Select Page

Contracts
University of Texas Law School
Rau, Alan S.

CONTRACTS
WHAT IS A CONTRACT?
A. GENERAL DEFINITION
K formed when one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be express or implied from conduct or language and conduct. A promise is legally enforceable where it was made as part of a bargain for valid consideration reasonably induced the promisee to rely on the promise to his detriment; or is deemed enforceable by a statute despite the lack of consideration.

B. LAW GOVERNING CONTRACTS
C. TYPES OF CONTRACTS
1. Types of Contracts as to Formation
a) Express Contract – an agreement manifested by words
b) Implied Contract an agreement manifested by conduct
c) Quasi-Contract- not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice
2. Types of Contracts as to Acceptance
a) Traditional Bilateral/Unilateral Contracts
(1) Bilateral Contracts-Exchange of Mutual Promises
(2) Unilateral Contracts-Acceptance by PerformanceàRevocable at will before performance
b) Modern View-Most Contracts Are Bilateral
(1) Acceptance by Promise or Start of Performance
(2) Unilateral Contracts Limited to Two Circumstances
(3) Test for Determining Bilateral vs. Unilateral Contracts
3. Types of Contracts as to Validity
a) Void Contract
b) Voidable Contract
c) Unenforceable Contract
MUTUAL ASSENT-OFFER AND ACCEPTANCE
A. IN GENERAL
Contract formation requires mutual assent to the same terms by the parties, generally manifested by an offer and acceptance (see chapters 3 and 4). Current law favors an objective standard for determining a party’s intent to be contractually bound. Thus, in general, communications are given the meaning that the recipient of the communication should have reasonably understood. Nevertheless subjective intent is relevant in determining whether the parties intended to be bound. Without such subjective intent, there is no contract.

B. THE OFFER
An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. An offer creates in the offeree the power to form a contract by an appropriate acceptance.

1. Things that don’t constitute offers
a) Opinions about future results (Hawkins=exception. Doctor pursued patient, used words “guarantee”).
b) Letters of intent that memorialize negotiations
c) Invitations to submit a bid
d) Price estimates- estoppel may be invoked if the offeree relied to his detriment on the estimate
e) Advertisements, catalogs, mass mailings
Courts have ruled that it is unreasonable for one to believe that the merchant intends to be bound with all whom receive or read such literature unless the power of acceptance is clearly limited to the first person(s) that fulfills the act for which the incentive is offered
2. Promise, Undertaking, or Commitment
a) Language
b) Surrounding Circumstances
c) Prior Practice and Relationship of the Parties
d) Industry Custom
e) Certainty and Definiteness of Terms
3. Terms Must Be Definite and Certain
a) Identification of the Offeree
b) Definiteness of Subject Matter
(1) Requirements for Specific Types of Contracts
(a) Real Estate Transactions
(b) Sale of Goods
(i) “Requirements” and “Output” Contracts
(a) Quantity Cannot Be Unreasonably Disproportionate
(b) Going Business vs. New Business
(ii) Reasonable Range of Choices
(c) Employment Contracts
(2) Inference of Reasonable Terms
(a)

2) Lapse of Time
(a) Must Accept Within Specified or Reasonable Time
(b) Look to When Offer Is Received by Offeree
2. Termination by Operation of Law
a) Termination by Death or Insanity of Parties
b) Termination by Destruction of Subject Matter
c) Termination by Supervening Legal Prohibition of Proposed Contract
D. THE ACCEPTANCE
1. Who May Accept
a) Party to Whom Offer Is Addressed or Directed
b) Assignment of Offeree’s Power of Acceptance
2. Acceptance Must Be Unequivocal
a) Common Law Rule
(1) Statements that Make Implicit Terms Explicit
(2) “Grumbling Acceptance”
(3) Request for Clarification
b) U.C.C. Rule
(1) Party Not a Merchant-Terms of Offer Govern
(2) Both Parties Merchants-Acceptance Terms Usually Included
(3) Writings That Do Not Create a Contract-Effect of Performance
3. Generally, Acceptance Must Be Communicated
a) Objective Manifestation of Assent
b) When Effective
(1) Common Law Rule
(2) Modern Rule (U.C.C. and Second Restatement)
(3) The Mailbox Rule
(a) Effect of Offeree Sending Both Acceptance and Rejection
(i) Offeree Sends Rejection, Then Acceptance-Mailbox Rule Does Not Apply
(ii) Offeree Sends Acceptance, Then Rejection-Mailbox Rule Generally Applies
(4) Acceptance by Unauthorized Means
(5) “Crossing” Offers
c) Exception-Acceptance Without Communication
(1) Express Waiver in Offer
Acceptance thru performanc