Contract Law: Contract Basics

Contract Basics

• A contract is a legally enforceable agreement or a promise that the law will uphold.

Basic Requirements of a Contract

• A valid contract requires an offer, acceptance, and consideration.
• Parties must receive some benefit, which is consideration.
• Contracts must be legal to be enforced.
• Parties must have the capacity to contract, meaning they are not underage, disabled, or under the influence.
• Requires genuine consent, free from trickery or fraud.
• Certain contracts, such as real estate agreements, must be in writing.

Types of Contracts

• Bilateral: Involves two promises (e.g., "I'll pay you $200 if you mow my yard next week").
• Unilateral: Only one party makes a promise, and the other accepts by performing an action (e.g., "I'll pay you $100 if you fix my guitar.").
• Executory: One party has not yet fulfilled their obligations.
• Executed: All parties have fulfilled their obligations.
• Valid: A legitimate contract that satisfies all requirements.
• Unenforceable: Parties intend to make a contract, but courts or law won't enforce it, possibly due to unconscionable terms.
• An unconscionable contract example is purchasing a car for too cheap, which courts would not enforce.
• Voidable: May be terminated by one party, such as when Bob offers James tickets for $50.
• Void: Neither party can enforce due to an illegal purpose.
• An example of an illegal contract is "I'll pay you $100 for cocaine."
• Express: Terms are explicitly stated, and most contracts are express.
• Covenants not to compete is a common business example of an express contract.
• Terms regarding similar jobs, time, and radius must be reasonable in a covenant not to compete.
• Implied: Based on the parties' conduct; usually involves a course of action with no express terms.

Contract Terms

• Promissory Estoppel: A court may prevent a party from disclaiming an assurance when the other party relied on it and it would be unjust.
• Promissory estoppel requires a promise, knowledge of reliance, and injustice if the promise isn't enforced.
• Quasi Contract: Courts may hold parties responsible for actions even without a contract.

Sources of Contract Law

• Contract law primarily comes from state law.
• The Uniform Commercial Code (UCC) is also important.
• The UCC aims to standardize contract laws across states for interstate dealings.
• All 50 states have adopted the UCC to eliminate disputes on interpretation in different states.

Offer and Acceptance

• Key considerations include if there was a "meeting of the minds".
• Contract info is analyzed objectively, not based on what parties subjectively thought.
• Actual words and actions are used to understand intentions.
• In Kolodiej v Mason, a person claimed it was impossible to get from the airport to the hotel in 28 minutes for 1,000,000$ but the statement was a colloquial.
• Statements that are not offers include invitations to bargain and advertisements.
• An example of invitations to bargain is David and William emailing an offer to purchase a house below $400,000. David sends the money but that is not a valid contract.
• Price quotes are usually not offers.
• Acme sends a list but is only beginning negotiations.
• A letter of intent contains dozens of terms and may be negotiated over time: these should not be considered final contracts.
• In auctions, individual bids are considered offers and Auctions solicit offers.
• In "with reserve" auctions, there is a minimum bid, while "without reserve" has no min bid.

Definiteness

• Contract terms must be definite and clear.
• Courts will find no contract if terms cannot be determined from words or actions.
• Major exception to definiteness requirement is sale of commodities, often using open term contracts.
• Case in Arizona: the set price had to be equal to no more than 10% of what price it was that day.

Termination of Offers

• Offers can terminate before acceptance through revocation, rejection, expiration, or operation of law.
• Revocation requires communication before acceptance, similar to option contracts.
• Rejection terminates the offer and must be communicated.
• Counteroffers also terminate the original offer.
• Offers expire if not accepted by a specified date.
• Operation of law can terminate offers if the offeror dies/becomes incapacitated or the contract’s subject matter is destroyed.

Acceptance

• Key aspect is action on behalf of the offeree.
• Formal words not required
• Offeree can accept by action, like handing over money.
• Changing terms when accepting is a counteroffer.
• The "mirror image rule" takes the offer and acceptance and puts them side by side to compare them.

Consideration

• Consideration is the inducement or promise that leads someone to enter a contract.
• Contracts require a two-way exchange.
• Lack of consideration exists if one side gets everything and the other gets nothing.
• Consideration includes money, goods, promises to act, or promises to forbear.
• An act must be voluntary and not already required.
• Forbearance involves a decision not to act.
• Promises to act or forbear constitute value when analyzing the adequacy of consideration.
• Courts do not determine the adequacy of the consideration.
• Consideration in the contract is more important.

Consideration Situations

• "Bargain for exchange" involves inducement and reciprocity.
• Common situations that do not constitute consideration: illusory promises
• Illusionary promises: exception, Two parties want to make a deal but lack specifics.
• An example situation of preexisting duty is calling the cops when there is an emergency.
• Alaska packers association vs domenico (1902), not valid to ask for 3 cents instead of 2
• Additional work: if sesame had agreed to work a month longer than orig contract? - is a valid case.
• Modification: additional work is a valid change to the contract.
• Packers is not valid cuz they were going to fish in winter Alaska, that is not an unforeseen circumstance
• Past considerations can’t be new consideration.
• Acceptance to that is when the parties agree in advance of recognizing that the past consideration could be used as future.

Legality of Contracts

• Contracts violating criminal statutes are illegal and unenforceable.
• Most forms of gambling are illegal.
• Casinos example is, the california courts said that vegas casino did not have power to require gambler to pay, since it was illegal in cali then.
• Insurance law states that there must be some protection between both persons in the insurance policies.
• Ex of insurance: a wife insurance polict on spouse
• Licensing: most of the jobs must be licensed by the government.
• Ex: James is not licensed to do plumbing services.
• Usury involves charging high interest rates.

Credit Cards and Public Policy

• Credit cards usually charge HIGH intrest, but they do not break the usury laws.
• Public policy: whatever the jury thinks is right or wrong or Ethical
• Agreements not to compete are generally enforceable as long as they are for a reasonable distance.
• Agreements must be part of a larger agreement.

Exculpatory Clauses

• Exculpatory Clauses or disclaimers state "I agree to hold horses for kids and its employees entirely harmless in event that im injured in any way or any reason, incl but not lim to any acts…"
• Disclaimer cannot be valid if it is attempting to exclude negligence.
• Must be in public interest
• Disclaimers must have significant bargaining power. A small TV disclaimer for 1 second will most likely be unenforceable.

Unconscionable Contracts

• Contract refuses to enforce fundamental fairness
• The contract has to shock the conscience.
• Williams v Walker-Thomas Furniture 1965 is a case to point out.
• The contract was deemed Unconscionable
• If proven one has little bargaining power then it will not be enforced.
• There must be some law today that it is unfair to make.
• There must be procedural and substance that is in place.

Capacity and Consent

• There must be legal ability to enter a contract. - no alzheimers
• Consent must be genuine desire to do. - involves the party truly understanding terms.
• If lack of control/ consent one may enforce or may not enter contract
• Minor cant agree to contract under 18.

Examples of issues and cases involving capacity

• Johnny Doe v Epic Games - Cannot retrain to the benefits to the contract since he was not good in mind.
• After disaffirming from the contract, 18 months is usually the time that it is valid
• As James benefits from dis affriming from contract but gets his money back.
• Adults have something else bound.
• Contracts are valid if you're of sound mind.
• Alchohol also plays a part of determining valid contract.

Valid Consent

• The key part of it is that there is a genuine intent to agree
• Lack of consent would come in: fraud
• Civil fraud vs Criminal fraud
• Has intentional/ reckless means
• False is important
• Justifiable reliance.
• If there is a realator saying "house is great" But it is not true. "the sue has the write to cancel the contract
• if someone seller the defect, but does not say anything (aka silence) - most of the time is ok.
• Seller has to Disclose any and all defect that is found/ problems with the house

Statute of Frauds

• Can get really confusing- Oral contracts
• Early disputes can enose * British code has set in stone"
• Subject set of Fraud- All contracts will most likley need a set of writing.
• The most popular type of dealing with this is with land!
• Not limited: like contracts for a easement/rental
• Liens doc will have: $$ is owend
• Exception of this all are PEstoppel
• Must have year in writing!! even after agreement

Agreements and Application

• UCC any contract that is sold needs to have in writing anything that is 500, or more
• Exceptions for UCC are * After market parties, if the market it confirm then it is bounded. - MUST ALL HAVE
• Be Identified.
• Signature all have one
• Can the court fully determine intentions.
• Terms that will make it so the parties cannot tell , so it fails the sof
• Parol: Is valid from anything that is signed before agreement"
• Can make last amendment with initials handwritten .

Contracts

• Unilateral vs bilateral contracts - " One party will promise but does need to act.
• With insurence- will pay amount if it occurs
• Bilateral must have both end of the term