

19 20

Deliverables of Assignment

• Strategies Document.

• Negotiation Document (how did the negotiations go?)

• Preliminary Contract.

• Signed Contract.

Del

iver

able

s

Some Contracts Basics

Heading/Name Identify Parties Recitals Definitions Agreement – “NOW, THEREFORE, in

consideration of the above recitals, the terms and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, and for their mutual reliance, the parties agree as follows:”

Contract Clauses usually broken down by section

– Price/Compensation– Product– Misc

Signature block – next slide

Sample

How to sign a legal document - when you are an agent/employee

Add company name - it’s usually printed in the agreement

Printed Name

Signature

Title

Effective Date of Agreement: This is newer style signature block that is simpler to understand

Common Contract Clauses- focusing on sale of goods

Standard Clauses Product (quality, etc.) PriceQuantityTime of paymentTime and place of deliveryCost of delivery/ArrangementRisk of Loss (next slide)Term/TerminationTax ObligationsRepresentations and WarrantiesTitle/Insurance (next slide)Documents required (e.g. Letter of Credit)

Especially Important for Int’l ContractsChoice of language Choice of forumChoice of law (CISG v. U.S. law – next slide)Force MajeureArbitrationCurrencyLetters of Credit (separate contracts – next slide)

BoilerplateTitles/Headings ClauseSeverabilityIntegration/Entire AgreementNoticesCounterpartsAnnouncements/Confidentiality Assignment/

Delegation

Additional Detail

Letters of Credit Reps and

Warranties

ROL– FOB Seller’s Place

of Business– FOB Buyer’s Place

of Business

Title

United Nationals Convention on Contracts for the International Sale of Goods (CISG)

Expert Agreed to Provisions. Compromise between common law, civil law, and socialist law.

Compared to U.S.’s UCC Article 2– Mirror image rule under

common law Changes accepted under

UCC Most changes considered

“material” under CISG– Statute of Frauds

UCC - $500 USIG – no writing required

– Price – required under CISG – not under UCC

Acceptance – mailbox rule under common law and UCC – when received under CISG.

CISG Signatories

Business Law Points – Grading Rubric

Negotiation Basics

Know what you want Know when you are better

off walking away Plan a strategy/Do your

homework Win-Win Listen to the other side Give/Get

Contracts – Promise

Benefits Society to Enforce Promises

ContractAn agreement that can be enforced in court, formed

by two or more parties who agree to performor to refrain from performing some act now or in

the future.

Candy Bar Example: Miller v. McCleskeySuppose that McCleskey, a local businessperson, is a friend of Al Miller. The owner of a local candy store. Every day on his lunch hour, McCleskey goes into Miller’s candy store and spends about five minutes looking at the candy. After examining Miller’s candy and talking with Miller, McCleskey usually buys one or two candy bars. One afternoon, McCleskey goes into Miller’s candy shop, looks a the candy, and picks up a $1 card bar. Seeing that Miller is very busy, he catches Miller’s eye, waves the candy bar at Miller without saying a word, and walks out. Is there a contract?

Express v. Implied Contracts

Fully and explicitly stated in writing or orally

Examples– finance agreement for a

car– bargained for item at a

garage sale

Conduct creates a contract

Implied in Fact Implied In Law (covered

at end of unit – skip here)

– Quasi Contract– unjust enrichment

Express Contract Implied Contract

Types of Contracts

Bilateral Contract– Promise for a promise– Example: John agrees

to buy Sara’s horse for $500, but neither John does not have the money on him and Sara’s horse is at a distant farm.

Unilateral Contract– Promise for an Act– Example: I will pay

$1,000 if you paint my house.

– Revocation– Substantially

Undertaken

Examples of Contracts IRA ContractCredit Card

Executed versus Executory

Executed is a completed contract Executory is a contract that still must be

completed

Requirements of a Contract

The four requirements that constitute what are known as the elements of a contract are:

AGREEMENT CONSIDERATION

CAPACITY LEGALITY

Case 9.2 Lucy v. Zehmer, p. 283

Sale of Farm. Lucy and Zehmer had known each other for 15-20 years. Lucy always wanted to buy Zehmer’s farm, but Zehmer never wanted to sell. One night they met at a restaurant, and while consuming alcohol, wrote up an agreement on the purchase of the farm. Lucy then went to court to enforce the agreement, but Zehmer argued he was intoxicated at the time.

Objective Theory of Contracts. How does the court’s decision in this case relate to the objective theory of contracts?

Contract written on restaurant’s bill form.

Three Requirements of the Offer

IntentThere must be a serious, objective intention by the offeror to become bound by the offer.

Nonoffer situations include:(a) expressions of opinion; (b) statements of intention; (c) preliminary negotiations; and (d) advertisements, catalogues, and circulars.

DefinitenessThe terms of the offer must be sufficiently definite to be ascertainable by the parties or by a court.

CommunicationThe offer must be communicated to the offeree.

How Intent to Form a Contract Is Measured in Other Countries

Courts in some nations give more weight to subjective intentions.

U.S.—routinely adhere to the objective theory of contracts. France—French law civil code prefers the subjective

interpretation of contracts. What problems may arise when a court attempts to look at the

subjective basis of a contract?

Termination of the Offer

An offer can be terminated by:Action of the Parties

An offer can be revoked or rejected at any time

before acceptance without liability. A counteroffer is a

rejection of the original offer and the making of

a new offer.

Operation of Law

An offer can terminate by (a) lapse of time, (b)

destruction of the specific subject matter of the offer, (c) death or

incompetence of the parties, or (d)

supervening illegality.

Drama in the law

Acceptance

Unequivocal Acceptance (mirror image rule) Communication of Acceptance Mode and Timeliness of acceptance (mail box rule)

John

Tia

JillOffers Bike to Jill for $100

Tia Accepts

Example: Ball writes Sullivan and asks about land Sullivan owns. Sullivan writes back “I will not take less than $60,000 for the land.” Ball sends a letter: “I accept your offer for $60,000.” Do they have a deal?

Consideration

Legally Sufficient Bargained for Exchange Detrimental to the Promisee or Beneficial to

the Promisor– Gifts

Example: Campbells rented land from Carr. Carr inherited the land and only visited it once as a child. Carr was schizophrenic and had depression. Carr contacted Campbells about selling the land. Campbells said it was assessed at $54,000 but that was the agricultural value and it was actually worth $103,700. A real estate appraiser found the real value at $162,000. Carr sold for $54,000. Will a court look at this?

“in consideration for …agreed to be legally

adequate” INSERT FROM ACTUAL CONTRACT

Hamer v. Sidway (1891)

Uncle agreed to pay nephew $5,000 if nephew agreed to stop drinking, smoking, & gambling until he reached 18.

Is there a contract? Consideration? In refusing to pay, the executor of the estate

argued that the promise resulted in neither a benefit to the uncle nor a detriment to the nephew (since it was good for him). What did the court rule?

How might one argue that this contract also benefited the promisor (Story, Sr.)?

Sufficiency of Consideration

To be legally sufficient, consideration must involve a legal detriment to the promisee, a legal benefit to the promisor, or both.

One incurs a legal detriment by doing something that one had no prior legal duty to do.

Contracts Lacking Consideration

A number of so-called contracts may lack the necessary consideration to make them legally binding.

These include:– Contracts to perform a Preexisting Duty– Contracts based on Past Consideration– Contracts containing Illusory Promises

Start here tues

Capacity

The third element required for the formation of a contract is contractual capacity, the legal ability to enter into a contractual relationship.

Three types of people who do not have the capacity to enter a contract are:

MinorsIntoxicated

Persons

Mentally Incompetent

Persons

Minors --

Return of Goods Necessity Ratification Disaffirmance

Intoxicated Persons

Lack Mental Capacity Impaired to the extent that the person did not

comprehend the legal consequences

Mentally Incompetent Persons

Contract Void: If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed.

Contract Voidable: If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences.

Contract Valid: If person is able to understand the nature and effect of entering into a contract yet lack capacity to engage in other activities.

Contracts Contrary to Statuteare void

USURYOccurs when a lender makes

a loan at an interest rate above the lawful maximum.

The maximum rate of interest varies from state to state.

GAMBLINGGambling contracts that

contravene (go against) state statutes are deemed illegal

and thus void.

LICENSING STATUTESContracts entered into by

persons who do not have a license, when one is required by statute, will not be enforceable

unless the underlying purpose of the statute is to raise

government revenues.

SABBATH LAWSLaws prohibiting the formation or the performance of certain contracts on Sunday. Such

laws vary widely from state to state, and many states do not

enforce them.

Contrary to Public Policy and Quasi Contract

Contrary to Public Policy– Restraint of trade

Covenant not to compete Cannot be unreasonable as to scope or duration

– unconscionable Adhesion Contract Exculpatory Clauses (covered in remedies)

Quasi Contract - Implied In Law– Quasi Contract– unjust enrichment

Third Party Rights(In Remedies Chapter 10 in Book)

There are two important exceptions to the rule of privity of contract:– Assignment– Delegation

Assignments

Assignor/Assignee. An assignment is the transfer of rights under a contract to a third party. The party assigning the rights is the assignor, and the party to whom the rights are assigned is the assignee.

Assignee Can Demand Performance. The assignee has a right to demand performance from the other original party to the contract.

Generally, all rights can be assigned, except in the following circumstances:

– When assignment is expressly prohibited by statute (for example, worker’s compensation benefits).

– When a contract is personal in nature (unless all that remains is a money payment).

– Where the assignment will materially increase or alter the risk or duties of the obligor.

– If a contract stipulates the right cannot be assigned, then ordinarily it cannot be assigned.

Delegation

Defined. A delegation is the transfer of duties under a contract to a third party (the delegate), who then assumes the obligation of performing the contractual duties previously held by the one making the delegation (the delegator).

Delegator Still Obligated. A valid delegation of duties does not relieve the delegator of obligations under the contract.

– If the delegatee fails to perform, the delegator is still liable to the obligee.

Third Party Beneficiaries

Intended beneficiary One for whose benefit a

contract is created. When the promissor fails to perform as promised, the third party can sue the promissor directly. (Examples of third party beneficiaries are creditor beneficiaries and donee beneficiaries.)

Incidental beneficiary A third party who indirectly

benefits from a contract but for whose benefit the contract was not specifically intended. Incidental beneficiaries have no rights to the benefits received and cannot sue to have the contract enforced.