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
1600’s.
• By the 1900’s, courts began to consider the
fairness of contracts before enforcing them.
Types of Contracts
(or Agreements)
Bilateral
vs. Unilateral
Executory
Valid
•
vs.
Unenforceable
Express
vs. Implied
vs. Executed
vs. Voidable
vs.
Void
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
Types of Contracts (cont’d)
•
•
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.
Types of Contracts (cont’d)
•
Valid, Unenforceable, Voidable, and Void Agreements
• Valid: satisfies the law’s 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.
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.
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.
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
Negotiation Terms
JOE
Offer
Reject or
Accept or
Reject or
Counteroffer
BOB
Accept or
Counteroffer
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.
Definiteness/Invitations to Bargain
•
•
•
•
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.
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 couldn’t 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.
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.
Termination of Offers (cont’d)
•
•
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.
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
Mirror Image Rule
1.
2.
3.
4.
5.
Stan offers Eric $6 for Eric’s Carl Yastremski rookie
baseball card.
Eric answers, “ Throw in a bag of cheesie poofs and
you’ve got a deal.”
Stan responds, “I’ll do you one better. Let’s meet back
here in 20 minutes.”
In 20 minutes Stan returns with $6 and Eric’s favorite
meal – a chicken nugget happy meal.
Eric refuses to give Stan the card, saying he’s having
second thoughts.
DID STAN AND ERIC HAVE A DEAL?
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”?
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
offeree’s control.
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
What is the consideration supporting each
promise?
1. Stan agrees to pay Eric $6 for Stan’s baseball card;
exchange to take place next Tuesday.
2. 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.
3. 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.
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.
Mutuality of Obligations
•
Illusory Promise
• If one party’s 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
Preexisting Duty
•
A promise to which the promisor is already obligated is not
consideration.
• Exceptions:
• If the scope of the promisor’s 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.
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
Promissory Estoppel (cont’d)
•
•
•
•
•
Supervisor was pleased with employee’s 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?