Flashcards and Answers – Business Law Chapter 11
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Agreement
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The parties must agree on the terms of the contract and manifest to each other their mutual assent
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assent
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agreement
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Offer
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a promise or commitment to do or refrain from doing some specified action in the future
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Three elements that make an offer effective
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1) Offeror must have a serious intention to become bound by the offer 2) The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract 3) The offer must be communicated to the offeree.
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Intention
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Determined by what a reasonable person in the offeree's position would concluded that the offeror's words and actions meant.
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Expressions of opinion (is this an offer?)
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Is not an offer. It does not indicate an intention to enter into a binding contract
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Statements of future intent (Is this an offer?)
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Not an offer. I am THINKING about selling my stock for 150 dollars a share, no one can jump on that like it was an offer
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Preliminary Negotiations (Is this an offer)
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A request or invitation to negotiate is not an offer, it only expresses a willingness to discuss the possibility of entering into a contract. "I wouldn't sell my car for less than 5,000"
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Advertisements (Is this an offer)
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Treated not as offers to contract but as invitations to negotiate. Does not mean an advertisement cannot be an offer. Some ads contain definite terms (like lost dogs) and some are contracts (while supplies last)
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Auctions
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Seller "offers" a goods for sale through an auctioneer. It is an invitation for offers. The bidder becomes the offeror. When the auctioneer accepts the highest bid, he/she is rejecting all other offers.
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Auctions with reserve
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The seller may withdraw the goods at any time before the auctioneer closes the sale by announcement. If seller notifies the bidders, the may reserve the right to reject the sale "after the hammer has fallen"
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Auctions without reserve
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The goods cannot be withdrawn by the seller and must be sold to the person with the highest bid.
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Agreements to agree (are they contracts)
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Agreements to agree to the material terms of a contract at some future date. Traditionally not considered to be contracts. Modern view, however, is that agreements to agree may be enforceable agreements if it is clear that the parties intended to be bound by the agreements
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Definiteness of terms
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An offer must have reasonably definite terms so that a court can determine if a break has occurred and give an appropriate remedy
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Generally, a contract must include the following terms (4)
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1) The identification of the parties 2) The identification of the object or subject matter of the contract (also the quantity, when appropriate), including the work to be performed, with specific identification of such items as goods, services, and land. 3) The consideration to be paid 4) The time of payment, delivery, or performance
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Communication
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The offer must be communicated to the offeree. Ordinarily, one cannot agree to a bargain without knowing that it exists.
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Termination of the offer
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The power of acceptance does not continue forever, though. It can be terminated either by the action of the parties or by operation of law.
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Three ways of termination by action of the parties
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Revocation, rejection, or by counteroffer
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Revocation of the offer by the offeror
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The offeror's act of withdrawing (revoking) an offer is known as revocation. Usually can revoke the offer as long as the revocation is communicated to the offeree before the offer is accepted. Can be done by communication (I withdraw my previous offer of Oct 17th) or by performance of acts that are inconsistent with the existence of the offer (selling item to another party). General rule states that revocation becomes official when the offeree receives it (letter mailed on 1st, received on 3rd, it becomes official on 3rd).
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Irrevocable offers
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They cannot be revoked. Option contract.
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Option contracts
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Created when an offeror promises to hold an offer open for a specified period of time in return for a payment (consideration) given by the offeree. An option contract takes away the right of the offeror to revoke a contract.
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Rejection of the offer by the offeree
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If offeree rejects the contract the offer is terminated. Any subsequent attempt to accept will be construed as a new offer, since it gives the original offeror the power of acceptance.
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Counteroffer
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A rejection of the original offer and the simultaneous making of a new offer.
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Mirror image rule
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Requires the offeree's acceptance to match the offeror's offer exactly. Common law. Any changes terminates the original offer and creates a new one.
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Termination by operation of law (4 ways a contract is terminated)
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Can be terminated by 1) Lapse of time 2) Destruction of the specific subject matter of the offer 3) Death or incompetence of the offferor or the offeree. 4) Supervening illegality of the proposed contract (Prohibition)
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Lapse of time
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If offer states that it will be open for a certain period of time, the offer will be terminated after that point. If it is left open for a certain number of days, it starts after the offeree receives the offer. If the offer does not specify a certain time, the offer terminates at the end of a reasonable period of time.
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Destruction of the subject matter
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If someone is selling their dog, for example, and the dog dies, you can't sell it anymore
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Death or incompetence of the Offeror or offeree
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UNLESS THE OFFER IS IRREVOCABLE. A revocable offer is personal to both parties and cannot pass to the heirs, guardians, or estate of either
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Supervening illegality of the proposed contract
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Prohibition, caps on interest rates, etc,.
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Acceptance
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A voluntary act by the offeree that shows assent (agreement) to the terms of an offer. May consist of words or conduct.
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Unequivocal Acceptance
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Mirror image rule. If the acceptance is subject to new conditions or if the terms of the acceptance change the original offer, the acceptance may be deemed a counteroffer that implicitly rejects the original offer. Dissatisfaction is fine (I accept, but i wish i could pay less) as well as additional requests (I accept the contract, can I get a written statement)
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Silence as acceptance
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Silence may be an acceptance when an offeree takes the benefit of offered services even though he or she had an opportunity to reject them and knew that they were offered with the expectation of compensation. Prior dealings, for example, or if a student washes windows for money, taps on the window to get the persons attention, and they don't object.
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Communication of acceptance
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In a bilateral contract, communication of acceptance is necessary because acceptance is in the form of a promise (not performance) and the contract is formed when the promise is made (rather than when the act is performed). In a unilateral contract, acceptance is usually evident.
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Mode and timeliness of acceptance
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Timely in a bilateral contract if the acceptance is made before the offer is terminated.
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Mailbox rule
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Acceptance takes effect at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror. I.E., if send via mail, it is accepted when the letter is sent, not received.
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Express authorization
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When an offeror specifies how acceptance should be made and the contract is not formed unless the offeree uses that specified mode of acceptance
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Any reasonable means (acceptance)
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If the offeror does not expressly authorize a certain mode of acceptance, then acceptance can be made by any reasonable means.
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Substitute method of acceptance
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If the offeror authorizes one method of acceptance, but will accept another similar or faster way (UPS to FedEx)
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e-contracts
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Electronic contracts. Must meet the same basic requirements (agreement, consideration, contractual capacity, and legality)
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License (licensing)
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Right to use the software. For example, buying an app the customer is saying that they are purchasing for the right to use a software, they have no ownership of the app.
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Displaying the offer
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To avoid contract disputes, the seller's web page should contain the full contract so potential buyers are made aware to the terms to which they are assuming.
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Provisions to include (e-contracts)
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The seller needs to anticipate the terms he or she wants to include in a contract and provide them in the offer. At a minimum, should include 1) Acceptance of terms (a box that says I accept) 2) Payment (a provision specifying how payment must be made 3) Return policy (statement of refund and return policies) 4) Disclaimer (disclaimers of liability for certain uses of the goods) 5) Limitation on remedies (Specifying remedies available if goods are found defective) 6) Privacy policy (how the seller will use the info provided) 7) Dispute resolution (provisions relating to dispute settlement)
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Acceptance of terms
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A clause that clearly indicates what constitutes the buyer's agreement to the terms of the offer (the "I accept" button)
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Payment (e-contract)
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A provision specifying how payment for the goods must be made
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Return policy (e-contract)
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A statement of the seller's refund and return policies
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Disclaimer
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Disclaimers of liability for certain uses of the goods.
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Limitation on remedies
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A provision specifying the remedies available to the buyer if the goods are found to be defective or if the contract is other-wise breached.
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Privacy policy
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A statement indicating how the seller will use the info gathered about the buyer
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Dispute resolution
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Provisions relating to dispute settlement, such as an arbitration clause or a forum-selection clause
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Forum-selection clause
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Indicating the forum, in which contract disputes will be resolved. Helps avert future jurisdictional problems and helps ensure that the seller will not be required to appear in court in a distant state
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Choice-of-law clause
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In which the parties specify that any dispute arising out of a contract will be settled in accordance with the law of a particular state or country.
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Click-on agreements
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Courts used the Restatement of Contracts (compilation of common law contract principles) and UCC (Uniform commercial code) to conclude that a binding contract can be created by conduct, including clicking a "I accept" or "I agree" box to accept an online offer.
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Shrink-wrap agreement
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The terms are expressed inside the box in which the goods are packaged. Usually the party who opens the box is told that he or she accepts the terms y keeping whatever is in the box. The buyer accepts the terms of the contract by opening the software. Sometimes courts will not accept shrink-wrap agreements, for example, if the buyer discovers the clauses after the parties have entered into their contracts (over the telephone sale for example).
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Browse-wrap terms
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Do not require internet users to assent to the terms before, say, downloading or using certain software. Often are un-enforceable because they do not satisfy the agreement requirement of a contract
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e-signature
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An electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record
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Digitized handwritten signatures
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A graphical image of a handwritten signature. Often uses a digital pen and pad.
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cybernotary
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Legally recognized certification authority. Issues the key pair, identifies the owner of the keys, and certifies the validity of the public key. Proves that the signature was not forged.
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UETA
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Uniform Electronic Transactions Act. Adopted by 48 states. Among other things, declares that a signature may not be denied legal effect or enforceability solely because it is in electronic form
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E-Sign Act
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No contract, record, or signature may be "denied legal effect" solely because it is in electronic form. Some documents are exempt (court papers, divorce decrees, evictions, foreclosures, health-insurance terminations, prenuptial agreements)
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Partnering agreement
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A seller and a buyer who frequently do business with each other agree in advance on the terms and conditions that will apply to all transactions subsequently conducted electronically.
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Primary purpose of the UETA
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Remove barriers to e-commerce by giving the same legal effect to electronic records and signatures as is currently given to paper documents and signatures.
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Record
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Information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable (visual) form.
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Scope and Applicability of the UETA
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Does not create new rules but rather establishes that records, signatures, and contracts may not be denied solely for being electronic. Covers only electronic records and signatures RELATING TO A TRANSACTION.
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Transaction
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Defined as an interaction between two or more people relating to business, commercial, or governmental activities.
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E-Sign Act and the UETA
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If a state has signed the UETA (without modification), it will follow state law. Problem is, some states have modified the UETA. E-Sign act specifies that those exclusions will be preempted to the extent that they are inconsistent with the E-Sign Act's provisions. The state must not give greater legal status to one specific type of technology.
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UEFA with modifications (when does state govern and when does E-Sign govern)
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State law governs when the state's procedures or requirements are consistent with the E-Sign Act. The state does not give priority to one type of technology. The state law was enacted after the E-Sign and refers to it. The E-Sign Act governs if the modifications are inconsistent with the E-Sign Act.
