Elements of a valid offer

BBA 3210, Business Law 1

Course Learning Outcomes for Unit IV Upon completion of this unit, students should be able to:

7. Explain the basic elements of forming an enforceable contract. 7.1 Recognize the rules that guide the interpretation of contracts. 7.2 Identify the elements of a valid offer and a valid acceptance. 7.3 Distinguish the various forms of consideration.

Reading Assignment Chapter 9: Introduction to Contracts and Agreement, pp. 173–189 Chapter 10: Consideration, pp. 192–203

Unit Lesson Definition of a Contract A contract is “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 a duty” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 174). Contracts are pervasive in business relations. This unit introduces the sources of contract law and then describes how contracts are classified. The rules that guide the interpretation of contracts are essential to the understanding of contracts. First of all, let it be known that contracts are a part of our everyday lives. Contracts evolve from an ongoing process of collaboration, trust, promise, and credit. As business leaders, we need to fully understand how contracts are created, how are they enforced, consequences for breaking contractual promises, and our role in the contract. Preconceived notions of what comprises a legal contract are often wrong. Humans speak and act ambiguously and make assumptions that are often incorrect. In the business world, people often mistake an offer for negotiation or a bid. The principles of contract law include the legal guidelines for determining when an offer has been made and accepted and define the important component of consideration. The four elements of a contract are agreement, consideration, legal purpose, and capacity. Bilateral versus Unilateral Contracts The most common type of contract is the bilateral contract, which is defined by Kubasek et al. (2016) “as a promise exchanged for a promise” (p. 176). Courts favor this type of contract because the law attempts to provide some type of protection from the risk of revocation by the offeror (i.e., the one who makes the offer). A good example of a bilateral contract is the sale of an automobile. The buyer promises to pay the seller $20,000 in exchange for the seller’s promise to provide the legal title to the automobile. In a unilateral contract, only one party makes the promise. An example is the reward contract described in the textbook. Jim loses his dog and posts a sign stating “$50 reward for the safe return of my dog.” When someone says to Jim, “I promise to find your dog for you,” this does not form a bilateral contract. Rather, the unilateral offer of the sign calls for an action—not a promise. Once the finder brings the dog to Jim, that is when a contract is formed and when Jim must pay. In everyday life, the most common type of unilateral contract is the insurance contract. The insurance company promises to pay the insured a stated amount of

UNIT IV STUDY GUIDE

Contracts Part I: The Nature of Contracts and Agreements

BBA 3210, Business Law 2

UNIT x STUDY GUIDE

Title

money in the event of something happening. All the insured has to do is pay the premium. It is important to recognize that the insured does not actually promise to pay the premium (i.e., this is not a promise for a promise). Quasi-Contract It is possible for a contract to exist when neither party involved makes a promise. These are cases where a court will create a contract between the parties to prevent unjust enrichment such as one side obtaining a windfall at the expense of the other. For example, an electrician spots a hazardous, exposed wire when replacing a light fixture. He replaces the wire in addition to replacing the light fixture. Although the wire repair was not specifically contracted for, a quasi-contract is implied, for which the owner must pay the electrician. If the electrician sues for non-payment, a court could find in his or her favor under the theory of quasi-contract. The court would create an enforceable implied contract. Offer The elements of a valid offer are intent, definite and certain terms, and communication to the offeree. An offer can be terminated by revocation by the offeror, rejection by the offeree, death or incapacity of the offeror, destruction or subsequent illegality of the subject matter, or lapse of time or failure of another condition specified in the offer. The elements of acceptance of an offer are manifestation of intent to be bound, acceptance of definite and certain terms, and communication to the offeror. The acceptance of definite and certain terms in a bilateral contract is subject to the mirror-image rule. Specifically, the terms of the acceptance must be exactly the same terms as those of the offer. If the terms do not match each other, no contract is formed, and the attempted acceptance is considered to be a counter-offer. Consideration Consideration is the glue that binds an agreement. It is what a person will receive in return for performing a contract obligation. Consideration can be a benefit to the promisor, a detriment to the promise, a promise to do something, or a promise to refrain from doing something (i.e., forbearance). For an example of forbearance, see Case 10-1: “Hamer v. Sidway, New York Court of Appeals 124 N.Y. 538 (1891),” found on page 194 in the textbook. Situations involving illusory promises or past consideration are common. The law does not value illusory promises as consideration because they are promises that appear to be promises but do not, in fact, promise anything at all. Similarly, past consideration is also no consideration at all. For a promise to be enforceable, there must be a bargaining and an exchange. A promise cannot be based on consideration that was provided before the promise was made. This was the reality Jamil Blackmon faced when he sued his friend and NBA star Allen Iverson. This is the subject of the 2003 federal court case, Case 10-3 on pages 198-199 of the textbook. For Mr. Blackmon to have received a favorable ruling in this case, the contract would have had to be formed before the disclosure of the idea to use “The Answer” as a nickname or slogan. Last, a promise to do something that is already an obligation is not valid consideration.

References

Fried, C. (1981). Contract as promise: A theory of contractual obligation. Cambridge, MA: Harvard University Press.

Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The

essentials (3rd ed.). New York, NY: McGraw-Hill Education.

BBA 3210, Business Law 3

UNIT x STUDY GUIDE

Title

Suggested Reading For us to fully understand the impact contract law can have on leaders, we need to be aware of past situations or cases. Access the Mariano Castillo CNN article below to study contract law further: Castillo, M. (2009, December 31). Letter: Texas Tech coach fired for breach of contract. Retrieved from

http://www.cnn.com/2009/US/12/31/texas.tech.leach/index.html?iref=allsearch

Learning Activities (Non-Graded) Construct a PowerPoint presentation entitled “Contracts.” The presentation should include six slides:

 Slide 1: Title slide (name of the presentation, your name, university’s name)

 Slide 2: Purpose of the presentation

 Slide 3-5: Compare and contrast bilateral contracts, unilateral contracts, and quasi-contracts.

 Slide 6: References (Use APA format to identify the sources used for the presentation.)

Be sure to use the note section for each slide to include the actual script you would use while presenting the slides; be clear and concise. Non-graded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.

http://www.cnn.com/2009/US/12/31/texas.tech.leach/index.html?iref=allsearch