Professional Documents
Culture Documents
Common law for all contracts except for sales and leases
- All contracts except when it has been modified or replaced by statutory law such as the UCC
or by administrative agency regulations
- Contracts relating to services, real estate, employment and insurance are generally
governed under common law
The Uniform Commercial Code for sales and leases of goods
3.) What is the difference between a “common law contract” and a U.C.C. contract?
4.) Know when the UCC rules apply to a contract as opposed to the common law rules.
Agreement
- Includes an offer from a party and an acceptance from another party
- One party must offer to enter into a legal agreement, and another party must accept the
terms of the offer
Consideration
- Bargained-for-exchange
- Any promises made by the parties to the contract must be supported by legally sufficient
and bargained-for consideration (something of value received or promised, such as money,
to convince a person to make a deal)
Capacity
- Contractual capacity
- Both parties entering into the contract must have the contractual capacity to do so. The law
must recognize them as possessing characteristics that qualify them as competent parties
Legality
- Purpose of contract must be legal at the time of execution
- The contracts purpose must be to achieve some goal that is legal and not against public
policy
6.) Know the different types of contract as set out in chapter 11.
Bilateral vs unilateral
- Bilateral contracts
A promise for a promise, offeree must only promise to perform
If the offeree can accept simply by promising to perform, the contract is bilateral
The contract comes into existence at the moments the promises are exchanged
- Unilateral contract
A promise for an act
If the offer is phrased so that the offeree can accept the offer only by completing
the contract performance, it is a unilateral contract
A unilateral contract is formed not when promises are exchanged but at the
moment when the contract is performed
Revocation of offer cannot be made once performance has started
Formal vs informal
- Formal contracts
Must be in writing to be enforceable
Require a special form or method of creation (formation) to be enforceable
- Informal contracts (simple contracts)
Include all other contracts
Contracts are usually based on their substance rather than their form
Express vs implied
- Express
Terms of the agreement are fully and explicitly stated in words, oral or written
- Implied
Conduct of the parties, rather than their words, creates and defines the terms of the
contract
Requirements:
The plaintiff furnished some service or property
The plaintiff expected to be paid for that service or property, and the
defendant knew or should have known that payment was expected
The defendant had a chance to reject the services or property but did not
An offer is a promise or commitment to do or refrain from doing some specified action in the
future
3 elements are necessary for an offer to be effective
- The offeror must have a serious intention to become bound by the offer
Serious intent is determined by what a reasonable in the offeree’s position would
conclude that the offeror’s words and actions meant
- The terms of the offer must be reasonably certain and definite, so that the parties and the
court can ascertain the terms of the contract
Contract must include the following terms, either expressed in the contract or being
reasonably inferred from it:
The identification of the parties
The identification of the object or subject matter of the contract (also the
quantity, when appropriate), including the work to be performed, with
specific identification of such items as goods, services and land
The consideration to be paid
The time of payment, delivery or performance
- The offer must be communicated to the offeree
Directly by the offeror or;
Use of agent
A voluntary act (words or conduct) by the offeree that shows assent (agreement) to the terms of
an offer
The acceptance must be unequivocal and must be communicated to the offeror
Types of acceptance
- Unequivocal acceptance
An acceptance cannot impose new conditions or change the forms of the original
offer
- Silence as acceptance
Generally, an offeree should not be legally obligated to affirmatively reject an offer
Exclusion to that
When an offeree takes the benefit of offered services even though he or she
had an opportunity to reject them and knew that they were offered with
the expectation of compensation
When the offeree has had prior dealing with the offeror
- Communication of acceptance
In a bilateral contract, communication is necessary because acceptance is in the
form of a promise for a promise
In a unilateral contract, acceptance is only accepted when an act is fully performed
- Mode and timeliness of acceptance
In bilateral contracts, acceptance is timely if made before the offer expires
Applies to the mailbox rule
10.) When and how can an offer be revoked? Can an offer be made irrevocable?
11.) What is the “mirror image rule”? How does it differ between common law contracts and U.C.C.
contracts? Note that Section 2-207 of the UCC significantly modifies the Mirror image rule. The UCC is
located in the appendix section of your textbook.
The mirror image rule requires that the terms of the acceptance exactly match those of the offer
- Any change in terms automatically terminates the offer and substitutes a counteroffer
Under the U.C.C., a contract is formed if the offeree’s response indicates a definite acceptance
of the offer, even if the acceptance includes terms additional to or different from those
contained in the offer.
- Whether the additional terms become part of the contract depends, in part, on whether the
parties are nonmerchants or merchants
If one or both parties is a nonmerchant, the contract is formed according to the
terms of the original offer and does not include any of the additional terms in the
acceptance
If both parties are merchants, the additional terms automatically become part of
the contract unless one of the following conditions arises:
The original offer expressly limited acceptance to its terms
The new or changed terms materially alter the contract
The offeror objects to the new or changed terms within a reasonable period
of time
12.) With respect to an offer what does: “serious intent” mean?
Serious intent is not determined by the subjective intentions, beliefs, and assumptions of the
offeror. Rather, it is determined by what a reasonable person in the offeree’s position would
conclude that the offeror’s words and actions meant. Offers made in obvious anger, jest, or
undue excitement do not meet the serious-and-objective-intent test because a reasonable
person would realize that a serious offer was not being made. Because these offers are not
effective, an offeree’s acceptance does not create an agreement.
Situations when intent may be lacking
- Expressions of opinion
An expression of opinion is not an offer. It does not indicate an intention to enter
into a binding agreement.
- Statements of future intent
A statement of an intention to do something in the future is not an offer.
- Preliminary negotiations
A request or invitation to negotiate is not an offer. It only expresses a willingness to
discuss the possibility of entering into a contract.
- Advertisements
Treated not as offers to contract but as invitations to negotiate
- Online auctions
Generally are treated as invitations to negotiate
- Live auctions
In a live auction, a seller “offers” goods for sale through an auctioneer, but this is
not an offer to form a contract. Rather, it is an invitation asking bidders to submit
offers
- Auctions with and without reserve
In an auction with reserve, the seller (through the auctioneer) may withdraw the
goods at any time before the auctioneer closes the sale by announcement or by the
fall of the hammer
In an auction without reserve, the goods cannot be withdrawn by the seller and
must be sold to the highest bidder
- Agreements to agree
In an auction without reserve, the goods cannot be withdrawn by the seller and
must be sold to the highest bidder
- Preliminary agreements
a preliminary agreement constitutes a binding contract if the parties have agreed on
all essential terms and no disputed issues remain to be resolved
13.) What is the “mailbox rule” and how does it work?
Acceptance takes effect, thus completing formation of the contract, at the time the offeree
sends or delivers the communication via the mode expressly or impliedly authorized by the
offeror
Under this rule, if the authorized mode of communication is the mail, then an acceptance
becomes valid when it is dispatched, not when it is received by the offeror
The mailbox rule does not apply to instantaneous forms of communication, such as when the
parties are dealing face to face, by telephone, by fax, and usually by e-mail.
the offeror usually can revoke the offer, as long as the revocation is communicated to the
offeree before the offeree accepts
- a revocation becomes effective when the offeree or the offeree’s agent actually receives it
- An offer made to the general public can be revoked in the same manner that the offer was
originally communicated
An option contract is created when an offeror promises to hold an offer open for a specified
period of time in return for a payment (consideration) given by the offeree
An option contract takes away the offeror’s power to revoke the offer for the period of time
specified in the option
In general, advertisements are treated not as offers to contract but as invitations to negotiate
- The buyer is the offeror and the organization is the offeree
On some occasions, courts have construed advertisements to be offers because the ads
contained definite terms that invited acceptance
17.) How do offers terminate?
18.) What happens if an offer is made and before the offer is accepted either the offeror or offeree dies
or the subject of the offer is destroyed?
Generally, only the person to whom the offer is made or that person’s agent can accept the
offer and create a binding contract
a promise to do what one already has a legal duty to do does not constitute legally sufficient
consideration
Exceptions to this rule
- Unforeseen difficulties
if, during performance of a contract, extraordinary difficulties arise that were totally
unforeseen at the time the contract was formed, a court may allow an exception to
the rule
- Rescission and new contract
Rescission is the unmaking of a contract so as to return the parties to the positions
they occupied before the contract was made
Sometimes, parties rescind a contract and make a new contract at the same time
Promises made in return for actions or events that have already taken place are unenforceable
- In short, you can bargain for something to take place now or in the future but not for
something that has already taken place
23.) Is the fairness of consideration ever an issue? Under what circumstances?
A court ordinarily does not look at the fairness or equity of a contract (or inquire into the
adequacy of consideration
- Persons are assumed to be reasonably intelligent, and the courts will not come to their aid
just because they have made an unwise or foolish bargain.
In certain circumstances, however, bargains are so oppressive that the courts relieve innocent
parties of part or all of their duties, such bargains are deemed unconscionable
- Procedural unconscionability
Procedural unconscionability often involves inconspicuous print, unintelligible
language (“legalese”), or the lack of an opportunity to read the contract or ask
questions about its meaning
This type of unconscionability typically arises when a party’s lack of
knowledge or understanding of the contract terms deprived him or her of
any meaningful choice
Procedural unconscionability can also occur when there is such disparity in
bargaining power between the two parties that the weaker party’s consent
is not voluntary.
- Substantive unconscionability
Substantive unconscionability occurs when contracts, or portions of contracts, are
oppressive or overly harsh
Courts generally focus on provisions that deprive one party of the benefits
of the agreement or leave that party without a remedy for nonperformance
by the other
Today, in almost all states, the age of majority (when a person is no longer a minor) for
contractual purposes is eighteen years
Minority status may also be terminated by a minor’s emancipation, which occurs when a child’s
parent or legal guardian relinquishes the legal right to exercise control over the child
- Normally, minors who leave home to support themselves are considered emancipated
25.) What is the power of disaffirmance? When can the minor exercise this power?
26.) If a minor contracts with an adult and the minor misrepresents his or her age, can the minor still
disaffirm?
Ordinarily, minors can disaffirm contracts even when they have misrepresented their age
- Nevertheless, a growing number of states have enacted laws to prohibit disaffirmance in
such situations
27.) If a minor contracts for a necessity, is the contract enforceable against the minor? Under what
circumstances?
A minor who enters into a contract for necessaries may disaffirm the contract but remains liable
for the reasonable value of the goods.
- Necessaries are basic needs, such as food, clothing, shelter, and medical services. What is a
necessary for one minor, however, may be a luxury for another
Contracts for necessaries are enforceable only to the level of value needed to maintain the
minor’s standard of living
28.) If you are a minor and don’t misrepresent your age and buy something that is not a necessity is your
contract enforceable against you or is it void or voidable?
Minors—or infants, as they are commonly referred to in legal terminology— usually are not
legally bound by contracts
If a court has not previously judged a person to be mentally incompetent but the person was
incompetent at the time the contract was formed, the contract may be voidable
- A contract is voidable if the person did not know he or she was entering into the contract or
lacked the mental capacity to comprehend its nature, purpose, and consequences
31.) If a person is adjudged incompetent and a guardian appointed to represent the person is the
contract void or voidable?
Only the guardian can enter into binding legal obligations on behalf of the mentally incompetent
person
- Any contract made by the mentally incompetent person is void—no contract exists
32.) If a person is incompetent but had never been adjudicated incompetent and a guardian has not
been appointed, what is the presumption concerning that persons competency? If they overcome that
presumption, is their contract void or voidable?
If a court has not previously judged a person to be mentally incompetent but the person was
incompetent at the time the contract was formed, the contract may be voidable.
- A contract is voidable if the person did not know he or she was entering into the contract or
lacked the mental capacity to comprehend its nature, purpose, and consequences. In such
situations, the contract is voidable
- The contract is only voidable at the option of the mentally incompetent person but not at
the option of the other party.
33.) What is an accord and satisfaction?
a debtor offers to pay, and a creditor accepts, a lesser amount than the creditor originally
claimed was owed
- The accord is the agreement.
- Satisfaction is the performance (usually payment) that takes place after the accord is
executed
A basic rule is that there can be no satisfaction unless there is first an accord
For accord and satisfaction to occur, the amount of the debt must be in dispute
34.) Is it is illegal to engage in a certain business or profession without a license? If a person were to
practice in an area that requires a valid license and does not have one, what are the consequences?
Whether a contract with an unlicensed person is legal and enforceable depends on the purpose
of the licensing statute
- If the statute’s purpose is to protect the public from unauthorized practitioners (such as
unlicensed attorneys and electricians, for instance), then a contract involving an unlicensed
practitioner is generally illegal and unenforceable
- If the statute’s purpose is to protect the public from unauthorized practitioners (such as
unlicensed attorneys and electricians, for instance), then a contract involving an unlicensed
practitioner is generally illegal and unenforceable
35.) What is a ‘covenant not to compete’ and under what circumstances are they enforceable?
An agreement for a seller of a store to not open up a new store just like his old one nearby and
for an employee who leaves his job, not to work for their competitor for an x amount of time
Enforceable?
- Covenant not to Compete in Employment is enforceable as long as time and geographic
terms are reasonable
36.) What do the following terms mean? a. unconscionable contract b. adhesion contract c. usurious
contract d. exculpatory clause in a contract
Unconscionable contract
- Bargains are so oppressive that the courts relieve innocent parties of part or all of their
duties
- A contract can be unconscionable on either procedural or substantive grounds
Procedural unconscionability often involves inconspicuous print, unintelligible
language (“legalese”), or the lack of an opportunity to read the contract or ask
questions about its meaning.
Substantive unconscionability occurs when contracts, or portions of contracts, are
oppressive or overly harsh
Adhesion contract
- a contract written exclusively by one party and presented to the other on a take-it-or-leave-
it basis
- In other words, the party to whom the contract is presented (usually a buyer or borrower)
has no opportunity to negotiate its terms. Not all adhesion contracts are unconscionable,
only those that unreasonably favor the drafter.
Usurious contract
- Almost every state has a statute that sets the maximum rate of interest that can be charged
for different types of transactions, including ordinary loans
Although usurious contracts are illegal, most states simply limit the interest that the
lender may collect on the contract to the lawful maximum interest rate in that state.
Exculpatory contract
- Release a party from liability in the event of monetary or physical injury – no matter who is
at fault
Enforceable when they are not against public policy, are not ambiguous, and do not
shield parties from intentional conduct.