Contracts Burton Fall 2016
What is a Contract?
Definition: Oral/Written agreement, with an exchange, between two or more persons, containing at least one promise, that is enforceable with a prescribed remedy.
Important attribute: voluntary consensual relationship
It is enough that the words and conduct of a party, evaluated on an objective standard, would lead the other party reasonably to understand that agreement was reached.
Types of Contracts
Unilateral- One party makes a promise; other party performs something but does not promise it (e.g. reward for lost dog/contest). Offeree’s promise to perform is insufficient to constitute acceptance; the offeree must perform the act to accept the offer.
Offers revocable before ANY performance is rendered
Part Performance- Creates a contract with a condition of full performance. Known as an option contract
Bilateral- An exchange of promises by parties (I promise to sell my car if you promise to buy my car). There can also be bilateral contract by implication given the circumstances of transaction, conventions of marketplace, or policy of the law. The exchange of promises is enough to render them both enforceable.
Fulfillment of terms sufficient (Davis v. Jacoby)
When the terms are ambiguous or in doubt, the courts lean towards a bilateral contract.
Mutual Assent- Offer and Acceptance
Mutual Assent- Agreement on terms (§2-3)(201)
Objective- Outward manifestation/behaviors of agreement. The standard, unless unreasonable meaning attached to words (Lucy v. Zehmer)
Reasonable meaning depends on ambiguity of terms
Subjective- Mind’s manifestation/terms of agreement (§§20, 201)
If both agree on same term, that term (§201)
If one party knew or should know the other’s meaning, the other’s meaning (§201)
Offer- Commitment to entering a bargain to justify another to assent, thus concluding the offer/bargain. (only an offer if the person to whom it is communicated could reasonably interpret it as an offer)
Advertisements- generally an invitation to make an offer, not an ACTUAL offer (Mesaros v. US) UNLESS ad clearly specifies who may accept and how acceptance is to be made, and leaves nothing further for negotiation.
Methods of interpreting: language, circumstances (e.g. formal/informal), customs
Definite and Certain Terms- Must be capable of being enforced. (common law- all essential terms must be covered: subject matter, price, and quantity—UCC is different, more liberal, they fill in gaps when contract is silent on terms other than quantity and subject matter).
Identification of Offeree- individually or by class
Definiteness of Subject Matter
Requirements for Specific Contracts
Real estate- land and price
Goods (UCC)- quantity term required
Employment- length and nature of work
Missing Terms- Open terms do not prevent contracts if i) intent to form exists, and, ii) a reasonable basis for remedy exists. Terms can be supplied (UCC 2-204, 2-305)
Price- Does not always fail
UCC 2-305 (1) presumes a reasonable price if:
Price left to be agreed but isn’t
Price to be fixed by external/third party/market factors
UCC 2-305 (3) requires good faith in pricing
Vague Terms- If included, unenforceable. If essential terms are so uncertain that there is no basis for deciding whether the agreement has been kept or broken, there is no contract. (Academy Chicago Publishers)
Part performance- solves vagueness IF the terms are clarified by the performance
Acceptance- solves vagueness if clarified
Contract itself- clarifies the offer
Later agreed upon terms- if they’re material terms, then too uncertain and cannot be remedied by a court (except price).
Communication required (offeree must know of offer, else,
option, which doesn’t terminate b/c consideration was paid to keep offer open during the option period.
If Illegal or if offer involves subject matter that was destroyed.
UCC firm offer rule- Under the UCC, an offer to buy or sell goods is irrevocable if:
The offeror is a merchant
There are assurances that the offer is to remain open; and
The assurance is contained in an authenticated writing (signature, initials, or other inscription) from offeror.
No consideration by offeree is needed to keep offer open under UCC firm offer rule (2-205)
Time period: if time period during which option is to be held open is not stated, a reasonable term is implied. However, it cannot exceed 90 days even if stated or implied unless the offeree gives consideration to validate it beyond 90 days.
Unilateral Contracts – an offeree can only accept an offer of which he is aware. If he doesn’t become aware of the offer until after performance, his actions do not constitute acceptance.
Completion of Performance (beginning performance alone is NOT acceptance, must be completed) (see above for options and beginning performance)
When Notice Required- generally, must notify in reasonable time after completion of performance. No notice needed if:
Offeror waives the need for notice, OR
Performance would normally be noticed by offeror in reasonable time
Article 2, Notice (UCC 2-206(2))- If an offeree begins performance without notice to offeror, the contract is void due to a lapsed offer.