Bilateral or Unilateral Contract, law homework help

Bilateral or Unilateral Contract, law homework help

Prepare answers to the following chapter-end Critical Legal Thinking Cases from this week’s reading.

  • Case 9.2: Bilateral or Unilateral Contract on page 179

9.2 Bilateral or Unilateral Contract G. S. Adams, Jr., vice president of the Washington Bank & Trust Co., met with Bruce Bickham. An agreement was reached whereby Bickham agreed to do his personal and corporate banking business with the bank, and the bank agreed to loan Bickham money at 7.5 percent interest per annum. Bickham would have ten years to repay the loans. For the next two years, the bank made several loans to Bickham at 7.5 percent interest. Adams then resigned from the bank. The bank notified Bickham that general economic changes made it necessary to charge a higher rate of interest on both outstanding and new loans. Bickham sued the bank for breach of contract. Was the contract a bilateral or a unilateral contract? Does Bickham win? Bickham v. Washington Bank & Trust Company, 515 So.2d 457, Web 1987 La.App. Lexis 10442 (Court of Appeal of Louisiana)

  • Case 10.2: Agreement on page 194

10.2 Agreement Wilbert Heikkila listed eight parcels of real property for sale. David McLaughlin submitted written offers to purchase three of the parcels. Three printed purchase agreements were prepared and submitted to Heikkila, with three earnest-money checks from McLaughlin. Writing on the purchase agreements, Heikkila changed the price of one parcel from $145,000 to $150,000, the price of another parcel from $32,000 to $45,000, and the price of the third parcel from $175,000 to $179,000. Heikkila also changed the closing dates on all three of the properties, added a reservation of mineral rights to all three, and signed the purchase agreements.

McLaughlin did not sign the purchase agreements to accept the changes before Heikkila withdrew his offer to sell. McLaughlin sued to compel specific performance of the purchase agreements under the terms of the agreements before Heikkila withdrew his offer. The court granted Heikkila’s motion to dismiss McLaughlin’s claim. McLaughlin appealed. Does a contract to convey real property exist between Heikkila and McLaughlin? McLaughlin v. Heikkila, 697 N.W.2d 231, Web2005 Minn. App. Lexis 591 (Court of Appeals of Minnesota)Your responses should be well-rounded and analytical, and should not just provide a conclusion or an opinion without explaining the reason for the choice.

For full credit, you need to use the material from the week’s lectures, text, and/or discussions when responding to the questions. It is important that you incorporate the question into your response (i.e., restate the question in your introduction) and explain the legal principle(s) or concept(s) from the text that underlies your judgment.

For each question you should provide at least one reference in APA format (in-text citations and references as described in detail in the Syllabus). Each answer should be double-spaced in 12-point font, and your response to each question should be between 300 and 1,000 words in length.

Submit this assignment as a single Word document covering both cases.

Note: Please be sure you refer to the numbers that appear on the printed pages in your electronic readings, not the numbers that appear with the navigation icons.

Week 3 Lecture:

Using Contracts To Do Business

Business people rely on voluntary agreements with others (suppliers, customers, and so forth) to do business and to meet their business plans. Contracts are about the formation and keeping of promises, promises that look to the future. Commerce cannot advance unless people are bound to their promises and remedies are available against those who break their promises.

Sometimes a dispute arises over whether a valid contract was formed at all. To form a contract, one person, known as the offeror, offers a promise to another party, known as the offeree. The offer might be to purchase or sell some merchandise, supplies, or other property, or it might be to hire or be hired to perform some service, or it might be to forebear from doing something that party is otherwise entitled to do. Whatever the subject matter of the contract is, the focus is on performance in the future. The science of management would fail if contract law didn’t allow people to make promises for future performance and provide them with a remedy against the other party if that future performance did not materialize.

Contract administration is an important function in all business organizations. Those involved in negotiating, approving, drafting, or signing contracts on behalf of the organization must understand the formation requirements for a contract, defenses to contract formation and performance, and the remedies available if a contract is breached. Businesspeople must also be comfortable working with contract documents and able to make necessary changes to tailor form documents to the transaction at hand.

Forming Business Contracts

To form a contract, several elements must be satisfied, specifically

  1. legally competent parties;
  2. forming a genuine agreement (an offer by one, accepted by another);
  3. involving a legal transaction; and
  4. supported by consideration, an exchange of something of value between them.

So, formation of a valid contract requires contractual capacity, agreement, legality, and consideration. Assuming for now that our parties are legally capable of entering into a valid contract involving legal subject matter, our basic question is whether the parties formed an agreement that involved consideration. Consideration is anything of value that the parties agree to exchange in the future. It is important to note here that the court will not venture to value consideration. Consideration’s value is in the eye of the beholder. This is particularly important because the element of exchange is more important than the actual value of the consideration. Additionally, consideration can take the form of the expected monetary or other forms, such as agreeing to give up certain rights (forbearance).

For example, consideration can consist of

  • money for property (I offer to buy your house for $249,900),
  • money for services (I offer to pay you $50 each week for an hour-long violin lesson),
  • property for property (I offer you my big screen high-definition TV in exchange for that Oriental rug in your dining room),
  • property for services (You can have my fly fishing rod and reel collection if you mow my lawn every week this year),
  • services for services (I’ll mow your lawn every week for the rest of this year if you babysit my children all day on the first Saturday of every month), or
  • money, property, or services for a forbearance (I’ll pay you $100 if you can give up smoking for six months).

The consideration cannot have been performed before the promise is made (In recognition of your giving me a ride to work every day for the last four months, I promise to pay you $100) because there is no bargained-for-exchange in such a promise—it’s essentially a gift promise, and most gift promises are not enforceable. The consideration also cannot be the same as that given for a promise you have already made to someone else (I promise to pay you $100 if you take that business trip you’ve already promised to make for your employer), and it cannot be a promise that is totally subjective (I promise to pay you if I like your work).

The parties must also agree on their deal with each other. The offeror makes the offer, a proposal that must involve subject matter that is definite and certain. My offer to buy a car is not a valid offer because no particular car is identified. My offer to buy your car involves definite and certain subject matter, assuming you have only one car. Therefore, it follows that just because someone is in business does not mean that prospective customers entering the business premises are thereby offering to purchase anything.

Example

On one Saturday morning, Ted visits a website that sells books, drops by a neighborhood grocery store and eats food samples, then stops by a car dealership. By visiting these places, Ted is not offering to buy a book, buy any food or groceries, or buy a car. Until Ted places an order for a particular book, takes particular groceries to the checkout counter, or offers to buy a particular car on the lot, there is no definite and certain subject matter, and therefore no offer.

The offer might request performance by the offeree (If you will paint my office by the end of the month) or it might request a return promise (If you will promise to paint my office by the end of the month). If the offer requests performance, it is an offer to a unilateral contract, a promise in exchange for performance of some kind. Until the other party substantially undertakes performance, no contract is formed. If the offer requests a return promise, it is an offer for a bilateral contract; a promise in exchange for a promise. Bilateral contracts are formed as soon as the promises are exchanged. The distinction is not merely academic: The sooner a contract is formed, the sooner it can be breached. Keep in mind that contracts should include provisions for breach in the event a party does not follow through. This is a particularly important point to bear in mind as contracts are drafted to ensure that your rights are protected in the undesirable but sometimes inevitable breach.

Example

Zell promises Stern $1,000 if Stern paints Zell’s office. This is an offer for a unilateral contract. If Stern never paints the office, he has not breached any contract because he never promised or was asked to promise anything. If Stern begins painting Zell’s office, he is accepting Zell’s offer by performance and will be given a reasonable time to complete the paint job, at which time, Zell will owe the $1,000. If instead, Zell had sought a promise from Stern to paint the office, and Stern promised to do so, a bilateral contract would be formed, and if Stern failed to paint the office, he would be in breach of the contract, entitling Zell to remedies.

An offer must be communicated to the offeree somehow. The offeror may specify how acceptance is to occur, such as by return mail or by clicking ‘I agree’ on a website. If the offeror does not specify the means for acceptance, the offeree may accept the offer by using any reasonable means, including the same means the offeror used to communicate the offer, or any means at least as fast as the offeror communicated the offer.

Example

Jack mails Jan an offer to purchase her computer. Jan decides to accept the offer, promising to sell the computer for the price offered. She sends her acceptance by FedEx. Even though the offer was not sent by FedEx, since FedEx is at least as fast as ordinary mail, Jan accepted Jack’s offer using an appropriate means, because Jack did not specify a particular means for acceptance. Jan could also have accepted this offer by phone, by fax, or by e-mail.

If only one item is offered, whether it is a car, a computer system, or anything else, there is a presumption that only one person can accept it. One person’s acceptance terminates the offer. When merchants advertise bulk products, whether it’s paint, hamburgers, or staplers, the ads themselves are not considered offers. This is because the quantity of items available might be less than the number of potential acceptances. Therefore, the ads, as well as price lists and catalogs, are considered solicitations to offer, and the customer who seeks to purchase the advertised item makes the actual offer.

Example

Paint Depot advertises a paint sale on high gloss paint. Sharee sees the sale flyer and visits Paint Depot, requesting five gallons of the white high gloss paint that’s on sale. Sharee is the offeror. Sharee is essentially saying, I offer to purchase at the sale price you advertised, five gallons of your high gloss paint. If Paint Depot has sufficient stock, it will accept Sharee’s offer and sell her the paint. If it’s out of paint, it will reject Sharee’s offer, because the subject matter she wants doesn’t exist at that time.

Sometimes an offeree wants more time to think about accepting an offer, but doesn’t want anyone else to accept the offer while they are still thinking about whether to accept it. The offeree may enter into an option contract with the offeror to keep the offer open for some stated time period. An option contract must involve some consideration, usually money, being given to the offeror. If no option contract exists, an offeror has a right to accept an offer from anyone, even though someone else may have said they are thinking about it. It is important to remember that an option contract is a fully executed contract independent of the contemplated contract and does not obligate the parties to follow through on the contemplated contract but rather is an agreement to hold the offer open to the party holding the option.

Example

Taylor offers to sell her home for $250,000. The home is in a highly desirable neighborhood where homes sell quickly, and the price is very competitive. Josh wants to buy Taylor’s house, but needs a few days to think about it. He and Taylor agree to an option contract by which he pays Taylor $3,000 not to sell the house to anyone for 72 hours. Taylor is now bound by the option contract. She may not sell the home to someone else within the next 72 hours. If Josh decides to not buy Taylor’s house, he is not entitled to any refund of the $3,000. On the other hand, if Josh had simply told Taylor that he “was thinking about” buying her house and would “let her know tomorrow,” Taylor would not be obligated to turn down other offers because Josh has not given her any consideration for keeping the offer open for a day.

The offeree’s acceptance must be unequivocal, but it need not be enthusiastic. Through words or conduct, it must be objectively clear that the offeree has accepted the offer. A statement such as, I really think it’s overpriced, but I’ll take it for $5,000 is just as effective as an acceptance (assuming we know what “it” is), as a statement such as, Great! I’ll take it for $5,000. Ambiguous language may not be an acceptance at all.

Example

Avery sought bids from landscapers. Trace offered to landscape her yard for $3,000, work to be completed within 30 days. Avery’s response was, “Well, yes, that’s good, but are you sure that will work for you?” This response is not an acceptance. It does not objectively manifest his intent to form a contract. The parties are still negotiating.

Sometimes the parties transmit their offers, counteroffers, and negotiations using mail, faxes, e-mail, and other means of communication. A problem arises when communications cross in transmission. By making an offer, the offeror has placed it out there for acceptance by the offeree. The offeree might send the offeror an acceptance of the offer. Until there is an acceptance by someone; however, an offeror has a right to revoke an offer. The offeror might send the offeree a notice of revocation of the offer. When an offeror’s revocation and offeree’s acceptance cross in transmission, we need to determine whether a contract has formed. A rule of the common law of contracts, known as the mailbox rule, holds that an acceptance is effective upon post (when it is sent), whereas a revocation of an offer is effective upon receipt by the offeree.

Example

Alecia offers Sandy $100 to tutor Alecia’s son on Saturday afternoons. The offer is sent by mail, and contains Alecia’s e-mail address. Sandy receives it and e-mails back a message, “I accept your offer. I’ll be there this Saturday to get started.” In the meantime, Alecia has second thoughts and faxes Sandy a notice that she’s revoking the offer. Sandy’s e-mail was sent on the 2nd of the month, but Alecia didn’t see it until the 3rd, because she wasn’t checking her e-mail. Alecia’s fax was sent on the 1st of the month, but Sandy didn’t receive it until the 4th because the fax machine is at her office and it was a holiday weekend. A contract was formed in this situation under the mailbox rule. Sandy’s acceptance was effective on the 2nd, when she sent it, and Alecia’s revocation of her offer wasn’t effective until the 4th, when Sandy received it.

Sometimes the parties, due to one formation problem or another, do not form a contract. Nonetheless, a court may allow one party to recover from another based on a theory known as quasi-contract. Quasi-contract is not a contract at all, but rather a fictional contract imposed by courts to treat the parties as though they had entered into a contract. This is based on public policy notions against allowing one party to be unjustly enriched at the expense of the other party.

Example

Pedro suffers a concussion as a result of losing control of his dirt bike while driving off-road. He is muttering nonsense when Billy Bob drives up in his pick-up truck. Billy Bob takes Pedro to the hospital and his dirt bike to his repair shop. He makes $200 of repairs. No contract for repairing the dirt bike formed here because Pedro was clearly not capable of voluntarily entering into a contract, given his condition. Nonetheless, Pedro will owe Billy Bob $200 for the dirt bike repairs under the doctrine of quasi-contract.

Flexible budget variance results when the actual amount differs from the flexible budget amount.

Capacity and Legality

As the example just above indicates, if one of the parties does not have legal capacity to form a valid contract, no enforceable contract will be formed. Legal capacity issues are essentially about one of two problems: age or mental impairment. A person under the age of 18 is a minor, and a minor does not have legal capacity to enter into most contracts. This does not prevent you or me from making a contract with a minor. It means that if we make a contract with a minor, the minor may walk away from it—the legal term is disaffirmance. A minor may disaffirm the contract anytime before he reaches age 18 and for a reasonable time thereafter, generally a few weeks or months. So, if you choose to make contracts with minors, you need to realize that they might walk away, and you won’t be able to sue them for breach of contract. When a minor disaffirms on a contract to sell something, such as a car, the minor must return the car. Problems arise when the car was sold intact but has since been damaged. Different states have different rules on how this is handled. The fact that a minor may disaffirm a contract doesn’t mean that you, as a person of legal age, may walk away from a contract with a minor. If you make a contract with a minor, and the minor does not disaffirm it, you are bound to perform as you agreed. Only the minor may disaffirm. We have seen examples of this particularly in the entertainment industry with younger stars who have a contract with managers prior to the age of majority and later disaffirm when they become well-known and more marketable.

Following are exceptions to a minor’s right to disaffirm a contract.

  1. If a minor was married at the time he entered into the contract, he’s considered an emancipated minor and is bound by all his contracts.
  2. If the minor misrepresents his age by presenting a false ID, though the specifics of this rule vary from state to state.
  3. If the contract is for necessaries, basic needs such as food, clothing, shelter, and medical services.

To be a necessary, among other requirements, the minor must not be under the care of a parent or guardian who is required to provide the need in dispute. If I’m a high school student and I chose to move away from my parent’s house and rent an apartment, though housing is a necessary, it’s not a necessary for me at this age because my parents have a house where I could be living—my decision to live elsewhere is my choice, not a necessary. If I am a college student, living in an apartment far from my parent’s home, close to where I attend school, the apartment is a necessary, because my parents aren’t obligated to provide me with an apartment in a location where they don’t live. In this situation, if I fail to make rent payments as required by the lease agreement, I won’t be entitled to disaffirm the lease and avoid liability for rent owed—the apartment is a necessary. Transportation, on the other hand, is not a necessary. As a minor, I’m entitled to disaffirm a contract to pay for a car, because it’s not a necessary.

Example

Dionte, age 17, bought a used car from Damien, paying $500 down and promising $3,000 more in monthly installments. He also bought a car stereo system from Car Stereo Specialists, paying $200 down and promising $800 more in monthly installments. Two months later, on the way home from his bachelor’s party, he crashed the car into a tree, totaling both the car and the stereo system. He married the next weekend, just two weeks before his 18th birthday. The next day disaffirmed on both the car and the car stereo contracts. Though he married before reaching his 18th birthday, he was not an emancipated minor when he signed the contracts, so that he may disaffirm them. Neither the car nor the stereo was necessary. In many states, he will be required to return the totaled car and stereo, now worth scrap value, to the sellers.

Mental impairment comes up in two situations as follows.

  1. Intoxication
  2. Mental illness

If you take me out drinking and then ask me to sign on the dotted line of a business deal you want me to enter, and I do so, the question becomes how intoxicated was I when I signed. If I was so intoxicated that I had no idea I was signing a contract, then I had no legal capacity to form a valid contract and the deal is unenforceable. If, on the other hand, I was well lubricated but knew I was signing a business deal with you, I can’t get out of the deal by claiming lack of capacity. Alcohol issues aside, when dealing with someone who is mentally disabled, the contract might be voidable or void. If a court has declared a person mentally unstable, any contract that person enters into is void, and completely unenforceable. If a court has not declared a person mentally unstable, the issue is whether he or she was lucid at the time he or she signed the contract. If the person understood that he or she was signing a contract, he or she will be bound by it. If he or she did not understand what he or she was doing, his or her contract will be voidable at his option. The obvious risk for you is that it can be difficult to realize whether the other person is lucid or not. If the other person decides to be bound by a voidable contract, you are bound as well. It is important to understand the different between a contract that is void (never formed) and one that is voidable (able to be avoided). These are two very different concepts with very different results.

Example

Sanders suffers from bipolar disorder, which causes her to have manic episodes, during which she often engages in spending sprees for items she doesn’t need and can’t afford. While in a manic state, she buys a fur coat from Fox Furs, signing a financing contract to pay in three monthly installments. The salesperson has no idea of Sanders’ condition. Sanders has been declared of unsound mind by a court, who appointed her adult daughter as her guardian. The contract with Fox Furs is void. Sanders may return the coat and have no obligation to honor the contract. This is true even if she has damaged the coat.