contract

contract

legally enforceable promise that involves:

offer, acceptance, consideration, capacity, legal purpose, consent, and, sometimes, writing.

What is an output contract?

A contract in which seller all his output/products to one buyer, and the buyer agrees to buy all of it

contract development

By the 1600s, courts enforced mutual promises, and, by 1900, most promises containing the seven elements of a contract were strictly enforced.

What are the sources of contract law?

state law (federal is limited)

statues and common law

modern law:

Restatement of Contract (collection of generally accepted principles of contract law)

Article 2 of the Uniform Commercial Code (unifrom act to harmonize the law)

Unilateral and Bilateral Contracts

bilateral contracts- the parties exchange promises.

In a unilateral contract, one party makes a promise, and the other must take some action—a return promise is insufficient to form a contract. Only one promise, exchange for action.

Executory and Executed Contracts

In an executory contract, one or both of the parties have not yet done everything that they promised to do.

In an executed contract, all parties have fully performed.

Express Contract

parties agree to a contract in verbal or written terms

implied in fact contract

no written terms or verbal promise but implied conduct. ex: ordering food from a waiter means you’re gonna pay

implied in law/Quasi-Contracts

not a contract but courts can enforce a party to compensate another party for a benefit they did

if a contract is illegal…

if all clauses are illegal, the contract is void and can’t be enforced.

if only some clauses are illegal, the court can rewrite it to make it illegal. Ex: a court rewriting a illegally high interest rate to be lower

Enforceability

Valid contracts are fully enforceable.

• An unenforceable agreement has legal defect.

• A voidable contract occurs when one party has an option to cancel the agreement.

• A void agreement means that the law will ignore the deal regardless of what the parties want.

void contract

contract that lacks legal elements to be considered legal and forceable in court so its void. ex: purchasing illegal drugs

voidable contract

a contract that can only forced by only one party. Ex; contract involving minors and adults. A minor can void the contract if they choose to while the adult is forced to comply

unenforceable contract

a court cannot enforce it due to legal reasons such as statue of limitations or bankruptcy

What elements are required to form a valid contract?

Offer - Promise of action

• Acceptance - Agree to terms of offer.

• Consideration - Promise to exchange (or exchange) value demanded by each party

offer requirements

objective intent to willing make an offer

solid conduct

define materials so a court could enforce it

willing communication

offer duration/acceptance

limited by time and can become void if:

offerer dies/becomes incompetent

offer becomes illegal

destruction of subject manner

Specific Provision in Contract

Lapse of Time

Offeree’s Rejection

cancelled by Offeror

some offers cannot be revoked prior to acceptance if its an option offer where there’s a deposit

acceptance requirements

objective intent to accept, mirror image rule (if not same as offerer’s words then its a counter offer), communicated to offerer

mailbox rule and authorized means

mailbox rule: acceptance using authorized method becomes valid when it is dispatched (if u send an email of acceptence, even before the offerer saw the email, it is now forceable by law)

authorized means: using same method to communicate as offerer or faster method

Rule for Sale of Goods (UCC)

rule only applies to exchanges of money and goods

low mental capacity to contract, can mean a contract is void

Minors

Intoxicated Person

Mentally Incompetent Person

What common situations give rise to a voidable contract?

Fraud

• Misrepresentation

• Duress

• Undue Influence

• Mutual Mistake

• Unilateral Mistake

Express and Implied Contracts

If the parties formally agreed and stated explicit terms, there is an express contract.

If the parties did not formally agree but their conduct, words, or past dealings indicate they intended a binding agreement, there may be an implied contract.

Uniform Commercial Code and Common Law

If a contract is for the sale of goods, the UCC is the relevant body of law.

For anything else, the common law governs.

If a contract involves both goods and services, a court will examine the agreement’s primary purpose to determine which law applies.

Promissory Estoppel

A claim of promissory estoppel requires that the defendant made a promise knowing that the plaintiff would likely rely, and the plaintiff did so. It would be wrong to deny recovery.

Meeting of the Minds

requires that they understand each other and show that they intend to reach an agreement.

offer

An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms.

other statement

Invitations to bargain, price quotes, letters of intent, and advertisements are generally not offers. However, an ad in which a company proposes to take a specific action when a customer takes a specific action can amount to an offer. And letters of intent that indicate the parties intended to be bound can also count as offers.

Definiteness

The terms of the offer must be definite, although under the UCC the parties may create a contract that has open terms.

termination

an offer may be terminated by revocation, rejection, expiration, or operation of law.

online wrap agreement

Clickwrap agreements are generally enforceable, but browsewraps are only enforceable when websites prove that the user knew about the terms.

Hybridwraps are enforceable if the notice is conspicuous and near the click-to-consent button.

manner of agreement

If an offer demands acceptance in a particular method or manner, the offeree must follow those requirements. If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium.

consideration

there are two basic rules of consideration:

Value: Both parties must get something of measurable value from the contract.

Bargained-for exchange: The two parties must have bargained for whatever was exchanged.

Act, Forbearance, or Promise

The item of value can be either an act or a forbearance (meaning giving up something only if you are giving up a right)

adequacy/peppercorn rule

the courts examine whether consideration exists but will seldom inquire if it was enough consideration or a smart financial deal. This is the “peppercorn rule.”

Illusory Promises

An illusory promise is not consideration since its indefinite. ex:might/might not.

Requirements and Output Contracts

Under the UCC, requirement and output contracts are valid. Although one side controls the quantity, its agreement to make demands in good faith is consideration.

Preexisting Duty

Under the doctrine of preexisting duty, a promise to do something that the party is already legally obligated to perform is generally not consideration. ex: builder promised to fix pipe for set price but later on demands higher price

What type of writing is required to satisfy the statute of frauds

Demonstrate terms of agreement

Identify Party against whom enforced

Signature, Stamp, Seal, Handwriting, etc.

Liquidated Debt

A liquidated debt is one in which there is no dispute about the amount owed. For a liquidated debt, a creditor’s promise to accept less than the full amount is not binding.

unliquidated Debt

A debt is unliquidated if the parties dispute how much money, if any, is owed. If the parties agree that the creditor will accept less than the full amount claimed and the debtor performs, there is an accord and satisfaction, and the creditor may not claim any balance.

“Full Payment” Notations

In most states, payment by a check that has a “full payment” notation will create an accord and satisfaction.

moral consideration

Sometimes, to prevent injustice, courts will enforce agreements based on promissory estoppel even if no consideration is present. These deals are still not formal contracts, but the courts will enforce a promise nonetheless.

illegal contract

Illegal contracts are void and unenforceable. Illegality most often arises in these settings:

Criminal Statutes

1. Courts will not enforce bargains that involve criminal activity.

wagering

A purely speculative contract—whether for gambling or insurance—is likely to be unenforceable.

Licensing

When the licensing statute is designed to protect the public, a contract by an unlicensed plaintiff is generally unenforceable. When a license is designed merely to raise revenue, a contract by an unlicensed plaintiff is generally enforceable.

usury

Excessive interest is generally unenforceable and may be fatal to the entire debt. Credit card debt is often exempt from usury laws.

Noncompete: Sale of Business

A noncompete clause in the sale of a business must be limited to a reasonable time, geographic area, and scope of activity.

Noncompete: Employment

Through employment non-competes, employers seek to restrict an employee’s right to work with time and geographic limitations

Exculpatory Clauses

These clauses are generally void if the activity involved is in the public interest, the parties are greatly unequal in bargaining power, or the clause is unclear. In other cases, they are generally enforced.

Procedural Unconscionability

Oppression and surprise may create an unconscionable bargain. An adhesion contract is especially suspect when it is imposed by a corporation on a consumer or small company. Under the UCC, a limitation of liability is less likely to be unconscionable when both parties are sophisticated corporations.

Substantive Unconsionability

When contract terms are unfairly one-sided at the time of contracting, the contract may be substantively unconscionable and, therefore, unenforceable.

Mental Impairment

People with mental impairments that render them unable to understand the nature of the deal may generally disaffirm a contract. In most cases, though, they must make restitution.

Intoxication

Those who are so intoxicated that they fail to understand the nature of an agreement may disaffirm a contract if they can prove that the other party knew or should have known of their highly impaired state.

fraud

Fraud is grounds for rescinding a contract. The injured party must prove all three of the following elements:

The plaintiff made an intentional or reckless misrepresentation of fact;

The false statement was material; and

The injured party justifiably relied on the statement.

Innocent Misrepresentation

Innocent misrepresentation also allows an injured party to rescind a contract. It has the same elements as fraud, but it does not require intent or recklessness.

silence

1. Silence amounts to misrepresentation under four circumstances:

   1. When disclosure is necessary to correct a previous assertion,

   2. When disclosure would correct a basic mistaken assumption on which the other party is relying,

   3. When disclosure would correct the other party’s mistaken understanding about a writing, or

   4. Where there is a relationship of trust between the two parties.

Unilateral Mistake

In a case of unilateral mistake, the injured party may rescind if:

The other party knew or had reason to know of the mistake,

The mistake was solely mathematical or mechanical, or

Enforcement would be unconscionable.

Mutual Mistake

When both parties to a contract make the same fundamental factual error as to the existence or the identity of the contract’s subject matter, either party may rescind.

duress

If one party makes an improper threat that causes the victim to enter into a contract, and the victim had no reasonable alternative, the contract is voidable.

What is the difference between a unilateral and bilateral contract?

Unilateral: Offeree accepts by performing (promise for a performance). Bilateral: Offeree accepts by promising to perform (promise for a promise).

What is the rule for acceptance for the sale of goods (UCC)?

Under UCC 2-207, acceptance can have different or additional terms and still form a contract unless the acceptance is expressly conditional on assent to the new terms.

Does silence constitute acceptance?

Generally, no. Silence is not acceptance unless: (1) the offeree has reason to know silence will be taken as acceptance, or (2) prior dealings establish silence as acceptance

What is the UCC exception for merchants regarding silence?

Under UCC 2-207(3), if merchants have an established course of dealing, silence or a written confirmation may operate as acceptance even without a direct reply

What is consideration?

Anything of value exchanged between parties – a benefit to the promisor or a detriment to the promisee. It must be bargained for.

What are the three types of consideration?

(1) Agreement to refrain (forbearance), (2) Agreement not to sue, (3) Prior consideration (moral obligation – generally not enforceable unless new consideration).

hat are option contracts and firm offers?

Option contract: A promise not to revoke an offer, supported by consideration. Firm offer (UCC): A merchant's signed, written offer to buy/sell goods that is irrevocable for up to 3 months without consideration.

What is the lawful purpose requirement?

A contract must have a lawful purpose to be enforceable. Contracts to commit crimes or torts are void.

What are unconscionable contracts?

Contracts that "shock the conscience" – so unfair or oppressive that courts refuse to enforce them. Typically involve grossly unfair terms, unequal bargaining power, or hidden terms.

What are contracts that restrain trade?

Contracts that unreasonably restrict competition. Generally void, but reasonable non-compete agreements (limited time/geography) may be enforceable.

What is fraud as a voidable contract situation?

Intentional misrepresentation of a material fact that induces the other party to enter the contract. The defrauded party can void the contract.

what is misrepresentation?

A false statement of fact (not opinion) that induces the contract. Can be innocent or negligent. The injured party may void the contract.

What is duress?

A threat that coerces a party into a contract against their will (e.g., threat of violence, economic duress). The contract is voidable by the victim.

What is undue influence

When one party uses a special relationship (e.g., doctor-patient, attorney-client) to unfairly persuade the other into a contract. Voidable by the victim.

What is mutual mistake

Both parties share the same mistaken belief about a material fact. The contract may be voidable/rescinded by either party.

What is unilateral mistake

One party is mistaken about a material fact. Generally, the contract stands unless the other party knew or should have known of the mistake or the mistake is so severe it would be unconscionable to enforce.

what is the Statute of Frauds

A law requiring certain contracts to be in writing to be enforceable.

What contracts fall under the Statute of Frauds

(1) Sale of an interest in land, (2) Collateral promise to pay another's debt (suretyship), (3) Contracts that cannot be performed within one year, (4) Sale of goods of $500 or more (UCC).

What type of writing satisfies the Statute of Frauds

It must: (1) demonstrate the terms of the agreement, (2) identify the party against whom it is to be enforced, and (3) be signed by that party (signature, stamp, seal, handwriting all count).

What are the exceptions to the Statute of Frauds writing requirement

(1) Admission under oath, (2) Part performance, (3) Promissory estoppel, (4) UCC rules: specialty goods, partial/complete performance, contract between merchants.

What is the "admission under oath" exception

If a party admits in court testimony or sworn statement that a contract exists, the writing requirement is satisfied.

What is the "part performance" exception

If a party has partially performed (e.g., paid money or taken possession), courts may enforce the oral contract to prevent injustice.

What UCC exceptions apply

Specialty goods: Custom-made goods not suitable for resale. Partial/complete performance: If goods are received and accepted. Contract between merchants: A written confirmation between merchants satisfies the writing requirement unless objected to within 10 days.

Who are the beneficiaries of a contract

Primary beneficiaries: The parties themselves. Third-party beneficiary: Intended to benefit and named in the agreement.

What is a donee beneficiary

A third party who receives a gift from the promisee. They can enforce the contract.

What is a creditor beneficiary

A third party who receives contractual rights from the promisee as satisfaction of a debt. They can enforce the contract.

What is assignment

Transfer of contractual rights to a third party (the assignee).

What is delegation

Transfer of contractual duties to a third party (the delegatee). The original party remains liable unless there is a novation.

What is a novation

A three-party agreement where a new party replaces an original party and assumes all rights and obligations. The original party is released.

What contracts are non-assignable/non-delegable

(1) Material change in responsibility, (2) Increases burden or risk, (3) Special skills required, (4) Personal contracts.

What is a purchaser in good faith for value in multiple assignments

When multiple assignments exist, the first purchaser in good faith for value (without notice of prior assignments) usually has priority.

When is a party relieved from obligations under a contract

(1) Performance, (2) Release from contract, (3) Breach by the other party.

What is an executed contract

A contract that has been fully completed by all parties.

What is an executory contract

A contract that is not yet fully completed – some duties remain.

What is complete performance

When all parties fully perform their contractual duties. The contract is discharged.

What is substantial performance

When a party performs substantially all duties but has minor deviations. The other party must pay but may deduct damages for the minor deviation.

What is breach of contract

Failure to perform contractual duties without a valid excuse. The breaching party is liable for damages.

What is a divisible contract

A contract with multiple parts or segments, each with separate duties/obligations. Each segment is treated like a mini-contract – performance of one segment triggers payment for that segment.

What situations relieve individuals from performing duties

(1) Void contract, (2) Breach by other party, (3) Failure of a condition, (4) Impossibility, impracticability, or frustration of purpose, (5) Waiver or release.