Contract Law: An Overview

• Contract law provides stability and predictability for commerce.
• Common law governs contracts, except when modified by statutory law.
• The Uniform Commercial Code (UCC) governs the sale and lease of goods.

Key Entities

• Promisor: The party making a promise.
• Promisee: The party to whom the promise is made, holding the right to demand performance.

Definition of a Contract

• A promise or set of promises for breach of which the law provides a remedy, or the performance of which the law recognizes as a duty.
• Involves two or more parties agreeing to perform or refrain from performing an act.
• If a promisor fails to deliver, the promisee can sue for breach of contract.

Objective Theory of Contracts

• Contract meaning is determined by the parties' objective actions, not their subjective intentions.
• Considers what was said, what was done, and the surrounding circumstances.
• Assesses what a reasonable person would believe to be bound by.

Four Requirements of a Contract (ACCL)

• Agreement: An offer made by one party and accepted by another.
• Consideration: The exchange of value that induces each party to enter the contract.
• Contractual Capacity: Both parties must be competent (of age, not intoxicated).
• Legality: The contract's purpose must be legal.

Defenses Against a Contract

• Lack of voluntary consent.
• Improper form.

Classifications Based on Formation

• Bilateral: Accepted by promising to perform (promise for a promise).
• Unilateral: Accepted ONLY by performing (promise for performance).
• Formal: Requires a special form.
• Informal: Does not require a special form.
• Express: Terms explicitly stated (verbal or written).
• Implied: Terms implied based on conduct.

Classifications Based on Performance

• Executed: Fully performed by both parties.
• Executory: Still to be performed by one or both parties.

Classifications Based on Enforceability

• Valid: Has all four required elements (agreement, consideration, capacity, legality).
• Enforceable: Valid, with no defenses against it.
• Voidable: Valid, but can be avoided by one or both parties (e.g., minor, intoxicated).
• Unenforceable: Valid, but cannot be enforced due to a legal defense (e.g., no proper form, fraud).
• Void: No contract, missing a required element.

Quasi Contracts

• Fictional contracts imposed by courts to avoid unjust enrichment.
• An equitable remedy created by courts.

Interpretation of Contracts

• "Plain Meaning" Rule: Enforce clear and unequivocal contracts according to their terms.
• Unclear terms may allow "extrinsic" (external) evidence.
• Contracts are interpreted as a whole, considering the overall purpose.
• Negotiated terms are given greater weight.
• Words are given their ordinary meaning.
• Specific wording is given greater weight than general language.
• Written, typewritten, or handwritten text is given more weight than preprinted text.
• Ambiguous terms are interpreted against the drafter.
• Trade usage, prior dealing, and course of performance can clarify meaning.

Agreement - Offer and Acceptance

• Agreement requires mutual voluntary assent to contract terms.
• A valid contract is formed if the other elements are present.

Offer

• A serious intention to be bound, based on the reasonable person standard.
• Terms must be reasonably certain/definite.
• The offer must be communicated to the offeree.

Situations Where Intent May Be Lacking

• Expressions of opinion.
• Statements made in jest, frustration, or anger.
• Statements of future intent.
• Preliminary negotiations or invitations to negotiate.
• Advertisements and price lists.
• Auctions: Listing an item is not an offer, but an invitation.

Reasonably Definite Terms

• Identification of the parties.
• Object or subject matter of the contract.
• Consideration to be paid.
• Time of payment, delivery, or performance.

Communication

• The offer must be communicated to the offeree.

Termination of the Offer

• Acceptance terminates the offer.
• An offer may be terminated prior to acceptance by:

Action of the Parties

Revocation by the Offeror

• Can be withdrawn anytime before acceptance.
• Requires express repudiation or acts inconsistent with the offer.
• Effective when received by the offeree.

Rejection by the Offeree

• Terminates the offer (expressed or implied).
• Effective when received by the offeror.

Counteroffer by the Offeree

• Rejection of the original offer and a new offer.
• Mirror Image Rule: Acceptance must exactly match the offer.

Operation of Law

Lapse of Time

• Terminates when the specified time passes or a reasonable time if no period is specified.

Destruction of the Subject Matter

• Death or incompetence of the offeror or offeree.

Acceptance

• Voluntary act (expressed or implied) showing assent to the offer's terms.

Unequivocal Acceptance

• Adheres to the "mirror image" rule (no new conditions).

Silence as Acceptance

• Generally, silence is not acceptance.

Communication of Acceptance

• Depends on whether the contract is unilateral or bilateral.

Mode and Timeliness

• Acceptance is timely if made before the offer is terminated.
• Mailbox Rule: Acceptance is effective when the offeree sends the communication via the authorized mode.

E-Contracts

• Involve electronic format.
• Online offers should include the full contract and dispute resolution terms.
• Online acceptance requires "click-on agreements" such as "I accept."

Consideration

• The value given in exchange for a promise (bilateral) or in return for a performance (unilateral).
• Must have legally sufficient value AND a bargained-for exchange.

Legally Sufficient Value

• Something of value (money, property).
• A promise to do something.
• Performance of an action.
• Forbearance of an action (refraining from something legally allowed).

Bargained-For Exchange

• The promisor seeks it in exchange for their promise, and the promisee gives it in exchange for the promisor's promise.
• Inducement to make the deal, with something of legal value exchanged.

Adequacy of Consideration

• Courts generally do not consider the adequacy of consideration.
• Exceptions occur when there is a large disparity in the amount of consideration exchanged.

Agreements That Lack Consideration

Preexisting Duty

• A promise to do what one already has a legal duty to do.

Past Consideration

• Concerns acts and events that have already taken place, so the bargained-for exchange element is missing.

Illusory Promises

• The promisor has not definitely promised to do anything.

Settlement of Claims

Accord and Satisfaction

• The debtor offers to pay a lesser amount than the creditor claims is owed.
• The debt must be in dispute.
• Liquidated Debt: The amount owed is fixed and agreed upon.
• Unliquidated Debt: The amount owed is not settled.

Release

• A contract in which a party forfeits its right to pursue a legal claim against the other party.

Promissory Estoppel

• An equitable remedy to avoid injustice.
• Occurs when a person has reasonably and substantially relied on the promise of another.

Contractual Capacity

• The legal ability to enter into a binding contract based on mental capacity, age, and intoxication level.

Minors

• The age of majority for contracts is 18 in almost all states
• Minors can enter into any contract an adult can, but these contracts are generally voidable at the minor's option (disaffirmed).

Disaffirmance

• Legal avoidance, possible any time while being a minor or for a reasonable time after reaching the age of majority.
• Only the minor may disaffirm.
• The minor must disaffirm the entire contract.

Obligations

• The minor must return the goods (or other consideration).
• Some states require the additional duty of restitution.

Exceptions

• Minors cannot avoid marriage contracts or contracts to enlist in the armed services.
• Some states prohibit disaffirmance if a minor lied about their age.

Ratification by the Minor

• Gives legal force to an obligation, possible after reaching the age of majority.
• Express: The minor states their intent to be bound orally or in writing.
• Implied: The minor indicates their intent to be bound through conduct.

Intoxicated Person

• A contract entered by an intoxicated person can be voidable or valid.
• Can be voidable even if intoxication was voluntary.
• If the person understood the legal consequences, the contract CAN be valid/enforceable.
• Courts look at objective indications of the person's condition.
• Can either disaffirm or ratify the contract.

Disaffirmance

• The intoxicated person must disaffirm while still intoxicated or within a reasonable period of time after becoming sober.
• Failure to disaffirm results in implied ratification.

Mental Competence

• Contracts made by mentally incompetent persons can be void, voidable, or valid.

Void

• The person has been adjudged by a court to be mentally incompetent.

Voidable

• The person has not been adjudged by a court, but at the time of the contract, did not know they were entering a contract or lacked the capacity to understand.

Valid

• The person is mentally ill, but not previously declared incompetent, and had capacity at the time the contract was formed (lucid interval).

Legality

• A contract must be formed for a legal purpose to be enforceable.
• A contract to do something prohibited by law is VOID.

Contracts Contrary to Statute

• Contracts to commit a crime.
• Interest rate maximums.
• Gambling outside state-regulated gambling.
• Licensing statutes: A contract without a required license is voidable.

Contracts Contrary to Public Policy

• Immoral acts.
• Contracts in restraint of trade.
• Covenants not to compete: Geographic restriction and time period must be reasonable.
• Unconscionable Contracts: So unscrupulous or grossly unfair as to be "void of conscience."
• Discriminatory contracts.

Effect of Illegality

• Illegal contracts are void.
• If the contract is still executory (not performed yet), neither party can enforce it.
• Courts generally will not aid either party.