Chapter 9

Implied Contracts

A contract that is implied from the conduct of the parties. This type of contract differs from an express contract in that the conduct of the parties, rather than their words, creates and defines the terms of the contract.

unconscionable

A court does not ordinarily look at the fairness or equity of a contract.

Authorized Means of Acceptance

A means of communicating acceptance can be expressly autho- rized by the offeror or impliedly authorized by the facts and circumstances surrounding the situation or by law.16 An acceptance sent by means not expressly or impliedly authorized normally is not effective until it is received by the offeror.

voidable contract

A party has the option of avoiding or enforcing the contractual obligation.

enforceable contract

A valid contract that can be enforced because there are no legal defenses against it.

The Mailbox Rule

Acceptance takes effect, thus completing formation of the contract, at the time the offeree sends or delivers the communication via the mode expressly or impliedly authorized by the offeror

Duress

Agreement to the terms of a contract is not voluntary if one of the parties is forced into the agreement. The use of threats to force a party to enter into a contract is referred to as duress.

Requirements of a VALID contract

Agreement. Consideration. Contractual capacity. Legality.

LICENSING STATUTES

All states require members of certain professions—including physicians, lawyers, real estate brokers, accountants, architects, electricians, and stockbrokers—to have licenses

Statute of Frauds

Although the statutes vary slightly from state to state, all states require certain types of con- tracts to be in writing or evidenced by a written (or electronic) memorandum signed by the party against whom enforcement is sought, unless certain exceptions apply

Agreement

An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer

Not an offer

An expression of opinion, Statements of Future Intent, Preliminary Negotiations, Advertisements, Agreements to Agree

Voluntary consent

The consent of both parties must be voluntary. For example, if a contract was formed as a result of fraud, undue influence, mistake, or duress, the contract may not be enforceable.

Form

The contract must be in whatever form the law requires. For example, some contracts must be in writing to be enforceable.

Legality

The contract's purpose must be to accom- plish some goal that is legal and not against pub- lic policy.

Rescission and New Contract

The law recognizes that two parties can mutually agree to rescind, or cancel, their contract, at least to the extent that it is executory (still to be carried out)

Revocation of the Offer by the Offeror

The offeror's act of withdrawing (revoking) an offer

TERMINATION BY OPERATION OF LAW

The power of the offeree to transform the offer into a binding, legal obligation can be terminated by operation of law through the occurrence of any of the following events: 1. Lapse of time. 2. Destruction of the specific subject matter of the offer. 3. Death or incompetence of the offeror or the offeree. 4. Supervening illegality of the proposed contract.

PREEXISTING DUTY

The preexisting legal duty may be imposed by law or may arise out of a previous contract.

delegation (of duties)

The transfer of contractual duties to a third party. Normally, a delegation of duties does not relieve the party making the delegation (the delegator) of the obligation to perform in the event that the party to whom the duty has been delegated (the delegatee) fails to perform.

Defenses to the enforceability of a contract

Voluntary consent. Form.

BILATERAL vs UNILATERAL CONTRACTS

Whether the contract is classified as bilateral or unilateral depends on what the offeree must do to accept the offer and bind the offeror to a contract

void contract

no contract at all.. A void contract produces no legal obligations on any of the parties.

"Communication"

one cannot agree to a bargain without knowing that it exists

Unforeseen Difficulties

prevent extortion and the so-called holdup game

exculpatory clauses

release a party from liability in the event of monetary or physical injury no matter who is at fault

SILENCE AS ACCEPTANCE

silence cannot constitute acceptance

executed contract

A contract that has been fully performed on both sides

executory contract

A contract that has not been fully performed by the parties

Legally Sufficient Value

(1) a promise to do something that one has no prior legal duty to do (2) the performance of an action that one is otherwise not obligated to undertake (3) the refraining from an action that one has a legal right to undertake (called a forbearance)

Consideration

(1) something of legally sufficient value must be given in exchange for the promise, and (2) usually, there must be a bargained-for exchange.

Objective facts

(1) what the party said when entering into the con- tract (2) how the party acted or appeared (intent may be manifested by conduct as well as by oral or written words) (3) the circumstances surround- ing the transaction

"Definiteness of terms"

1. The identification of the parties. 2. The identification of the object or subject matter of the contract (also the quantity, when appropri- ate), including the work to be performed, with specific identification of such items as goods, ser- vices, and land. 3. The consideration to be paid. 4. The time of payment, delivery, or performance.

effective offer

1. The offeror must have a serious intention to become bound by the offer. 2. The terms of the offer must be reasonably certain, or definite, so that the parties and the court can ascertain the terms of the contract. 3. The offer must be communicated to the offeree.

Implied Contract Requirements

1. The plaintiff furnished some service or property. 2. The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. 3. The defendant had a chance to reject the services or property and did not.

Third Party Beneficiaries

???

emancipation

???

incidental beneficiary

???

intended beneficiary

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contract disputes

??? They arise when there is a promise of future performance

unenforceable contract

A contract exists, but it cannot be enforced because of a legal defense.

privity of contract

A contract is a private agreement between the par- ties who have entered into it, and traditionally these parties alone have rights and liabilities under the contract

TERMINATION BY ACTION OF THE PARTIES

An offer can be terminated by the action of the parties in any of three ways: by revocation, by rejection, or by counteroffer.

Consideration

Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration (something of value received or promised, such as money, to convince a person to make a deal)

Contract formation

BILATERAL vs UNILATERAL CONTRACTS FORMAL vs INFORMAL CONTRACTS EXPRESS vs IMPLIED CONTRACTS

Contractual capacity

Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as com- petent parties.

Bilateral (Mutual) Mistakes of Fact

Both parties mistaken. CONTRACT CAN BE RESCINDED BY EITHER PARTY

Unilateral Contracts

If the offer is phrased so that the offeree can accept the offer only by completing the contract performance, the contract is a unilateral contract. Hence, a unilateral contract is a "promise for an act." In other words, the time of contract formation in a unilateral contract is not the moment when promises are exchanged but the moment when the contract is performed

letters of credit

FORMAL CONTRACT ! Agreements to pay contingent on the purchaser's receipt of invoices and bills of lading

FORMAL vs INFORMAL CONTRACTS

Formal contracts: contracts that require a special form or method of creation (formation) to be enforceable. Informal contracts: include all other contracts. No special form is required (except for certain types of contracts that must be in writing), as the contracts are usually based on their substance rather than their form.

UNEQUIVOCAL ACCEPTANCE

If the acceptance is subject to new conditions or if the terms of the acceptance change the original offer, the acceptance may be deemed a counteroffer that implicitly rejects the original offer.

Bilateral Contracts

If the offeree can accept simply by promising to perform, the contract is a bilateral contract. Hence, a bilateral contract is a "promise for a promise." No performance, such as payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The con- tract comes into existence at the moment the prom- ises are exchanged.

Rejection of the Offer by the Offeree

If the offeree rejects the offer the offer is terminated.

Substitute Method of Acceptance

If the offeror authorizes a particular method of acceptance, but the offeree accepts by a different means, the acceptance may still be effective if the substituted method serves the same purpose as the authorized means.

Mistakes

Mistake of Fact, Mistake of Value

assignment (of rights)

One party has a right to require the other to perform some task, and the other has a duty to perform it. The transfer of contractual rights to a third party

Unilateral Mistakes of Fact

One party mistaken. CONTRACT ENFORCEABLE UNLESS— ● Other party knew or should have known that mistake was made, or ● Mistake was due to substantial mathematical error, made inadvertently and without gross negligence.

Covenants Not to Compete in Employment Contracts

People in middle- or upper-level management positions commonly agree not to work for competitors or not to start competing businesses for a specified period of time after termination of employment.

PAST CONSIDERATION

Promises made in return for actions or events that have already taken place are unenforceable.

objective theory of contracts

a party's intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions.

Promissory Estoppel

a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery.

contract

a promise or a set of promises for the breach of which the law gives a remedy, or the per- formance of which the law in some way recognizes as a duty

offer

a promise or commitment to do or refrain from doing some specified action in the future

Counteroffer by the Offeree

a rejection of the original offer and the simulta- neous making of a new offer.

Acceptance

a voluntary act by the offeree that shows assent (agreement) to the terms of an offer. The offeree's act may consist of words or conduct. The acceptance must be unequivocal and must be communicated to the offeror.

Contracts in restraint of trade

affect the public policy that favors competition in the economy. Typically, such con- tracts also violate one or more federal or state anti- trust statutes.

Substantive Unconscionability.

characterizes those contracts that are oppressive or overly harsh.

Covenants Not to Compete and the Sale of an Ongoing Business

created when a seller agrees not to open a new store in a certain geographic area surrounding the old store.

"Serious intention"

is not determined by the subjective intentions, beliefs, and assumptions of the offeror. Rather, it is determined by what a reasonable per- son in the offeree's position would conclude that the offeror's words and actions meant.

Contract Law

designed to provide stability, as well as certainty for both buyers and sellers in the market place. The rules of contract law are often followed to avoid potential disputes.

valid contracts

enforceable, voidable, or unenforceable

Contract Performance

executed contract executory contract

An adhesion contract

is writ- ten exclusively by one party (usually, the seller or creditor) and presented to the other (usually, the buyer or borrower) on a take-it-or-leave-it basis.

Procedural Unconscionability

involves inconspicuous print, unintelligible language (legalese), or the lack of an opportunity to read the contract or ask questions about its meaning.

option contract

is created when an offeror promises to hold an offer open for a specified period of time in return for a pay- ment (consideration) given by the offeree. An option contract takes away the offeror's power to revoke the offer for the period of time specified in the option.

contractual capacity

the legal ability to enter into a contractual relationship 1. Minors 2. Intoxication 3. Mental Incompetence

assignor

the party making the assignmentWhen rights under a contract are assigned unconditionally, the rights of the assignor are extinguished.

The promisor

the person making the promise

the promisee

the person to whom the promise is made

Express Contracts

the terms of the agreement are fully and explicitly stated in words, oral or written.

Voluntary consent

used as a defense to the contract's enforceability

Contract Enforceability

valid contracts and void contract