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Contracts/Offers/Agreements LEB Ch 11

STUDY
PLAY
Contract
an agreement that can be enforced in court

2 or more parties
Contract disputes
-arise when there is a promise of future performance
-if contractual promise is not fulfilled the party who made it is subject to sanctions of the court
-required to pay monetary damages, or perform promised act -> breach and damages
What is the most important element in determining whether a contract has been formed?
intent...determined by objective theory of contracts, and not y the personal or subjective intent, or belief of a party
Objective Theory of contracts
a party's intention to enter a contract is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions

-intent is interpreted by a reasonable person
-fundamental to business
-creates rights and duties between parties
-provides stability and predictability
Objective facts include:
1) what the party said when entering into the contract
2) how the party acted or appeared
3) circumstances surrounding the transaction
Courts use the
objective theory of contracts to determine whether there was an intention to form a valid contract
Requirements of a valid contract
1) Agreement -> offer and acceptance
2) Consideration -> promises made by parties must be supported by legally sufficient and bargained for consideration (something of value received or promised to convince a person to make a deal)
3) Contractual capacity -> both parties entering into the contract must have contractual capacity to do so; law must recognize them as possessing characteristics that qualify them as competent components
four) Legality -> the contract's purpose must be to accomplish some goal that is legal and not against public policy
Contracts may be enforceable, even if all elements of valid contract are present if the following requirements are not met:
1) Genuineness of assent (voluntary consent) (ch 12)
2) Form- contract must be in whatever form law requires
Contracts are categorized based on legal distinctions as to their:
formation
performance
enforceability
Offeror/offeree
offorer-> party making offer
offeree -> party whom offer is made

*depends on what the ofeeree must do to accept the offer and bind the offeror to a contract
Bilateral contract
if the offeree can accept the offer simply by promising to perform
-no performance, such as payment of funds or delivery of goods need to take place for bilateral contract to be formed
-Contract comes into existence moment the promises are exchanged
*promise for a promise

ex. one person agrees to buy a car for a specified price
Unilateral contract
-if offer is phrased so that the offeree can accept only by completing the contract performance
-contract formed the moment contract is performed
-offerer wants performance in exchange for promises
*Promise for an act

ex. "if you drive my car from NY to LA i'll give you 1,000." -> only on offeree's completion of the act (bringing car to LA) does she accept offer's act
-no legal consequences if reject offer
Examples of Unilateral contracts
contests, lotteries and other competition offering prizes of offers for a unilateral contract
Revocation of offers for uni. contracts modern view is
that offer is irrevocable once the offeree substantially performs
Formal Contracts
contracts that require a special form or method of creation (formation) to be enforceable

ex. letters of credit -> used in international sales contracts (agreements to pay on purchaser's reciept of invioces and bills of landing"
Informal contracts
-all other contracts
-no special form required
Contracts are usually based on their
substance
Businessperson's + contracts + avoiding legal complications
put contracts in writing
Express Contracts
terms of agreement are fully and explicitly stated in words, oral or written

ex. signed lease for apartment
ex. classmate accepts offer to sell textbooks for 20 dollars (oral contract)
Implied-in-fact
-parties create and define terms of contract
-based on conduct

Certain requirements must be met:
1) Plaintiff furnished or serviced product
2) Plaintiff expected to be paid for service/property and defendant knew or should have known payment was expected
3) Defendant had chance to reject the services/property and did not
Contracts can be a mixture
both express contract or implied contract

ex. homeowner makes requests builder makes changes in original specifications
Uruhan vs. construction and design pg. 29four
-both parties agreed to oral changes in the contract
-changes created an implied contract which the parties agreed to provide extra work for compensation
Contract implied is second branch of
quantum meruit (equitable remedy that means as much as he deserves)
Executed contract
contract that has been fully performed on both sides
Executory contract
-contract has not been performed on either side
If one party has fully performed but other side has not, the contract is said to be
executed on one side, executory on the other

*CONTRACT IS STILL CLASSIFIED AS EXECUTORY
Valid contract
a contract that has the necessary contractual elements: agreement, consideration, legal capacity of parties and legal purpose
(enforceable, voidable, unenforceable)
Void contract
no contract exists, or there is a contract without legal obligations
Voidable contracts
-valid contract but one that can be avoided/rescinded at the option of one or both parties
-party that has option can elect either to avoid any duty to perform or ratify the contract
-if contract is avoided both parties are released
-if contract is ratified both parties must perform
Contracts made by minors
-are voidable at option of the minor
Contracts entered into under fraudulent conditions
are voidable at the option of defrauded party
Contracts entered under durress or undue influence are
voidable
Unenforceable contract
one that cannot be enforced because of certain legal defenses against it
-valid contract rendered unenforceable by some statute or law
-one party failed to satisfy legal agreement

ex. some contracts must be in writing, if not, they are unenforceable
When can a contract be void?
one of the parties was previously determined by a court to be legally insane (lacked legal capacity to enter contract)
or cause purpose of contract was illegal
Agreement
-essential element for contract formation for parties to agree on terms of contract
-meeting of two or more minds in regard to the terms of a contract
1) offer 2) acceptance
Not all agreements are contracts
ex. john and kevin may agree to play golf on a certain day but a court would not hold that agreement as an enforceable contract

-contractual agreements arise only when the terms of agreement impose legally enforceable obligations on the parties
Where are most contracts formed in today's world
the internet
Offer
a promise or commitment to do or refrain from doing some specified act in the future
3 elements are necessary for an offer to be effective:
1) offeror must have serious intention to become bound by the offer
2) terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract
3) The offer must be communicated by the offeror to the offeree, resulting in the offeree's knowledge of the offer
Intention
-1st requirement for an effective offer
-must be serious on part of offeror
-determined by what a reasonable person in offeree's position would think under offeror's words and conduct meant

*offer's made in obvious anger, jest or undue excitement do not meet the intent test because a reasonable person would realize that a serious offer was not being made
OFFERS ARE NOT...
1) Expressions of opinions are not offers (hand will probably heal a few days after surgery...doesn't heal for month)
2)Statements of future intent are not offers
3) Preliminary negotiations are not offers
four) advertisements, catalog and circulars are not offers
5) auctions are not offers
6) agreements to agree are not offers
An offer requires: Definiteness
-reasonably definite terms so that a court can determine if a breach has occurred
Contract must include definite terms:
(either expressed in contract or capable of being reasonably inferred from it):

1) Identification of the parties
2) Identification of hte object or subject matter of the contract -> including the work to be performed, with specific identification of such items as goods, services and land
3) Consideration to be paid
four) Time of payment/delivery or performance
Definitieness of terms: enforceable contract
Marcus business machines contacts your corporation and offers to sell from one to 10 maccool copying machines for 1,600 dollars each; state number desired in acceptance....your corporation buys two copiers

^BECAUSE the quantity is specified in the acceptance, the terms are definite and contract is enforceable
An offer requires: Communication
of the offer to the offeree, resulting in the offeree's knowledge of the offer.

*One cannot agree to a bargain without knowing that it exists
Revocation
the withdrawal of an offer by an offeror is possible if communicated to offeree before the offer is accepted

*can be revoked at any time prior to acceptance without liability
Irrevocable offers
-cannot be cancelled
-based on detrimental reliance or promissory estoppel cannot be revoked
Option contracts
require consideration
If oferee rejects offer
the offer is terminated
Rejection of an offer by offeree is effective only when
it is actually recieved by the offeror or the offeror's agent
Counteroffer
oferree rejects the origional offer and makes a new offer

ex."your price is too high ill buy this for 200 instead"
Inquiring/questioning offer's
do not terminate or constitute rejection
Mirror Image rule
common law that requires the oferee's acceptance to match the offeror's offer exactly-MIRROR the offer

*any material change in, or addition to the terms of the original offer automatically terminates that offer and substitutes the counteroffer
The power of the offeree to transofrm the offer into a binding, legal obligation can be terminated by operation of law through any of the following events
1) lapse of time
2) destruction of the specific subject matter of the offer
3) death or incompetence of the offeror or the offeree (unless irrevocable)
four) supervening illegality of the proposed contract (statute or court decision making offer illegal)
Offer is terminated automatically by law when period of specified time
has passed
The time perio specified in an offer normally begins to run when
the offer is actually recieved by the offeree, not when it is sent or drawn up
If offer does not specify a time for acceptence the offer terminates at
the end of a reasonable period of time

*what constitutes reasonable period of time depends on the subject matter of the contract, bus. and market conditions

offer to sell farm produce will terminate sooner than an offer to sell farm equpment because produce is perishable and subject to greater fluctuations in market value
Acceptance
a voluntary act (words or conduct)
by offeree that shows assent (agreement) to terms of an offer
*acceptance must be unequivocal and must be communicated to the offeror
Unequivocal acceptance
-mirro image rule
-acceptance must be unequivocally
-if acceptance is subject to new conditions or if the terms of acceptance change the original offer the acceptance may be deemed counteroffer that impllicitly rejects the original offer
An acceptance may be unequivocal even though the offerree expresses dissatisfaction with the contract
"i accept the offer but i wish i could have gotten better price"
"i accept, but can you shave the price?"

NOT unequivocal acceptance "i accept the offer but only if i can pay in 30 days" -> counteroffer

pg. 301
Communication of acceptance: Whether the offeror must be notified of acceptance depends on
nature of the contract
Communication of acceptance: bilateral contract:
communication of acceptance is necessary b/c acceptance is in form of a promise and contract is formed when promise is made

-acceptance must be timely

*offeree must comunicate acceptance to offeror
Communication of acceptance: unilateral
-acceptance is usually evident
-notification is unnecessary unless offeror requests notice or has no other way of knowing whether performance has begun
Mailbox rule
-majority of courts follow this
-if the authorized mode of communication is the mail, then an acceptance becomes valid when dispatched (placed in control of US postal service) not when received by offeror
-offer is accepted upon dispatch to offeror in the form it was received unless offer requires a different method
Authorized means of acceptance
-if offer stipulates an authorized mode of acceptance (over night delivery) the contract is formed the moment the offeree accepts the offer using the authorized means

-if offeror does not expressly authorize a certain mode of acceptance, then acceptance can be made by any reasonable means

-offeror's choice of a particular means in making the offer implies the offeree can use the same or a faster means for acceptance

-if offeror authorizes a particular method of acceptance, but offeree accepts by a different means, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means pg. 302
Consideration
value (such as cash) given in return for a promise (such as the promise to sell a stamp collection on receipt of payment) or in return for a performance
Elements of consideration
1) something of legally sufficient value must be given in exchange for the promise
ex. i will pay you 800 to paint garage...paints garage(act of painting is consideration that creates offeror's contractual obligation)...must pay 800

2) there must be a bargained-for exchange
-promise given by promisor must induce the promisee to incur a legal detriment either now or in future...detriment incurred must induce the promisor to make the promise
Distinguishes contracts from gifts
bargained for exchange
Adequacy of consideration
-courts look for how much consideration was given
-fairness of the bargain

*On surface: fairness would appear to be an issue when items exchanged are of unequal value....however court will not question the adequacy of consideration if the consideraton is legally sufficient

*Doctrine of freedom of contract = parties are normally free to bargain as they wish
Pre-existing Duty-> Parties promises or actions that do not qualify as contractual consideration
-promise to do what one already has a legal duty to do does not constitute legally sufficient consideration
-ex.sheriff cannot collect reward for info. leading to capture of criminal

-if party is already bound by contract to preform a certain duty, that duty cannot serve as consideration for a second contract
Preexisting duty example:
Construction INC. begins construction on an office building and after three months demands an extra 75K on its contract. If the extra 75k is not paid, machine inc will stop working. the owner, finding no one else to complete construction, agrees to pay the 75k.

*the agreement is unenforceable because its not supported by legally sufficient consideration-> machine inc is obligated under a preexisting contract to complete building
Preexisting duty rule is meant to prevent
extortion and the socalled hold up game
*sometimes allow for exceptions in this rule is made by courts in interests of fairness and equity
Past consideration - Agreements that lack consideration
- a promise made in return for actions or events that have already taken place are unenforceable

-these promises lack consideration in that the element of bargained for exchange is missing

-promises made for actions that have already taken place -> unenforceable
Promissory Estoppel doctrine pg 305
-detrimental reliance
-applies when a person relies on promise of another to her legal detriment
-promisor is "estopped" from revoking promise
-courts can enforce and otherwise unenforceable promise in the interests o equity and fairness
Contractual capacity
-parties to the contract must have this for it to be deemed valid
-the legal ability to enter into a contractual relationship
-Youth: law gives special protection to those who bargain with the inexperience of youth or those who lack the degree of mental competence required by law

-if person is mentally incompetent -> that person cannot form legally binding contract with another party

-sometimes, a party may have the capacity to enter into a valid contract but also have the right to avoid liability under it -> minors are usuallly not legally bound by contracts
Minors
age of maturity(no longer minor) -> 18 years
-termination of minority: marriage/emancipation

-minor can enter into any contract tha an adult can, provided that the contract is not one prohibited by law for minors (ex. sale of tobacco/beer)
-contract entered by minor must be voidable at the option of that minor

-minor avoids contract -> disaffirmance (legal avoidance or setting aside)
Minors -> Disaffirmance
-legal avoidance or setting aside of a contractual obligation
-to disaffirm, a minor must express hir or her intent through words or conduct why they dont want to be bound by contract
-minor must disaffirm ENTIRE contract not portions
Intoxication + Contracts
-contract entered by intoxicated person can be either voidable or valid (and enforceable)
-if person was sufficiently intoxicated to lack mental capacity then the transaction may be voidable at option of intoxicated person even if intoxication was purely voluntary

-for contract to be voidable-> the person must prove that intoxication impaired their reasoning and judgement that they did not comprehend the legal consequences
Mental Incompetence + Contracts
Void: if person has been coined mentally incompetent by court of law and a guardian has been appointed

Voidable: if person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose and consequences

Valid: if person is able to understand the nature and effect of entering into a contract yet lacks capacity to engage in activities -> lucid interval
A contract to do something prohibited by federal or state statutory law is illegal and therefore
void
Contracts contrary to statute:
1) Gambling contracts -> SOME states illegal -> void -> depends on state laws

2) Liscensing Statutes->all states require members of certain professions to have licenses (ex. doctor/physician)....no liscense= unenforceable
Contrary to public policy
contracts that aren't enforceable because of the negative impact they would have on society

ex. contract to commit immoral act or contract that prohibits marriage

ex. If dad offers boy 2,000k to not marry daughter, he takes money/accepts offer,but still marries her the contract is void because it is contrary to public policy which favors marriage-> dad cannot sue if booy marries daughter
Contracts in restraint of trade
-contracts that restrain trade are usually unenforceable because they are contrary to public policy
EXCEPT... when restraint is reasonable and it is an ancillary (secondary) part of the contract...duration and geographic limits are reasonable.... (ex. contact for the sale of an ongoing business)
PG. 308 ex of this...Covenant not to compete/restrictive covenant
Contractual promise of one party to refrain from conducting business similar to that of another party for a certain period of time and within a specified geographic area.

Courts commonly enforce such covenants it hey are reasonable in terms of time and geographic area and are part of, supplemental a contract for the sale of business

*Ex. seller agrees not to open a new store in a certain geographic area surrounding the existing store
Unconscionable
-term used to describe a contract or clause that is void on the basis of public policy because 1 party, as a result of disproportionate bargaining power, is forced to accept terms that are unfairly burdensome and that unfairly benefit the dominant party
Unconscionable contracts or clauses
-persons are assumed to be reasonably intelligent and courts will not help because they made a foolish bargain

-bargains that are so oppressive that the courts relieve innocent parties of part of their duties --> bargains are deemed unconscionable because they are unfair
Procedural unconscionability
-involves inconspicuous print, unintelligible language, or lack of opportunity to read contract or to ask questions about its meaning

-may occur when there is such diaprity in bargaining power between two parties that the weaker partys consent is not voluntary

-adhesion contracts
Substantive Unconsionability:
-contracts that are oppressive or overly harsh
-one sided contracts
-courts focus on provisions that deprive one party of the benefits of the agreement or leave that party without a remedy for nonperformance by the other

-ex. contracts drafeted by insurance companies/cell phone providers have been struct down as substantitvely unconscionable
Exculpatory clauses
-clauses that release a party from liability in the event of monetary of physical injury NO MATTER WHO IS AT FAULT

-courts refuse to enforce such clauses on ground they are unconscionable

ex. #18 pg 309