B A 241 Exam 1
I.
Intro to Contract Law
a. Function
i. Confidence
ii. Relief for breaches
iii. Predictability, ability to plan our lives
iv. Productivity, efficiency
b. Definition
i. Promise, if breached = remedy (usually money)
c. Governed by common & statutory law
i. Common Law (precedents)
1. Based on values, traditions
2. Courts set precedents with decisions
ii. But Statutory Law > Common Law
d. Four Elements
i. Offer + Acceptance = Agreement
ii. Consideration (each side gives up something)
iii. Contractual Capacity
iv. Legality (can’t be illegal promises)
II.
Types of contracts
a. Bilateral vs. Unilateral
i. Bilateral: Offeree must only promise to perform an act, “promise for a promise”
1. Most common type
2. Ex: “I’ll give you $200 for that iPod
ii. Unilateral: Offeree can only accept by completing an act “a promise for an act”
1. No contract exists until the act is complete
2. Ex: “I’ll give $500 to whoever finds my dog”
b. Express vs. Implied-in-Fact Contracts
i. Express: expressed (whether spoken or written)
1. Most common type
2. Terms are laid out
ii. Implied-in-fact contract: conduct not words defines terms of the contract
1. Clear by circumstances
2. Ex: You sit down at a barber’s chair to get a haircut
c. Executed vs. Executory Contracts
i. Executed: this contract has been performed on both sides, finished
ii. Executory: this contract has not been finished on both sides
1. Ex: A rent contract
III.
Interpretation
a. Plain Meaning Rule: When terms are clear, words have their obvious meanings.
b. Ambiguous Terms: Contract is either interpreted reasonably or if not possible, no
contract exists
IV.
Agreement in Contracts
a. Offer
i. The offeree has the power to accept or reject
ii. Three key questions
1. Legit expression of promise? (no jokes as seen objectively)
2. Certainty in key terms? (my iPod? Which, the nano or the video?)
3. Offer communicated?
a. Offer must be communicated directly to performer (ex: I return
your dog and learn about a reward later = I get no money)
b. Offer must be communicated by offeror or agent
V.
Termination of Offers
a. By law
i. Lapse of time - specified or reasonable
ii. Destruction of subject matter
iii. Death or incapacitation of either party prior to acceptance
iv. Illegality (change in law, now it’s an illegal promise)
b. By action of parties
i. Revocation (by offeror)
1. Offeror can withdraw any time before acceptance
2. Effective when offeree receives notice
ii. Rejection (by offeree)
1. Effective when offeror receives notice
2. Counteroffer = rejection + offer
3. Mirror Image Rule: the acceptance must match the offer exactly
c. Exceptions
i. Unilateral problems
1. If you KNOW someone is close to completing your task, you can’t revoke
ii. Irrevocable Offers
1. Option contract: Promise to hold an offer open for a time period in
exchange for consideration
2. Detrimental Reliance or Promisory Estoppel: If offeree is relying on
offer to their detriment, can’t revoke it
a. Ex: Pimping out an office building
VI.
Acceptance of an Offer
a. Voluntary act (expressed or implied) showing assent
b. Silence as Acceptance
i. Not normally acceptance, can be
ii. Exceptions
1. Habitual contracts (like restaurant orders)
2. Prior agreement to silence as acceptance (EQ billing)
3. Unjust enrichment
a. You ARE AWARE you’re receiving value
b. No contract
c. Ex: Kid mows your lawn, if you know about it, you have to pay
c. Mode, Timeliness of Acceptance
i. Mailbox Rule: For Acceptances
1. Uses specified means  Effective on DISPATCH
2. Uses reasonable means  Effective on RECIEPT
3. If the post office screws up? STILL EFFECTIVE
4. Difference: Rejection, revocations are effective on ARRIVAL
ii. Special case: Acceptance sent after rejection
1. Whichever is received first (ex: I mail a rejection to you and then change
my mind and call you to accept before it gets there
Note: Ads are not offers but invitations to offer.
VII.
Consideration
a. Definition: Legal value given in return for a promise
i. What both parties are giving up
ii. Legal value (property or right)
iii. “Bargained-for-exchange” meaning not a gift
b. Elements of Consideration
i. Contains either a legal detriment (give money, give up a right) or a legal benefit
(receive an iPod)
ii. Promise to Performance (to do something)
iii. Promise to Forbearance (not to do something)
c. Adequacy of Consideration
i. Does not have to be a fair deal just can’t be a gift
ii. Extreme case: Lack of legal capacity, contract was unconscionable (extreme
differences in bargaining power)
1. Does not apply to businesses, college grads
2. “Grossly uneven bargaining” – taking advantage of stupid people
3. Ex: Appliance dealers sell door to door to idiots at super high interest
rates, reversed these contracts (THIS IS VERY RARE)
d. Agreements that Lack Consideration
i. Preexisting Duty: You already had to do it anyway
1. If you are obligated to do this under another contract, you can’t use it as
consideration again
2. Ex: Britney refuses to go out except for +$50k. Unless she bargains to
add songs (additional consideration) there is no consideration
ii. Past Consideration: Not consideration
1. You save my dog and then I promise to reward you $50 later. I don’t
actually have to give it to you because you already saved my dog as a
gift, no consideration
e. Uncertain Performance
i. Illusory Promises: promisor has not definitely promised to do anything
1. “I’ll give you a raise if we do good this quarter” – what’s “good”?
ii. Option-to-Cancel Clauses
1. Involves an obligation for a period of time
2. At some point in the contract you had to do something
3. Ex: Sports contracts: I agree to play for you for $1mil for one year with
an option-to-cancel clause in the 2nd year.
f. Settlement of Claims
i. Debtor offers to pay less than creditor claims to be owed
ii. Accord (agreement) and Satisfaction (money or right to sue)
1. Enter a contract to settle a dispute
2. Settling: Both sides give up something, easier than court risks and costs
(ex: I pay less than your car is actually damaged but you give up your
right to sue)
VIII.
Minors
a. Contractual Capacity of Minors
i. Can enter in any contract
ii. Valid but voidable at option of minor (minor can disaffirm)
b. Minor’s Right to Disaffirm
i. Applies during minority or reasonable time thereafter
ii. Must disaffirm entire contract
iii. Special case: military, marriage are issues of public policy, can’t disaffirm
iv. Minor cannot disaffirm is married or emancipated
v. Can disaffirm even if the contract has already begun
vi. Ratification: When minor contract turns non-disaffirmable
1. Express: After turning 18, minor says they want to stay
2. Implied: After you turn 18, you keep making payments on the car
c. Minor’s Obligation on Disaffirmance
i. Majority Rule
1. Minor must: Return the product/consideration in whatever condition
(broken TV is okay)
2. Adult must: Return all the minor gave them (broken TV NOT OKAY,
return the VALUE of the TV)
ii. Modern Trend
1. Minors make restitution
d. Exceptions to Right to Disaffirm
i. Misrepresentation of Age
ii. Contract for Necessaries
1. food, clothes, housing, medicine
2. Minor can disaffirm, but must pay full restitution
e. Parent’s Liability – Only if they signed/co-signed something
IX.
Intoxication
a. Lack of contractual capacity at time of agreement
b. Did they appear outwardly drunk?
i. Yes? Voidable by intoxicated party(ies)
1. Can disaffirm or ratify
2. But must repay value received (got to pay your bar tabs)
ii. No? Valid
X.
Mental Incompetency
a. Void if:
i. Person has been deemed mentally incompetent by court and a guardian has
been appointed
ii. Ex: Alzheimer’s, serious head trauma, retardation  can NEVER enter contracts
b. Voidable if:
i. Person NOT deemed mentally incompetent, but didn’t have the mental capacity
to enter a contract at the time
XI.
c. Valid if:
i. Person has the capacity to understand the contract even if they are limited in
other aspects
ii. Person lacks capacity AFTER agreement made
iii. Lucid Interval: If the person slips in and out of mental stability
Legality
a. Not enforceable if:
i. Illegal actions called for
1. You don’t even get refunded (I paid you $300 to kill someone, no
refund)
ii. Calls for a wrongful act (ex: harassment)
iii. Calls for an act contrary to public policy
b. Impact of an Illegal Act During Performance
i. Key Question: What was the intent of the contract?
ii. Ex: You buy a getaway car from me, it’s dependent on whether or not I knew
the purpose
iii. What’s at stake: the right to sue to get out the contract
XII.
Certain Statute-Prohibited Contracts
a. Gambling
b. To Commit a Crime
c. Licensing Statues (contract void if person falsely claimed to have a license)
XIII.
Contracts Contrary to Public Policy
a. Restraint of Trade
i. Anti-competitive agreements
ii. Exceptions: Covenant not to compete in sale of business & employment
iii. Anti-competitive agreements okay if small in time and scope
1. Ex: You can sell me your nightclub and promise not to open another in
State College. Can’t promise not in PA.
b. Unconscionable Contracts
i. Weaker person taken advantage of by smart slimeball
ii. Courts have the right to void the contract
iii. Modern day: VERY RARE
c. Exculpatory Clauses
i. Agreeing not to sue if you get hurt
ii. Not okay for essential services
iii. Ordinary negligence okay – Poorly maintained gym equipment
iv. Gross negligence not – Skydiving instructor gives you a bad chute
XIV.
Genuineness of Assent – Makes a contract uneforceable
a. Unenforceable if not genuine assent – by:
i. Mistake
ii. Misrepresentation (fraud)
iii. Undue Influence
iv. Duress
b. Mistakes of Fact - RESCINDABLE
i. Only type allowing for rescission of a contract (rescission – unmaking the
contract, restoring to previous state)
ii. Bilateral (mutual) mistakes can be rescinded by either party
1. Ex: Both parties think the farm is 100 acres, it’s 90  mutual
2. Ex: Size never mentioned, buyer knows, seller doesn’t  not mutual
3. Ex: Size discussed, seller doesn’t correct buyer buyer can leave
iii. Mistake of fact is grounds, NOT mistake of value (ex: If you realize later it’s
worth 100X less than what you paid, sucks for you)
c. Fraudulent Misrepresentation - VOIDABLE
i. Knowingly deceiving innocent party (ex: odometer fixing on a car)
ii. Contract voidable by innocent party
1. Innocent party has OPTION to void it, get back value of consideration
2. Can also sue for fraud/damages for opportunity cost of could of buying
another car
d. Undue Influence - VOIDABLE
i. Confidential or fiduciary responsibility
ii. Relationship of dependence
iii. Strong influence or persuasion
iv. Weak party talked into doing something against their interests
v. Ex: You sell your dad’s car to your buddy for cheap because your dad trusts you,
your brother takes you to court, contract rescinded.
e. Duress
i. Forcing the contract by fear or threat
ii. Must be wrongful or illegal (pulling a gun is legit vs threat to sue is bullshit)
iii. SPECIAL CASE: cannot threaten jail or prosecution (to threaten another’s liberty)
XV.
Certain Contract Formalities
a. Statue of Frauds
i. Origin: 1677 England to prevent liars in court - certain contracts must be in
writing to be enforceable
ii. Contracts Involving Interest in Land
iii. One-Year Rule: Contract that cannot be performed in one year from date it was
formed (ex: two year cell-phone contract)
1. Period begins the day after the contract is made, even if work starts
later
2. Superman Rule: Is it possible that it could be done before a year? Then
no writing necessary (if superman could do it)
iv. Promises Made in the Consideration of Marriage – In writing
1. Prenuptial agreements
2. Payments to marry
v. $500 Goods Rule
1. THE UCC requires writing for sale of goods >$500
2. Exceptions (proof of contract w/o writing)
a. Partial Performance – You ordered $600 of booze, got $400.
Must send back the $400 or a contract exists as shown by the
partial performance (no writing needed)
b. Admissions – You admit a contract was formed, you just didn’t
think it was legit because you “knew” some law
c. Specialty Items – Items custom made that prove it (wedding
items with names)
XVI.
Forming Contracts Online
a. Click-On Agreements
i. Click on “I Accept” = Acceptance
ii. Treated as written contracts for statute of frauds
XVII.
Parol Evidence Rule – the written contract is the final word
a. Oral representations or promises made prior to written contract are not valid (ex: when
you’re negotiating I offer to throw in free oil changes, but if that doesn’t make it into the
final draft of the signed contract, it goes away)
b. Exceptions (so, they’ll be admitted in court)
i. Contracts subsequently modified
ii. Voidable or Void Contracts (“I was drunk”)
iii. Ambiguous Terms
iv. Prior dealings, course of performance, usage of trade
v. Typos, clerical errors
XVIII.
Contracts: Duty and Performance (discharged from contract by…)
a. Condition occurring or not occurring (ex: I will buy your house for $x on the condition I
can sell mine by the end of the month)
b. Discharge By Performance
i. Complete Performance (promises fulfilled, we’re done)
ii. Substantial Performance (minor breach)
1. Ex: I build your house but with the wrong type of piping but same
quality except for the name  You can sue me for breach, but still must
buy the house
2. Anticipatory Repudiation (an early breach)
a. If you tell me you’re going to materially breach  I can stop
performing and sue you now
b. Exception: If it’s about lending money, you have to wait to sue
until the money should have been paid
c. Agreement of Parties (we agree to cal l it off)
d. Operation of Law
i. Statues of Limitations – time period in which you can sue
1. Clock starts ticking when you REALIZE you have the right to sue
ii. Bankruptcy – when declaring bankruptcy, all contractual obligations go away
iii. Impossibility, Impracticability
1. Objective Impossibility
a. Death or Incapacitation = Can’t perform SPECIALIZED service
(can’t sing a concert, but you have to get someone to mow their
yards)
b. Destruction of subject matter (ex: Beaver Stadium collapses
before Fergie can sing, both parties take some losses and walk
away without sueing)
c. Illegal now from a new law
2. Commercial Impracticability
a. External forces change things, make it impossible (natural
disasters, wars – oil fields in Louisiana can’t be reached because
of Katrina)
3. Frustration of Purpose
a. If the purpose is established from the start and that purpose is
interrupted independent of either party (ex: I pay $2000 for a
Macy’s Day Parade hotel window view)
XIX.
Breach of Contract
a. Material Breach (material = significant)
i. Breach of Contract – the nonperformance of a duty
ii. Material breach occurs when there has been a failure of consideration  allows
non-breaching party to suspend performance (either if they miss a deadline or
TELL YOU they’re GOING TO miss a deadline
b. Non-Material Breach
i. Non-breaching party’s duty to perform is not excused
c. Remedies
i. Damages (money)
ii. Rescission and Restitution
1. Rescission – Undo the contract
2. Restitution – Return each party to what they had before
iii. Specific Performance – order the parties to go through with the contract (rare)\
1. Courts try to avoid these - only if it’s one of a kind (land, rare item)
2. Cannot force services, cannot force to work (but Trump can get an
injunction to stop Britney from going anywhere else)
iv. Recovery based on quasi-contract (like kid shoveling walks, no contract was
really there)
1. Equitable theory: imposed by courts to prevent unjust enrichment
2. Must show the following:
a. Benefit was conferred to the jerk
b. Victim did so with reasonable expectation of value in exchange
c. Benefit was not volunteered
d. Victim helping jerk without receiving value = unjust enrichment
3. Note: not a contractual remedy
d. Types of Damages
i. Compensatory – direct losses (what does it cost for the alternative)
ii. Consequential (Special) Damages – forseeable losses
1. Money that couldn’t have been made as a result of breach
2. Ex: Trump hiring Spears to bring in casino traffic
iii. Punitive Damages – to deter future conduct
1. Not usual for just a breach
2. Usually tort is involved
iv. Nominal Damages – no financial loss
1. Breach without a financial loss
2. Just to prove a point – seeking $1
XX.
Mitigation of Damages
a. You must try to keep damages as low as possible
b. No more than you deserve
XXI.
Waiver of Breach
a. Pattern of conduct that ignores breaches establishes a new policy
b. Victim can get damages but can’t terminate the contract
c. Victim should give notice that they want to return to original policy in advance
d. Ex: Landlord can’t evict you if you always pay late and never complainsoh w