M4: Basics of Contracts

What is a Contract?

A legally enforceable promise

• law provides remedy for breach

• legal obligations arise from contracts

• not all promises are enforceable

Central to political, economic, and social life and performs economic functions.

Sources of Contract Law

• Case law (common law)

• Statutory law

Case / Common Law

• Developed by judges

• Restated in Restatement (second) of Contracts

Statutory Law

• Drafted by ALI & Uniform Law Commission

• Making state contract law relatively uniform in the area of goods contracts

• Applies to individuals as well as firms

• Article 2 of the UCC: covers sale of goods

• Goods are tangible, movable items of personal property

Mutuality: Bilateral vs. Unilateral

• Bilateral Contract: an agreement based on mutual promises.

• Unilateral Contract: a one-sided promise requiring performance (reward for finding lost item)

A Valid Contract

Meets all the leal requirements for a contract

• Main requirements: offer, acceptance, consideration

• Other typical requirements: capacity of parties, legality of subject, mutual assent

The Offer — Definition

• Communication: offer bust be communicated

• Definiteness: terms must be definite and specific. An offer to purchase a house at a “reasonable price” cannot be the basis for a contract because of indefiniteness

Duration of Offer

Offers don’t stay open forever - they can expire by:

• Revocation

• Lapse of time

• Death, insanity, or destruction

Acceptance — Definition

Acceptance is assent in the offeror’s invited/required manner

• Acceptance can be by promise or performance

• Generally, silence or failure to reject is not acceptance

• Rejection ends the offer

• Counteroffer = rejection + new offer

• “Mirror Image” Rule: acceptance must exactly match the offer

• Redlining a contract = rejection

Consideration