An introduction to the fundamentals of dynamic business law and business ethics chap008

I have decided that I will sell my Marantz 4400 to Edward for $200.. It’s worth at least $600, and it’s the only Marantz receiver that I own, but I’ve decided that I would like to conti

Chapter 8

Introduction to Contracts and

Agreement

Chapter 8 Case Hypothetical

Zsa Zsa Hilton, a wealthy socialite living in Beverly Hills, was frantic Her best friend in

the world was her pet poodle Caboodles, and Caboodles had been missing for three (3)

days Having searched her estate exhaustively, Zsa Zsa decided that her next best

option was to post a reward for her beloved Caboodles

Zsa Zsa carefully prepared a poster advertising a reward for the return of her pet The

heading of the poster exclaimed “Please find Caboodles—Reward $25,000!!!” Below the heading was a color “glamour shot” of the animal and Zsa Zsa’s contact information,

including her address and cell phone number After soliciting the assistance of her butler, her maid, and her best friend Eva Ritchie, Zsa Zsa displayed and distributed one

thousand of the posters throughout the greater Beverly Hills metropolitan area

Later in the week, Dane “Bulldog” Sheppard showed up at Zsa Zsa’s front door When

she answered the door chime, Dane said “I am pleased to meet you, Ms Hilton I saw

your ad for the return of your lost poodle, and I am your man I will find him, Ms Hilton,

and let me say in advance that I really appreciate the $25,000 bounty, um, reward

money!”

Is there a contract between Dane “Bulldog” Sheppard and Zsa Zsa Hilton?

Chapter 8 Case Hypothetical

Carter Morley and Erena Erickson live side by side in town homes joined together by a shared wall

Both residences are in need of new exterior paint On Monday, Morley calls a painter, Tom

Sizemore, having selected his name from the classified section of the phone directory Morley

describes his address, the physical dimensions and structure of his home, and he agrees with

Sizemore that the work will be performed that Friday Sizemore estimates that with his crew of five,

and given the relatively small size of the home, the work will only take one day to complete Morley

advises that although he will have to work a fourteen-hour day on Friday, he would like to have the

work completed in his absence In passing conversation with his neighbor Erickson, Morley advises

her of his “home improvement” plans.

Early Friday morning, Sizemore and his team arrive at the address, but by mistake, they begin work

on Erickson’s side of building Although Erena is home, she does not object to the work, nor does

she inform Sizemore and his crew of the mistake Midway through the day, she offers them

fresh-squeezed lemonade and ham sandwiches, and they heartily accept.

Upon completion of the work at 7:00 p.m Friday evening, Sizemore knocks on Erena’s door and asks

if “the man of the home” is present, that he would like Morley to review the work and pay the

agreed-upon price for the work Erena chuckles, and “breaks the news” that the painting crew has made a

mistake, one to her benefit Erickson proclaims “I do not owe you one dime, because you do not

have a contract with me; I will give you ten minutes to remove yourself and your materials from my

property, or I will call the police.”

Do Erickson and Sizemore have a contract? If so, why? If not, are there any other theories of

Chapter 8 Case Hypothetical

Tom Garrity, Bill Simmons, and Edward Yang were close friends Their friendship had developed over their mutual

love for vintage stereo equipment, and the three often spent hours with each other, admiring their electronic

collections, monitoring online auctions for vintage receivers and speakers, and playing music On several occasions,

Edward expressed his interest in a particular stereo receiver Tom owned, the classic Marantz Model 4400 Edward

often told Tom that if he ever wanted to sell the receiver, he would like to be first considered as the buyer.

Last Saturday morning, Tom and Bill were at Tom’s house During their conversation, Tom stated “Bill, I know how

much Edward loves my Marantz 4400 receiver, and I have too much stereo equipment in the house In fact, Sarah

(Tom’s wife) has given me an ultimatum: Either a good portion of the receivers and speakers go, or I go! I have

decided that I will sell my Marantz 4400 to Edward for $200 It’s worth at least $600, and it’s the only Marantz receiver that I own, but I’ve decided that I would like to continue to live in this house, and my wife hasn’t given me any other

options except to sell some of this stuff!”

Later that day, Edward appeared at Tom’s house Edward enthusiastically proclaimed “Tom, Bill told me about your

offer, and I will take the Marantz 4400 for $200 This is the classic receiver as far as I am concerned, and I am forever grateful to you! I promise I will take care of it, and you can have lifetime visitation rights! Oh, and please tell Sarah I

said ‘thanks’!”

Tom was perplexed After his conversation with Bill on Saturday morning, he had decided to keep the Marantz 4400,

and sell all of his other receivers He knew that his next statement would test Edward’s friendship: “Edward, I’m sorry, but I have decided not to sell the Marantz 4400 We can discuss selling any of my other receivers, but the Marantz is

‘off-limits’.” Edward’s reply? “We have an agreement, Tom You made me an offer, and I accepted your offer Here is the $200 Where is the receiver?”

Is there a contract between Tom Garrity and Edward Yang?

Chapter 8 Case Hypothetical

Keith Avondale is in the market for a new “big screen” flat-panel television While

reviewing the Sunday newspaper, he notices a full-page advertisement from “Transistor

Town.” The advertisement includes a 45-inch flat-panel television for $299 Surprised by the remarkably low price, and eager to purchase his new luxury item, Avondale makes

plans to “open the store” on Monday morning

Avondale is the first customer to arrive at the store on Monday, waiting outside when the front doors open He rushes into the store and announces to the first sales

representative he sees, “I will take a 45-inch flat-panel television for $299!”

The sales representative immediately refers Avondale to the store manager, who directs

Avondale to his office The store manager explains to Avondale that the advertisement

was an unfortunate mistake, resulting from miscommunication between Transistor Town

and the newspaper publisher The manager goes on to say that the intended advertise

price was $2,999, but that he would be willing to sell the described television to Avondale for $2,449, Transistor Town’s cost for the television Avondale objects, demands that

Transistor Town sell the television for $299, and informs the store manager that his

brother is a trial lawyer

Who wins?

Contract

Definition: A set of legally

enforceable promises

Elements Required For Contract

Formation

• Agreement (Offer and Acceptance)

• Consideration (Bargained-For Exchange)

• Contractual Capacity (Legal Ability to Enter

Into Binding Contract)

• Legal Object

Defenses to Enforcement of Contract

• Lack of genuine assent (fraud, duress,

undue influence, misrepresentation)

• Lack of proper form requirements

(statute of frauds writing requirement)

Sources of Contract Law

• State common law

• The Uniform Commercial Code

(Article 2)

-Governs contracts for the sale of

goods

Classification of Contracts:

Bilateral or Unilateral

• “Bilateral” Contract: Exchange of

promises

• “Unilateral” Contract: Promise in

return for performance of act

Classification of Contracts:

Express or Implied

• “Express” Contract: Based on written or

spoken words

• “Implied” Contract: Based on conduct or

actions

-“Quasi-Contract” (“Implied-in-law” contract):

Imposed in certain cases to avoid unjust enrichment, even if all elements of contract formation not satisfied

Classification of Contracts:

Valid, Void, or Voidable

• “Valid” Contract: All elements of contract

formation satisfied

• “Void” Contract: Illegal purpose/subject

matter; unenforceable

• “Voidable” Contract: One or both parties

can withdraw from contract

Classification of Contracts:

Executed or Executory

• “Executed” Contract: All terms of

contract fully performed

• “Executory” Contract: Some duties

under contract not performed by

one/both parties

Classification of Contracts:

Formal or Informal

• “Formal” Contract: Must meet special form

requirements

-Examples: Contracts under seal,

“recognizances,” letters of credit, and

negotiable instruments

• “Informal” Contract: No formalities required

in making; a “simple” contract

The Agreement: Offer and

Acceptance

Elements of a Valid Offer

• Manifestation of offeror’s intent to be bound

-Intent determined by objective, “reasonable

person” standard

-Preliminary negotiations and advertisements do

not constitute offers

• Definite and certain terms (including subject

matter, price, quantity, quality, and parties)

• Communication of offer to offeree (or

offeree’s agent)

• Auction With Reserve

-Seller merely expresses intent to receive

offers

-Auctioneer (as representative of seller) may

withdraw item from auction at any time before

“hammer falls”

-Before hammer falls (signaling acceptance of

offer), bidder/offeror may revoke bid

• Auction Without Reserve

-Seller must accept highest bid

Termination of Offer

• Revocation by Offeror

• Rejection by Offeree

• Death/Incapacity of Offeror

• Destruction/Subsequent Illegality of

Subject Matter of Offer

• Lapse of Time/Failure of Condition(s)

Specified in Offer

• Represents offeree’s intent to be bound by terms of

offer and resulting contract

• Silence generally does not constitute acceptance

• Terms of acceptance must be identical to terms of

offer (“Mirror-Image” Rule)

• Effective when communicated by offeree to offeror

• If no method of communicating acceptance specified

in offer, any reasonable means of acceptance

effective (Examples: telephone, mail, fax, e-mail)

The Mailbox Rule

Acceptance by mail effective when

placed in mailbox; however, revocation

of offer effective only when received by

offeree