ACC 473: Contracts, Chs. 11-14

Bilateral Contract

Offeree must only promise to perform (“promise for a promise”).

May be revoked anytime before acceptance

Unilateral Contract

Offeree can accept the offer only by completing the contract performance (“a promise for an act”).

Characteristics:

a) Formed when Performed.
b) Irrevocable: “Substantial Performance”

Contract formation

Express: Terms of the agreement are fully and explicitly stated (oral/written)

Implied (implied-in-fact): Conduct creates and defines the terms of the contract

• Furnished service/property

• Payment Expected by plaintiff

• Defendant knew of should have known payment expected

• Defendant had chance to reject and did not

Contract Performance

Executed: completely performed by both parties

Executory: not yet been fully performed

• Party that paid is Executed

• Party still to perform is Executory

Ambiguity

a) The parties’ intent cannot be determined from the contract’s language.
b) The contract lacks a provision on a disputed term.
c) A term is susceptible to more than one interpretation.
d) When there is uncertainty about a provision.

Solution to ambiguity

Extrinsic Evidence (Parol): Evidence outside the four corners of the document
a) “Plain Meaning” Rule: A court will enforce a contract according to its obvious terms when it is clear and unequivocal

Rules of Interpretation

a) Interpret ambiguous terms against the drafted, or consider extrinsic evidence.
b) A reasonable, lawful, and effective given to contract’s terms as much as possible.
c) Contracts are interpreted as a whole.
d) Terms negotiated separately are given greater weight than standardized terms.
e) Words will be given their ordinary, commonly accepted meanings.
f) Specific wording given greater weight than general language.
g) Written or typewritten given greater weight than preprinted.
h) Trade usage, prior dealing, and course of performance can be used to clarify the contract.
i) Express terms are given the greatest weight, followed by course of performance, course of dealing, and custom and usage of trade—in that order

Elements of a Contract

• Offer

• Acceptance

• Consideration

Elements of an Offer

• offeror must have an intention to become bound

• terms of the offer must be reasonably certain, or definite

• offer must be communicated to the offeree

Situations where intent may be lacking

i) Expressions of opinion.
ii) Statements of future intent.
iii) Preliminary negotiations, or invitations to negotiate.
iv) Advertisements (invitations to negotiate).
v) Live and online auctions: Not an offer, but invitation to submit offers through an
auctioneer (live) or to negotiate (online).
vi) Agreements to agree

vii) Preliminary agreements

Termination of an offer

1. Revocation: Offer can be withdrawn prior to acceptance, unless the offer is irrevocable.

• Option Contract: irrevocable offer that is held open for: a specified period of time or in return of consideration

2. Rejection: offeree’s rejection terminates the offer.

• Effective when received by offeror or offeror’s agent.

3. Counteroffer: Rejection of original offer and the simultaneous making of a new offer.

• “Mirror Image” Rule: common law, any change in terms automatically terminates the offer and substitutes as a counteroffer

Termination of the Offer by Operation of Law

1) Lapse of Time

• (a) Offer terminates when the period of time specified in the offer has passed

• (b) If no time period is specified, then offer terminates after a reasonable period
  of time

2) Destruction of the Subject Matter: If occurs before acceptance of the offer, then the offer is canceled.

3) Death or Incompetence of the Offeror or Offeree: Automatically terminates the offer unless it is an irrevocable offer.

4) Supervening Illegality: automatically terminates a previously valid offer or renders a contract unenforceable

Acceptance

a) Unequivocal Acceptance: General rule the acceptance cannot impose new conditions on—or change the terms of—the original offer.
b) Silence as Acceptance: Generally, does not constitute acceptance but there are exceptions:

• Prior Dealings: If the offeror and offeree have prior dealings, the offeree has the duty to reject or risk being bound by his silence

Consideration

Value given in return for a promise or a performance

Requirements:

i) “Legally Sufficient Value” and
ii) “Bargained-for-Exchange.”

• (1) A promise to do something that one has no prior legal duty to do.

• (2) The performance of an action that one is otherwise not obligated to undertake

• (3) Forbearance: refraining from an action that one has a legal right to undertake.

Adequacy of Consideration

General rule is a court will not normally question the
adequacy of consideration based solely on the comparative value of the things exchanged

*Fairness of a deal not considered unless consent may be lacking

Agreements That Lack Consideration

i) Preexisting Duty: Promise to do what one already has a legal duty

• Exception: Unforeseen difficulties

ii) Past consideration
iii) Illusory Promises: no true obligation to act
iv) Requirements Contract: A buyer and seller agree that the buyer will purchase all of the goods of a designated type that the buyer needs, or requires, from that seller.
v) Output Contract: The buyer and seller agree that the buyer will purchase from the seller all of what the seller produces, or the seller’s output

Rescission

A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made

• Sometimes, parties rescind a contract and make a new contract at the same time

Settlement of Claims

 An accord and satisfaction

 A release

 A covenant not to sue

Accord and Satisfaction

Debtor offers to pay a lesser amount than the creditor purports to
be owed

− The amount owed is in dispute

− The accord is the agreement.

−Satisfaction is the performance (usually payment) that takes place after the accord is executed

Liquidated debt

A debt that is due and certain in amount

No consideration:

a) Can agree to accept less
b) Write off debt

Unliquidated Debt

A debt that is uncertain in amount

Parties give up right to contest amount in dispute, and thus
consideration is given

Release

A contract in which one party forfeits the right to pursue a legal claim against the other party

− It bars any further recovery beyond the terms stated in the release

Covenant Not to Sue

Substitute contractual obligation for some other type of legal action
based on a valid claim

Exceptions to the Consideration Requirement

− Promises that induce detrimental reliance, under the doctrine of promissory estoppel

− Promises to pay debts that are barred by a statute of limitations

− Promises to make charitable contributions

Promissory Estoppel

Recovery if reliance on promise of another

Requirements:

a) Must be a clear and definite promise.
b) Promisee must justifiably rely on the promise.
c) Promisee reasonably relied on the promise by acting or refraining from some act.
d) The Promisee’s reliance was definite and resulted in a substantial detriment.
e) Justice will be served by enforcing promise

Promises to Pay Debts Barred by Statute of Limitations

a) A promise by debtor to pay a debt, of the debtor, that was barred by the statute of limitations is enforceable without additional consideration.
b) Implied if debtor acknowledges the barred debt and makes a payment

Minors

minor can enter into any contract that an adult can, except contracts prohibited by law for minors

Options:

a) Voidable at the option of that minor

• i) Except necessities – pay reasonable value

b) Disaffirmance: minor may disaffirm; any adult party to the contract remains bound unless and until the minor’s disaffirmance releases them.

Intoxication

Voidable: If they were sufficiently intoxicated to lack mental capacity

• option of disaffirming for a reasonable time after becoming sober

Valid (Enforceable): If despite intoxication, they understood the legal consequences of the agreement

Mental Incompetence

Void: If court previously determined mentally incompetent, any contract is void

Voidable: If a court has not previously judged, but the person was incompetent at the time the contract was formed

• i) Did not know they were entering into a contract, OR

• ii) Lacked the mental capacity to understand its nature, purpose, and consequences.

Valid: if the person had capacity at the time the contract was formed

• Lucid intervals—periods during which their intelligence, judgment, and are temporarily restored.

Legality

A contract to do something that is prohibited by federal or state statutory law is illegal and, as such, void from the outset and thus unenforceable

Contracts Contrary to Statute

1. Contracts to Commit a Crime

2. Usury: Maximum amount of interest allowed by statute

3. Gambling: Creation of risk for the purpose of assuming it

4. Licensing Statutes

• a) Competency Based – Required to have in order to enforce contract.

• b) Revenue License: Not required to enforce contract.

Covenants Not to Compete

Requirements:

a) Geographic restrictions must be reasonable and
b) Reasonable period of time

Some States are enacting statutes restricting the use

Unconscionability

Procedural: Occurs if a contract is entered into because of a party’s lack of knowledge or understanding of the contract or terms

Substantive: Exists when a contract or one of its terms is oppressive or overly harsh

Exculpatory Clauses

Release a party from liability in the event of monetary or physical injury—no matter who is at fault

Enforceable when they are not:

i) Against public policy,
ii) Are not ambiguous, AND
iii) Do not shield parties from intentional conduct.