Contracts and E-Contracts

Unit III— Contracts and E-Contracts

Chapter 11: Nature and Terminology

OVERVIEW OF CONTRACT LAW

• Contract law is necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief
• Contract: a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty
  • Agreement that can be enforced in court
  • Formed by two or more parties who agree to perform or to refrain from performing some act now or in the future
• Objective Theory of Contracts- the element of intent to enter into legally binding contact

ELEMENTS OF A CONTRACT

Requirements of Valid Contract

1. Agreement- includes offer and acceptance
2. Consideration- something of value received or promised
3. Contractual Capacity- both parties must have capacity to do so
4. Legality- goal is legal

Defenses to the Enforceability of a Contract

• Even if all requirements met, contract is not enforceable without

1. Voluntary consent
2. Form- contract is in whatever form the law requires (i.e. writing)

TYPES OF CONTRACTS

Contract Formation

• Bilateral (promise for a promise) vs unilateral contracts (promise for an act)
  • Unilateral- promise formed not at moment when promises exchanged but when contract is performed
  • Offers normally revocable until act is substantially completed
• Formal vs Informal
  • Formal- requires special form or method of creation to be enforceable
    • Negotiable instruments- checks, CDs, etc
  • Informal- all other contracts
• Express vs Implied Contracts
  • Express- terms of agreement fully and explicitly stated
    • Leases
  • Implied- conduct of parties, rather than words, creates and defines terms

Contract Performance

• Executed (fully performed) vs Executory contract (not fully performed)

Contract Enforceability

Voidable contract- valid but can be voided at the option of one or both parties

Unenforceable contract- can’t be enforced due to legal defenses against it

Void contract- no contract at all

QUASI CONTRACTS

• Contracts implied by law, not actual contracts
• Equitable (fair) contracts rather than legal contracts
• Prevention of unjust enrichment

INTERPRETATION OF CONTRACTS

Plain Meaning Rule

If a court determines that the terms of the contract are clear from the written document alone, the plain meaning rule will apply, and the contract will be enforced according to what it clearly states.

Other Rules of Interpretation

If a court finds that there is a need to determine the parties’ intentions from the terms of the contract, the court will apply a number of well-established rules of interpretation. For example, one rule of interpretation states that specific wording will be given greater weight than general wording

Chapter 12: Agreement in Traditional and E-Contracts

AGREEMENT

• Parties must agree on the terms of the contract and manifest to each other their mutual assent (agreement)
• Agreement is evidenced by two events: an offer and an acceptance. One party offers a certain bargain to another party, who then accepts that bargain.

Requirements of the Offer

• Offer- promise or commitment to do or refrain from doing some specified action in future
• Party making offer= offeror, vs offeree
• Three requirements for an offer-

1. The 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

• Intent may be lacking
  • Expressions of opinion, statements of future intent, preliminary negotiations, invitations to bid, ads and price lists, live and online auctions
• Preliminary agreement is only binding if parties have agreed on ALL essential terms
• Definiteness of Terms- identification of parties, subject matter of contract and amount, consideration to be paid, and time of payment, delivery, or performance

Termination of the Offer

• Can be terminated by action of the parties or by operation of law

Termination by Action of the Parties

• Revocation- withdrawal as long as communicated to offeree before offeree accepts
  • Option contract- irrevocable, hold offer open for specified period of time in return for payment
• Rejection
• Counteroffer- rejection and then simultaneously making a new offer

Termination by Operation of Law

• Lapse of Time- period of time in the offer has passed, or passed reasonable period of time
• Destruction of specific subject matter of the offer
• Death or incompetence of either party- UNLESS offer is irrevocable
• Supervening illegality of the proposed contract- statute or court decision

Acceptance

• Voluntary act by offeree that shows agreement to terms of offer
• Offeree must accept unequivocally (without a doubt)
• Silence cannot mean acceptance unless prior dealings were made with offeror
• Mailbox rule- If the authorized mode of communication is the mail, then an acceptance becomes valid when it is dispatched (placed in the control of the U.S. Postal Service)—not when it is received by the offeror

AGREEMENTS IN E-CONTRACTS

• Must meet same basic requirements as paper contracts

Online Offers

Forum-selection clause- contracts indicate the forum (location) in which contract disputes will be disputed

Choice-of-law clause- specifies any contract dispute will be settled according to law of particular jurisdiction such as state or country

Online Acceptances

Click-on agreement- click on box that says “I accept”

Shrink-wrap agreement- terms expressed inside the box in which goods are packaged

Browse-wrap terms- often unenforceable because they don’t have agree requirement, do not require users to assent to terms before downloading

Federal Law on E-Sigs and E-Docs

• Federal E-SIGN Act: e-sig is as valid as signature on paper
• Does not apply to all types of documents (court papers, divorce decrees, evictions, wills)

THE UNIFORM ELECTRONIC TRANSACTIONS ACT

• Removes barriers to e-commerce by giving same legal effect to electronic records and signatures as is given to paper
• Only covers electronic records relating to a transaction

Chapter 13: Consideration

ELEMENTS OF CONSIDERATION

• Something of legally sufficient value must be given in exchange for the promise, and there must be a bargained-for exchange

Legally Sufficient Value

• A promise to do something that one has no prior legal duty to do.
• The performance of an action that one is otherwise not obligated to undertake
• The refraining from an action that one has a legal right to undertake (called a forbearance)

Bargained-for Exchange

• Must provide the basis for the bargain struck between the contracting parties.
• The item of value must be given or promised by the promisor (offeror) in return for the promisee’s promise, performance, etc
• Distinguishes contracts from gifts

Adequacy of Consideration (fairness)

• Relates to how much consideration is given and whether a fair bargain was reached

AGREEMENTS THAT LACK CONISDERATION

Preexisting Duty

A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration

Past Consideration

Promises made in return for actions or events that have already taken place are unenforceable. These promises lack consideration in that the element of bargained- for exchange is missing. In short, you can bargain for something to take place now or in the future but not for something that has already taken place. Therefore, past consideration is no consideration

Illusory Promises

If the terms of the contract express such uncertainty of performance that the promisor has not definitely promised to do anything, the promise is said to be illusory— without consideration and unenforceable.

Option to Cancel Clauses- promise is illusory

SETTLEMENTS OF CLAIMS

Enter into contracts to settle legal claims

Claim can be settled through-

• Accord and satisfaction
• Release
• Covenant not to sue

Accord and Satisfaction

• A debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally claimed was owed. The accord is the agreement.
• If a debt is liquidated, accord and satisfaction cannot take place. A liquidated debt is one whose amount has been ascertained, fixed, agreed on, settled, or exactly determined.

Release

• A contract in which one party forfeits the right to pursue a legal claim against the other party. It bars any further recovery beyond the terms stated in the release.

Covenant Not to Sue

• Unlike a release, a covenant not to sue does not always bar further recovery.
• The parties simply substitute a contractual obligation for some other type of legal action based on a valid claim.

EXCEPTIONS TO THE CONSIDERATION REQUIREMENT

Can be enforced despite lack of consideration-

1. Promises that induce detrimental reliance, under the doctrine of promissory estoppel.
   1. Person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery.
2. Promises to pay debts that are barred by a statute of limitations.
   1. Promises to pay a previous debt even though recovery is barred by the statute of limitations makes an enforceable promise. The promise needs no consideration.
3. Promises to make charitable contributions
   1. A promise to make a donation to a religious, educational, or charitable institution

Chapter 14: Capacity and Legality

CONTRACTUAL CAPACITY

Minors

• Under 18, can enter into any contract than an adult can except contracts prohibited by law for minors but are voidable
• Disaffirmance (legal avoidance of contractual obligation)- minor just needs to express intent through words or conduct not to be bound to the contract
• Exceptions to the rules of disaffirmance-
  • Misrepresentation of age (or fraud)—In many jurisdictions, misrepresentation of age prohibits the right of disaffirmance.
  • Necessaries—Minors can disaffirm, but remain liable for the reasonable value of necessaries (basic needs, goods and services).
  • Ratification—After reaching the age of majority, a person can ratify a contract that he or she formed as a minor, thereby becoming fully liable for it

Intoxication

• If the person was sufficiently intoxicated to lack mental capacity, then the agreement may be voidable even if the intoxication was purely voluntary. If, despite intoxication, the person understood the legal consequences of the agreement, the contract will be enforceable.
• After becoming sober, a person can ratify a contract that she or he formed while intoxicated, thereby becoming fully liable for it

Mental Incompetence

• Void- If a court has previously determined that a person is mentally incompetent, any contract made by that person is void
• Voidable- If a court has not previously judged a person to be mentally incompetent but the person was incompetent at the time the contract was formed, the contract may be voidable.
• Valid- A contract entered into by a mentally ill person (not previously declared incompetent) may be valid if the person had capacity at the time the contract was formed.

LEGALITY

• A contract to do something that is prohibited by federal or state statutory law is illegal and, as such, void from the outset and thus unenforceable.
• Additionally, a contract to commit a tortious act (such as an agreement to engage in defamation or fraud) is contrary to public policy and therefore illegal and unenforceable

Contracts Contrary to Statute

• Contracts to commit a crime
• Usury- lender who makes loan at interest rate above lawful max
• Gambling
• Licensing statutes- whether a contract with an unlicensed person is legal and enforceable depends on the purpose of the licensing statute

Contract Contrary to Public Policy (negative impact on society)

• Contract in restraint of trade- anticompetitive
• Unconscionable contracts or clauses
  • In certain circumstances, bargains are so oppressive that the courts relieve innocent parties of part or all of their duties. Such bargains are deemed unconscionable because they are so unscrupulous or grossly unfair as to be “void of conscience”
  • Procedural unconscionability- a contract is entered into, or a term becomes part of the contract, because of a party’s lack of knowledge or understanding of the contract
  • Substantive unconscionability- a contract, or one of its terms, is oppressive or overly harsh
• Exculpatory clauses
  • Releases a party from liability in the event of monetary or physical injury no matter who is at fault, may be deemed unconscionable
  • Unenforceable
• Discriminatory Contracts

Effects of Illegality

• Illegal contract is void
• The main reason for this hands-off attitude is the belief that a plaintiff who has broken the law by entering into an illegal bargain should not be allowed to obtain help from the courts.

Mistakes of fact vs value

Unilateral mistake- no relief

Bilateral mistake

Fraudulent Misrepresentation

Contracts that require writing-

Interest in land

Cannot be performed within a year