Chapter 7
Contracts: Concepts, Terms, and
the Agreement
I. Promises
Promises
 Contract Law deals with a very ancient concept,
the keeping of promises
 2 Types of Promises:


Moral (Social) Promises
Legal Contracts
 DAMAGES – may require the payment of money
or a specific performance as promised in the
contract
II. Defining a Contract
 Civil Code
 Expectations
 Essential Elements of a Contract
A. Civil Code

California Civil Code section 1549 defines a contract
as “…an agreement to do or not do a certain
thing.”

Civil Codes 1428 and 1427 add further meaning by
stating “An obligation arises …from…the contract
of the parties…” “An obligation is a legal duty, by
which a person is bound to do or not do a certain
thing.”

A simple definition of a contract would be: an
agreement to do or not do a certain thing, enforceable
by the courts.
B. Expectations

If two parties form a contract, the expectation is that
both parties will perform their obligations

Without some procedure for enforcing these
obligations, parties would be free to change their
mind at any time, break the promise and have no
further obligation

Our society has developed a legal system that
enforces contracts since they are an essential part of
the market economy
C. Essential Elements of
a Contract
1.
Parties Capable of Contracting
2.
Parties Must Each Consent to the Formation
of the Contract
3.
Object of the Contract Must be Lawful
4.
A Sufficient Cause or Consideration
III. Types of Contracts
 Express / Implied
 Quasi
 Executed / Executory
 Bilateral / Unilateral
 Recap
A. Express and Implied
Contracts

An EXPRESS CONTRACT is characterized by
stating the terms in words [CC§1620]. Terms can
either be in spoken word, written word, or both.

An IMPLIED CONTRACT is one, the existence
and terms of which are manifested by conduct
[CC§1621]. An implied contract is created by
conduct, NOT spoken words.
B. Quasi Contracts

A QUASI CONTRACT is one imposed by the
courts to prevent unjust enrichment



Rescission
Quantum Meruit
Court will need to find:
1.
that the defendant received a benefit from the plaintiff
2.
that the benefit was not gratuitously conferred
3.
that it would be unjust for the defendant to retain the
conferred benefit without compensating the plaintiff for its
value
C. Executed and Executory
Contracts
 An EXECUTED CONTRACT is one, the object of
which is fully performed. All others are EXECUTORY
[CC§1661].
D. Bilateral and Unilateral
Contracts

An BILATERAL CONTRACT is one in which a
promise is exchanged for another promise

A UNILATERAL CONTRACT is one in which a
promise is given in exchange for the future
performance of an act
E. Recap
1.
EXPRESS CONTRACT : terms expressed orally or in writing
2.
IMPLIED CONTRACT : terms implied from conduct
3.
QUASI CONTRACT : obligation implied by law in absence of
agreement in order to prevent unjust enrichment
4.
EXECUTED CONTRACT : contract that is fully performed
5.
EXECUTORY CONTRACT : contract that is not yet performed
6.
BILATERAL CONTRACT : promise exchanged for a promise
7.
UNILATERAL CONTRACT : promised exchanged for an act
IV. How a Contract is
Formed – Mutual Assent
 Making the Offer
 Intention to Contract
 Definiteness and Certainty of the Offer
Mutual Assent
- is formed when one party, the offeror, makes an offer to
another party, the offeree, and the offeree accepts the
terms of the offer.
A. Making the Offer

An offer must:
1.
Show a present serious intention to enter into a
contract;
2.
Be definite and certain in its terms, and
3.
Be communicated to the offeree
1. Intention to Contract
a. Words and Circumstances


Words or conduct must show serious intent to contract
Reasonable person standard
b. Statements of Intention

Not an offer in the present
c. Invitations to Negotiate

Not offers by themselves
d. Writing Contemplated

Spoken words or writings to arrive at a contract
2. Definiteness and Certainty
of the Offer

To be definite and certain, there are minimal terms
that must be contained in the offer
a.
Implied Terms

b.
Open Price

c.
If the parties intend to contract, a reasonable term will be implied
to fill in the term left open
If the parties intended to contract, but failed to establish a sales
price, a reasonable price can be enforced
Time for Performance, Delivery, and Payment

If the parties have not agreed otherwise, delivery of the goods
must be made within a reasonable time [UCC§ 2309(1)].
3. Communication of
the Offer
 Without communication of the offer to the
offeree, there can be no contract
V. Termination of
Offers





Revocation
Irrevocable Offers
Promissory Estoppel
Rejection
Termination by Operation of Law
A. Revocation
 The offeror may REVOKE an offer at any time prior
to acceptance by the offeree
 In California, revocations are effective to terminate
offers when they are sent or e-mailed [CC§ 1587]
B. Irrevocable Offers
1.
THE OPTION CONTRACT

2.
is a contract in which a potential buyer purchases the
right to have an irrevocable offer
FIRM OFFERS (Sale of Goods)

a firm offer is irrevocable even though the offeror did
not receive anything of value from the offeree in order
to hold the option open
C. Promissory Estoppel

Detrimental Reliance

The offeror will be prevented from revoking an
offer, even though no consideration was given by
the offeree

Promissory Estoppel will allow the contract to be
formed ONLY if:
1.
2.
3.
The offeror made the promise knowing that the offeree was
likely to rely on it;
The offeree did rely on the offer, and
The only way to avoid an injustice is to allow the formation of
the contract and to enforce it
D. Rejection

When the offeree rejects the offer, the rejection
terminates the offer

Rejections are effective to terminate offers when they
are received by the offeror
E. Termination By Operation
of Law
1.
LAPSE OF TIME –an offer will terminate after the stated time
period in the offer has expired
2.
INCOMPETENCE or DEATH OF EITHER THE OFFEROR or
OFFEREE
3.
DEATH or DESTRUCTION OF THE SUBJECT MATTER OF
THE OFFER
4.
SUPERVENING ILLEGALITY OF THE SUBJECT MATTER OF
THE OFFER – after an offer is made, a court decision or statute
makes the subject matter of the offer illegal, the offer is
immediately terminated
F. Recap
1.
Offer – communicates power to accept by offeree
2.
Acceptance – agree to all terms of offer, effective when
sent
3.
Termination of the offer:




Rejection
Counter Offer
Revocation
Operation of law




Lapse of time
Death or incompetence
Destructions of subject matter
Supervening illegality- by statute or court
VI. Acceptance of
Contract Offers






Who May Accept the Offer
Acceptance of Unilateral Contracts
The “Mirror Image Rule”
The Grumbling Acceptance
UCC Sales Under Section 2207
Communication of the Acceptance
A. Who May Accept
the Offer
 The offeror is the master of the offer and can
designate whomever the offeror desires to be the
intended offeree

Individual

Group of people

General public
B. Acceptance of
Unilateral Contracts

Since a unilateral contract offer is a promise for
performance of an act, FULL COMPLETION of
the act constitutes the acceptance and forms the
unilateral contract
C. The “Mirror Image Rule”

The acceptance must be unqualified, unequivocal
and in absolute agreement with each and every
term of the offer [CC§ 1585]
D. The Grumbling Acceptance

An acceptance still mirrors the exact terms of the
offer EVEN though the offeree grumbles about the
acceptance
E. UCC Sales Under
Section 2207

Section 2207 of the UCC has completely altered the common
law rule that an acceptance must be the mirror image of the
offer.

Under this section, if the contract is for sale of goods,
additional or different terms may automatically become a
part of the contract if both parties are merchants.

If the offer and the acceptance contain different or
conflicting terms, a contract is formed. However, the
conflicting terms do not become part of the contract.

The conflicting terms cancel each other out and the blank is
filled in as provided under the U.C.C.
F. Communication of the
Acceptance
1.
BILATERAL CONTRACTS – an acceptance must be
communicated to the offeror in order to show a present intention to
contract with the offeror
2.
WHEN IS ACCEPTANCE EFFECTIVE? –an acceptance of an
offer is normally effective once it has been dispatched

3.
Mailbox Rule
WILL THE OFFEREE’S SILENCE CONSTITUTE
ACCEPTANCE? – silence is rarely an effective acceptance of an
offer, because an acceptance must be communicated
F. Communication of the
Acceptance (cont.)
4.
UNSOLICITED MERCHANDISE – Civil Code Section 1584.5
provides, that silence does not constitute acceptance for unsolicited
merchandise sent by the offeror to the offeree, and that merchandise
can be kept without any obligation to pay for it
5.
UNILATERAL CONTRACTS – if the offeror proposes
acceptance by performance, then only performance can operate as
an acceptance
Chapter Summary
 Promises
 How a Contract is
Formed

 Defining A Contract



Civil Code
Expectations
Essential Elements of a Contract
 Types of Contracts




Express and Implied
Quasi
Executed and Executory
Bilateral and Unilateral
Making the Offer

Intention to Contract

Definiteness and
Certainty of the Offer

Communication of
the Offer
 Termination of Offers





Revocation
Irrevocable Offers
Promissory Estoppel
Rejection
Termination by Operation
of law
Chapter Summary
 Acceptance of Contract Offers






Who May Accept the Offer
Acceptance of Unilateral Contracts
Mirror Image Rule
Grumbling Acceptance
UCC Sales under Section 2207
Communication of the Acceptance