LAW211 - Business Law Contracts

Advertisement of Rewards

"$100 to anyone with information leading to my lost dog, Fluffy." Courts have construed this to be an offer - but it may only be accepted by one person.

However, if an advertisement is clear, definite, and identifies the offeree, it may be considered an offer if it says "first come, first served," which eliminates the problem of multiple acceptances.

"First 100 minivans to be sold for $10,000 - First come, first served." This might be construed as an offer. "One winter coat, normally valued at $200, for $50, first come, first served. Cash only."

Statement of Intention

"I plan to sell my minivan for $10,000." Not a promise to sell the van - just a statement of intent.

Elements of a Valid Offer:

(1) A promise/commitment (2) communicated to an identified person (offeree) (3) containing sufficiently definite terms

There are three ways that discharge will occur:

(1) By Performance (2) By Agreement of the Parties (3) By Operation of Law

With regard to the first question, the following five types of contracts fall within the Statute of Frauds (must be in writing to be enforceable):

(1) Contracts for the sale of land/real estate (2) Contracts that cannot, by their own terms, be performed within one year from the date of formation (3) Promises to answer for the debt of another (guaranties/sureties) (4) Promises made in consideration of marriage (5) Contracts for the sale of goods for over $500.

Two primary questions for any contract analysis

(1) DO WE HAVE AN ENFORCEABLE CONTRACT? If yes, (2) DID THE PARTIES RECEIVE A DISCHARGE OF THEIR OBLIGATION OR WAS THERE A BREACH OF THE CONTRACT?

Any Statute of Frauds analysis involves two questions:

(1) Does this contract fall within the Statute of Frauds? If yes, (2) Is the contract in the written form required by the Statute of Frauds?

Two elements:

(1) Something of legally sufficient value was exchanged for the promise and (2) The exchange was bargained-for.

Exceptions to General Rule:

(1) Where the other party knows or should have known a mistake was made, the mistake may constitute a valid defense or (2) the mistake was a math error and made without gross negligence.

2. ACCEPTANCE//Elements of a valid acceptance

(1) Words or conduct by the offeree (2) Showing unequivocal agreement to the terms of the offer (3) Communicated to the offeror.

There are three types of conditions:

(1) conditions precedent (2) conditions subsequent and (3) concurrent conditions.

There are four ways that genuine assent will be found to be lacking:

(1) mistake (2) fraud (3) undue influence or (4) duress.

The Restatements

(others exist in the fields of torts, agency, conflicts of laws, judgments, property, restitution, security, and trusts) are detailed analyses of the decided cases in the field. These analyses are made with an eye to discerning the various principles that have emerged from the courts, and to the maximum extent possible, the Restatements declare the law as the courts have determined it to be.

Rejections

(refusals or counteroffers) are effective upon receipt by the offeror Suppose I send Susan an offer to sell my house. If Susan sends a letter refusing the offer, the offer remains open until I receive the refusal. If Susan changes her mind and faxes an acceptance before the letter is received, a contract has been formed, and both parties are bound.

condition

. We call such an event a condition, and it may prevent the contractual obligation from ever arising.

Three elements of promissory estoppel:

1 a clear promise 2 promisee's justifiable and substantial reliance on the promise 3 justice will be served by enforcing the promise

(1) Legally Sufficient Value

1 promise to do something one has no legal obligation to do (promise to pay money, eg.) 2 perform an act one is not otherwise obligated to do (perform legal services, eg) 3 refrain from an act one is legally free to do. What we need to look for here is benefit to the promisor or detriment to the promisee

In order to qualify as a necessary, the item contracted for must

1) be necessary to the minor's existence, (2) the value of the item may be up to the standard of living or financial status of the minor and (3) the minor must not be under the care of a parent or guardian who is obligated to provide the item. If those three criteria are met, the minor may disaffirm the contract without being liable for the reasonable value of the goods or services. Insurance? No, not a necessary. The minor can disaffirm and recover all premiums paid. Loans? No, not a necessary, even if the money is spent on necessaries. Exception: If the lender knows the loan is being made for the purchase of necessaries, and makes sure the money is spent on those necessaries, the minor may be required to repay the loan.

Undue influence usually occurs in the context of a special relationship, or confidential relationship.

1) parent/child (2) guardian/ward (3) attorney/client (4) doctor/patient (5) husband/wife.

OFFER

1. OFFER The reason it is vital to determine whether a valid offer exists is because the offeror will be bound (liable) at the moment the offer is accepted. If a valid offer, which has not terminated, is accepted, a contract is formed. Once the contract is formed, each of the parties has legal obligations. It is very important, therefore, to determine the precise point at which a contract is formed.

Fraud

1. misrepresentation of material fact 2. intent to induce reliance 3. inducement of reliance 4. damage

Sale of "Necessaries"

= food, shelter, clothing, medical attention. A minor remains liable for the reasonable value of necessaries obtained through contract.

The Convention on Contracts for the International Sale of Goods

A Convention on Contracts for the International Sale of Goods (CISG) was approved in 1980 at a diplomatic conference in Vienna. (A convention is a preliminary agreement that serves as the basis for a formal treaty.) The Convention has been adopted by several countries, including the United States.

A minor's contract is voidable, not void

A child wishing to avoid the contract need do nothing positive to disaffirm; the defense of minority to a lawsuit is sufficient. Although the adult cannot enforce the contract, the child can (which is why it is said to be voidable, not void).

Consideration Substitutes//Accord and Satisfaction

A common means of settling a claim where the amount of money owed is in dispute. Check for $100 to seller where seller believes he is owed $150. Drawer of check writes "in full satisfaction" in memo portion of the check. If seller deposits check, an accord and satisfaction have occurred. Unliquidated debts only!

Condition Precedent

A condition precedent is one that must be fulfilled in order for the contracting party's obligation to become absolute. The best example of a condition precedent is an insurance contract's requirement that the insured pass a physical exam prior to coverage taking effect. In other words, the insurance company does not incur any obligation at all unless this condition precedent has been met.

Condition Subsequent

A condition that, if not fully performed, terminates a party's absolute duty to perform. The best example of this is where an employer requires its employees to maintain a professional license (HCC requires me to maintain my license to practice law). If the condition is not met, the party's absolute duty to perform is terminated.

Contract

A contract is a legally binding promise. Contract law reflects the values that we as a society deem important - Only certain types of promises are legally binding. Society allows contracts to be broken for certain reasons. Society also says that in some situations, such as when the contract was made by a child or a mentally incompetent person, it should not be enforced. If the contract was made on the basis of false information, it may not be enforceable as well

Capacity

A contract is a meeting of minds. If someone lacks mental capacity to understand what he is assenting to—or that he is assenting to anything—it is unreasonable to hold him to the consequences of his act.

(3) Communicated to Offeror

A contract is formed when the acceptance is dispatched (sent) by authorized means to the offeror

Discharge by Operation of Law

A contractual obligation may be discharged by operation of law in the following circumstances: (1) Material Alteration of the Contract (2) Statute of Limitations has expired (3) Bankruptcy (4) Impossibility of Performance.

2. Promissory Estoppel

A doctrine which applies when someone relies on a promise. Even though the promise is not supported by adequate consideration, it may nonetheless be enforceable under the doctrine of promissory estoppel

Guaranties

A guaranty is a promise to pay a debt in the event that the primary obligor (debtor) defaults. A guarantor's obligation is secondary to the primary obligor - that is, the guarantor has no obligation whatsoever unless and until the primary debtor fails to pay.

Mental Incompetence (Void or voidable)

A person who has been adjudged mentally incompetent by a court of law and has had a guardian appointed to them cannot enter into a contract. Any contract purported to be entered into by that person is void.

1 Preexisting Duty

A promise to do what one is already obligated to do does not constitute sufficient consideration Modification - (a) Contractor demanding additional funds in the middle of a project (b) landlord agrees to reduce rent by $100 per month. (But, if tenant agrees to pay one day earlier each month, there would be additional consideration to support the new promise) Public Duty - (a) Police Chief collecting reward for capturing a criminal (b) firefighter promises to protect her neighbor's home for a fee of $100 per month. Courts occasionally allow exceptions to this rule in case where unforeseen difficulties and demands additional funds, the consideration element is nonetheless satisfied. What the parties can elect to do, however, is rescind the existing contract and form a new contract (supported by new consideration)

Anticipatory Breach of Contract

A statement or action by a party to a contract that he/she will not perform under the contract is known as anticipatory repudiation.

Sureties

A surety, on the other hand, is more like a co-signor. A surety agrees to be equally liable on the debt. The creditor does not have to wait until the primary debtor defaults to collect from a surety - the creditor can elect to collect directly from the surety. A surety assumes a principal or primary obligation. Both sureties and guaranties must be in writing to be enforceable.

voidable contract remains a valid

A voidable contract remains a valid contract until it is voided. Thus, a contract with a minor remains in force unless the minor decides he does not wish to be bound by it. When the minor reaches his majority, he may "ratify" the contract—that is, agree to be bound by it-in which case the contract will no longer be voidable and will thereafter be fully enforceable.

What if the acceptance is sent by an unauthorized means?

Again, it is not effective until received by the offeror. Remember also that the offeror is the master of his own offer - the offeror can specify that acceptance is not effective until received.

The general rule is that persons younger than eighteen can avoid their contracts.

Although the age of majority was lowered in most states during the 1970s to correspond to the Twenty-sixth Amendment (ratified in 1971, guaranteeing the right to vote at eighteen), some states still put the age of majority at twenty-one. Legal rights for those under twenty-one remain ambiguous, however. Although eighteen-year-olds may assent to binding contracts, not all creditors and landlords believe it, and they may require parents to cosign. For those under twenty-one, there are also legal impediments to holding certain kinds of jobs, signing certain kinds of contracts, marrying, leaving home, and drinking alcohol. There is as yet no uniform set of rules.

Counteroffer

An acceptance which is conditional upon additional terms = counteroffer. A counteroffer acts as a simultaneous rejection (refusal) and offer. The original offeror now has the power to accept or reject the new offer. Again, this is all so important because we need to know when the contract has been formed - that is the only way to determine who owes who what.

Express Contract

An express contract is one in which the terms are spelled out directly; the parties to an express contract, whether written or oral, are conscious that they are making an enforceable agreement. For example, an agreement to purchase your neighbor's car for $500 and to take title next Monday is an express contract.

Implied Contract

An implied contract is one that is inferred from the actions of the parties. Although no discussion of terms took place, an implied contract exists if it is clear from the conduct of both parties that they intended there be one. A delicatessen patron who asks for a "turkey sandwich to go" has made a contract and is obligated to pay when the sandwich is made. By ordering the food, the patron is implicitly agreeing to the price, whether posted or not.

(3) Containing Sufficiently Definite Terms

An offer must have reasonably definite terms. The really important terms must be stated:

unenforceable contract is

An unenforceable contract is one that some rule of law bars a court from enforcing. For example, Tom owes Pete money, but Pete has waited too long to collect it and the statute of limitations has run out. The contract for repayment is unenforceable and Pete is out of luck, unless Tom makes a new promise to pay or actually pays part of the debt. (However, if Pete is holding collateral as security for the debt, he is entitled to keep it; not all rights are extinguished because a contract is unenforceable.)

exculpatory

Another type of contract term courts might hold unconscionable and therefore unenforceable are those that are "exculpatory." Exculpatory clauses are those that release a party from liability, regardless of fault.

Form

As a general rule, a contract need not be in writing to be enforceable. An oral agreement to pay a high-fashion model $1 million to pose for a photograph is as binding as if the language of the deal were printed on vellum and signed in the presence of twenty bishops. For centuries, however, a large exception has grown up around the Statute of Frauds, first enacted in England in 1677 under the formal name "An Act for the Prevention of Frauds and Perjuries." The purpose of the Statute of Frauds is to prevent the fraud that occurs when one party attempts to impose upon another a contract that did not in fact exist. The two sections dealing with contracts read as follows:

2. Unconscionable Clauses/Terms

As a general rule, courts will not second guess the parties to a contract as to the wisdom of their bargain. Sometimes, however, the bargaining positions of the parties are so vastly unbalanced that a court will step in and declare an unconscionable clause void and unenforceable. This usually happens where a big company bargains with an unsophisticated individual who is unrepresented by counsel. Such a contract may be termed an "adhesion contract" - which means it was drafted by the party with the superior bargaining position and offered to the weaker party on a "take-it-or-leave-it" basis. A term of a contract may also be held to be unconscionable if it "shocks the conscience" of the court. An example of this would be Bernie's selling a $400 refrigerator to a person with a fourth grade education for $2000.

Contract Defined

As usual in the law, the legal definition of "contract" is formalistic. The Restatement says: "A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." (Restatement (Second) of Contracts,Section 1) Similarly, the Uniform Commercial Code says: "'Contract' means the total legal obligation which results from the parties' agreement as affected by this Act and any other applicable rules of law." (Section 1-201(11)) A short-hand definition is: "A contract is a legally enforceable promise."

Discharge or Breach?

Assuming we have a valid contract, the next question is: at what point are the parties obligated to one another? In other words, how are their obligations discharged? If they are not discharged, and they fail to perform, we have a breach of contract.

4. NO VALID DEFENSES

Assuming we have offer, acceptance and consideration, the next component to our "formula for an enforceable contract" is that no valid defense to the contract exists.

Contract for Necessities

At common law, a "necessity" was defined as an essential need of a human being: food, medicine, clothing, and shelter. In recent years, however, the courts have expanded the concept, so that in many states today necessities include property and services that will enable the minor to earn a living and to provide for those dependent on him. If the contract is executory, the minor can simply disaffirm. If the contract has been executed, however, the minor must face more onerous consequences. Although he will not be required to perform under the contract, he will be liable under a theory of "quasi-contract" for the reasonable value of the necessity.

Case (Common) Law and the Restatement of Contracts

Because contract law was forged in the common-law courtroom, hammered out case by case on the anvil of individual judges, it grew in the course of time to formidable proportions. By the early twentieth century, tens of thousands of contract disputes had been submitted to the courts for resolution, and the published opinions, if collected in one place, would have filled dozens of bookshelves. Clearly this mass of case law was too unwieldy for efficient use.

Consider the following three "contracts":

Betty offers to give a book to Lou. Lou accepts. Betty offers Lou the book in exchange for Lou's promise to pay $15. Lou accepts. Betty offers to give Lou the book if Lou promises to pick it up at Betty's house. Lou accepts.

Contract Implied in Law: Quasi-contract

Both express and implied contracts embody an actual agreement of the parties. A quasi-contract, by contrast, is an obligation said to be "imposed by law" in order to avoid unjust enrichment of one person at the expense of another. In fact, a quasi-contract is not a contract at all; it is a fiction that the courts created to prevent injustice.

Intoxicated Persons (Voidable)

Can a drunk enter into a valid and binding contract? Not if the alcohol so impaired his judgment that he did not understand the legal consequence of his actions. If that is the case, the contract is voidable at the option of the intoxicated person. Unlike minors, however, the intoxicated person must return whatever was contracted for. As a general rule, it is difficult to get out of a contractual obligation on the basis of drunkenness. Why do we treat intoxication differently than minority or mental incompetence? Because of the voluntary nature of the cat of getting drunk.

Statutory Law: The Uniform Commercial Code

Common law contract principles govern contracts for real estate and for services, obviously very important areas of law. But in one area the common law has been superseded by an important statute: the Uniform Commercial Code (UCC), especially Article 2, which deals with the sale of goods.

Consideration

Consideration is also known as legal detriment. It is the inducement to enter the contract - the cause, motive, price or compelling reason that the contracting party entered the contract.

Consideration

Consideration, is the quid pro quo (something given or received for something else) between the contracting parties in the absence of which the law will not enforce the promise or promises made

DISCHARGE

Contract discharge refers to the termination of one's obligation under the contract - the point at which the parties no longer owe each other duties.

The Role of Contract in Society

Contract is probably the most familiar legal concept in our society because it is so central to a deeply held conviction about the essence of our political, economic, and social life. In common parlance, the term is used interchangeably with agreement, bargain, undertaking, or deal; but whatever the word, it embodies our notion of freedom to pursue our own lives together with others. Contract is central because it is the means by which a free society orders what would otherwise be a jostling, frenetic anarchy. So commonplace is the concept of contract—and our freedom to make contracts with each other—that it is difficult to imagine a time when contracts were rare, an age when people's everyday associations with one another were not freely determined.

Basic Contract Taxonomy

Contracts are not all cut from the same die. Some are written, some oral; some are explicit, some not. Because contracts can be formed, expressed, and enforced in a variety of ways, a taxonomy of contracts has developed that is useful in lumping together like legal consequences.

Contracts for the Sale of Land/Real Estate

Contracts to buy or sell an interest in land or buildings must be in writing to be enforceable. The reason for this is that land interests are so valuable and important that we must require written evidence of each party's intent to commit to the contract. Mortgages and Leases are included in this requirement.

3. CONSIDERATION ///

Defined: the value given for a promise.

timely

Disaffirmance must be timely - it must be made while still a minor or shortly after turning 18. Waiting two years after you have turned 18 to disaffirm a contract, for example, would not be timely. Another way of saying this would be that failing to disaffirm shortly after reaching the age of majority would constitute an affirmance (or ratification) of the contract.

Duress

Duress refers to one party to a contract being forced into entering the contract.

Blackmail/Extortion Threat of physical force

Economic Duress is not sufficient! The consequence of forcing someone to enter into a contract under duress is that the wronged party may, at his/her option, choose to carry out the transaction or rescind (cancel) the contract.

Contracts that Violate a Statute//1. Usury statutes

Every state has a statute setting the maximum amount of interest lenders (banks, credit card companies, etc...) may charge for loans and/or extensions of credit.

CALF

For our purpose, the defenses to contract formation can be categorized using the acronym CALF (Capacity, Assent, Legality, Form).

Timko served on the board of trustees of a school.

He recommended that the school purchase a building for a substantial sum of money, and to induce the trustees to vote for the purchase, he promised to help with the purchase and to pay at the end of five years the purchase price less the down payment. At the end of four years, Timko died. The school sued his estate, which defended on the ground that there was no consideration for the promise. Timko was promised or given nothing in return, and the purchase of the building was of no direct benefit to him (which would have made the promise enforceable as a unilateral contract). The court ruled that under the three-pronged promissory estoppel test, Timko's estate was liable. Estate of Timko v. Oral Roberts Evangelistic Assn., 215 N.W.2d 750 (Mich. App. 1974).

For example, suppose I am teaching a class and my marker runs out of ink. In my frustration, I declare "I will give a million dollars to anyone who will get me a new marker!" A reasonable person would know I do not seriously intend to shell out a million dollars for a marker.

Hence, there is no objective intent to commit to the promise

This outline deals only with the first question: "Do we have an enforceable contract?"(The second question: "Did the parties receive a discharge of their obligation or was there a breach of the contract?" is addressed in the outline for Week 13 of the course.)

I. DO WE HAVE AN ENFORCEABLE CONTRACT? OFFER + ACCEPTANCE + CONSIDERATION + NO VALID DEFENSES = ENFORCEABLE CONTRACT

Death or Incapacity of Offeror or Offeree

If either parties dies prior to the formation of the contract, the power of acceptance is terminated

2. Members of a Protected Class

If one party to a contract is a member of a protected class as set forth by statute, that party may enforce the contract. An example of this would be an employee who works overtime hours in violation of state law - the employee can enforce the contract against the employer to get paid for the overtime. Another example would be the purchaser of securities. Under most states' "blue sky laws" the purchase of securities is heavily regulated by statute - the buyer of those securities can sue to enforce the contract for the purchase/sale of stock even if the contract violated the blue sky laws.

Let's say the police question relative to a murder investigation, and I tell them my neighbor did it. Later that day, I learn there is a $10,000 reward for information leading to the arrest of the killer. Did my telling the police constitute an acceptance of the offer? No - the offer can be accepted only by someone who knows of the offer. I did not know of the offer at the time I gave the information to the police.

If the offeree is identified in the offer, only that offeree may accept the offer. Suppose I send a fax stating "Susan, I will sell you my minivan for $10,000. Please let me know by Friday if you want it." Only Susan can respond to this. Her roommate cannot intercept the fax and accept my offer. If the offer does not designate a specific offeree, we can assume it is made to the general public. That is fine.

Supervening Illegality

If, after the offer is made but prior to acceptance of the offer, the proposed contract becomes illegal, the power of acceptance is terminated. Suppose People's Bank offers me a car loan at 12% interest. The next day, Congress passes a law limiting the amount of interest that can be charged on car loans to 11%. This "supervening illegality" would terminate the power of acceptance. No contract can come into existence.

The question is which, if any, is a binding contract?

In American law, only situation 2 is a binding contract, because only that contract contains a set of mutual promises in which each party pledges to give up something to the benefit of the other.

Economic View of Contract Law

In An Economic Analysis of Law (1973), Judge Richard A. Posner (a former University of Chicago law professor) suggests that contract law performs three significant economic functions. First, it helps maintain incentives to individuals to exchange goods and services efficiently. Second, it reduces the costs of economic transactions because its very existence means that the parties need not go to the trouble of negotiating a variety of rules and terms already spelled out. Third, the law of contracts alerts the parties to trouble spots that have arisen in the past, thus making it easier to plan the transactions more intelligently and avoid potential pitfalls.

may make silence an acceptance

In addition, prior dealings may make silence an acceptance. If a merchant routinely notifies a seller of defective goods when shipments arrive, it is reasonable for the seller to assume that the merchant's silence means the goods are accepted.

3. Accord and Satisfaction

In an accord and satisfaction, the parties agree to accept performance which is different from that originally promised. An accord and satisfaction discharges the original contractual obligation

Illegality

In general, illegal contracts are unenforceable. The courts must grapple with two types of illegalities: (1) statutory violations (e.g., the practice of law by a non-lawyer is forbidden by statute), and (2) violations of public policy not expressly declared unlawful by statute, but so declared by the courts.

Degree of Completion

In medieval England, contract—defined as set of promises—was not an intuitive concept. The courts gave relief to one who wanted to collect a debt, for in such a case the creditor presumably had already given the debtor something of value, and the failure of the debtor to pay up was seen as manifestly unjust. But the issue was less clear when neither promise had yet been fulfilled. Suppose John agrees to sell Humphrey a quantity of wheat in one month.

Misrepresentation of Age

In most states, a minor may misrepresent his age and disaffirm in accordance with the general rule, because that's what kids do, misrepresent their age. That the adult reasonably believed the minor was also an adult is of no consequence in a contract suit. But some states have enacted statutes that make the minor liable in certain situations. A Michigan statute, for instance, prohibits a minor from disaffirming if he has signed a "separate instrument containing only the statement of age, date of signing and the signature:" And some states "estop" him from claiming to be a minor if he falsely represented himself as an adult in making the ·contract. "Estoppel" is a refusal by the courts on equitable grounds to listen to an otherwise valid defense; unless the minor can return the consideration, the contract will be enforced. Contracts made by an insane or intoxicated person are also said to have been made by a person lacking capacity. In general, such contracts are voidable by the person when capacity is regained (or by the person's legal representative if capacity is not regained).

ASSENT

In order for a valid contract to be formed, there must be a meeting of the minds. Each party's assent to the terms of the contract must therefore be genuine.

substantial performance

In order to qualify as substantial performance, the performance must create substantially same benefits as those promised in the contract. If substantial performance is found, the other party's duty to perform remains absolute, although he/she can deduct damages resulting from the incomplete performance.

Material Breach

In order to relieve a non-breaching party to a contract from his/her duty to perform under the contract, a breach must be material. A non-material breach is nonetheless a breach, but does not relieve the non-breaching party of his/her duty under the contract. Rather, a non-material breach merely entitles the non-breaching party to sue for damages. The underlying policy here is that we want parties to go forward with their contracts where there are only minor problems.

be deemed a counteroffer

In other words, if the acceptance is subject to new conditions, or if the terms of acceptance materially alter the original offer, the acceptance will be deemed a counteroffer (which constitutes a rejection of the offer). "I will sell you my minivan for $10,000." "I accept. Please send written contract." = Valid acceptance. "I will sell you my minivan for $10,000." "I accept if you send a written contract." No valid acceptance. The word "if" is a new condition contained in the acceptance, which violates the mirror image rule.

disaffirm

In other words, in all other cases, the minor is free to "disaffirm" the contract. Disaffirmance is the setting aside, or avoidance, of a contractual obligation. This power to disaffirm rests with the minor, not the adult with whom the minor has contracted.

Preliminary Negotiations

Invitation to Submit Bids - Government Contracts "I wouldn't sell my minivan for less than $10,000" - Not an offer to sell for $10,000. "Would you be interested in selling your minivan to me?" Not an offer to buy the minivan.

Objective Impossibility-Four Types

It cannot be done. "It is impossible for anyone to perform" not "It is impossible for me to perform." (1) A Party whose Performance is Essential to the Contract Dies or becomes Incapacitated (2) The Subject Matter of the Contract is Destroyed (3) Supervening Illegality (4) Commercial Impracticability (originally contemplated performance turns out to be significantly more burdensome than planned - will cost 10 times as much money, eg.)

If the offeror specifies no particular mode, then acceptance is effective when transmitted as long as the offeree uses a reasonable method of acceptance.

It is implied that the offeree can use the same means used by the offeror or a means of communication customary to the industry. For example, the use of the postal service was so customary that acceptances are considered effective when mailed, regardless of the method used to transmit the offer. Indeed, the so-called "mailbox rule" (the acceptance is effective upon dispatch) has an ancient lineage, tracing back nearly two hundred years to the English courts. Adams v. Lindsell, 1 Bamewall & Alderson 681 (K.B. 1818).

)f the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended

It is the objective manifestations of the offeror that count and not secret, unexpressed intentions. If a party's words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of the party's mind on the subject. Barnes v. Treece, 549 P.2d 1152 (Wash. App. 1976). An offer is a manifestation of willingness to enter into a bargain such that it would be reasonable for another individual to conclude that assent to the offer would complete the bargain. Offers must be communicated and must be definite; that is, they must spell out terms to which the offeree can assent.

Advertisements/Catalogues/Circulars

Let's say I put an ad in the paper for my minivan for $10,000. Ten people call me to accept. If the ad was an offer, I would wind up with a binding contract with each of those ten people. Due to the problem of multiple acceptances, advertisements are not offers. Rather, they are invitations to make an offer.

Irrevocable Offers

Most offers are revocable. Some, however, are irrevocable. An example of an irrevocable contract is an option contract. An option contract is a contract under which the offeror cannot revoke his offer for a stipulated time period, and the oferee can accept or reject during this time period without fear that the offer will be made to another person. The offeree generally will be paid in some way for extending the option.

Licensing Statutes

Most states have statutes which require certain professionals to have licenses by the states to practice their professions (doctors, lawyers, accountants, stockbrokers, etc...).

2. Gambling Statutes

Most states prohibit gambling in some form. The exceptions are state lotteries, casino gambling in some states (Connecticut, New Jersey, Minnesota, Nevada...), horse racing in some states, charitable BINGO, etc

Enforceability

Not every agreement between two people is a binding contract. An agreement that is lacking one of the legal elements of a contract is said to be void—that is, not a contract at all. An agreement that is illegal—for example, a promise to commit a crime in return for a money payment—is void. Neither party to a void "contract" may enforce it.

CAPACITY

Not every person has the ability to assume binding contractual obligations - some people lack the necessary mental capacity to contract.

Expression of Opinion - Not an offer

Not evidence of an intention to enter a binding agreement. Eg - Doctor tells you that you will be better in a day or two, and you are still sick three weeks later. You cannot sue for breach of contract - the doctor did not express a binding promise.

Unilateral Mistake

Occurs when only one party is mistaken as to a material fact - that is, a fact that is vital to the subject matter of the contract. The mistake does not render the contract unenforceable against the mistaken party. Suppose I sell my home to Jack. I intend to sell it for $139,500. I make a mistake in writing the offer, however, and write $135,900. Jack accepts my offer, and a contract is formed. I cannot argue that my unilateral mistake as to price is a valid defense to the contract.

(1) A promise/commitment

Offeror must promise to do something or refrain from doing something in the future.

3. Bankruptcy

Once a person or company files for bankruptcy, a bankruptcy court will allocate assets of the debtor - the debtor receives a discharge in bankruptcy.

2. Statute of Limitations

Once the statute of limitations has passed for bringing an action on the contract, the parties to the contract are discharged in the sense that they can incur no liability for failure to perform.

(1) Words or conduct by the offeree

Only the offeree (or his authorized agent) can accept the offer. What about silence? Does silence qualify as "words or conduct"? The general rule is that silence does not constitute acceptance.

remember-both parties do not have to sign

Only the party trying to deny the contract has to have signed the writing

Complete Performance v. Substantial Performance

Ordinarily only complete performance will discharge one's obligations under a contract. Sometimes, however, a party will render substantial performance, and that substantial performance will discharge his/her contractual obligations

General Rule:

Other than contracts for the sale of necessaries, contracts entered into by a minor are voidable at the option of the minor.

Parental Liability

Parents of minors are not liable for the contracts of their minor children, except those for necessaries that the parents are under a legal obligation to provide. This is why most businesses require a parent's co-signature.

Refusal

Refers to words or conduct that indicate that the offer is not accepted. "I'll sell you my minivan for $10,000." = Offer "No way! That's way out of my price range." = Rejection

1. Rescission

Rescission occurs where the parties agree to cancel the contract and restore themselves to their original positions. Rescission must satisfy the original elements of a contract - offer, acceptance and consideration. In essence, it is a new contract which cancels the old one.

The Basic Framework of the UCC

Sales (Article 2) Commercial Paper (Article 3) Bank Deposits and Collections (Article 4) Letters of Credit (Article 5) Bulk Transfers (Article 6) Warehouse Receipts, Bills of Lading, and Other Documents of Title (Article 7) Investment Securities (Article 8) Secured Transactions; Sales of Accounts and Chattel Paper (Article 9)

did the parties create a valid, enforceable contract? What remedies are available when one party breaks the contract? The answer to the first question is not always obvious; the range of factors that must be taken into account can be large and their relationship subtle.

Since people in business frequently conduct contract negotiations without the assistance of a lawyer, it is important to attend to the nuances to avoid legal trouble at the outset.

2. Past Consideration

Suppose I perform legal services for someone who cannot afford to pay me. A year later, when they have some money, that person sends me a check for $1,000 to pay for the legal services I have already provided. No valid contract here - the consideration did not induce my promise to provide legal services. The element of bargained-for-exchange is missing

Case Study - Raffles v. Wichelhaus case (The Two Ships "Peerless")

Supppose I own a Van Gogh Painting. I sell the painting to Jack for $10,000, who believes the painting to be a Van Gogh. The painting turns out to be a fake. The mutual mistake may serve as a valid defense to the contract.

(2) Unequivocal Acceptance

The Mirror Image Rule" The terms of an offeree's acceptance must adhere exactly to the terms of the offer in order for a contract to be formed

In interpreting agreements, courts generally apply an objective standard.

The Restatement (Second) of Contracts defines agreement as a "manifestation of mutual assent by two or more persons to one another." (Section 3) The UCC defines agreement as "the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance." (Section 1-201(3)) The critical question is what the parties said or did, not what they thought they said or did.

A Brief History

The UCC is a model law developed by the American law Institute and the National Conference of Commissioners on Uniform State Laws; it has been adopted in one form or another in all fifty states, the District of Columbia, and the American territories. It is the only "national" law not enacted by Congress.

Contracts for the Sale of Gods Over $500

The Uniform Commercial Code (UCC) requires that contracts to buy goods for more than $500 must be in writing, and the writing must contain a quantity term. The writing must also be signed by the party to be charged (the party against whom enforcement is sought.

There are two primary considerations here:

The acceptance must be communicated in an acceptable mode and the acceptance must be timely.

Mode of Acceptance - Authorized Means

The acceptance must be made by authorized means. Authorized means can be express or implied. Express authorized means will be stated in the offer ("please respond to this offer by first-class mail or express delivery").

Age/Minority (Voidable)

The age of majority in the United States is 18. A person who has not reached the age of majority is called a minor.

(1) Bargained-for-Exchange

The consideration (detriment or benefit) must be the basis for the bargain struck by the parties.

What about temporary impossibility?

The contractual obligation is discharged, but kicks in again as soon as the temporary condition has lifted.

The Agreement: Offer and Acceptance

The core of a legal contract is the agreement between the parties. That is not merely a matter of convenience; it is at the heart of our received philosophical and psychological beliefs. As the great student of contract law, Samuel Williston, put it: the prevalent idea that there must be a "meeting of the minds" (a new phrase) in order to form a contract. (1921, p. 365)

Destruction of the Subject Matter of the Contract

The destruction of a person or thing essential to The contract terminates the power of acceptance. Suppose I offer to sell my minivan for $10,000. Prior to acceptance, it is struck by a meteorite and destroyed. The power of acceptance is terminated.

Consideration has two elements.

The first, as just outlined, is whether the promisee has incurred a legal detriment. (Some courts—although a minority—take the view that a bargained-for legal benefit to the promisor is sufficient consideration.) The second is whether the legal detriment was bargained for: did the promisor specifically intend the act, forbearance, or promise in return for his promise? Applying this two-pronged test to the three examples given at the outset of the chapter, we can easily see why only in the second is there legally sufficient consideration. In the first, Lou incurred no legal detriment; he made no pledge to act or to forbear from acting, nor did he in fact act or forbear from acting. In the third example, what might appear to be such a promise is not really so. Betty made a promise on a condition that Lou come to her house; the intent clearly is to make a gift. Betty was not seeking to induce Lou to come to her house by promising the book.

Contracts that Lack Consideration

The following contracts may appear to be supported by consideration, but are not.

However, most offers don't include an expressly authorized mode of acceptance

The following implied methods of acceptance are recognized: 1. The same means used by the offeror to communicate the offer (verbal-verbal; fax-fax; newspaper-newspaper, etc...) 2. Mailing

Mutuality

The garden-variety contract is one in which the parties make mutual promises. Each is both promisor and promisee; that is, each pledges to do something and each is the recipient of such a pledge. This type of contract is called a bilateral contract. But mutual promises are not necessary to constitute a contract.

When a person enters into a contract with an unlicensed individual, the contract may or may not be enforceable.

The general rule is that if the underlying purpose of the licensing statute was to protect the public from unqualified professionals, the contract is illegal and unenforceable. However, if the purpose of the statute is solely to raise revenue for the state through licensure fees (e.g. bar owners), the contract will be enforceable, but the unlicensed person will be fined.

Effect of Illegality on Enforceability of Contract

The general rule is that illegal contracts are void - they cannot be enforced by either party. This is true whether or not there has been any performance under the contract. Neither party can sue to require performance. If performance has occurred, neither party can sue to recover payment.

Effect of Usurious Loans

The impact of a usurious loan varies from state to state. In many states, the lender will be allowed to collect the principal amount of the loan, plus a rate of interest up to the legal limit - in other words, the loan itself is not void, but the lender may not benefit from the illegal amount of interest charged.

note: material fact

The mistake must be one as to material fact, not as to market value or conditions.

Sunday Statutes

The most typical of these are state laws prohibiting the sale of alcohol on Sundays. A contract entered into for the sale of alcohol on a Sunday in the state of Massachusetts would therefore be void and unenforceable by either party.

(2) Communicated to an Identified Offeree

The offeree has to know of the offer.

Revocation

The offerors' act of withdrawing the offer. As long as the offer has not been communicated to the offeree or the offeree has not accepted the offer, the offeror may terminate/revoke the offer. The revocation must be communicated to the offeree before the offeree accepts. Revocation can be express ("I revoke my offer to sell you my minivan") or implied (I sell my minivan to someone else prior to acceptance by the offeree).

The exact day on which the disability of minority vanishes also varies.

The old common law rule put it on the day before the twenty-first birthday. Many states have changed this rule so that majority commences on the day of the eighteenth (or twenty-first) birthday.

Whether a valid enforceable contract has been formed depends in turn on whether:

The parties reached an agreement (offer and acceptance); Consideration was present (some "price was paid for what was received in return); The agreement was legal; The parties entered into the contract with capacity to make a contract; and The agreement is in the proper form (something in writing, if required).

3. Fraud, Duress, Undue Influence

The party subject to such unfair forces can sue to recover under the contract (or sue to enforce the contract).

The parties (offeror and offeree)

The subject matter or nature of the performance due The price The quantity of items sold The time for performance -if silent, we can assume reasonable time

2. Novation

The substitution, by agreement of the parties, of a new contract for an old contract in order to substitute a third party for one of the original parties to the contract.

Contracts that Cannot be Performed Within One Year

The test is whether the contract can possibly be performed (fully) within one year of its formation. A lifetime employment contract? Must be in writing - this can't be performed in one year. A contract to paint my house beginning January 1, 2002? Must be in writing - this can't be performed within one year of the contract's formation. A contract to build a deck at my house this summer - Does not have to be in writing - it can be performed in one year. The reason for the rule is that these contracts, because they can't be performed within one year, tend to give rise to disputes that occur long after the formation of the contract. In such a case, we need additional proof of the contract in writing because the passage of time will dull the memory of witnesses to the formation of the contract.

Sources of Contract Law

There are four basic sources of contract law: the Constitution, federal and state statutes, federal and state case law, and administrative law. For our purposes, the most important of these, and the ones that we will examine at some length, are case law and statutes.

How many types of contracts

There are two primary sources of contract law - the common law and the Uniform Commercial Code (UCC). The UCC governs contracts for the sale of goods and other contracts involving financial instruments such as letters of credit, checks and loans.

Contracts that Violate Public Policy

There are two types of business contracts which violate public policy - (1) contracts in restraint of trade and (2) contracts which contain unconscionable clause or terms

LEGALITY

There are two types of illegal contracts - (1) contracts that violate a statute and (2) contracts that violate public policy.

duty to speak.

There is an exception to the rule, however, where there is a duty to speak. A duty to speak may arise where the offeree accepts the benefits of the offer, knowing they were given/performed with an expectation of payment, and the offeree had an opportunity to reject the performance. Suppose a contractor arrives at my house and begins to paint the house. I say nothing. I know he has mistaken my house for my neighbor's house. Still, I say nothing. When he is finished, he comes to the door asking for payment. I say, "but I never accepted your offer!" No - the law says I had a duty to reject the offer in this case. My silence = acceptance of the offer.

Guaranties/Sureties

These are also called "promises to answer for the debt of another." The reason for this is that these contracts are particularly vulnerable to fraudulent claims.

There are several exceptions to this general rule.

They are (1) justifiable ignorance of the facts, (2) one of the parties is a member of a protected class, (3) withdrawal from the illegal agreement and (4) fraud, duress or undue influence.

Termination by the Parties

This can be done in one of three ways: revocation, rejection or counteroffer.

Promises in Consideration of Marriage

This includes promises to pay money to someone to induce them to marry, as well as prenuptial agreements. As a general rule, a prenuptial agreement should be supported by consideration. These contracts must be in writing to be enforceable.

4. Impossibility of Performance

This is a doctrine under which a party to a contract is relieved of his/her duty to perform when performance becomes objectively impossible or totally impracticable through no fault of either party

Discharge by Performance

This is the most typical method of obtaining discharge - the parties perform their duties under the contract. Tender of performance qualifies as performance as well. In other words, the party is ready, willing and able to perform under the contract (a seller delivering goods can demand payment).

Concurrent Conditions

This refers to mutually dependent conditions which must be performed at the same time. The best example is a buyer agreeing to buy goods if the seller delivers the goods. Neither party has an absolute duty to perform unless and until the other party satisfies the condition of the contract. Assuming, however, that all conditions to the contract have been performed, and each party has an absolute duty to perform under the contract, we must determine whether those duties have been discharged, or whether a breach has occurred.

Discharge by Agreement of the Parties

Three ways: rescission; novation; accord and satisfaction

Again, as may be evident from the title of the act and its language, the general purpose of the law is to provide evidence, in areas of some complexity and importance, that a contract was actually made.

To a lesser degree, the law serves to caution those about to enter a contract and "to create a climate in which parties often regard their agreements as tentative until there is a signed writing." (Restatement (Second) of Contracts Chapter 5, statutory note)

Rejection by the Offeree

Two things constitute a rejection - a refusal and a counter-offer.

Although agreements may take any form, including unspoken conduct between the parties

UCC Section 2-204(1)), they are usually structured in terms of an offer and an acceptance. Note, however, that not every agreement, in the broadest sense of the word, need consist of an offer and acceptance, and it is entirely possible, therefore, for two persons to reach agreement without forming a contract.

Contract Formation LEARNING OBJECTIVES

Understand the elements of common-law contracts: mutuality of agreement (offer and acceptance), consideration, legality, and capacity. Learn when a contract must be in writing—or evidenced by some writing—to be enforceable.

General Perspectives on Contracts

Understand the role of contract in society: it moves society from status to contract. Know the definition of a contract. Recognize the sources of contract law: the common law, the UCC, and the Convention on the International Sale of Goods—a treaty (the CISG). Understand some fundamental contract taxonomy and terminology.

Dispatched (Sent) to Offeror

Unlike a revocation or rejection, which is effective when received by the offeror, an acceptance is effective when dispatched (sent) to the offeror. This is known as the "Mailbox Rule."

1. Contracts in Restraint of Trade

We have a public policy in this country which favors free trade and free competition in the marketplace. Contracts which unreasonably restrain trade may violate this policy and therefore be unenforceable. An example would be a "covenant not to compete."

Objective Standard of Intent to Commit

We judge whether the offeror has made a promise/commitment by an objective standard - in other words "what would a reasonable person in the position of the offeree have assumed the offeror's words and actions meant"?

the first to be received

What if the offeree sends a rejection, followed by an acceptance? The law says the first to be received will be effective

Emancipated Minors

When a minor's parent/guardian relinquishes control over the minor, as is the case when the minor leaves home, the minor may be considered emancipated. In some state, the minor can petition the court to be treated like an adult. If the court grants such a request, the emancipated minor can enter into contracts like an adult, and will be held to his/her contractual commitments.

Termination of an Offer

When a valid offer is communicated to an offeree, the offeree then has the power to transform the offer into a binding commitment. This is called the power of acceptance. The power of acceptance does not last forever. It can be terminated by the parties or by operation of law.

Mutual Mistake

Where both parties to the contract are mistaken as to a material fact, the mistake may constitute a valid defense to the contract.

1. Justifiable Ignorance of the Facts

Where one party does not know the contract is illegal, he/she can recover any benefits conferred (payments made, goods tendered, etc...)

1. Material Alteration of the Contract

Where one party to a written contract materially alters the terms of the contract without the consent of the other party (changes a quantity term, e.g.), the non-altering party may treat the alteration as a discharge of his/her obligations under the contract.

Withdrawal from an Illegal Agreement

Where the illegal part of a contract has not yet been performed, either party can withdraw from the agreement and recover the performance (or its value). An example of this would be an illegal bet placed with a bookie. At any time prior to the payment on the bet, the bettor can demand his/her money back and cancel the wager.

3. Illusory Promises

Where the terms of the contract are so uncertain that the promisor has not in fact definitely promised to do anything, the promise is illusory, and unenforceable.

FORM

While most contracts do not have to be in a particular form (written or oral), some contracts are required by statute to be in writing. We call that statute the Statute of Frauds, and every state has its own version of the Statute of Frauds.

Read Hammer v. Sidway (1869)

William Story Sr. and his 15 yr. old nephew William Story II. Bill Sr. promised his nephew that if he stopped drinking alcohol, smoking tobacco and gambling until he reached the age of 21, he would pay him $5,000. Bill Jr. refrains for six years. In 1875, after his 21st birthday, Bill Jr. writes to Bill Sr. asking for his money. Uncle Bill wrote back, assuring his nephew he would be paid. Bill Jr. left well enough alone for the next twelve years. Uncle Bill dies in 1887. The executor of the uncle's estate, Mr. Sidway, refused to pay up. The nephew sued. Sidway argued to the court that the contract was invalid because there was insufficient consideration to support it. Sidway said the uncle received nothing (no benefit to the promisor), and the nephew suffered no detriment (since giving up his vices was actually good for him - a benefit to him). The lower court agreed. However, the New York Court of Appeals, in a very famous decision, agreed with Bill Jr. "The promisee used tobacco, occasionally drank liquor, and he had a legal right to do so.... It is sufficient that he restricted his lawful freedom of action ... upon the faith of his uncle's agreement." So giving up one's right to do something constitutes legal detriment such that the consideration element of a contract is satisfied.

written memorandum

With regard to the second question, the writing required by the Statute of Frauds is a written memorandum signed by the party to be charged (against whom enforcement is sought). So we need a writing, and it must be signed by the party against whom enforcement is sought (in other words, the person who is denying the contract). Will one piece of paper suffice? Yes. Invoice? Yes. Check? Yes. Sales slip? Yes. How about several documents combined? Yes, that is fine. Invoice and check? Fine. The writing need only contain the essential terms of the contract - price, quantity, subject matter, parties.

Three Basic Contract Types: Sources of Law

With this brief description of the UCC, it should now be clear that the primary sources of law for the three basic types of contracts are: Real estate: common law; Services: common law; Sale of goods: UCC (as interpreted by the courts).

Note: It does not matter if the minor lies

about his/her age when forming the contract - the subjective knowledge of the adult party to the contract is irrelevant - the minor is still free to disaffirm. Some states have done away with this rule by statute. Others allow recovery by the adult in a suit for fraud/misrepresentation.

Liquidated debt

amount is not in dispute (most bank loans

Unliquidated debt

amount owed is unclear.

Three types of incapacity impact

an individual's ability, or capacity, to enter a contract - (1) age (minority), (2) intoxication and (3) mental incompetence

A contract requires mutuality

an offer and an acceptance of the offer; it requires consideration—a "price" paid for what is obtained; it requires that the parties to the contract have legal capacity to know what they are doing; it requires legality.

A revocation

becomes effective upon receipt by the offeree. A letter revoking an offer which is mailed on April 1 but not received by the offeree until April 3 is effective April 3

A person who has not been so adjudged

but is nonetheless incompetent can enter into the contract, but the contract is voidable if he/she did not understand the nature of the act. The contract can be disaffirmed at the option of the incompetent person

The first statute of frauds was passed

by the British Parliament in 1677, and was designed to prevent fraudulent testimony of the existence of oral contracts

Contract is the mechanism

by which people in modern society make choices for themselves, as opposed to being born or placed into a status as is common in feudal societies. A contract is a legally enforceable promise. The law of contract is the common law (for contracts involving real estate and services), statutory law (the Uniform Commercial Code for contract involving the sale or leasing of goods), and treaty law (the Convention on the International Sale of Goods). Contracts may be described based on the degree of their explicitness, mutuality, enforceability, and degree of completion.

Fraud (a tort)

can be asserted by a party to a contract as a defense to the enforcement of the contract. The party asserting the defense can either disaffirm the contract or enforce the contract and collect damages resulting from the fraud.

The acceptance must be properly dispatched

correct address, proper postage. If not, it is not effective until received by the offeror.

The distinction between objective and subjective standards

crops up occasionally when one person claims he spoke in jest. The vice president of a manufacturer of punchboards, used in gambling, testified to the Washington State Game Commission that he would pay $100,000 to anyone who found a "crooked board." Barnes, a bartender, who had purchased two that were crooked some time before, brought one to the company office, and demanded payment. The company refused, claiming that the statement was made in jest (the audience before the commission had laughed when the offer was made). The court disagreed, holding that it was reasonable to interpret the pledge of $100,000 as a means of promoting punchboards:

This element of consideration

distinguishes contracts from gifts Note: Courts do not question the adequacy of consideration.

Certain contracts

governed by the statute of frauds—are required to be evidenced by some writing, signed by the party to be bound. The purpose here is to avoid the fraud that occurs when one person attempts to impose upon another a contract that did not really exist.

The question of what constitutes a binding contract

has been answered differently throughout history and in other cultures. For example, under Roman law, any contract that was reduced to writing was binding, whether or not there was consideration in our sense. Moreover, in later Roman times, certain promises of gifts were made binding, whether written or oral; these would not be binding in the United States. And in the Anglo-American tradition, the presence of a seal was once sufficient to make a contract binding without any other consideration. In most states, the seal is no longer a substitute for consideration, although in some states it creates a presumption of consideration. The Uniform Commercial Code has abolished the seal on contracts for the sale of goods.

When the minor becomes an adult, he has two choices

he may ratify the contract or disaffirm it. She may ratify explicitly; no further consideration is necessary. She may also do so by implication—for instance, by continuing to make payments or retaining goods for an unreasonable period of time. (In some states, a court may ratify the contract before the child becomes an adult. In California, for example, a state statute permits a movie producer to seek court approval of a contract with a child actor in order to prevent the child from disaffirming it upon reaching majority and suing for additional wages. As quid pro quo, the court can order the producer to pay a percentage of the wages into a trust fund that the child's parents or guardians cannot invade.) If the child has not disaffirmed the contract while still a minor, she may do so within a reasonable time after reaching majority.

Covenants not to compete are found

in employment contracts as well. In essence, an employee agrees that, for a specified period after his/her employment with the employer is terminated, the employee will not work for a competitor or start a competing business. Again, if the agreement is reasonable in scope and duration, it will be enforceable.

The Statute of Frauds has been enacted

in form similar to the seventeenth century act in most states. However, in the twentieth century Section 7 was been replaced by a section Uniform Commercial Code. The UCC requires contracts for the sale of goods for $500 or more and for the sale of securities to be in writing.

Contracts entered

into for the illegal purpose of gambling are void and unenforceable by either party to the contract. In other words, you can't sue your poker buddies for failing to make good on their bets.

In order to disaffirm a contract

involve the sale of property, the minor must return (make restitution of) any benefits of the contract. In most states, the minor is not liable for any wreckage to the property. With regard to services, there obviously is nothing to return.

Explicitness

is concerned with the degree to which the agreement is manifest to those not party to it.

Enforceability

is the degree to which a given contract is binding. Completion considers whether the contract is yet to be performed or the obligations have been fully discharged by one or both parties. We will examine each of these concepts in turn.

Mentally incompetent people

like minors and drunkards, are liable for the reasonable value of any necessaries they contracted for. Like drunkards, they must return the items contracted for. If the other party can prove that the incompetent person was lucid at the time the contract was entered into, the contract is not voidable.

[Sect. 4]

no action shall be brought whereby to charge any executor or administrator upon any special promise, to answer damages out of his own estate; (2) or whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person; (3) or to charge any person upon any agreement made upon consideration of marriage; (4) or upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them; (5) or upon any agreement that is not to be performed within the space of one year from the making thereof; (6) unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized.

A covenant

not to compete is often contained in the contract for the sale of a business. Let's say I run a successful dry-cleaning business. If I sell the business, the buyer may force me to agree not to open another dry-cleaning business around the corner. As long as that agreement is reasonable in scope and duration, the agreement will be enforced

If performance or tender

of performance has occurred and the other party refuses to satisfy his/her obligation to perform, that party has breached the contract.

Undue Influence

refers to someone entering into a contract because they have been influenced by someone with great power over them to do so. In other words, they do not have the requisite assent to the contract - no meeting of the minds has taken place.

Anticipatory repudiation

repudiation is treated as a material breach, relieving the non-breaching party of all obligations under the contract. The most common example of anticipatory repudiation occurs where there are market fluctuations which would make performance of a contract extremely unfavorable to one of the parties.

Mutuality

takes into account whether promises are exchanged by two parties or only one

Note: Upon reaching the age of majority (turning 18)

the minor may affirm (or ratify) his/her contractual obligation.

In most cases of disavowal

the only obligation is to return the goods (if he still has them) or repay the consideration (unless it has been dissipated). However, in two situations, a minor might incur greater liability: contracts for necessities and misrepresentation of age.

When one party so overpowers

the other such that the weaker party cannot be said to have entered into the contract of his/her own free will, the contract will lack mutual assent on the basis of undue influence.

The doctrine of promissory estoppel is invoked in the interests of justice when three conditions are met:

the promise is one that the promisor should reasonably expect to induce the promisee to take action or forbear from taking action of a definite and substantial character; (2) the action or forbearance is taken; and (3) injustice can be avoided only by enforcing the promise.

The first question,

therefore, is whether each of the parties actually incurred an obligation to perform. In most contracts, promises to perform are absolute - they are not conditioned upon anything. Sometimes, however, promises are conditioned upon the occurrence of some event

Acceptance takes effect,

thus completing formation of the contract, at the time the offeree sends or delivers the acceptance to the offeror. If the acceptance is made by mail, it is effective when the letter is dropped into the post box - not when received. This is true even if the letter is never received by the offeror.

The term "Discharge" signifies

to the termination of one's obligation under the contract - the point at which the parties no longer owe each other duties.

Mistake//There are two types of mistake

unilateral (made by one party) and bilateral (made by both parties).

[Sect. 17] ...no contract for the sale of any goods,

wares and merchandizes, for the price of ten pounds sterling or upwards, shall be allowed to be good, except the buyer shall accept part of the goods so sold, and actually receive the same, or give something in earnest to bind the bargain, or in part of payment, or that some note or memorandum in writing of the said bargain be made and signed by the parties to be charged by such contract, or their agents thereunto lawfully authorized.

Ratification occurs

when a minor acts in such a way as to give legal force to a contract hat formally was unenforceable. Ratification can be express or implied. Express is when the minor writes or state that he/she affirms the contract. Implied ratification occurs when the minor acts in a way that is inconsistent with disaffirmance. For example, if the minor retains possession of the item contracted for (a car, stereo, computer, etc...).

The general rule is that unilateral mistake

will not invalidate a contract. Bilateral mistake, on the other hand, is a valid defense to the enforcement of a contract.