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contract
legally enforceable promise or set of promises
why are contracts fundamental to business and a well functioning market economy?
they protect the expectations of parties who exchange value in commercial dealings
what do businesses rely on to protect expectations and facilitate planning
contracts
contracts are primarily governed by
state law
what do courts refer to for guidance when governing contract law?
-Restatement (Second) of Contracts
-Uniform Commercial Code (UCC)
what is the Restatement (Second) of Contracts?
legal guide that summarizes general contract law principles.
What is the Uniform Commercial Code (UCC)?
governs contracts involving the sale of goods and ensures fairness in business transactions
Freedom of Contract
individuals and businesses have the freedom to enter into contracts with terms they agree upon, without government interference—so long as the contract is legal and fair
What kind of contracts does the Restatement (Second) of Contracts primarily apply to?
contracts not involving the sale of goods
arm's length bargaining
both parties in a contract act independently and in their own self-interest, without pressure, coercion, or special relationships affecting the negotiation
What is a limitation of freedom of contract
cannot violate ethics or public policy
what notion is every contract premised on?
good faith
why is good faith important in contract law
ensures that neither party deceives, manipulates, or unfairly takes advantage of the other.
How does the Uniform Commerical Code (UCC) define good faith?
Honesty in fact and the observance of reasonable commercial standards of fair dealing
Types of Contracts
Bilateral, Unilateral, Explicit, Implied
bilateral contract
-Most common type of contract
-BOTH parties exchange promises
unilateral contract
Only ONE party makes a promise
explicit contract
terms clearly stated (written or oral)
implied contracts
terms not explicity stated, but inferred by behavior
example of a bilateral contract
Jane sells her car to Joe for $10,000
example of a unilateral contract
reward for finding a lost dog
example of explicit contract
You hire a plumber to fix a leak, and the plumber provides a quote. You agree, and the plumber performs the service.
example of an implied contract
You get into a taxi, and the driver takes you to your destination.
The Statute of Frauds
requires certain contracts to be in writing to be enforcable
what kinds of contracts does Common Law require to be in writing?
MYLEGS
what kind of contracts does the UCC require to be in writing?
-Sale of goods over $500
-Lease of goods over $1,000
what is a valid contract
-has all required elements: Mutual Assent, Consideration, Legality of Purpose, Capacity
-be legally enforceable
Mutual Assent
offer + acceptance = meeting of the minds
an offer:
A promise to do (or not do) something in exchange for something else.
requirements for a valid offer
-objective intent
-definiteness
-communication
objective intent
The offeror must intend to create a binding agreement.
Definiteness
The terms must be clear enough for a court to enforce.
communication
The offer must be communicated to the offeree
exceptions to an offer
-advertisements are not offers, just an invitation to make an offer
-if an advertisement is spcific and leaves nothing open for negotiation, it can be a valid unilateral offer.
Termination of an offer by the parties
-revocation
-rejection
-counteroffer
revocation
offeror withdraws the offer before acceptance.
rejection
offeree refuses the offer
counteroffer
offeree proposes new terms (which cancels the original offer)
termination of an offer by law
-Lapse of time
-Death or incapacity of either party
-Destruction of subject matter
-Supervening illegality
lapse of time
offer expires after a reasonable period
supervening illegality
offer becomes illegal before acceptance.
Destruction of subject matter
subject matter becomes destroyed and cannot fulfill
acceptance
offeree's agreement to terms
mailbox rule
acceptance is effective when sent (not when recieved)
what does the mailbox rule protect the offeree from
last-minute revocation by the offeror
mistakes in mutual assent
-mutual mistake
-unilateral mistake
mutual mistake
If both parties are mistaken about a key fact, the contract may be canceled
Unilateral Mistake
If only one party is mistaken, the contract is still enforceable.
Consideration
something of value exchanged by both parties
Forms of Consideration
-bargained for exchange
-forbearance
-nominal consideration
bargained for exchange
promise in exchange for something else.
forbearance
a promise not to do something
nominal consideration
a symbolic amount to make an agreement binding
agreements that lack consideration
preexisting duty
illusionary promise
past consideration
promissory estoppel
preexisting duty
A promise to do something you are already legally obligated to do is not consideration.
illusionary promises
A vague or optional promise is not legally binding.
past consideration
A past action cannot be used as consideration for a new promise.
Promissory Estoppel
Even if there is no consideration, a promise may be enforced if one party relied on it to their detriment.
what is a void contract
A contract that lacks one or more required elements and is not in conformance with the law from the beginning.
What is a voidable contract?
When one or more parties have the legal right to cancel under special circumstances
What are some reasons a contract may be voidable?
-Minors
-Fraud
-Duress
-Undue Influence
What is an unenforceable contract?
When one party asserts a legal defense to performing the contract
an example of an unenforceable contract.
A verbal agreement to sell a house
an example of a voidable contract
A 17-year-old buys a car under a contract
an example of a void contract
A contract to sell illegal drugs
legality of purpose
Contracts must be for a legal purpose—both the subject matter and performance of a contract must be lawful.
types of illegality in contracts
-Barred by Statute
-violates Public Policy
example of illegality barred by statute
a person without a medical license performing surgery
what does it mean if a contract violates public policy?
goes against common sense or harms society
when can an NDA be found unenforcable?
they suppress illegal activity or violate public interest
when can a Non-compete agreement be illegal?
they are too broad in restricting a person's right to work
General rule of enforceability
Contracts with an illegal purpose are void and cannot be enforced
Executory (Unperformed) Contracts
If neither party has performed yet, the contract is void
Partially Performed Contracts
-If the contract is partially valid and separable, courts may enforce the legal part.
-If not separable, courts may allow restitution
capacity
a person's ability to understand and appreciate the terms of an agreement.
If someone lacks capacity, their contract is _____.
voidable
who lacks capacity?
-minors
-mentally incompetent persons
-intoxicated persons
what is the general rule when it comes to contracts with minors?
Contracts with minors are voidable at the minor's option