Ch 8: Contract Formation

Contract

A promise enforceable by courts — requires mutual exchange (not a gift) and something of value on both sides

Common Law

Governs contracts for services, employment, and real estate — anything other than goods

UCC (Uniform Commercial Code)

Governs contracts for the SALE OF GOODS

5 Elements of a Valid Contract

Offer, Acceptance, Consideration, Legality, Competence

Offeror

The party who makes the offer

Offeree

The party who may accept or reject the offer

Offer Termination

An offer dies upon: revocation, rejection, counteroffer, lapse of time, subject matter destruction, offeror death, or subject matter becoming illegal

Option

Agreement to keep an offer open for a set period of time, supported by the offeree's consideration

Puffery

Obvious exaggeration that is NOT a valid offer — Leonard v. Pepsico (fighter jet)

Bilateral Contract

Accepted when the offeree makes the required promise back

Unilateral Contract

Accepted by performing the requested act — not by promising

Mirror Image Rule

Under COMMON LAW, acceptance must exactly match the offer to form a binding contract (does NOT apply under UCC)

Mailbox Rule

Acceptance is legally binding the moment it is dispatched/sent — not when received

Silence and Acceptance

Silence does NOT equal acceptance

Consideration

Something of value exchanged by both parties — a gift is NOT consideration

Pre-existing Duty Rule

Promising to do something you're already legally obligated to do is NOT valid consideration

Express Contract

Formed when parties actually discuss and agree on the terms

Implied-in-fact Contract

Formed by the conduct of the parties rather than words (haircut, taxi ride)

Quasi-contract (Implied-in-law)

A court-imposed remedy to prevent unjust enrichment when no actual contract exists

Enforceable Contract

Valid contract that a court will uphold and enforce

Void Contract

Not a contract at all — illegal purpose, or one party is mentally incapacitated (dementia)

Voidable Contract

Can be canceled OR enforced — but only by ONE party (minor, intoxicated person)

Capacity — Minors

A minor's contract is voidable by the minor only; exception for necessaries (food, clothing)

Capacity — Intoxicated

Contract is voidable at the election of the intoxicated/incapacitated person

Non-compete Clause (Covenant not to compete)

Agreement not to work for competitors — must have time AND geographic limits; usually not enforced for low-wage workers

NDA (Non-disclosure Agreement)

Legally binding contract establishing confidentiality between parties

Fraud (contract defense)

Intentional misstatement of fact that induces someone to sign a contract — punitive damages may apply

Innocent Misrepresentation

Misstatement without intent to defraud — makes contract voidable by the innocent party

Mutual Mistake

Both parties are wrong about a material fact — contract may be voidable by either party

Unilateral Mistake

Only one party is wrong — contract usually stands unless the other party knew or exploited the error

Duress

Threat of physical or economic force used to get someone to sign a contract

Undue Influence

Unfairly taking advantage of someone through a contract — must be more than just pressure

Promissory Estoppel

No contract exists, but court enforces a promise because the promisee reasonably relied on it and suffered economic harm — requires: promise + reasonable reliance + harm caused

Accord and Satisfaction

Resolving a dispute over an amount owed by reaching a compromise (settlement)

Severability

Court removes the unlawful parts of a contract and enforces the remaining lawful parts

Statute of Frauds

Law requiring certain contracts to be in writing to be enforceable

Contracts Requiring Writing (Statute of Frauds)

Sale of land; collateral promise to pay another's debt; contracts that can't be performed within 1 year; sale of goods $500+; prenuptial agreements

Exceptions to Writing Requirement

Part performance; specially manufactured goods; goods already received; both parties admit valid oral K in court

Leonard v. Pepsico

Pepsi fighter jet ad = puffery, not a valid offer. Also likely barred by Statute of Frauds (goods over $500)

Liquidated Damages

Pre-agreed amount of damages specified in the contract for breach

Specific Performance

Court orders the breaching party to actually perform what was promised (common in real estate)