Overview of Contract Law

1
Overview of Contract Law

• Sources of Contract Law.
• Common Law for all contracts except sales and
  leases.
• Sale and lease contracts - Uniform Commercial
  Code (UCC).
• A contract is a
• Promise or set of promises,
• For breach of which,
• The law provides a remedy, or
• The performance of which the law in some way
  recognizes as a duty.
• Purpose of Contract Law to provide
  Predictability Stability to Commercial
  Transactions

2
Elements of a Contract

• Objective Theory of Contacts. Circumstances to
  determine intent of parties.
• Offer
• Acceptance
• Consideration.
• Defenses
• Contractual Capacity.
• Legality.
• Genuineness of assent.
• Form.

3
Types of Contracts

• Bilateral v. Unilateral.
• Bilateral - Offeree must only promise to perform
  (promise for a promise).
• Unilateral - Offeree can accept the offer only by
  completing the contract performance (a promise
  for an act). Irrevocable Offer cannot be
  revoked once performance has begun for a
  reasonable time to allow for its completion.

4
Express vs. Implied-in-Fact

• Express Words (oral or written).
• Implied In Fact Conduct creates and defines the
  terms of the contract. Requirements
• PL furnished good or service
• PL expected to be paid
• DEF had chance to reject and did not.

5
Quasi-Contracts

• Quasi Contracts are implied in law.
• Fictional contracts created by courts.
• Imposed on parties for the interest of fairness
  and justice. So its an Equitable Remedy subject
  to Chapter 2 maxims.
• Def. knowingly received something of value.
• While not entitled to the benefit (by K or
  otherwise)
• Under circumstances which would make it unjust to
  permit the retention of the benefit.

6
Types of Contracts

• Formal v. Informal.
• Seal UCC 3 4
• Executed v. Executory.
• Executed - A contract that has been fully
  performed on both sides.
• Executory - A contract that has not been fully
  performed on either side.

7
Contract Enforceability

• Valid.
• Elements Agreement, consideration, contractual
  capacity, and legality.
• Void.
• No contract.
• Voidable.
• Valid contract can be avoided or rescinded by 1.
• Unenforceable
• Otherwise valid contract, subject to a form
  defense

8
Equitable Maxims

• Equitable relief will be awarded only when there
  is no adequate remedy at law
• Whoever seeks equity must do equity
• Where the equities favor both parties, the
  dispute must be decided according to the law
• Whoever seeks equity must come to the court with
  clean hands
• Equity favors substance over form and
• Whoever seeks equity must pursue the vindication
  of their rights vigilantly or risk having their
  claims barred. (LATCHES)

9
Interpretation of Contracts

• Plain Meaning Rule Courts give terms their
  obvious or ordinary meaning.
• Ambiguous Terms. If terms are ambiguous, court
  will attempt to interpret ambiguous contract
  terms in a reasonable, lawful, effective manner.
  
• Contracts are interpreted as a whole.
• Terms negotiated separately given greater weight.
• Ordinary, common meaning given.

10
Interpretation of Contracts

• Ambiguous Terms (contd)
• Specific wording given greater weight than
  general language.
• Written or typewritten given greater weight than
  preprinted.
• Ambiguous terms interpreted against the drafter.
• Trade usage, prior dealing, course of performance
  to allowed to clarify.

11
Agreement - Introduction

• Agreement offer and acceptance.
• Parties must show mutual assent to terms of
  contract.
• Once an agreement is reached, if the other
  elements of a contract are present, a valid
  contract is formed.

12
Requirements of the Offer

• Offerors serious intention.
• Definiteness of terms.
• Communication to Offeree.

13
Offerors Serious Intention

• Contract is judged by what a reasonable person in
  the Offerees position would conclude about the
  offer.
• Case 11.1 Lucy v. Zehmer (1954).
• Offers made in anger, jest, or undue excitement
  are usually not offers.
• Expressions of opinion are not offers.
• Statements of Intention or preliminary
  negotiations are are not offers.
• Advertisements, Catalogues, Price Lists, and
  Circular are treated as Invitations to negotiate
  and not as offers.
• Lefkowitz v. Great Minneapolis Surplus Store

14
Offer-Definiteness of Terms

• Terms (Also the requirements for the Statute of
  Frauds).
• Identification of the parties.
• Object or subject matter of the contract.
• Consideration to be paid.
• Time of payment, Delivery, or Performance.

15
Offer-Definiteness of Terms (notes)

• Woods Rule At will employment Absent a set
  time, any contract is terminable by either party,
  at any time, for good cause, bad cause or no
  cause at all.
• Rood v. Great Plains Supply (1995)
• To what standard must each element be proven?
  Sufficient Basis to Form a Remedy
• Case 11.3 Baer v. Chase (2004)

16
Offer-Communication

• Offerees knowledge of the offer
• Directly by the Offeror, or Agent

17
Requirements of the Offer

• Offerors serious intention.
• Definiteness of terms.
• Communication to Offeree.

18
Termination of the Offer

• An offer may be terminated prior to acceptance by
  either
• Action of the Parties or by
• Operation of Law.

19
Termination by Action of the Parties

• Revocation of the offer by the Offeror
• Offer can be withdrawn anytime before Offeree
  accepts the offer.
• Effective when the Offeree or Offerees agent
  receive it.
• Exceptions
• Merchants Firm offer see Chapter 20
• Unilateral Contract see Chapter 10
• Option Contract Promise to hold an offer open
  for a specified period of time in return of
  consideration.

20
Termination by Action of the Parties

• Exceptions (Contd)
• Promissory Estoppel where Offeree relies on offer
  to his or her detriment, thus Offeror is barred
  from revoking the offer See Chapter 12.
• Rejection of the offer by the Offeree
• Rejection by the Offeree (expressed or implied)
  terminates the offer.
• Effective only when it is received by the Offeror
  or Offerors agent.

21
Termination by Action of the Parties

• Rejection by Offeree (Contd).
• A counteroffer by the Offeree is a rejection of
  the original offer and making of a new offer.
• Any attempt to accept after Rejection /
  Revocation is a new offer.
• Mirror Image Rule.
• Offerees acceptance to match the the Offerors
  offer exactly.

22
Termination by Operation of Law

• Lapse of Time
• Offer terminates by law when the period of time
  specified in the offer has passed.
• If no time period for acceptance is specified,
  the offer terminates at the end of a reasonable
  period of time.
• Destruction of the Subject Matter
• Death or Incompetence of any party
• Intervening illegality

23
Acceptance

• Acceptance is the
• Voluntary act (expressed or implied),
• by the Offeree that,
• shows assent (agreement),
• to the terms of an offer.
• Unequivocal The Mirror Image Rule.
• Grumbling OK.

24
Silence as Acceptance

• Acceptance by Silence Generally speaking,
  silence (or inaction) cannot constitute
  acceptance except
• Acts Consistent with Acceptance Taking Benefits
  (Implied-In Fact)
• Prior Dealings Prior contractual agreement or
  conduct
• Unilateral Contract Beginning performance
  (Notice?)

25
Mode and Timeliness of Acceptance THE MAILBOX
RULE

• Acceptance becomes effective on dispatch,
  providing that authorized means of communication
  is used. Offeree accepts by using the stipulated
  means of acceptance.
• Offeror specifies (expressly or impliedly) how
  acceptance should be made.
• Effective when dispatched (mailed, shipped).

26
Exceptions to Mailbox Rule

• Exceptions to Mailbox Rule
• If acceptance is not properly dispatched by the
  Offeree.
• If Offeror specifies that acceptance will not be
  effective until it is received.
• If acceptance is sent after rejection, whichever
  is received first is given effect.

27
Authorized Means of Acceptance

• Unauthorized Means of Acceptance.
• Not effective until it is received by the
  Offeror. If timely sent and dispatched it is
  considered to have been effective on its
  dispatch.
• Osprey LLC v. Kelly-Moore Paint Company (1999).
• US Mail always implied authorized means of
  acceptance
• Implied authorized means of acceptance includes
  as fast or faster means.

28
Mailbox Rule Summary

• Acceptance by authorized means (express or
  implied)
• effective when dispatched (mailbox rule)
• unless acceptance not properly dispatched
• unless offeror specified that acceptance had to
  be received to be effective
• unless acceptance is sent after rejection is
  sent, then whichever reaches offeror first is
  effective
• Acceptance not by authorized means
• effective when received, BUT if received timely,
  considered effective upon dispatch

29

• Note Mailbox Rule applies to acceptances only!
  Rejections or revocations are effective on
  receipt.

30
Elements of Consideration

• Legal Value
• Promise to do something not legally required to
  do.
• Performance of something not legally required to
  do.
• Forbearance from a legal right.
• Bargained-For Exchange Not love and affection
• Benefit Detriment Test There must always be a
• Benefit to both parties, and a
• Detriment to both parties
• Case 12.1 Hamer v. Sidway (1891).
• Case 12.2 Barfield v. Commerce Bank (2007)

31
Adequacy of Consideration

• A Court will not question the fairness of the
  bargain if legally sufficient.
• Law does not protect a person from entering into
  an unwise contract.
• In extreme cases, a court may find that a party
  lacks legal capacity or that contract was
  unconscionable.

32
Agreements That Lack Consideration

• Preexisting Duty.
• A promise to do what one already has a legal duty
  to do does not constitute legally sufficient
  consideration.
• Exceptions
• Unforeseen Difficulties.
• Recession and New Contract (a Novation).
• Past Consideration is no consideration because
  the bargained-for exchange element is missing.
• Case 12.3 Blackmon v. Iverson (2003).

33
Consideration Uncertain Performance

• Illusory Promises.
• Promisor has not definitely promised to do
  anything (no promise at all).
• Option-to-Cancel Clauses.
• Option to cancel at any time with no notice by
  one party - woods rule
• Requirements and Output Contracts.

34
Consideration Settlement of Claims

• Debtor offers to pay a lesser amount than the
  creditor purports to be owed.
• Accord and Satisfaction.
• Liquidated Debt.
• Amount has been ascertained, fixed, agreed on,
  settled, or exactly determined.
• Unliquidated Debt.
• Parties give up legal right to contest the amount
  in dispute, and thus consideration is given.

35
Consideration Settlement of Claims (2)

• Release bars any further recovery beyond the
  terms stated in the release.
• Good Faith
• In Writing
• Some Consideration, Mutual release / Payment etc.
• Covenant not to Sue is an agreement to substitute
  contractual obligation for some other type of
  legal action based on a valid claim.
• Payment in Full check

36
Promises Enforceable Without Consideration

• Promises to Pay Debt Barred by a Statute of
  Limitations or Bankruptcy.
• Charitable subscriptions
• Military Enlistment
• Revival of Voidable or Unenforceable contract