L201 Lopez IU Exam 3

Basic elements of a contract

Basic elements of a contract

Offer

Acceptance

Voluntary

Consideration

Capacity

Legal

Contract

a legally enforceable promise or set of promises

Is every promise legally enforceable?

No

Elements of a Contract

(1) agreement made of an offer and an acceptance (2) made voluntarily

(3) supported by consideration

(4) between parties with capacity to contract

(5) made for a lawful purpose

Oral v. Written

Unless the law specifically requires a certain type of contract to be in writing, an oral contract that can be proven is as legally enforceable as a written one.

Who usually has the power of the contract?

the drafter

-standardized form- terms are non-negogitable

Unilateral

One party makes a promise

ex) dunkin donuts reward system

BILATERAL CONTRACT

Both parties exchange promises

-Contract is formed when the promises are exchanged

Unenforceable - otherwise valid, but

-Not in writing (some Ks must be in writing)

-Voidable (one party has legal right to cancel)

-Void (no legal obligations created)

Valid contract

a contract that meets all the legal requirements for a binding and enforceable agreement

Voidable contract

agreement otherwise binding, but due to circumstances surrounding execution or lack of capacity, may be rejected at option of one party

Void contract

agreement without legal effect because prohibited by law

Express contract

agreement of parties manifested by words, written or oral

-have directly stated the terms of their contract

Implied contract

agreement not shown by words, but by acts and conducts of parties

Executory contracts

Not yet performed

executed contracts

when all parties have fully performed their contractual duties

Quasi-contract

an obligation imposed by law to prevent unjust enrichment of one party in certain circumstances

ex) work performed by painter thinking work justified by contract & other party, who receives benefit of work, denies work was justified

Quasi-contract remedies

Plaintiff recovers either:

-the reasonable value of the benefit conferred on the defendant (reasonable price)

-value of labor (quantum meruit)

quantum meruit

value of labor

The two governing bodies of contracts:

-Common law

-UCC

Article 2 expressly applies to

contracts for the sale of goods

Two primary sources of Contract Law

1. Common Law

2. Uniform Commercial Code

"Goods"

tangible, movable, personal property

Who has not adopted the UCC?

Louisiana

What is the UCC?

Establishes a uniform set of rules to govern commercial transactions across state lines

Hybrid contract

contracts that involve both goods and services

Test for hybrid contracts

predominate factor test- if the good or service is more expensive

ex) tires: you are paying for the good so UCC

Jiffy Lube: you are paying for the service so Common Law

doctrine of promissory estoppel

when one party relies upon another party's promise to his or her detriment (detrimental reliance), but there's no contract

The elements of Promissory Estoppel claim are

•(1) a promise clear and unambiguous in its terms;

•(2) Reliance by the party to whom the promise is made;

•(3) reliance must be both reasonable and foreseeable;

•(4) the party asserting the estoppel must be injured by the reliance.

Offer

a promise conditional on an act, return promise, or forbearance

Requirements for an Offer

1. a "present intent to contract"

2. Specificity or definiteness in the terms

3. the offer has been communicated to the offeree.

Offeror

The person making the offer

Offeree

person who the offer is made to

Intent

An offeror must indicate present intent to contract, or the intent to meet the contract obligation upon acceptance

-Would a reasonable person judge the offeror's words and acts in the context of the circumstances to signify intent?

Definiteness is important because:

1. shows the willingness/intent to contract

2. the court needs to calculate the remedy for breach of contract

presumption (4 parts)

A price, quantity, delivery, and time for payment term left open in a contract

-definiteness under UCC

UCC has "gap-filling" rules

allowing courts to fill-in contract terms on price, quantity, delivery, and time for payment

Definiteness under Common Law

-requires a high level of definiteness and requires the time, delivery, price and quantity to be stated

Advertisements for a sale of goods at specified prices generally are

not considered offers, but are invitations to offer or negotiate

Advertisements offering rewards for lost property, information, or capture of criminals are treated as

as offers for unilateral contracts

Auctions and Bids

usually invitation to offer

Reserve during an auction

a minimum price that the seller is willing to accept for an item

-the seller is obligated to sell the item once a bid meets or exceeds the reserver

Revocation

Offeror can revoke anytime prior to acceptance, even if they have promised to hold the offer open for a stated period of time.

Exceptions to Revocations

1. Option contract in which an offeror agrees not to revoke the offer for a stated time in exchange for some valuable consideration

2. Offers for unilateral contracts (e.g., rewards)

3. Promissory estoppel circumstances (reliance on the offer staying open)

4.Firm offers for sale of goods

Revocations are effective upon

receipt

Requirements for a firm offer

1.Offer made by a merchant

2.Offer is in writing

3.Offer is signed

4.Offer gives assurances that it will be kept open

Contract terminated if

1. Lapse of time

2. rejection

3. death or insanity

4. destruction

5. intervening illegality

Article 2A

lease of goods

A firm offer does NOT need consideration under the UCC, but does need:

1.To be made by an offeror who is a merchant

2.To be contained in a signed writing

3.Give assurances that the offer will be kept open

If no time is stated then the firm offer revocability is three months (90 days)!

acceptance requirements:

1.The offeree intended to enter the contract

2.The offeree accepted on the terms proposed by the offeror

3.The offeree communicated his acceptance to the offeror

"Mirror Image" Rule

Common law Traditional Mirror Image Rule-Acceptance must be the mirror image of the offer

Modern law:

Only "material" - "IMPORTANT" - variances between an offer and a purported acceptance result in an implied rejection of the offer

Are inquires and grumbling acceptances real acceptances?

yes

Battle of the forms

when two merchants make forms that don't agree

-except: price must agree

Knock-out rule (under battle of forms)

you take what are alike in the two forms of the contract

Mailbox rule under UCC

Properly addressed (and proper postage) dispatched acceptances are effective when dispatched - even if they are lost and never received by the offeror

-reasonable means of communication- if it gets there in the same time you can use that way

Mailbox rule under Common Law

-acceptance upon dispatched

-same manner as the offer

Nonauthorized form of acceptance (under common law) only binds upon ________

receipt

Silence generally not acceptance (but there are 2 exceptions)

•Exception #1 -E.G., customary trade practice or prior dealings between the parties indicates that silence signals acceptance.

•Exception #2 - Offeree indicates that his silence will signal acceptance. OFFEROR cannot impose on the OFFEREE a duty to respond to the offer, but an OFFEREE can indicate that silence will equal acceptance.

Death ends a contract EXCEPT:

real estate

unconscionable contract

a contract that is grossly unfair or one-sided

Consideration

"legal value, bargained for and given in exchange for an act or a promise" i.e., "the glue that holds the bargain together"

promisor

the person who made the promise

promisee

the person who the promise is made to

Legal value can be established in 2 ways:

1.In exchange for the promisor's promise, the promisee does or agrees to do something he had no prior legal duty to do

2.In exchange for the promisor's promise, the promisee refrains from doing or agrees not to do something she has a legal right to do

Promises that are not supported by consideration are generally unenforceable under common law

true

Bargained for Exchange

A promisee's act or promise must have been bargained for and given in exchange for the promisor's promise

Exchanges That Are Not Consideration (3 things)

•Illusory promises

•Preexisting duties

•Past consideration

Illusory promises

promisee has not give the promisor anything of legal value in exchange for the promisor's promise

ex) paint your house when i feel like it

Liquidated debts

debts in which parties have no dispute about the existence or amount of the debt

Unliquidated debt

If there is a dispute about the existence or amount of the debt

past consideration

an act or benefit given in the past that was not given in exchange for the promise in question

Exceptions to Consideration Requirement

•State statutes that extend promises to pay debts that have been barred by statute of limitations or bankruptcy discharge

•Charitable subscriptions (like promissory estoppel)

Output contract

one party agrees to buy all the other party's production of a particular commodity

requirements contracts

supply all of another party's needs for a particular commodity

UCC: does not require new consideration for a modification as long as the modification is in

good faith

hybrid contracts use __________to determine

predominant factor test

UCC dispenses with consideration requirement in two instances:

•Firm offer for sale of goods

•Contract modification for sale of goods

modifications to a contract under common law

requires new consideration to support a modification of a K

Contracts that are voidable (5 things)

1. misinterpretation

2. fraud

3. mistake

4. duress

5. undue influence

Person claiming non-consent has power to

rescind (void)

Person claiming non-consent must not act in a manner to

ratify (affirm) the contract

A person who commits fraud may be liable in

tort for damages

Misinterpretation

a false statement that may be innocent or fraudulent

Innocent or Fraudulent Misrepresentation

Fact asserted was untrue material or was fraudulent

-the complaining party entered the contract on the reliance of the assertion

concealment

active hiding of the fact

nondisclosure

failure to volunteer information

Scienter

Knowledge by the person making the representations, at the time when they were made that they were false.

mistake

is a belief about a fact that is not in accord with the truth

-not a result from other party's untrue statements

Mutual mistakes may be remedied by

reformation

Requirements for Mistake

1.Mistake relates to a basic assumption on which the contract was made.

2.The exchange has a material effect on the agreed upon mistake.

3.The Party adversely affected by the mistake does not bear the risk of the mistake.

Undue influence

wrongful pressure exerted on a person during the bargaining process (persuasion)

Ratification

person who had the right to rescind elects not to, and by behavior affirms or ratifies the K.

Duress

wrongful threat or act that coerces a person to enter or modify contract

Requirements for Rescission on the grounds of Misrepresentation or Fraud

1.Untrue assertion, concealment or nondisclosure of fact (not an opinion or puffery)

2.Fact asserted was material OR the assertion was fraudulent

3.Complaining party entered the K b/c of his reliance on the assertion (a causal relationship)

4.Reliance of the complaining party was reasonable or justifiable

Elements of misrepresentation

1.Untrue statement of fact

a. Fact vs. opinion

b.Nondisclosure and concealment = untrue

statement of fact

2.Fact is material

3.Reliance

4.Reliance is reasonable

If BOTH parties are mistaken, contract can be avoided if all three elements are present:

1.Mistake relates to a basic assumption on which the K was made

2.Mistake has a material effect on the agreed-upon exchange

3.Party adversely affected by the mistake does not bear the risk of the mistake

capacity

the ability to incur legal obligations and acquire legal rights

WHO LACKS CAPACITY?

1.minors (contracts are voidable)

2.mental illness

3.intoxicated person (must be extreme)

Minor avoids the contract by

disaffirmance- the right to avoid a contract

EXCEPTIONS that cannot be disaffirmed by minors:

1.marriage

2. child support agreements

3. educational loans

4.insurance contracts