Chapter 12 - Contract Law

Definition of a Contract. 

an agreement that can be enforced by law between two or more parties who promise to perform or refrain some act now or in the future. 

What is the Objective Theory of Contracts?

The apparent intention of a party to enter into a contract is determined by the objective, outward manifestation of his or her assent as it would be interpreted by a reasonable person.

What are the 3 objective factors?

1. Words

2. Actions

3. Circumstances

What are the 4 elements of a Valid Contract?

1. Agreement

2. Consideration

3. Contractual capacity

4. Legality

What are the two defenses to the Enforceability of a Contract?

1. Voluntary Consent - not based on mistake, fraud, undue influence or duress

2. Form - some contracts MUST be in writing and signs

Explain Bilateral vs Unilateral contract

Bilateral - reciprocal promises are exchanged by the parties. Contract formed by the exchange of promises. 

Unilateral - One party makes a promise in exchange for the other party’s actually performing or refraining some act. Contract formed by the performance

Give an example of a Bilateral Contract. 

Selling a watch: “I will sell you my watch for $100” and “Sounds like a good deal, I will pay you $100 for your watch”

Give and example of a Unilateral Contract.

“When/if/after you paint my fence I will pay you $100”

Other examples: contests and lotteries

Define Express vs Implied Contracts

Express - The terms of the agreement are fully and explicitly stated in oral or written words.

Implied - The terms of the agreement are inferred from the conduct of the parties(judge actions)

What are the 3 steps to establish an implied contract?

1. Plaintiff furnished some goods or service 

2. Plaintiff expected to be paid and defendant should have know that (reasonable person would have known)

3. Defendant had a chance to reject the goods or services but did not. 

Give two examples of valid implied contracts talked about in class.

1. Going to the doctors office, you don’t know the cost before, but know you will have to pay

2. Someone comes over to mow your lawn even though you didn’t ask them too but you knew and didn’t stop them

Define Formal vs Informal Contracts.

Formal - requires a special statute WE ARE NOT LEARNING

Informal - everything we are learning

Define Executed vs Executory Contracts.

Executed - Every party has completely performed

Executory - Not every party has fully performed

Explain the three types of contracts when analyzing Enforceable vs Unenforceable.

1. Valid contract - all elements are present, not always enforceable

2. Voidable contract - A valid contract but one or more of the parties has the option of avoiding their duties. 

3. Void contract - agreement has no legal effect and is not really a contract

Give an example of a voidable contract that was mentioned in class.

Making a contract with a minor, the minor has the ability to avoid their obligation.

What are the three requirements for a valid offer?

1. Serious intent

2. reasonable certain and definite terms

3. communication

Briefly explain the landmark case Lucy v. Zehmer and how it related to intent.

Zehmer gets drunk but sets up an entire sale of his land to Lucy first on a receipt and then rewritten on a napkin. Very detailed including lot number and therefore shows serious intent to make the agreement/contract. 

List 6 situations where serious intent may be lacking.

1. Expressions of opinions: “my watch is so nice”

2. Statements of intention to make an offer in the future

3. Preliminary negotiations or requests to negotiate

4. Invitations to bid

5. Advertisements, catalogues, circulars, and price lists

6. Live and online auctions

What are the 4 terms required for a contract to be considered to have Definiteness of Terms?

1. Identify the parties

2. Identify the subject matter of the contract

3. consideration

4. time of payment, delivery, or performance (not absolutely necessary)

Give an example of how a lack of communication makes an invalid contract for an award.

There is an award for winning a race, but the participant (offeree) had no knowledge to award was offered. They are not entitled after winning.

List the 2 types of Termination of the Offer.

1. termination by action of the parties

2. termination by Operation of Law

What are the 3 types of termination by action of the parties?

1. Revocation of the offer

2. Rejection of the offer

3. Counteroffer

A revocation is effective when _____.

Received

What is an Irrevocable Contract?

Option Contract / Option clause where the offeror has promised to hold the offer open and the offeree has given consideration for the promise. Ex. buying a house and you have 5 days to make your official decision. 

SURVIVES DEATH!

Rejection of the offer is effective when ______.

Received

Explain Counter Offer

Simultaneous rejection of the offer and making of a new offer.

What are the 4 ways an offer can be terminated bu the operation of law?

1. Lapse of time

2. Destruction of the subject matter

3. Death or incompetency of the offeror or offeree (unless irrevocable)

4. Supervening illegality

Silence and no action is not usually considered acceptance, however, offeree has a duty to speak when…

there is a prior similar course of dealing (the parties have has a similar contact before)

If there is no contract but the offeree accepts the benefit of the service/good with the opportunity to reject… is there acceptance?

There is acceptance… lawnmowing example

When is there acceptance of a bilateral vs unilateral contract?

bilateral contract is accepted when the offeree gives a requisite promise.

Unilateral contract is accepted when the performance is “substantially” completed

What is the “Mailbox Rule”?

Acceptance is timely if… sent prior to the termination of the offer

Acceptance is effective…

when sent

What is the difference for online contract formations?

they need to meet more requirements

What are the 7 types of contracts that cannot be e-signed?

1. court papers

2. divorce decrees

3. evictions

4. foreclosures

5. health insurance terminations

6. prenuptial agreements

7. wills

Legally sufficient consideration exists when one of these three exist…

1. one makes a promise to do something they had no prior legal duty to perform

2. one performs an action they had no prior legal obligation to perform

3. one refrains or promises to refrain from doing an action they had no prior legal duty to refrain from doing. 

Briefly explain the Hamer v Sidway case and how it relates to consideration. 

in 1800s… 15 yo promises to engage in “richeous living” until 21 and he will get $5000

due to the time period, he wasn’t legally obligated to not drink, smoke, etc. so it was considered consideration… today it wouldn’t be.

what sets contracts different from gifts?

Contracts have a Bargained-for exchange!! each side gets something legally sufficient. 

Define the preexisting duty rule.

doing or promising something that one already has a legal duty to do is not considered legally sufficient consideration. 

Additionally, if a party is already bound by a contract, that duty cannot serve as consideration for a second contract.

What are the 2 exceptions of the Preexisting Duty Rule?

Unforeseen Difficulties → mostly construction… ex. unknown soil condition. NOT SUPPLY CHAIN ISSUES

Rescission and New Contract → undoing of a prior agreement.

What is Promissory Estoppel?

when there is a very clear promise relied upon by the other party to their detriment, an otherwise unenforceable agreement without consideration could be enforceable. 

What are the 5 elements for Promissory Estoppel? give the brief example from class. 

1. Clear and definite promise

2. Promisor expected the promisee to rely on the promise

3. Promisee reasonable relied on the promise by acting or refraining from some act

4. Promisee’s reliance is definite and resulted in substancial detriment

5. Enforcement of the promise is necessary to avoid injustice

Ex. Promise hecka money to a church that they spend then you don’t pay. 

Define Capacity. 

The legal ability to enter into a contractual relationship. 

Do minors have capacity?

No, unless emancipated.

Minor has the right to disaffirm, leading to voidable contract. ALWAYS PROTECT THE MINOR

If minor disaffirms, restitution: return goods that are in minors possession and get money back… some states make minor pay for damages. 

Exception is necessaries like food, clothes, shelter

Do intoxicated persons have capacity?

A contract is only voidable is a person was so intoxicated that their judgement was impaired, and they did not comprehend the nature of the transaction and the legal consequences of entering the contract. Look at objective details. 

When can an intoxicated person disaffirm? what are their responsibilities if they disaffirm?

While the person is intoxicated or within a reasonable time after they become sober.

Restitution or pay if necessaries are involved. 

Do mentally incompetent persons have capacity?

Court Declared Incompetent Persons → contracts are void

Not declared incompetent by court depends… → contracts may be voidable

What are the 4 types of Contracts Contrary to Statute?

1. contracts to commit crimes are void

2. usury statutes fix the maximum lawful contract rate of interest

3. Gambling contracts are illegal and void

4. licensing statutes - enforceability depends

What are the two exceptions for usury rule?

1. if the borrower is a corporation or similar entity

2. if the borrower is seeking a small loan 5-10k like at a pawn shop

Explain the enforceability of contracts under Licensing Statutes. 

If the purpose is REGULATORY contracts with unlicensed professionals are void.

If the purpose is REVENUE RAISING for government, the contract is enforceable. 

Explain Contracts Contrary to Public Policy.  

an agreement which injures an established interest in society, or which has a negative effect on society is void

List the types of contracts contrary to public policy.

1. Restraint of Trade → or competition

2. Unconscionable Contracts or Clauses → “grossly unfair”

3. Exculpatory clauses

4. Discriminatory Contracts

What is the exception for Contracts in Restraint of Trade?

If the covenant not to compete is ancillary/secondary to an otherwise enforceable contract and it is reasonable in time, geographic area, and scope. 

Explain exculpatory clauses and their exception.

Statements that release a party of all liability if they relate to employment, commercial property, or residential leases. One exception tends to be recreational activities. 

What is the Statute of Frauds?

Contracts that must be written and signed by the party in which the contract is being enforced. 

List the 5 types of contracts that fall under the Statute of Frauds. 

1. Contracts involving interests in Land or Real Property

2. The “one-year” rule for contracts that CANNOT be performed within the year

3. Collateral/secondary promises

4. Promises made in consideration of marraige(prenup)

5. Uniform Commercial Code: sale of goods over $500