Chapter 6 Notes Contracts 03 03 2014 Often defined as legally enforceable promises o Not all promises are contracts An agreement that a court of law will recognize and enforce Categories of Contracts Not mutually exclusive Written v Oral contracts o any agreement oral or written may result in a binding contract o must meet certain requirements o some contracts are required to be in writing in order to be enforceable defined by the statute of frauds Bilateral contracts v Unilateral contracts o Bilateral Contracts involves 2 promises and 2 performances Most contracts are bilateral o Unilateral Contracts performance which then triggers a 2nd performance from the offeror involves 1 promise followed by 1 Exp Reward posters Express contracts v Implied contracts v Quasi contracts o Express contract created when parties have expressly agreed on the promises and performances o Implied contract the agreement is reached by the parties actions rather than their words Exp Going to the doctor patient typically doesn t negotiate terms but owes the doctor a reasonable fee for services rendered an implied contract in fact o Quasi contract no express or implied contract exists but a party may sill recover losses Enforceable where one party suffers losses as a result of another party s unjust enrichment Based on an implied by law recovery benefits from an unrequested service patient Exp Doctor performs services on an unconscious Recovery also possible when an express contract is unenforceable for some legal reason but one of the parties has gained a benefit Exp Contractor installs new floor but before he can finish a fire destroys the house Contractor may still recover for services rendered Valid v Void contracts Valid contract Void contract has the necessary elements agreements that have not been formed in conformance with the law from the outset of the agreement and cannot be enforced by either party o Exp A contract for the sale of illegal narcotics Voidable v Unenforceable contracts o Voidable contract one party at its option may either disaffirm the contract or enforce it Exp Minor buys a used car law allows minors to cancel contracts until they turn 18 she may disaffirm and return the car or enforce by keeping the car until she turns 18 Avoiding the contract when a party chooses to legally disaffirm a contract that was voidable o Unenforceable contract meets the elements required by law for an otherwise binding agreement but is subject to legal defense such as the statutory requirement that certain contracts be in writing in order to be enforceable Sources of Law State Common Law o Contracts for services or real estate State Statute Based on Uniform Commercial Code UCC o Contracts for goods or products o UCC also covers transactions related to leasing of equipment Hybrid contracts involve terms for both goods and services o Source of law is established by determining the predominant thrust of the contract subject matter If the contract is predominantly for services and the goods are incidental the contract is governed by If the goods are the main feature of the contract and services are incidental the contract is governed by common law statutory law Determining source of law courts will examine Allocation of price value of goods v services Uniqueness of the services did it require special talent The more unique the service the more likely it is covered by common law Overview of a contract transaction Contract is formed when two or more parties agree to a particular set of terms o One party typically agrees to provide services real estate or goods in exchange for something of value o An agreement is legally binding if it meets formation requirements After formation requirements are met the contract is governed by laws that set requirements for enforceability Assuming contract was properly formed and is legally enforceable the law sets rules and consequences related to how the parties fulfill their obligations o Known as performance or nonperformance of the agreement Contract Formation Mutual Assent Mutual assent broad underlying requirement to form an enforceable contract o In order for a contract to be valid parties must reach an agreement using a combination of offer and acceptance Offeror must make a valid offer to the offeree who must accept the offer in order for parties to be bound by the Does not require that both parties actually intended to argument s terms enter into an argument Requires only that the parties acts or words lead the other party to reasonably believe that an agreement has been reached Other three requirements for formation other than agreement o Agreement must be supported by consideration o Parties must have capacity o Subject matter and performance must have legality and be consistent with public policy Requirements for enforceability o Agreement must be the product of general assent o In some cases certain terms must be in writing statute of frauds Agreement Part 1 Offer specified activity Offer promise or commitment to do or refrain from doing a o Expression of willingness to enter a contract by the offeror Offeror must have objective intent to contract when making the offer o Must have serious intention to become bound by the offer o Terms of the offer must be reasonably certain o Absent of these the offer is considered an offer to discuss or negotiate terms of an agreement o Intention depends on the contexts of the agreement Advertisements as an offer o Most advertisements are not offers o Mass advertisements are recognized as an invitation for the consumer to make an offer to the seller Agreement Part 2 Acceptance Offeree has power of acceptance Acceptance expression of agreement to terms of the offer o Typically communicated in writing or orally o Some cases may also accept via action or conduct Offer has to be properly accepted by the offeree Offeror has the power to terminate modify terms or prescribe the method of acceptance of the offer up until the acceptance of the offer Events of termination of the power of acceptance action of the parties v operation of law o Offer may be terminated in three ways Revocation offeror withdraws the offer Most states recognize that revocation is only effective upon receipt by the offeree or the offeree s agent Some offers are irrevocable Offers in the form of an option contract When the offeree partly performed or detrimentally relied on the offer and Firm offers by a merchant under the UCC Option Contracts Offeror agrees