(2b) LEGL 2700

Contracts (K)

* **Promises** that are ***legally enforceable*** with ***predictable consequences*** for performance failures
* Enable buyers and sellers to account for future risks or have confidence in exchanging valuables

* *Not all promises are enforceable contracts (K)*
* Shaking on it is not always enforceable

Note about Promises:

Contracts (K) continued

* Contract need not be a formal, written document
* Contract law enables private agreements to be legally enforceable
* Provides flexibility and precision in business dealings

Contract law used to be extremely rigid, but now the formalities have dropped off a lot and very skeletal contracts can be upheld

Note about Contract law

1. Legislation (UCC)
2. Common Law (Judge’s Decisions)

2 Sources of Contract Law

(Legislation) Uniform Commercial Code

only covers the sale of goods (__tangible, personal property items that can be physically exchanged__)

article 2 of UCC

sale/exchange of goods is governed by ____ (all states except Louisiana)

Common Law/Judge’s decisions

* covers the sale of __Intangible property, intellectual property, employee agreements, realestate, confidentiality agreements__
* state often codifies these decisions into legislation

UCC

Contracts for goods

Common Law

Contracts for other than goods

Most issues with contracts could be avoided if individuals took the time they need to properly formulate/agree to contracts and define the terms of an agreement

Note about contract conflicts

1. Bilateral and Unilateral Contracts
2. Express and Implied-in-Fact Contracts
3. Implied-in-Law or Quasi-Contracts

Classification of Contracts

Bilateral and Unilateral Contracts

Classification is made by how the offer is accepted by the offeree

**Bilateral Contracts**

promise for a promise; ex: they promise to give a good if you promise to pay for it

**Unilateral Contracts**

individual makes a promise and seeks for an action in exchange, if an action is not done then the contract is non-existent and is not breached; ex: giving allowance for straight “A”s; reward offer

Express and Implied-in-Fact Contracts

Based on how the contract is formed

**Express Contracts**

discussion of terms of agreement (orally or written), ex: “I’ll give you X for Y”

**Implied-in-Fact**

* different from in-law
* arise merely from the conduct of the parties
* ex: old way of pumping gas and then paying afterwards; lawyer billing for legal advice at a party; going with a pitched idea without giving adequate compensation
* does not allow for __*unjust enrichment*__

Implied-in-Law/Quasi-Contracts

* different from in-fact, same thing
* legal creation allowing for the enforcement of a contract even though the contract does not actually exist
* law implies a 1st party to enrich the 2nd does not have to do anything
* allows for __*unjust enrichment*__
* ex: overpaying a phone bill and getting the money returned

1. Enforceable
2. Unenforceable
3. Void
4. Voidable
5. Valid

Contractual Enforcement Terminology – whether or not the court can help you

Enforceable

the court can agree that your contract is valid

Unenforceable

it's a defense, it appears to be valid but it is actually fraudulent, court cannot help

Void

lacks one of the aspects of a contract, usually lacks one of the 5 aspects of an enforceable contract, court cannot help you because the contract was never legal, ex: hiring a hitman

Voidable

usually about a minor, someone under the influence, defrauded; and the loser in the situation can choose to void the contract

Valid

contract will be upheld

1. Executed Contract
2. Executory Contract

Contractual Performance Terminology

Executed Contract

* Parties have Performed their promises
* All promises are executed = executed

Executory Contract

* Parties have not yet performed their agreement
* Promises have been made but nothing has been executed yet = executory

Parties in a contract can be executed/executory simultaneously, but the person who executes a contract is in a better position in the eyes of the law and the court will favor them

Note about contracts’ status

1. __Offer__ to enter into a contract
2. __Acceptance__ of the offer – offer accepts offer
3. __Consideration__ for each promise
4. __Capacity__ of each party to enter into a binding agreement
5. Legality of subject matter

5 Requirements for an Enforceable Contract

1. Common law (sale other than goods)
2. UCC (sale of goods)

2 subsections of __Offer__s

Common law (sale other than goods)

1. Offeror makes offer with Specific promise and a specific demand
2. Contract terms have to be __definite and specific__ and thoroughly communicated to the offeree
3. Have to be able to reasonably assume that the the __definite and specific__ offer was made by the offeror in sound mind
4. Subjective intent measured by the offeree must be taken into consideration (example: “i’ll give you $100 for a hot dog” qualifies as a genuine contract even if its a joke)

UCC (sale of goods)

1. You can leave open, non-specific quantity terms, or other open contract terms to be worked out later
2. The UCC requires the parties to carry out such contracts in Good Faith

Good Faith

parties to contracts for the sale of goods must act with both “honesty and intent” and “honesty in faith”

False

True/False: When creating a contract for the exchange of goods, the terms have to be __definite and specific__

True

True/False: When creating a contract for the exchange of intangibles, the terms have to be __definite and specific__

Subjective intent; offeree

Note about offers: ________ is measured by the ____ (example: “i’ll give you $100 for a hot dog” qualifies as a genuine contract even if its a joke)

__**BEFORE**__ __acceptance__

__If you want to kill an offer, it__ __**MUST**__ __be done _______**_**__

1. **Revocation**
2. **Rejection**
3. **Counter Offer**
4. **Lapse of Time**
5. **Common Law Terminations**

Ways to Kill an Offer

**Revocation**

when the offeror retracts the offer before acceptance

unilateral contract

If you have a _____ and the offeree has substantially performed the offer, it cannot be revoked

* “I will give you $20 if you run a mile”, you cannot revoke it at .99 of a mile

**Rejection**

when the offeree specifically rejects an offer

\

completely destroyed; cannot

If an offeree rejects an offer, then the offer is ____ and (can/cannot) be picked up again to be discussed

**Counter Offer**

* offeree becomes an offeror, and makes a new offer


* Example: Negotiating; Haggling; “I’ll give you X” “I can only do Y”

**Lapse of Time**

* offeree did not respond in the time allotted for the offer


* EX: Responding to job offer within 2 weeks (Common law dictates when an offer is gone)

1. **Subject matter destruction**
2. **Offeror death or insanity**
3. **Subject Matter Illegality**

**3 Common Law Terminations**

**Subject matter destruction**

A building you wanted to buy burns down

**Offeror death or insanity**

You do not accept an offer before offeror dies or they are declared insane

**Subject Matter Illegality**

If fireworks are made illegal again, an offeror to buy fireworks is void

Ambiguity will be construed against the drafter of a contract

Note about contract offers:

Acceptance

when an offeree accepts offer

CANNOT!

If you are unaware of the offer, then you (can/cannot) accept the offer via performing the act it stipulates

Returning a puppy without knowing there is a reward for it, therefore you don’t get a reward

Example of performing without acceptance

**Mirror Image Rule**

Acceptance must mirror the offer in order to make it a binding contract

a counteroffer

The Mirror Image says that __*No additions or reductions can be made*__, or else they are considered ____

**UCC Battle of Forms**

* **Gottlieb & Co., Inc. v. Alps South Corporation**


* A request for __*additions or omissions*__ through standard forms that does not entirely change the offer, are __*considered proposals*__
* You may exchange ***proposals***, but the offeror and offeree parties remain the same
* \*Only occur between merchants dealing with goods

**Gottlieb & Co., Inc. v. Alps South Corporation**

Gottlieb was a fabric supplier for Alps to create prosthetic limbs, Gottlieb contracted that they were not liable for consequential damages, Gottlieb changed their fabric and damaged occurred, Alps sued, court ruled that Alps had failed to read the contract but were still responsible for the terms of the contract

**Silence is not necessarily acceptance**

you cannot contract “I will take no response as a positive response”

1. an ongoing relationship between buyers and sellers and there is an implied agreement
2. the buyers and sellers agree that they will continue an interaction until it is canceled (example: Subscription services)
3. using an app without reading terms and services

3 Scenarios where Silence is Acceptance

**Mailbox Rule**

* Acceptance becomes legally binding when it is dispatched (via mailbox)
* This becomes a binding contract while it is still in transit

in a contract

\*Even if a revocation is in transit, if an acceptance is dispatched prior then you are still ____

__Consideration__ for each promise

* Receipt of a legal benefit or suffering of a legal detriment
* required for offer and acceptance to be valid

**Vassilkovska v. Woodfield Nissan, INC.**

* Arbitration agreement was signed while Vassilkovska financing a car, Vassilkovska sues for an issue, Nissian motions to dismiss because of arbitration, the court reviews the arbitration agreement and deems it a loosery because Nissan had no skin in the game (consideration)
* If you take out all of your skin out of the game (consideration), then you have drafted a loosery

***does not apply***

*****Gifts are not enforceable under contract law, it is covered under property law. Therefore, consideration ____***

1. **Accord and satisfaction**
2. **Prior consideration**
3. **Preexisting obligation**
4. **Option contract**
5. **Promissory Estoppel**

5 Types of Consideration

**Accord and satisfaction**

When you use a negotiable instrument to reach a compromise

1. **Agreement not to sue**
2. **Disputed debt**

2 Types of Accord and Satisfaction

**Agreement not to sue**

Example – giving someone $2,000 for rear ending them, this is an enforceable, binding contract

**Disputed debt**

Example – you owe X, but you agree to pay Y in order to get out of going to court, this is an enforceable, binding contract

**Prior consideration**

Cannot bring something from prior life to the contract

**Preexisting obligation**

1. Cannot change an obligation mid obligation
2. example: agreeing to paint a house for $6,000; they say it will cost $8,000 halfway through, you only owe $6,000
3. UCC has an exception to this rule, if goods have become more scarce

**Option contract**

* Example: Giving someone 2 weeks to determine whether they want to buy it; __*earnest money MUST be given by the buyer*__; one party gives up the right to sell to another person, that's the option contract

Firm offer

* UCC exception to option contract
* if a merchant offering goods for sale in writing in a certain period of time within three months, then they are bound __*without the buyer giving earnest money*__

**Promissory Estoppel**

1. The doctrine that states a party who justifiably relies on gratuitous promise can ask a judge to award compensation for that reliance


1. Promise significant enough to cause promisee to act on it
2. Promisee justifiably relied on the promise
3. Promisee suffered significant detriment
4. Relief can only come from fulfilled promise

1. EX: Hackleman promising to give money for a scholarship to UGA, UGA starts the scholarship program and awards the scholarships, Hackleman changes her mind, UGA can ask for compensation from the court for promissory estoppel
2. EX: Scott’s Tots

Examples of Promissory Estoppel

__Capacity__ of each party to enter into a binding agreement

offeror and offeree must have this for a contract to be valid

1. **Minors**
2. **Intoxicated persons**
3. **Mentally Incompetent persons**

3 Parties the Court rules DO NOT have Capacity

**Minors**

1. Cannot be legally bound to contractual promises with expectations for necessaries of life
2. Contract is voidable at the election of the minor (voidable up until 18 and reasonable period afterwards)

***NOT VOIDABLE***

*****Minor’s Contracts for necessities are ____***

Brian, a minor, buys a baseball card worth $1,200 for $12.00 because the decimal was misplaced. Card shop owner sued the Brian because he was a minor, but Brian won because he was the minor and did not want to void the contract.

Example of Contracting with a Minor

**Intoxicated or Mentally Incompetent persons**

Contracts are voidable depending on the person’s capability to understand the contract’s nature and purpose

1. Court legally labels someone as incompetent/incapacitated

If labeled as such, any contracts they make are void

2. Court has not legally determined that they are incompetent/incapacitated

1. If a contract is written in an extremely verbose manner, the court will question the capacity of the contract parties
2. Intoxication is a slippery slope, but one beer does not mean you are incompetent
3. Dealing with the elderly is extremely difficult: either taking advantage of the elderly or offending the elderly

__Legality__ of subject matter

1. Contracts that require commission of a crime or tort or violate accepted standards of behavior are void
2. Courts typically do not take action on such contracts

Noncompete contracts

1. Will usually hold up as long as they don’t span too long or too far, protects the intellectual property of training/insider information


1. Too long – over 5 years
2. Too far – changes depending on your jurisdiction based on your current role’s jurisdiction

Severability

can sever things from contracts and let the rest of it stand

Defenses to Contract Enforcement

* __Improper form__ when a writing is required
* No true meeting of the minds due to fraud or mistake

1. **Fraud**
2. **Misrepresentation**
3. **Mistake** (of fact/not value)
4. **Duress**
5. **Undue influence**

5 ways “meeting of the minds” is Lacking

**Fraud**

* __intentional__ misstatement of a fact in order to get an innocent party to enter into a contract that they would have never otherwise entered, not always a fiduciary arrangement, intentional tort
* EX: Ocean front property in AZ; wouldn’t hold up in court but is claim
* Hoodwinking is also fraud

**Misrepresentation**

__there is no intent__, they misstate a fact because they thought that the misstatement was a fact

**Mistake** (of fact/not value)

Either party can void if there is a mistake

1. Mutual mistake
2. Unilateral mistake

2 Types of Mistakes

Mutual mistake

two boats of the same name are in the harbor being used for a contract, contract can be voided by either party

Unilateral mistake

mistaking a patron for Paris Hilton, unilateral mistake does not make a contract voidable

**Duress**

force or threat of force, tort

**Undue influence**

arises when persons are aged, infirm, or sickly and can be taken advantage of, EX: caregivers, adult children, lawyers

***voidable***

*****Contract may be ____ if the contract is not mutually understood***

**Oral Contracts**

* Generally as enforceable as written agreements
* Informal
* Everyday example: Buying fast food

**Statute of Frauds**

Legal requirement that certain contracts be in writing

1. Sale of an interest in land (not the building of buildings)
2. Collateral promise to pay another’s debt (not cosigning, a board member bailing a business out does)
3. Contracts that cannot be performed in a year (oral lease for over a year is not enforceable)
4. Sale of goods of $500 or more 
5. Other contracts based on state statutes

5 Business contracts required in writing according to the Statute of Frauds