Business Law: Contracts

Elements of a Contract

Offer

Acceptance

Consideration

Bilateral Contracts

A promise for a promise

Unilateral Contracts

A promise for an act

Acceptance by completion of requested act

Majority View (modern)

contracts are bilateral unless specified

Void Contracts

without legal effect

Illegal from beginning

Voidable Contract

One or both parties may elect to avoid or ratify

Unenforceable Contract

Otherwise, valid, but not enforceable due to various defenses

Creation of a Contract

1. Was there mutual assent

2. Was there consideration

3. Are there any defenses

Offer and Acceptance

Meeting of the minds

objective minds

The offer

Offeree: power of acceptance

Offeror: corresponding liability

The offer

language, circumstances and prior practice

legal offer requires

definitive terms

• identify the offeror, offeree and subject matter

• price

• time of payment, delivery and preformance

• quantity

• the nature of the work

• communication to the offeree

Acceptance

• Unequivocal

• mirror image rule: the acceptance must precisely mirror the offer

• Silence is not acceptance

• “Only but” = rejection

Termination by offeror

• Person who made the offer

• Revocation: terminates the power of acceptance

• Effective when received

• Best to direct

• Mailbox rule: when it hits your mailbox is valid

Termination of Offeree

• Rejection

• Express→ nope

• Counteroffer→ back and forth

Termination by Operation of Law

• Death or adjudicated incompetent

• Subject matter destroyed

• Legislation makes K illegal

Consideration

• The price for enforceability

• Valuable consideration: change in legal position between the parties

• Bargained for exchange between the parties: promise and detriment→ each induces the other

• MUST have legal value: mutual benefit, economic benefit not required, past or moral acts are insufficient

Defenses

Void or Voidable

Illegal Subject matter

• Can’t force something Illegal

• Insanity

Mistake of Material Fact

• Defenses to Contracts

• Material: something that really matters

• Bilateral: both parties made a mistake

• Unilateral: if the other person doesn’t know then it is forceable

Fraud, undue influence, duress

• Defense to Contracts

• One party agrees based on a lie or anything

• takes awa acceptance & can pull contact

• Duress: one part forced into agreement for fear of life

Statute of Frauds

Agreements that must be in writing

• Sale of property or interest of land

• collateral promises to pay the debt of another

• Sale of goods above certain amount (500+)

• In which, terms can’t be performed within one year

Essential Terms must be included in the writing

• identity of the party against whom enforcement is sought

• subject mater

• terms and conditions

• consideration

• signature of the party of be charged (seller)

Third Party Beneficiaries

Person or people who are not contracting parties but can still receive the benefits of a contract

Exception to the privity of contract doctrine

Limited to: intended beneficiaries

• Performance rendered to beneficiary

• beneficiary expressly designated in the contract

• beneficiary can control details of performance

Discharge of Contractual Obligation

• Performance

• Failure of a Condition

  • Contingent/dependent upon a condition (securing financing for a house)

• Discharge by supervening illegality

  • cession enacted law

  • was not anticipated

• Impossibility

  • unanticipated/extraordinary event (war, wildfires, burning houses)

• Objective test

  • no one can preform

  • reasonable person

• Death, incardination (usually)

  • are you needed to order to complete the contract

Discharge by impracticability or frustration

Unanticipated event

• Performance is extremely difficult or expense

• Purpose of K is (nearly) destroyed

  • Crop failure, embargo, tariffs, war, drought

Discharge by Recission

• Both parties agree to cancel or modify K

• Recission→ binding contract

  • Consideration?

• Partial discharge by modification

  • right to sue goes away under all these conditions

  • breach of contract→ remedies

Breach of contract

1. Duty to preform

2. Failure to perform in accordance with contract terms

3. Material breach

Compensatory damages ($)

Expectation Damages

Reliance Damages

Consequential Damages

Expectation Damages

• standard measure

• places the plaintiff in the position they would have been in the IF the defendant had performed

• Pay enough to be in the same position they would have been in when the contract was supposed to happen

Reliance Damages

Place plaintiff in the position they would have been in had K never been formed

Consequential Damages

• Catch all

• All the other stuff you spend thinking something is going to happen

Equitable Damages

• When legal remedies are inadequate

• Specific performance

• Recission and Restitution

• Quasi-Contract

Specific Performance

• Court order to preform K

• Subject matter of the K is rare and unique

• Usually land cases

Recission and Restitution

• non-breacher may cancel the contract

• Appropriate when non-breacher has attempted to perform or transferred a “benefit”

Quasi-Contract

• “Unjust enrichment” → K was created in the interest of fairness

• Must show

  • Plaintiff conferred a benefit on defendant

  • Plaintiff has a reasonable expectation of compensation

  • Defendant will be unjustly enriched

• Emergency or prior practice (someone got into a car accident and needed surgery)

UCC

Uniform Commercial Code

• Sale of goods

• Goods: movable, tangible things

  • Not real estate, services or intangibles

  • Good & Services K (contract)

• merchant: one who regularly deals in good of kinds sold

UCC Modification to common law

Offer Revocability: merchants written offer is revocable for the stated period or for a reasonable period

Acceptance

• Any reasonable manner

• no mirror image rule: additional terms ignored

• both parties’ merchants": additional terms generally included

Open Terms Allowed

Imply reasonable terms and conditions (Should include quantity)

UCC Warranties

1. General Seller Warranties

2. Express warranties

3. Implied warranties

4. Implied warranty of fitness for a particular purpose

General seller warrants

passing goods, title, unencumbered by liens and no infringement

Express warranties

express promise, description and sample

implied warranties

goods are “fit” for the ordinary purpose for which such goods are used

implied warranty of fitness for a particular pupose

A: seller knows the purpose for which goods are to be used

B: seller knows buyer is relying on the seller’s judgement

C": buyer relies on sellers’ judgement

Disclaimers

• Written, clear, conspicuous language

• Magnuson- Mass Warranty Act

  • governs warrants of consumer goods

  • deals with disclaimers of warrants

  • increases consumer confidence