Business Law Contracts

Contracts: A contract is an agreement between parties to perform some act (or refrain from performing some
act), the enforcement of which will be given the backing of legal authority.

A contract is a promise that the law will enforce.

Elements of a contract (have to have all three to be a contract)

1. Offer
2. Acceptance
3. Consideration (Bargain for exchange)

Several Kinds of Contracts

1. Express Contract
a. Can be either oral or written, generally
b. May be bilateral (two parties promise each other. Buying a candy bar, he gives me candy bar and I give
him money) or unilateral (I will pay the first person to paint my house 500.00. Invites performance. )
2. Quasi Contract (Quasi means, “not really”, not actually contract.)
a. Based on the theory of unjust enrichment. (even if there are no contract, if they other person benefited
from your behavior, than you should get paid. For example: I finished painting your house, but you
didn’t pay me that 500.00 because you said it was a joke…well, you still have to pay me.)
b. Used only when there was no valid contract, but equity demands that the situation be treated as if there
were
3. Implied in fact Contract
a. Formal elements of contract not present, but actions of the parties indicate an intent to contract.
i. Even if there was no offer, ppl that behave in a manner that it was contract. If you went into an
accountant and ask for advice, there is no contract. But the next day you go to the secretary and
and give her files to give to the accountant. So basically you just decided to pay the accountant

Offers

“An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in
understanding that his or her assent to that bargain is invited and will conclude it.”

Elements of offer

1. Manifestation of present contractual intent.

2. Certainty and definiteness of terms.
3. Communication to the offeree.

Note: Intent to make an offer to required, but the test for whether or not such intent existed is to look to objective
manifestations of such intent.

Example: Coat 50 % off. This is just a fact. The first person in the door will get a coat for 5 dollars. This is an offer. (pepsi
case, points and harrier jet, and case base on if this was an offer? A reasonable person would know that it was a joke).
The plaintiff lost the case.
CONTINUED LECTURE… (September 16, 2010, Thursday)

One of the things he likes to talk about… What you are going to find…. Is the law isn’t often what we’re told there is.
Mostly, it’s totally interpretive.

If it’s offer to a reasonable person, then it’s an offer. You can’t just follow the letter of the law and just be ok. Is a
reasonable person going to believe that there was an offer and acceptance?

Alright… I’ll buy your car. It doesn’t have a price. Usually you always have to price element in order for it to be an offer.

Offeror (person making an offer)…. Offers can be revoked. Before you have a chance to accept, the offeror can say
nvm.

Revocation

1. Except in the case of an option contract (see below), the offeror has the power to revoke her offer so long as
acceptance has not yet been made.
2. Revocation should be clear and unambiguous and must be communicated in a reasonable manner to the
offeree(s)
3. Option Contract: a contract that, by the terms of its offer, is held open for acceptance for a specified period of
time (or a reasonable period of time, if the offer failed to specify.) (example: sales to the offer of a home. So you
make an offer on a house for 500,000. But a person wants to buy it for 400,000 and says you have a 10 day
period, you have a 10 day period to make a decision [even if you reject the offer already]). Note: A reasonable
time for an offer, if not stated an amount of day for the offer, it’s usually a 30 day period for a decision.)

Generally speaking, to revoke the advertisement you made, it’s reasonable to send out another advertisement revoking
the first offer.

ACCEPTANCE

Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or
required by the offer. (Ex: I have this package and I want you to carry it across the bridge and I’ll pay you 50.00. And you
get 2/3 way across and I decided that I don’t need you to carry it again and told you to come back. Well, you still have to
pay me. Once performance has begun replication is impossible.)

Unless the means of acceptance is specifically set forth in the offer, the offeree may accept the offer by either words or
by performance reasonable in the circumstances.

(note: click-wrap acceptance is legally binding, unless found to be unconscionable).

[Side note: Contract of adhesion (where you don’t give someone a choice to even accept or not accept)
Unconscionability?]

Others way in which offers can fail…

REJECTION

If the offeree rejects the offer, the offer is terminated (at least as to that offeree) unless the offer, by its nature, could
only be accepted by performance anyway.
LAPSE

(reasonable time period. If I make an offer and you never get back to me, the offer will expire). Acceptance must be
made either within a reaonbale time or within the timeframe provided by the offer itself, otherwise, no K (or contract) is
formed.

DEATH OR INCAPACTITY

Generally speaking, if the offeror dies before the acceptance is made, the offer is evaporate, vice versa.

If either party to a potential contract either lacks the proper capacity (age, mental health, etc.) to contract, or dies prior
to the contract being properly formed, then no K.

Counteroffers (another mean where offer fails)

I’ll buy your car for 1,000. Well, I’ll sell it for 2,000.

Counteroffers eradicates offer. Erase them from legal memory.

Counteroffers made in response to an offer act as rejections of the original offer and as NEW OFFERS, to be accepted or
not by the new offeree (the original offeror)

(This is an artifact of the original, and now archaic, common law “mirror image” rule)

Another way to fail a contract…

The Mailbox Rule

If I send you an offer by letter, I will buy your car for 1,000. That doesn’t exist yet until you receive it (until you open it
and look at it). So now, you get that letter and look at it. You write to me a letter back rejecting the offer. The minute
you drop it in the mail box, it has legal effect. Well, what if, you mail it to me in the mail and I won’t get it to days later….
The next day you decided to want the offer. You decided to call him up and say you want the offer. And then I get the
letter… well, the REJECTION STILL occurs. Once you drop it in the mail, it doesn’t matter!

***Acceptances are effective when posted.

***Revocations are effective when received.

First Example:

1. On Sunday: A makes an offer to sell her car to B

2. Monday: A changes her mind and mails a revocation of Sunday’s offer to B
3. Tuesday: B mails a letter to A, accepting Sunday’s offer
4. Wednesday: B receives A’s revocation letter (mailed on Monday)

Contract? This is a contract. A has to sell a car to B.

E-mail does not fall into this Mailbox rule. Receive does not mean you read it, it means you received.
Second Example:

1. Sunday: A makes an offer to sell her car to B

2. Monday: B mails A rejection of Sunday’s offer (rejection in mail does not arrive next day)
3. Tuesday: B Changes her mind and emails A an acceptance of Sunday’s offer

Contract? This is a contract. Emails are instantaneous.

Third Example:

1. Sunday: A offers to sell her car to B

2. Monday: B mails a letter to A, accepting Sunday’s offer
3. Tuesday: B’s acceptance letter has not yet arrives at A’s house. B speaks to A on the telephone and rejects
Sunday’s offer.
4. Wednesday: B’s acceptance letter (mailed Monday) arrives at A’s house. A drops the car off at B’s house and
wants her money.

You are communicating when you are dropping something in the mail.

This is a contract because B mailed a letter to A, accepting Sunday’s offer and when dropping the mail, it doesn’t matter,
you are accepting the offer.

CONSIDERATION

1. Bargained for Exchange

2. Generally, the law takes no interest in the objective value of what is bargained for; a “mere peppercorn” can
suffice (so long as the consideration was not intended to be insignificant on purpose, like selling your car for
$1.00)
3. The parties must do something they otherwise would not have to do or refrain from doing something it is their
legal right to do.

Lets say your grandfather sits you down at thanksgiving and say “ I don’t like the way you’re living”. For you to quit
drinking, smoking, partying, I will pay off your student loans. And then you do so… and then you get through college and
then you tell your grandfather to pay off your student loan. And then he said no, he said that so you can change yourself
for the better. Is this a consideration? Yeah because he made the offer and I performed. Although I benefited from this,
it was a different kind of benefitted.

It’s not just doing something, it can be not doing something. Giving up the right to do something is consider
consideration.

Well, what if instead of giving up drinking, smoking, and partying, but like marijuana and drugs instead, would this be
consideration?

CONSIDERATION PROBLEMS

1. The Illusory Promise: looks like a contract, but doesn’t have the ingredients to make a contract. “I promise to
buy as many widgets as I want from you” – the buyer has not legally obligated herself to buy any number of
widgets and, thus, has given nothing up. (you can’t agree to agree. They fail because there is no consideration).
2. Pre-existing Duty: it is not consideration to promise to do a thing one is obligated to do, nor to promise to
refrain from doing something one is not privileged to do. (not consideration: give me 30.00 or else I’m going to
punch you in the face.)
 3. Unjust Enrichment and Promissory Estoppel (“Stop” or to hault): If a contract would fail for lack of
consideration, but one party has been materially, detrimentally hurt by a reasonable reliance on the promise of
the other party such that equity demands. (stopping because of a promise. )
a. A clear and definite promise
b. That was relied upon by the promisee
c. Which reliance was justified (and foreseeable)
d. And to fail to enforce the promise would lead to an unjust result.
i. I.E.: Let say you have problems paying for school. And you’re talking to his friend about it. And
his friend says to him: that’s terrible, sign up for those classes, buy the textbook, and his friend
will pay for him. And then you go buy the textbook and your friend decided to change his mind.
Is this a contract? Well, it’s clear and definite, but there’s no consideration for his friend. This
could be an offer as a gift and a gift is not a consideration (this could be an argument for his
friend). Well, this is also unjustified because he relied on the promise. Was this justified? Well, if
my friend never paid his bill then he’s not reliable so this could not be justified, but in this case,
he is reliable so this is justified.

ii. Although there’s no consideration, Unjust Enrichment and Promissory Estoppel (“Stop” or to
hault) This makes it enforceable at court.

Example: You have hired a taxi driver to drive you to Vegas and he want 1,000. You said OK and will pay him when we
get to Vegas. Well, you get to Cedar City, the taxi driver tells you that you have to pay him $500 more if you want to go
to Vegas. You get to Vegas. How much do you pay him? $1000. This is because the driver isn’t going beyond what he
has to do (like drive to California after that). This is illusory promise.

Consideration problems II

1. Contractual modifications require new consideration.

2. Past consideration is no consideration at all. (gave an example about giving about taking care of someone and
that someone is a famous NBA star now. And when you ask to get something back out of it, this is past
consideration.)
3. Gifts are not consideration.

Consideration Continued….

Strange wrinkles in contract law

Common Issues in Contract

1. Ambiguity as to terms (not clear. Generally, courts will look to the following, in order)

Example (for a.): You sell widgets. Second person decides to buy 500 widget (for $1 a piece). And your
employment cash out the check to begin shipping immediately. Well, what kind of widgets did I buy? What is
done if we don’t know what to believe to? Failure to totally be specific in a terms, doesn’t violate it. It is still a
contract. So you can say

a. Course of dealings between the parties

b. Standards within the industry or economic community
i. In the industry that in, you usually get blue widgets
 c. Parol Evidence (to aid in interpretation of existing terms or to add a missing term). Argue and sufficiently
prove that there is ambiguity. Parol evidence would be this: lets say I come and buy a car from him. He
says that the car is new and your getting a sweetheart deal on this car. And you go home and look at the
car contract, it says that it is sold “as is”…. ? Evidence of draft, evidence of notes, hard evidence to get.
Lets say the price term is missing. You don’t have a contract.
2. The Battle of the Forms
a. UCC 2-207 (the law wants deals to happens)
b. A situation that arises when two ‘merchants’ are contracting
c. A ‘merchant’ in this sense of the word has the meaning of any person or entity that deals in the goods
and services to be contracted for on a regular basis.

You and I are merchants. You sell widget and I sell machines to make the widgets. I send you a contract for you
to sign it. But you don’t sign it. Instead, you have your lawyers and make a new contract and send you a new
contract to sign with my signature on it. Is this a contract? No, not a consideration failure, but an acceptance
failure. I have sign the bottom, but she changed the contract and I haven’t agreed to that.

We do have a contract, the only thing is what are the term of the contract. If two regular person dealing with
this, it is not the case. It has to be two merchant being involved.

a. Attorney’s fee (look for that).

3. The battle of the form (example)

a. Merchangt A and Merchant B are negotiating the purchase and sale of 1000 widgets
b. Merchant A sends a contract to Merchant B for signature.
c. Merchant B adds or alters provisions of that contract and returns it to Merchant A.
d. Is there a Contract?
e. Yes
f. But what are the terms of this contract?
g. They are whatever terms both versions have in common, plus whatever terms are new UNLESS
h. Those new provisions MATERIALLY alter the contract or are EXPRESSLY objected to within a reasonable
time.
i. Missing terms are filled in by the court.
j. “Material Terms are those affecting Price, Payment, Quality, Quantity
i. Delivery, or Liability /Dispute Settlement.
1. Express acceptance provision. (Write in the contract, clauses in contract that prevent
people to change it).
2. What if the contract is between a merchant and a non-merchant?
a. An artist want to buy widget and I’m working on an art project. I send a form of
how many widgets I want and when. Well, you change the contract and sent it
back to me.
3. Then the differing or additional terms will be regarded simply as proposals to be
separately accepted or rejected.
4. Note: a contract will still exist as to any terms that are not disputed or different!
4. The Statute of Frauds

Certain Contracts MUST be in a signed writing to be enforceable:

 a. The sale of property interests in land (or leases to be longer than one year)
b. Contracts not to be fully performed within one year (note: if it is POSSIBLE for it to be completed, even if
only by Herculean effort, then the S.O.F does not apply.) Example: (15.3 from the book). [example: pg
318. Damien promise to pay 300.00 to Gary for the rest of his life. Damien quits paying after 9 months.
Contract was not in writing. A lifetime, waiting for him to dies. Is a lifetime possible to be completed in a
year? NO. If the contract for something is longer than a year than it needs to be in writing. ]
c. The sale of goods for more than $500
d. (note: exceptions are made for contracts that have been partly or wholly performed.)
e. Promises to pay the deb of another (say my brother contracts with you to pay you 500.00 to for your
notes for this class. You talk to me about my brother and says that your brother seems like a dead beat…
and I say I will pay you. So you give him the notes, and he doesn’t pay you and you come to me to ask
for money. And I don’t pay you. You so me, you will lose…. Because IT HAS TO BE IN WRITING)
5. Tortious of interference with contract (with business relation)
a. The existence of a valid contract (or business relationship)
b. Knowledge of that contract (or business relationship) by the tortfeasor (the defendant)
c. Intentional efforts on the part of the tortfeasor to induce one of the parties to the K to breach. (make
them want your widget instead buy saying “oh the other person’s widget sucks, buy my widget. Mine
are cheaper and better).
d. Breach
e. Harm to the other, non-breaching party.
6. Anticipatory Breach

A tells B that she will not be able to perform under the contract they have together, though, to this point in time, she
has fully performed. (monthly sending widget and can’t do it anymore, but you paid already for those widget).

This is an anticipatory breach and, if A’s communication that she will not be able to perform was unequivocal ad it would
be reasonable to do so, B may treat A’s communication as an immediate breach if she so wishes. ( one person talk to the
other, that is a Breach)

Excuses for Nonperformance

1. Unilateral Mistake
a. E.g., One party to a contract makes a grave error in the calculation of the purchase price.
b. If that error either was recognized as such or should have been recognized by a reasonable person in
the industry, then this can be grounds upon which to either negate the contract or substitute a new,
corrective, price term.
c. Note: this is not the same as a “business error,” which variety of mistake does NOT excuse
performance.

Example: I sell a car on ksl and wanted to sell it for 12.000. but made a mistake and wrong 1200 instead. This is a
unilateral mistake .

If I’m selling the most expensive comic in the world 500…. But really it’s worth 5,000. Then that’s your mistake. It’s your
fault for being dumb. Example: if I meant to sell it at 5,000, but wrote it at 500… this is a unilateral mistake and I have to
prove that (tell judge that you have other people that can testify for you because you tried to sell it to them for 5,000 ).
WILL BE ON EXAM.

Mechanical error (honest error) instead of philosophical one (business or stupid error). Know distinction.
 2. Mutual Mistake
a. If both parties to a contract have made a material mistake about the same fact.
b. E.g., the two sailings of the Peerless. Two people make a contract. A person wants the boat owner to
ship something to the port of hong kong. The boat owner says yes. But, both parties did not realized
this. There were TWO ships that were name the Peerless… this is both at fault (mutual mistake).
Example about the golden idle.
3. Illegality
a. A contract to perform an illegal activity is no contract at all and, thus, is unenforceable, excusing
performance.

Excuses for None performance

4. Frustration of the Purpose

a. E.G., Krell, I will like to rent a room from you and get a window where I can watch the parade below.
That will be 100.00 for the room. On the day, it rains and the parade is cancel. Krell wants his money
back from the hotel. This is Frustration of the purpose. Known to the party why he wanted the
room. The manager knows that it was for the parade and only for the Krell, so Krell gets his money
back.)
5. Impracticability
a. Some intervening event has occurred, the nonoccurrence of which was a basic assumption of the
contract
b. The occurrence has rendered performance for one party extremely difficult and/or expensive
c. That difficulty is beyond that which was anticipated by the parties.
i. So you hire someone to wash your car. You move… so it’s impractical for that person to
fulfill the duty of the contract of washing my car.
ii. I’m a contractor to build a home for you. I get on the land and it was a boggy and on a
marsh. (“The land was not represented to me from what it was presented to me. “) So this is
impractical.
6. Impossibility
a. If performance of the contract is ACTUALLY, PHYSICALLY IMPOSSIBLE, the performance is excused.
b. Note: not merely expensive or unexpectedly difficult. Courts take this literally: if there is any
possible way, with all the money in the world, to perform, then this doctrine will not apply.
i. Example: if law says it’s illegal, then you can’t do it. Or I was suppose to paint your house
and your house is swept away by a hurricane, so I can’t paint your house anymore
(impossible).

Excuses For Nonperformance

7. Unclean Hands
a. If the plaintiff has acted in bad faith, equity might prevent their recovery for nonperformance of a
contract
i. Imagine that I hire you to reshingle my roof. And in the middle of the night and I remove all
the shingles. I can’t sue you for that because I’m the bad person and doing it on purpose.
8. Laches
a. If the plaintiff has sat on their rights for an unreasonable amount of time, equity may not award
damages for nonperformance.
i. Like I was suppose to paint your house two years ago and you want to sue me right now.
Not going to happen, Laches. (knew or should have known)
 ii. Example of squatters building a cabin on your property. You should’ve known about it. If the
person’s been there for like 10 years, then it is there land. (what if there is a fence build on
firefighter property public property)
9. Fraud/Misrespresentation
a. If the plaintiff engaged in fraud or misrepresentation, equity may not award damages…
10. Unconscionability
a. If the terms of the contract were unfair to one party to such a degree that it shocks the conscience
of the court, then nonperformance may be excused.
i. Someone offer her a loan of 60,000. This person charge her 20% interest for month!!!!
Outrageous! Beyond the pale!
(Usury: loaning money at predatory rate)

Remedies for breach of contract:

1. Damages (Benefit of The Bargain; expectation damages. You painted my house and I didn’t pay you. The money
you should pay me and the profit that you could’ve made.The benefitted you could’ve gotten. Money that I
spent, and earn had I performed)
2. Damages (Reliances; we’re going to put the non breaching party in the position the party was in before the
contract. Put you back to the way you were back to the way you were before the contract. Spend money I have
paid for the paint).
3. Damages (Punitive; Where bad faith or unclean hands came into the equation. If someone has been fraudulent
punishing the bad actor. )
4. Damages (Liquidated; contract itself spells out what the damage will be. Like payment fee on contract)
5. Damages (Nominal; judge don’t like the case they had to hear. Like really stupid, it’s a damage that we just have
to award someone as a winner.)
6. Restitution (like reliance damages, remedies of equity can be anything (not money), we contracted that you
were going to buy my car for 1,000, I gave you my car, and you never gave the money to me. Restitution is when
you ask for the car, you want the car back. You should always ask for everything in court!
a. Maltese Falcon? Exam? What? Usually he puts on exam.
7. Specific Performance (I want you do to what you contracted to do. I don’t want the money back, I want you to
do what you said you would do in the contract)
8. Legal Fees and Costs
9. Rescission
10. Reformation (I would like you to change the term of this contract to reflect what it should’ve been, falls in line
with what my expectation was).

(Consideration: Money and promise (the delivering of cheeseburgers perhaps. The promise is the consideration)

Kitt and Knights case. Knight paid Kitt lifetime of cheeseburger. Kitt breach this by stop paying.