a. LEGAL MEANING OF “CONTRACT”: a contract may be defined as an exchange relationship created by oral or written agreement between two or more persons, containing at least on promise, and recognized in law as enforceable.
i. Essential Elements:
1. An oral or written agreement between two or more persons: a contract is created only because the parties, acting with free will and intent to be bound, reach an agreement on the essential terms of their relationship.
a. The law does not require that the parties reach true agreement in a subjective sense- it is enough that the words and conduct of a party evaluated on an objective standard would lead the other party to reasonably understand that an agreement was reached.
b. Volition means that a party cannot be improperly coerced or tricked into making a contract and the law has principles and standards to distinguish when pressure to make a contract is no longer acceptable and has undermined the other party’s will.
c. A contract does not have to be in writing to be binding and enforceable.
2. An exchange relationship: the primary function of a contract is to facilitate and regulate exchanges.
3. Promise: A promise is an undertaking to act or refrain from acting in a specified way at some future time- promise can be express or implied.
4. Legal recognition of enforceability: An act of private lawmaking by which persons create a kind of personalized statute to govern their relationship- recognition and enforcement through the compulsive power of the state acting through its courts.
b. SUBSTANTIVE BASES OF CONTRACTUAL LIABILITY:
i. Private Autonomy: The law views private individuals as possessing a power to effect changes in their legal relationships.
ii. Reliance: A recognition that the breach of a promise may work an injury to one who has changed his position in reliance of the expectation that the promise would be fulfilled.
iii. Unjust Enrichment: When someone breaks a promise they were already compensated for.
c. TYPES OF CONTRACTS:
i. Express: Formed by language, oral or written
ii. Implied: Formed by manifestations of assent other than oral or written language- by conduct.
iii. Quasi-Contract: Not contracts at all. They are constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant.
d. CREATION OF A CONTRACT
i. When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. A court will ask three basic questions:
1. Was there mutual assent?
2. Was there any consideration or some substitute?
3. Are there any defenses to creation of the contract?
e. SOURCES OF CONTRACT LAW
i. CLASSICAL VIEW: Williston
1. The classical view reflects the values of free enterprise, private autonomy, and a laissez-faire approach to economic activity. The classical theory stressed the facilitation of contractual relationships and favored a strictly objective approach. The classical approach was influenced by positivism, which stressed the primacy of legal rules and considered the court’s principal role to be finding and applying those rules to the facts of individual cases.
a. Preference for clear rules
b. Indifferent to social or moral policy issues
ii. MODERN VIEW: Corbin
1. Growing recognition of the need to regulate the freedom of powerful contractors, to safeguard the rights of weaker parties, and to affect social policy concerning matters. The law was now taking into account its social context and the actual workings of the legal system instead of applying strict rules.
a. Modern approach is more attractive to the needs of the commercial marketplace, it is characterized less by rules than by standards, and it is more responsive to social justice and economic power.
2. REACHING AGREEMENT: THE PROCESS OF CONTRACT FORMATION
a. OFFER AND ACCEPTANCE: BILATERAL CONTRACTS
i. Definition: A bilateral contract is a contract in which both sides make promises. Most contracts are bilateral contracts. If the offeree need only promise to do an act, a bilateral contract is contemplated. The offer is accepted by communicating the required promise to the offeror.
ii. Offer: A manifestation of willingness to enter into a bargain, which justifies another person in understanding that his assent can conclude the bargain. It creates the power of acceptance.
1. Offers cannot be revoked it:
a. Option: There has been an offer and there is an additional promise to hold the offer open and there is some payment for that promise.
b. Firm offer rule (UCC): A rule that only applies to the sale of goods. A merchant promising not to revoke if the offer is in writing.
c. Reliance: Where the offer has been relied on in a way that is reasonable and foreseeable.
d. Part Performance: Where you have an offer to enter into a unilateral contract, and performance has begun. A unilateral contract is one that results from an offer that requires performance as the only method of acceptance. (Ex: if you want the job, show up on Saturday. Performance is the only possible ay to accept. If the person shows up on Saturday, you cannot revoke the offer.)
iii. Acceptance: A manifestation of assent to the terms made by the offeree in a manner invited or required by the offer.
1. Who may accept: offer may be accepted only by a person in whom offeror intended to create a power of acceptance.
2. Offeree must know of offer: An acceptance is valid only if the offeree knows of the offer at the time of his alleged acceptance. If you don’t know about the reward but perform act you cannot claim it.
3. Method of acceptance: Offeror may prescribe the method by which the offer may be accepted.
a. Where method not specified: Acceptance may be ginen in any reasonable method.
b. Acceptance of unilateral K: Acceptance by full performance of requested act.
c. Offer invites either promise or performance: May accept by either if not specific
d. Shipment of goods: Buyer of goods sends PO-seller may accept by promising to ship goods or by shipping the goods.
e. Notice of acceptance of unilateral K: In unilateral K, offeree must give notice that act was performed.
f. Acceptance by Silence: Generally not accepted by silence with few exceptions
i. Reason to understand: If offeror has given offeree reason to believe that silence will accept it.
ii. Benefit of services: Offeree silently receives benefi
ii. Advantageous to Offeror: Can be good for offeror because his offer can be accepted only by the contract performance he desires.
1. Risk to Offeree: To protect offeree who has started but not completed the performance, courts have developed various limitations on performance.
iii. Any offer to enter into a unilateral contract may be withdrawn before the requested act to be done is performed.
1. Restatement §32: Invitation to promise or performance (unilateral K).
iv. An offerror may not revoke an offer where the offeree has made substantial performance.
1. Restatement §45 Option Contract created by Part Performance: When there is a unilateral K, an option K is created when the offeree tenders or begins the invited performance. 2) The offeror’s duty of performance under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
a. Rule: The offeror is bound by the contract as soon as the offeree has rendered a substantial part of that requested performance. Unilateral K cannot be revoked while plaintiff is performing or attempting to perform.
v. Option Contract: One person loses power to revoke- all power switched from offeror to offeree- sounds bilateral but offeree still has power to revoke and say no- offeror is bound by contract.
1. States that offer will remain open for a certain period of time.
2. Takes the power of revocation out of the hands of the offeror.
c. LIMITING THE OFFEROR”S POWER TO REVOKE: THE EFFECT OF PRE-ACCEPTANCE RELIANCE
i. Reliance Not Binding: An offer for an exchange is not meant to become a promise until consideration has been received, either a counter-promise or whatever other consideration. Like in the case of contractors sending in bids.
1. James Baird v. Gimbel Bros (1933)
a. Gimbel Bros put in a bid to the James Baird Co. regarding the amount of linoleum they needed. James then took the bid to Pennsylvania to build a building. Gimbel then said they messed up the bid price and would send another one for double the price. Meanwhile, PA accepted the original bid a few days later. When James accepted the original offer, Gimbel objected saying there was no contract.
b. Issue: Did the offer to make bids constitute an offer and thereby give plaintiff the power of acceptance? No
c. This was merely a bid, the contractors did not think they were accepting anything final by putting it in.
d. This was not an option contract because D didn’t mean to do a one-sided obligation.
2. This rule is changed by the next case because it brings into play Reliance. (PE).