Contract Law – Course Outline
CONTRACT FORMATION
OVERVIEW
I. Legal Issues and Business Policy
A. Introduction
1. Sources of Contract Law
a) common law
(1) common law of contracts evolves on a case-by-case basis (augmented by doctrine of stare decisis where judges generally consider themselves bound by prior decisions)
b) statutory law
(1) courts have borrowed principles form the UCC, which incorporates a lot of common law but has modified some principles of traditional contract law creating different rules for the sale of goods
(a) Article 2: governs sale of goods
(b) Article 2A: concerns certain leases
(c) Article 9: deals with assignment of contract rights
2. Purposes of Contract Law
a) Consent Theory: contract law should be designed to impose responsibility on those who make promises à intent to be bound
b) Will Theory: courts should vindicate the intentions of promisors and promisees who willing exercise the “freedom of contract” à individual liberty and autonomy
c) Promise Theory: contract law is necessary to uphold moral values, by recognizing the sanctity of a promise; promisors should be held to commitment à morality; ethics
d) Reliance Theory: contract law should be designed to protect promisees and their reasonable expectations à fairness to promise
e) Utilitarian Economic Theory: principles of contract law should be designed to maximize the potential gains from transactions by facilitating the process of voluntary trade à free market
f) Critical Legal Studies Theory: private law, including contract law, should be deconstructed and then reconstructed to serve altruistic, societal interests in the pursuit of social justice rather than the venal interest of individuals à power and coercion
B. Public Policy and Enforcing Promises
1. Law does not create a contract where the parties intended none. Nor does the law consider every exchange of promises binding.
2. Promissory estoppel: implies a contract in law where none exists in fact
a) a promise expected or reasonably expected to induce definite action by the promisee that does induce action is binding if injustice can be avoided only be enforcing the promise
C. Consensual Transactions and the Market
1. Contracting parties make their own contracts, agree upon their own exchanges and fix their own values
2. Cannot have a contract if the actions to be performed in the contract are against public policy or against the law.
D. Autonomy and Its Limits
1. For an offer to be exploitive, it must serve to create or take advantage of some recognized psychological vulnerability, which, in turn, disturbs the offeree’s ability to reason effectively
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ELEMENTS OF A CONTRACT
Contractual Intent
Offer
Acceptance
Consideration
Certain Terms
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CLASSES OF CONTRACTS
Express: mutual assent manifested in words of agreement; oral or written
Implied in Fact: not explicitly written or stated; determine by deduction from known facts
Implied in Law: court fictionally implies a promise to pay for benefits or services to
avoid inequities and unjust enrichment (quasi contract)
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TRADITIONAL CONTRACT FORMATION
II. Offers of Contract Terms
A. Contractual Intent, Assent and the Objective Theory of Contracts
1. before courts will enforce agreements or provide remedies for the breach of agreements, they must be satisfied that the parties intended to be bound by the agreement’s terms
a) mutual assent to the bargain frequently called “meeting of the minds”
2. whether an offer has been made is a significant prerequisite for the formation of an express contract
a) existence of an offer largely depends upon the intentions of the offeror
b) offeror has the power to set forth the substantive terms of the bargain as well as the procedural terms by which the offeree may accept the offer
3. Unilateral contract: formed when an offeror makes a promise which the offeree accepts by actual performance of the act required under the terms of the offer
a) only one party makes a promise
4. Bilateral contract: formed when the offeror offers a promise in exchange for the offeree’s return promise instead of an actual act by the offere
fer is clear, definite, and leaves nothing open for negotiation, it constitutes an offer. Acceptance will complete the contract.
6. Generally, it is considered unreasonable for a person to believe that advertisements and solicitations are offers that bind the advertiser. Otherwise the advertiser could be bound by and excessive number of contracts requiring delivery of goods far in excess of amounts available
C. Duration of the Offer
1. Lapse by Express Terms
a) As master of the offer, the offeror may expressly limit the duration of the offer by requiring that any acceptance occur before a certain date and time
b) An offeree cannot accept, either by words or actions, a contract that has lapsed.
2. Lapse After Reasonable Time
a) If the offeror does not specify the direction of the offer, the offer expires after a REASONABLE time, which depends on the circumstances of the case as analyzed by the objective theory of contracts
3. Revocation of Offer
a) The offeror retains the power to terminate the offer by revoking it – the offeror may exercise this power of revocation UNLESS it is prevented by:
(1) option in fact
(2) option at law
(3) firm offer subject to UCC or other statutory restriction
b) To revoke, the offeror must explicitly or implicitly express the intent to revoke before the offeree accepts
c) When two parties meet, one to accept and one to revoke, whoever speaks first wins
d) In order to revoke an offer made through mass media or other form of public notice, the offeror must publish a revocation in a manner equal to that given the offer
e) Ordinarily, an offer is revocable at any time prior to acceptance. However, once the contract is complete, it is not subject to further modification by either party without consent of the other
