Contracts Definition A promise that the law will enforce.


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Contracts Definition A promise that the law will enforce.

  1. 1. Contracts <ul><li>Definition </li></ul><ul><ul><li>A promise that the law will enforce. </li></ul></ul><ul><li>Development of Contract Law </li></ul><ul><ul><li>Common law once required all contracts to be in writing, with a seal affixed. </li></ul></ul><ul><ul><li>Later, some payment was required before a contract could be enforced. </li></ul></ul><ul><ul><li>Mutual promises became enforceable in the 1600’s. </li></ul></ul><ul><ul><li>By the 1900’s, courts began to consider the fairness of contracts before enforcing them. </li></ul></ul>
  2. 2. Types of Contracts (or Agreements) <ul><li>Bilateral and Unilateral Contracts </li></ul><ul><ul><li>Bilateral : both parties make a promise. </li></ul></ul><ul><ul><li>Unilateral : one party makes a promise that the other party can accept only by doing something </li></ul></ul>vs. vs. vs. vs. vs. vs. Bilateral Unilateral Express Implied Executory Executed Valid Unenforceable Voidable Void
  3. 3. Types of Contracts (cont’d) <ul><li>Express and Implied Contracts </li></ul><ul><ul><li>Express : the two parties explicitly state all important terms of their agreement. </li></ul></ul><ul><ul><li>Implied : the words and conduct indicate that the parties intended an agreement. </li></ul></ul><ul><li>Executory and Executed Contracts </li></ul><ul><ul><li>Executory : when one or more parties has not fulfilled its obligations. </li></ul></ul><ul><ul><li>Executed : when all parties have fulfilled their obligations. </li></ul></ul>
  4. 4. Types of Contracts (cont’d) <ul><li>Valid, Unenforceable, Voidable, and Void Agreements </li></ul><ul><ul><li>Valid : satisfies the law’s requirements. </li></ul></ul><ul><ul><li>Unenforceable : when the parties intend to form a valid bargain but some rule of law prevents enforcement. </li></ul></ul><ul><ul><li>Voidable : when the law permits one party to terminate the agreement. </li></ul></ul><ul><ul><li>Void: one that neither party can enforce, usually because the purpose is illegal or one of the parties had no legal authority. </li></ul></ul>
  5. 5. Sources of Contract Law <ul><li>Common Law </li></ul><ul><li>Uniform Commercial Code </li></ul><ul><ul><li>UCC Article 2 governs the sale of goods. “Goods” means anything moveable, except for money, securities, and certain legal rights. </li></ul></ul><ul><ul><li>In a mixed contract, Article 2 governs only if the primary purpose was the sale of goods. </li></ul></ul>
  6. 6. Elements of a Contract <ul><li>Agreement </li></ul><ul><ul><li>offer, and </li></ul></ul><ul><ul><li>acceptance </li></ul></ul><ul><li>Consideration </li></ul><ul><ul><li>There has to be bargaining that leads to an exchange between the parties. </li></ul></ul><ul><li>Legality </li></ul><ul><ul><li>The contract must be for a lawful purpose. </li></ul></ul><ul><li>Capacity </li></ul><ul><ul><li>The parties must be adults of sound mind. </li></ul></ul>
  7. 7. Meeting of the Minds <ul><li>The parties can form a contract only if they had a meeting of the minds. </li></ul><ul><ul><li>They must understand each other and intend to reach an agreement. </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><li>Objective Theory of Contract: Lucy v. Zehmer </li></ul>
  8. 8. Negotiation Terms <ul><li>JOE BOB </li></ul><ul><li>Offer Accept or Reject or </li></ul><ul><li>Accept or Counteroffer </li></ul><ul><li>Reject or </li></ul><ul><li>Counteroffer </li></ul>
  9. 9. Offer <ul><li>Problems with Intent </li></ul><ul><ul><li>Invitation to bargain is not an offer. </li></ul></ul><ul><ul><li>Price quote is generally not an offer. </li></ul></ul><ul><ul><li>An advertisement is generally not an offer. </li></ul></ul><ul><ul><li>Placing an item up for auction is not an offer, it is merely a request for an offer. </li></ul></ul><ul><li>Problems with Definiteness </li></ul><ul><ul><li>The term of the offer must be definite. </li></ul></ul><ul><ul><li>An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms. </li></ul></ul>
  10. 10. Definiteness/Invitations to Bargain <ul><li>I’ll 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. </li></ul><ul><li>Would you consider showing up in a full clown suit and makeup if I gave you a blueberry muffin and a cup of coffee? </li></ul><ul><li>I couldn’t take less than $400 for that 1974 Dodge Dart. </li></ul><ul><li>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. </li></ul>
  11. 11. Termination of Offers <ul><li>Termination by Revocation </li></ul><ul><ul><li>Effective when the offeree receives it. </li></ul></ul><ul><li>Firm Offers and Revocability </li></ul><ul><ul><li>Common Law Rule </li></ul></ul><ul><ul><ul><li>Revocation of a firm offer is effective if the offeree receives it before he accepts. </li></ul></ul></ul><ul><ul><li>Option Contract </li></ul></ul><ul><ul><ul><li>The offeror may not revoke an offer during the option period. </li></ul></ul></ul><ul><ul><li>Sale of Goods </li></ul></ul><ul><ul><ul><li>A writing signed by a merchant, offering to hold an offer open, may not be revoked. </li></ul></ul></ul>
  12. 12. Termination of Offers (cont’d) <ul><li>Termination by Rejection </li></ul><ul><ul><li>If an offeree rejects an offer, the rejection immediately terminates the offer. A counteroffer operates as a rejection. </li></ul></ul><ul><li>Termination by Expiration </li></ul><ul><ul><li>When an offer specifies a time limit for acceptance, that period if binding. </li></ul></ul><ul><ul><li>If the offer specified no time limit, the offeree has a reasonable period in which to accept. </li></ul></ul>
  13. 13. Acceptance <ul><li>The offeree must say or do something to accept. </li></ul><ul><ul><li>In a bilateral contract, the offeree generally must accept by making a promise. </li></ul></ul><ul><ul><li>In a unilateral contract, the offeree must accept by performing. </li></ul></ul><ul><li>Mirror Image Rule (Common Law) </li></ul><ul><ul><li>Requires that acceptance be on precisely the same terms as the offer. </li></ul></ul><ul><ul><li>Normile v. Miller </li></ul></ul>
  14. 14. Mirror Image Rule <ul><li>Stan offers Eric $6 for Eric’s Carl Yastremski rookie baseball card. </li></ul><ul><li>Eric answers, “ Throw in a bag of cheesie poofs and you’ve got a deal.” </li></ul><ul><li>Stan responds, “I’ll do you one better. Let’s meet back here in 20 minutes.” </li></ul><ul><li>In 20 minutes Stan returns with $6 and Eric’s favorite meal – a chicken nugget happy meal. </li></ul><ul><li>Eric refuses to give Stan the card, saying he’s having second thoughts. </li></ul><ul><li>DID STAN AND ERIC HAVE A DEAL? </li></ul>
  15. 15. UCC and the Battle of Forms <ul><li>Where the UCC applies , an offeree may include in the acceptance terms that are additional to or different from those in the offer. </li></ul><ul><ul><li>Additional terms are those that bring up new issues. </li></ul></ul><ul><ul><ul><li>If both parties are merchants, the additional terms will generally become part of the contract. </li></ul></ul></ul><ul><ul><li>Different terms are those that contradict terms in the offer. </li></ul></ul><ul><ul><ul><li>The majority of states hold that different (contradictory) terms cancel each other out/UCC fills gaps. </li></ul></ul></ul><ul><li>Why have this rule? What terms must be agreed upon? What about material alterations? What sorts of terms are “material” ? </li></ul>
  16. 16. Communication of Acceptance <ul><li>Wucherpfennig v. Dooley </li></ul><ul><li>and Manner of Acceptance </li></ul><ul><ul><li>If an offer demands acceptance in a particular medium or manner, the offeree must follow those requirements. </li></ul></ul><ul><ul><li>If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium. </li></ul></ul><ul><li>Time of Acceptance: The Mailbox Rule </li></ul><ul><ul><li>An accceptance is generally effective upon dispatch, meaning the moment it is out of the offeree’s control. </li></ul></ul>
  17. 17. Consideration <ul><li>Bargaining that leads to an exchange of value between the parties. </li></ul><ul><li>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 . </li></ul><ul><li>McInerny v. Charter Golf </li></ul>
  18. 18. What is the consideration supporting each promise? <ul><li>1. Stan agrees to pay Eric $6 for Stan’s baseball card; exchange to take place next Tuesday. </li></ul><ul><li>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. </li></ul><ul><li>I agree to pay you $500 for your lovely painting, “Dogs Playing Poker (on Velvet)”. </li></ul><ul><li>4. I promise to pay my son $100 if he does not watch South Park for one year. </li></ul>
  19. 19. A Bargain and an Exchange <ul><li>The thing bargained for can be: </li></ul><ul><ul><li>another promise or action. </li></ul></ul><ul><ul><li>a benefit to the promisor or a detriment to the promisee. </li></ul></ul><ul><ul><li>a promise to do something or a promise to refrain from doing something. </li></ul></ul>“ Bargaining is obligating yourself in order to induce the other side to agree.”
  20. 20. Mutuality of Obligations <ul><li>Illusory Promise </li></ul><ul><ul><li>If one party’s promise is conditional, the other party is not bound to the agreement. </li></ul></ul><ul><li>Promise to pay in return for past favors. </li></ul><ul><ul><li>Is this consideration? </li></ul></ul><ul><ul><li>Was it bargained-for? </li></ul></ul><ul><ul><li>Passante v. McWilliam </li></ul></ul>
  21. 21. Preexisting Duty <ul><li>A promise to which the promisor is already obligated is not consideration. </li></ul><ul><li>Exceptions: </li></ul><ul><ul><ul><li>If the scope of the promisor’s task increases, that increase is consideration. </li></ul></ul></ul><ul><ul><ul><li>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. </li></ul></ul></ul>
  22. 22. Exceptions to the Requirement of Consideration: Promissory Estoppel <ul><li>Promise meant to induce action, </li></ul><ul><li>On which the promisee reasonably relies </li></ul><ul><li>To his/her detriment </li></ul><ul><li>Is enforceable in the absence of consideration </li></ul>
  23. 23. <ul><li>Supervisor was pleased with employee’s work </li></ul><ul><li>In March, Supervisor promised employee that she would get 5% of the company stock as a Christmas bonus </li></ul><ul><li>Employee turns down several higher paying job offers between March and December </li></ul><ul><li>Supervisor never made good on that promise </li></ul><ul><li>Employee sues to enforce the promise. </li></ul><ul><li>RESULT? </li></ul>Promissory Estoppel (cont’d)