Contracts

1
Contracts

• Definition
• A promise that the law will enforce.
• Development of Contract Law
• Common law once required all contracts to be in
  writing, with a seal affixed.
• Later, some payment was required before a
  contract could be enforced.
• Mutual promises became enforceable in the 1600s.
• By the 1900s, courts began to consider the
  fairness of contracts before enforcing them.

2
Types of Contracts (or Agreements)
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• Bilateral and Unilateral Contracts
• Bilateral both parties make a promise.
• Unilateral one party makes a promise that the
  other party can accept only by doing something

3
Types of Contracts (contd)

• Express and Implied Contracts
• Express the two parties explicitly state all
  important terms of their agreement.
• Implied the words and conduct indicate that the
  parties intended an agreement.
• Executory and Executed Contracts
• Executory when one or more parties has not
  fulfilled its obligations.
• Executed when all parties have fulfilled their
  obligations.

4
Types of Contracts (contd)

• Valid, Unenforceable, Voidable, and Void
  Agreements
• Valid satisfies the laws requirements.
• Unenforceable when the parties intend to form a
  valid bargain but some rule of law prevents
  enforcement.
• Voidable when the law permits one party to
  terminate the agreement.
• Void one that neither party can enforce, usually
  because the purpose is illegal or one of the
  parties had no legal authority.

5
Sources of Contract Law

• Common Law
• Uniform Commercial Code
• UCC Article 2 governs the sale of goods. Goods
  means anything moveable, except for money,
  securities, and certain legal rights.
• In a mixed contract, Article 2 governs only if
  the primary purpose was the sale of goods.

6
Elements of a Contract

• Agreement
• offer, and
• acceptance
• Consideration
• There has to be bargaining that leads to an
  exchange between the parties.
• Legality
• The contract must be for a lawful purpose.
• Capacity
• The parties must be adults of sound mind.

7
Meeting of the Minds

• The parties can form a contract only if they had
  a meeting of the minds.
• They must understand each other and intend to
  reach an agreement.
• A judge will make an objective assessment of any
  disagreements about whether a contract was made
  -- whether or not a reasonable person would
  conclude that there was an agreement, based on
  the parties conduct.
• Objective Theory of Contract Lucy v. Zehmer

8
Negotiation Terms

• JOE BOB
• Offer Accept or Reject or
• Accept or Counteroffer
• Reject or
• Counteroffer

9
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.

• Problems with Intent
• Invitation to bargain is not an offer.
• Price quote is generally not an offer.
• An advertisement is generally not an offer.
• Placing an item up for auction is not an offer,
  it is merely a request for an offer.
• Problems with Definiteness
• The term of the offer must be definite.

10
Definiteness/Invitations to Bargain

• Ill give a blueberry muffin and a cup of coffee
  to the first person who shows up next class in
  class in a full clown suit and makeup.
• Would you consider showing up in a full clown
  suit and makeup if I gave you a blueberry muffin
  and a cup of coffee?
• I couldnt take less than 400 for that 1974
  Dodge Dart.
• General common law rule all important/essential
  terms (price, quantity, etc.) must be specified.
  EXCEPTIONS UCC situations, and where industry
  practice suggests how the missing terms will be
  filled in. E.g., seafood restaurant example.

11
Termination of Offers

• Termination by Revocation
• Effective when the offeree receives it.
• Firm Offers and Revocability
• Common Law Rule
• Revocation of a firm offer is effective if the
  offeree receives it before he accepts.
• Option Contract
• The offeror may not revoke an offer during the
  option period.
• Sale of Goods
• A writing signed by a merchant, offering to hold
  an offer open, may not be revoked.

12
Termination of Offers (contd)

• Termination by Rejection
• If an offeree rejects an offer, the rejection
  immediately terminates the offer. A counteroffer
  operates as a rejection.
• Termination by Expiration
• When an offer specifies a time limit for
  acceptance, that period if binding.
• If the offer specified no time limit, the offeree
  has a reasonable period in which to accept.

13
Acceptance

• The offeree must say or do something to accept.
• In a bilateral contract, the offeree generally
  must accept by making a promise.
• In a unilateral contract, the offeree must accept
  by performing.
• Mirror Image Rule (Common Law)
• Requires that acceptance be on precisely the same
  terms as the offer.
• Normile v. Miller

14
Mirror Image Rule

• Stan offers Eric 6 for Erics Carl Yastremski
  rookie baseball card.
• Eric answers, Throw in a bag of cheesie poofs
  and youve got a deal.
• Stan responds, Ill do you one better. Lets
  meet back here in 20 minutes.
• In 20 minutes Stan returns with 6 and Erics
  favorite meal a chicken nugget happy meal.
• Eric refuses to give Stan the card, saying hes
  having second thoughts.
• DID STAN AND ERIC HAVE A DEAL?

15
UCC and the Battle of Forms

• Where the UCC applies, an offeree may include in
  the acceptance terms that are additional to or
  different from those in the offer.
• Additional terms are those that bring up new
  issues.
• If both parties are merchants, the additional
  terms will generally become part of the contract.
• Different terms are those that contradict terms
  in the offer.
• The majority of states hold that different
  (contradictory) terms cancel each other out/UCC
  fills gaps.
• Why have this rule? What terms must be agreed
  upon? What about material alterations? What
  sorts of terms are material?

16
Communication of Acceptance

• Wucherpfennig v. Dooley
• and Manner of Acceptance
• If an offer demands acceptance in a particular
  medium 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.
• Time of Acceptance The Mailbox Rule
• An accceptance is generally effective upon
  dispatch, meaning the moment it is out of the
  offerees control.

17
Consideration

• Bargaining that leads to an exchange of value
  between the parties.
• Consideration can be anything that someone might
  want to bargain for. It is the inducement to
  make the deal, or the thing that is
  bargained-for.
• McInerny v. Charter Golf

18
What is the consideration supporting each promise?

• 1. Stan agrees to pay Eric 6 for Stans
  baseball card exchange to take place next
  Tuesday.
• Professor promises to give a cup of coffee and a
  blueberry muffin to the first person to come into
  class in a full clown suit and makeup.
• I agree to pay you 500 for your lovely painting,
  Dogs Playing Poker (on Velvet).
• 4. I promise to pay my son 100 if he does not
  watch South Park for one year.

19
A Bargain and an Exchange
Bargaining is obligating yourself in order to
induce the other side to agree.

• The thing bargained for can be
• another promise or action.
• a benefit to the promisor or a detriment to the
  promisee.
• a promise to do something or a promise to refrain
  from doing something.

20
Mutuality of Obligations

• Illusory Promise
• If one partys promise is conditional, the other
  party is not bound to the agreement.

• Promise to pay in return for past favors.
• Is this consideration?
• Was it bargained-for?
• Passante v. McWilliam

21
Preexisting Duty

• A promise to which the promisor is already
  obligated is not consideration.
• Exceptions
• If the scope of the promisors task increases,
  that increase is consideration.
• When unforeseen circumstances cause a party to
  make a promise regarding an unfinished project,
  that promise is valid consideration. Must be
  something beyond normal risk assumed by the
  parties.

22
Exceptions to the Requirement of Consideration
Promissory Estoppel

• Promise meant to induce action,
• On which the promisee reasonably relies
• To his/her detriment
• Is enforceable in the absence of consideration

23
Promissory Estoppel (contd)

• Supervisor was pleased with employees work
• In March, Supervisor promised employee that she
  would get 5 of the company stock as a Christmas
  bonus
• Employee turns down several higher paying job
  offers between March and December
• Supervisor never made good on that promise
• Employee sues to enforce the promise.
• RESULT?