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Contracts Basics
Main source of Contract Law
 Article 2 of the Uniform Commercial Code (UCC)
o A set of uniform statutes governing the sale of goods.
 Ex. Car
 Second Restatement of contracts
o Outlines the Rules and Principles found in the common law of contracts.
o All areas of contract law, EXCEPT sale of goods.
 Real estate
 Contract: legally enforceable agreement that contains one or more promises
o If a promise is broken courts can provide injured party with a remedy
 Requirements of a contract
o Steinberg v. Chicago Medical School
o Hotchkiss v. Nat’l City Bank
o Offer - a willingness to enter into a bargain that justifies another person in
understanding that assent to that bargain is invited.
 Used to provide mutual assent (OFFER + ACCEPTANCE)
 Offers are not always valid and may be terminated
 An offer is valid if it contains reasonably certain terms that offer
to exchange something of value
 Invalid offers
 Jokes – an offer made in jest is an invalid offer if the offeree
knows or should have known the offer is a joke
 Preliminary negotiations
o Invitations to bid, price quotations, or proposals
 Advertisements
o Invalid unless It contains a reasonably certain promise
leaving no room for negotiation
 Just because an offer is valid does not mean there will be a contract
 Ways to terminate an offer
 Rejection or counteroffer
o Counteroffer proposes different terms relating to the same
 Lapse of time
o Passing of specified time or reasonable time based on
 Death or incapacity
 Revocation
o Must communicated his or her intent of revocation before
the acceptance.
 Irrevocable offers
 Option contracts
o Created if the offeror keeps an offer open for a limited
amount of time in exchange for the offeree’s consideration
o A unilateral contract will form an irrevocable option
contract when the offeree begins to perform
Firm offers
o Applies to the sale of goods and are irrevocable under
article 2 of the UCC
 A signed writing
 By a merchant who deals in goods
 Explicitly assuring an offeree that an offer to buy or
sell goods will be open for a limited amount of
 A firm offer may only be irrevocable for 3
o Acceptance – expression of assent to an offer, typically in the form of promise
for performance
 Used to provide mutual assent (OFFER + ACCEPTANCE)
 Who has the power to accept an offer
 The power to give acceptance is created in the intended offeree if
they know of the offer at the time of acceptance
 When does an offerree’s response become an acceptance?
 Acceptance is effective the moment it leaves the offeree’s
possession to be given to the offeror.
 Mailbox rule – an acceptance is effective upon dispatch.
o Lost but properly addressed acceptances are effective upon
o Received within a reasonable time but improperly
addressed acceptances are effective upon dispatch
o Does NOT apply if the offeror prescribes a time of
acceptance that is not the moment of dispatch.
o Does not apply to unilateral contracts
o Does not apply to option contracts
 Exceptions when silence may be an acceptance
o Offeree receives the [benefit of] offered services, despite
the opportunity to reject those services, as well as a reason
to know that compensation is expected.
o Offeree exercises dominion over offered property by acting
inconsistently with the offeror’s ownership of that property
o Prior dealings make it reasonable to expect to be notified
of a rejection and, in the absence of a rejection to
conclude acceptance.
o Offeror and offeree intend for the offeree’s silence or
nonverbal conduct to constitute an acceptance.
 What an acceptance should look like
o Mirror image rule
 Requires an acceptance to be an unconditional
assent to the exact same terms that were stated in
the offer
 Any acceptances that change the offer is a
The UCC rejects the mirror image rule
 UCC Section 2-207: A response to an offer
that states additional or different terms is
generally considered an acceptance and not
a counteroffer.
 Not an acceptance if:
o Expressly conditions acceptance on
the other party’s agreement to nonmatching terms
o Non- matching terms are essential
terms of the contracts
 Non matching terms become part of the
contract unless:
o The response expressly acceptance
on agreement to the non-matching
o The non-matching terms materially
alter the contract, or
o The other party timely notifies the
responding party that the nonmatching terms are unacceptable
o Intent
 The manifestation of a lack of intent to be legally bound will prevent the
formation of a contract.
o Consideration
Requires something of value be exchanged in the contract
 Mutual exchange on both ends of the promisee and promisor
o As well as a 3rd person
 Promisor not required to gain or benefit
 Promisee not required to have loss or detriment
o A promise or performance may be given by the promisor,
or by a third party, to the promisee, or to a third
party. See Restatement (Second) of Contracts § 71,
o Bargain Theory of Consideration
 Pennsy Supply, Inc. V. American Ash
Recycling Corp of Pennsylvania. 895 A.2d
595 (2006)
 Sufficient consideration exists to create an
enforceable contract if a promise induces the
detriment and detriment induces the promise.
 Doesn’t require the parties to bargain over the
specific terms of the agreement.
 Mutuality
The parties must either exchange 2
promises or make one promise in
exchange for an action in return.
 Values need not be equal
o Consideration of at least greater than nominal value is
sufficient to create an enforceable contract. See id. at § 79,
with comments
 Mutuality of obligation not required
Does not need to be monetary
 Can be property, a promise, an act or forbearance
 Both parties determine and agree to the exchange
Adequacy of a consideration does not affect enforceability
 Inadequacy of Consideration
o Support a defense of enforceability
o Does not render a contract unenforceable by itself
 If the matter of consideration is so small it is
nominal then may be a lack of consideration
 Considerations commonly resulting in unenforceable contracts
o Past considerations
 Given before the contract was formed
o Gifts
 Due to lack of exchange or bargain
o Illusory promises
 Doesn’t commit the promisor to do anything,
reserves the choice of alternative performances
 Alternative performance – constitutes
consideration offered on its own – not
o Preexisting duty rule
 An act or forbearance is not consideration if it is
already a legal obligation or not a legal
 Both parties are legally obligated to the terms of the
contract so modification is usually unenforceable.
 Modifications are enforceable if:
 The modification results from circumstances
not anticipated when the contract was
 The party’s duties are altered sufficiently to
constitute consideration
 UCC Rejects the preexisting duty rule
o A modification to a contract for the
sale of goods requires no
consideration to be binding
Two types of contracts
o The offeror makes a promise and the offeree makes a
o Most contracts are Blilateral
o The offeror makes a promise and the offeree renders a
2. Forum Selection and Choice of Law
3. The Common Law, Article 2 of the U.C.C, and the CISG
4. Mutual Assent
5. Consideration