Chapter 7 Contracts A promise is an assertion that something will or will not happen in the future Sources of Contract Law Common law dictates all contracts except when it has been modified or replaced by statutory law Contracts for sales of goods are monitored by the UCC uniform commercial code Contract law is designed to provide predictability and stability for both buyers and sellers in the marketplace and ensures promises will be enforceable between promisors and promise A contract is an agreement that can be enforced in court It is formed by two or more parties who agree to perform or to refrain from performing some act now or in the future The Objective Theory of Contracts Intent is determined by the objective theory of contracts not by the personal or subjective intent or belief of the party A party s intention to enter into a contract is judged by outward objective facts as interpreted by a reasonable person rather than by the party s own secret subjective intent Objective Facts Include 1 what the party said when entering into the contract 2 how the party acted or appeared 3 the circumstances surrounding the transaction Freedom of contract is that the law recognizes everyone s ability to enter freely into contractual arrangements Freedom from contract is that there are exceptions for people who may have been pressured into making contracts unfavorable to themselves Requirements of a Valid Contract 1 Agreement An agreement to form a contract includes an offer and an acceptance One party must offer to enter into a legal agreement and another party must accept the terms of the offer 2 Consideration any promises made by parties must be supported by legally sufficient and bargained for consideration something of value received or promised to convince a person to make a deal 3 Contractual Capacity both parties entering into the contract must have the contractual capacity to do so the law must recognize them as possessing characteristics that qualify them as competent parties 4 Legality the contract s purpose must be to accomplish some goal that is legal and not against public policy Defenses to the Enforceability of a Contract 1 Genuineness of assent or voluntary consent the consent of both parties must be genuine For example if a contract was formed as a result of fraud mistake or duress it is not enforceable 2 Form the contract must be in whatever form the law requires for example some contracts must be in writing to be enforceable Bilateral vs Unilateral Contracts A bilateral contract is a promise for a promise like when a person agrees to buy another person s automobile for a specified price A unilateral contract is a promise for an act and is when an offeree can accept only by completing the contract performance A contract is formed not at the moment when promises are exchanged but rather when the contract is performed Case 7 1 Police academy they had to go through specific tests to be accepted then a new chief of police Required new ones Ardito passed the original tests but did not pass the new one that the new chief of police brought But because the people going through already had entered a unilateral offer that if they pass the tests they will be hired the court concluded that they would still be hired The contract that decided this was a letter that said if they completed the steps the conditional part they would extend a conditional offer of admission Bilateral Case if you drive my car from NY to LA I ll give you 1 000 Only after she drives the car does she accept the contract So if she decides to withdraw before she goes to drive his car then she is not breaching Offers are revocable until accepted However because this is harsh if the person performing part of the offer in a unilateral contract has already substantially undertaken it the offer cannot be revoked Formal v Informal Contracts Formal contracts are contracts that require a special form or method of creation to be enforceable Contracts under seal are a type of formal contract that involves a formalized writing with a special seal attached Also letters of credit are Formal Informal contracts simple contracts don t have a special form requirement except for some have to be in writing because they typically are based on their substance rather than their form Express v Implied Contracts In an express contract the terms of the agreement are fully explicitly stated in words oral or written A signed lease for an apartment is an express written contract Implied contracts are implied from the conduct of the parties called an implied in fact contract They are different from express because the conduct of the parties rather than their words creates and defines at least some of the terms of the contracts A contract can be a mix of both Requirements for an Implied in Fact contract 1 The plaintiff furnished some service or property 2 The plaintiff expected to be paid for that service or property and the defendant knew or should have known that payment was expected 3 The defendant had a chance to reject the services or property and did not Case 7 2 Construction worker hired and he wrote in his contract that he would only make the changes if they were written Then they made several changes that were oral Then the construction worker used the wrong cement blocks They made the change with an oral agreement but then later when they found out it was harder to put in construction worker demanded extra pay but the guy wouldn t Construction worker sued Did the homeowners have an implied in fact contract with the substitution for cinder blocks Yes the changes created an implied contract of extra work for extra compensation Executed v Executory Contracts Executed contracts have been fully performed on both sides while executor is if one party has fully performed but the other has not Valid Contracts A valid contract has the four elements necessary for contract formation 1 an agreement offer and acceptance 2 supported by legally sufficient consideration 3 4 made by parties who have the legal capacity to enter into the contract for a legal purpose Voidable Contracts A voidable contract is a valid contract but one that can be avoided at the option of one or both of the parties If the contract is avoided both parties are released if it is ratified made valid both must fully perform Contracts by minors insane persons under fraudulent conditions duress or undue influence and intoxicated persons may be voidable Unenforceable Contracts