Contract Law: Formation and Types

• Contract formation requires an agreement.

Types of Contracts

• A void contract cannot be enforced by either party as a matter of law.
• A voidable contract allows one party to refuse to proceed.
• An executed contract means all conditions have been met.
• An executory contract has at least one party that has not completed the agreement.
• Bilateral contracts involve a promise exchanged for a promise.
• Unilateral contracts involve a promise exchanged for performance.
  • A unilateral contract becomes irrevocable once performance has started.

Valid Contract Requirements

• It's necessary to have a valid offer.
• The acceptance has to be valid.
• The contract has to have consideration.

Objective Intent of a Valid Offer

• A definite proposal must be communicated by one person to another.
• It must indicate an objective intent to enter into a contractual relationship.
• Offers "must be" made with a present commitment, and have fairly definite terms.
• The offer must be communicated to the offeree.
• Words uttered in anger or jest do not count.
• A reasonable person views the offeror's words determine present commitment.

Definite Terms in a Contract

• Contract terms must be reasonably certain to be valid.
• The more certainty that exists, the more likely it is a contract was intended.
• If there are too many terms missing, it can be challenging for judges to provide relief.
• Missing incidental items are not considered important.
• Missing pieces can be filled in by usage of trade.
• The course of dealing between the parties, or factual implications and interpretations of statements and actions of the parties could define filling the missing price.

Communication to the Offeree

• The offeror has to be the "master of the offer.”
• It's more likely an offer made to an individual would be valid against one presented to a group.
• The offeror gets to choose the offeree.
• Advertisements, circulars, catalogues, price lists and order forms are invitations to negotiate, but are not offers.

Termination of Offers

• Offers terminated by lapse of time, especially for written realty contracts.
• Offers are terminated by law, when an offeror dies before an acceptance occurs.
• Offers end with a revocation.
• Offers end with a rejection or counteroffer.

Acceptance with Performance

• Offeree accepts unilateral contracts by performing, which is already started.
• You can't revoke unilateral contracts after their performance started.

What is an Acceptance?

• An offeree's manifestation of assent to the terms in a manner invited or required by the offer .
• "Place Your Order" button on Amazon.com constitutes acceptance.
• Telling the cab driver the destination means acceptance.
• Handing a $20 bill to the cashier at the movies is an acceptance.

Mirror Image Rule

• This rule applies if the subject matter isn't a sale of goods.
• The offeree must assent to the exact terms of the offer, to have a valid acceptance.

Common Law Mirror Image Rule

• This rule require an offer to be accepted exactly with no modifications.
• If the offer isn't an exact mirror image, the offer acts as a counteroffer, and a rejection with a new offer.

Last Shot Rule

• The mirror image rule states that exchanged document will be the terms of the final contract.
• So the payment is not due until the latest payment date is specified like 1pm.

Silence and Acceptance

• In general, silence does not mean acceptance, unless:
  • The offeree states that silence will be acceptance.
  • Previous dealings between offeror and offeree establish a pattern of contract through offeree's silence; or
  • The offeree takes the benefit of the offered services, knowing the offeror expects compensation;
  • The offeree acts inconsistent with the offeror's property.

Offer and Acceptance Process

• Identify the Offer: Look at elements and factors that define the offer, including the type of assent required.
• Determine if Offer was Accepted: Acceptance is a manifestation of assent to the terms of the offer which can be provided in a manner invited or required by the offeror.
• Consider Termination before Acceptance: Determine if the offer has been terminated before the offeree accepted via the four reasons of lapse in time (mailbox rule), death of the offeror, rejection by the offeree (if counteroffer situation), or valid revocation (if it is irrevocable).

Consideration

• Consideration requires parties to bargain to give each other something.
• It also requires refraining from doing something that confers benefit on the other part.

What Is Not Considered

• A promise made in recognition of a benefit that the promisor already received is not valid consideration.
• A promise to do something one is already legally obligated to do is not a valid consideration.
• Refraining from doing something one is already legally obligated not to do is not valid consideration.

Promissory Estoppel

• The promisor should reasonably expect to induce action or forbearance on the part of the promisee.
• The action or forbearance is induced; and Injustice can only be avoided by enforcing the promise.
• Promissory Estoppel is a last-ditch effort to recover when other arguments are not present.

Massachusetts Usury

• Whoever knowingly contracts for, charges, takes or receives interest and expenses exceeding an amount greater than twenty per centum per annum is guilty of criminal usury.
• Punishable by imprisonment in the state prison for not more than ten years or by a fine of not more than ten thousand dollars, or by both such fine and imprisonment.

Covenant Not To Compete

• Factors to consider in this type of contract include its period, scope, and geographic region.
• If a provider lacks the license, the service recipient has no payment obligation.
• The state may have a licensing statute for a service provider.