Contracts Outline

Contracts I – Winter 2011 – Neville-Ewell

Elements of an Informal Contract

1. Mutual Assent: offer and acceptance

2. Consideration: benefit to offeror or detriment to offeree

3. Absence of Statute/Rule that voids the contract

Parties to a Contract:

A. Initially

a. Offeror (making the offer)

b. Offeree

B. Once the contract is established

a. Promisor (made the promise)

b. Promisee

c. Can have two promisors and promisees.

C. Breach (contract unfulfilled)

a. Plaintiff

b. Defendant

Types of Contracts

A. Unilateral

a. Only one promisors

b. A promise for an act or forbearance to act.

B. Bilateral

a. Promise for a promise—two promisors promising to act or not to act;

Mutual Assent: an agreement by both parties to contract in the form of offer and acceptance. It is determined by an objective standard—by the apparent intention of the parties as manifested by their actions.

A. Contract Defined: A contract is formed when two (or more) parties consent to the same terms at the same time. Contracts are accomplished by the process of offer and acceptance.

B. Formation: (mutual assent): In order to form an enforceable contract, there must be a meeting of the minds

a. If the offeror has manifested a willingness to enter into a contract in such a way that the offeree knows that assent is all that is necessary to cement the deal, and the offeree accepts, then mutual assent exists.

b. O + A + C = K

C. Testing whether there is Mutual Assent (parties intent to contract)

a. Objective Manifestations (Reasonable Person Standard): Look to outward expression of a person as manifesting his intention rather than to secret and unexpressed intentions.

i. Actual intent is not important.

ii. Lucy v. Zehmer (sale of a farm on receipt)

1. Mutual assent is found based on Z’s outward conduct in creating and signing contract (he wrote contract, signed by Z and his wife, and “delivered” it to Lucy) despite evidence of secret joke that was whispered by Z to his wife.

iii. Hypo: J buys new car for $25K and it breaks down on the way home. He goes into a bar and loudly expresses his disgust with the car. Francis, a busboy with low IQ said he loves the new car and J says, “It’s yours for $1,500, just go get it.” Everyone laughed as F went to get it.

1. No mutual assent, a reasonable person would note the disparity in value of the car and the price offered to Francis. People laughed when the offer was made, which signified “reasonable” people knew it was a joke.

iv. Hypo: Two people sign a contract stating “this contract shall not be enforceable in a court of law.” Does the quote strip courts from jurisdiction

1. Yes, the parties have to intend a legally binding agreement. This clause makes the contract unenforceable. They have an objective manifestation that they don’t mean to be bound.

b. Express Contracts

i. When words (oral or written are used to communicate intent, an express contract is formed.

c. Implied-in-fact Contract

i. Where mutual assent is expressed through conduct, an implied in fact contract is formed (including the conduct and declarations of the parties, that make it inferable that the contract exists as a matter of implied/unspoken understanding)

ii. Stepp v. Freeman (lottery case)

1. The circumstances surrounding this pool make it inferable that a contract existed as a matter of tact understanding. Stepp had been a member of group for over 5 years and never failed to contribute his share, he had previously been covered by Freeman under certain circumstances and Freeman reminded Stepp that money was due in the past. There was an implied agreement among members that they would be informed when they owed their share and how much was due. It was implied that Stepp would not be dropped from group unless expressed his wish to leave or Freeman informed him that he was being dropped for failure to pay.

d. Implied in Law (Quasi Contract)

i. An obligation imposed by law because of some special relationship between the parties, or to avoid the unjust enrichment of a person who has received and retained valuable good or services of another. It is not a contract, but rather a legal remedy that allows the plaintiff to recover a benefit expected from the defendant.

ii. Hypo: Smith notices J’s broken fence. In order to prevent escape of animals, Smith decides to repair the fence for J.

1. J would be liable to pay Smith the reasonable value of such service as a matter of law. This is to prevent unjust benefit of J.

1) The Offer—Offeror’s manifestation of mutual assent

a) Three General requirements

i) Definite: clear articulation of the terms AND

(1) Identify nouns: price, amount, quantity, brand, specifications, etc.

ii) Have sufficient substance to create legal remedy such as quantity and price. An offer can be sufficient to create a contract even though the contract may be vague or some terms have been left out because they may have to be determined by using gap fillers from the UCC. To determine if an offer is sufficient, a 2 prong test is used:

(1) Did the parties intend to have a contract?

(2) Can the court fashion a rem