Chapter 6 Contracts October 6th 2014 6 0 Introduction Introduction Implied Covenant Promise the law requires in all contracts regardless of whether the parties state it or not Contract Legally enforceable promise Damages Compensable loss Breach Failure to perform duties and obligations required by contract o Material breach failure to substantially perform a duty or obligation Private Law Legally binding agreement between consenting parties that does not apply to the public at large Terms Elements of contracts that specify important matters o Quantity o Price o Time for performance Mutual Assent In common law contracts comprises offer and acceptance Noncompete Clause Contract clause that restricts competition for a specified period of time within a certain geographic region and for specified activities o Must be reasonable as to geographic restrictions time period and specified activities 6 1 Formation Learning Objectives Formation Find out when the Uniform Commercial Code UCC is the appropriate law to apply and when the common law is the appropriate law Learn the elements of contract formation Identify the difference between common law contracts and contracts between merchants In common law it refers to offer acceptance and consideration In the United States primary sources of law govern our contracts o Common Law judge made law o Uniform Commercial Code if adopted statutorily by states Uniform Commercial Code different states Model statue that seeks to provide uniformity to contracts law among the o Not a law until state legislatures adopt it as law Contains set of rules for contracts o One set for everyone o One set for merchants Common law governs contracts for services and contracts not otherwise governed by the UCC o Elements of common law contract formation are more stringent than the requirements for formation between merchants under the UCC o Mixed service good contracts like installation of a furnace or artificial knees Common Law Contract If all elements of common law contract formation do not exist then the contract may be void or voidable o Void Contract that is not valid on its face because it suffers from o Voidable Refers to the status of a contract that may be terminated some fatal flaw due to some defect Consists of o Offer Creates the power of acceptance in another party and includes the agreement s essential elements which must be definite and certain o Acceptance Must be a mirror image of the offer o Consideration Bargained for exchange Both parties must agree to do something that they are not otherwise required to do or agree to forego doing something that they otherwise have a right to do o Offer and acceptance together form mutual assent and can be referred to as the agreement Common Law Contract To be enforceable the contract must be for a legal purpose and parties to the contract must have capacity to enter into the contract Legal Purpose Subject matter of a contract must have lawful purpose consistent with public policy If the subject matter of a contract does not have a legal purpose contract formation will fail Capacity Legal ability to enter a contract o Minors o Incompetence Mental defect or disease Drunkenness Mirror Image Requirement for acceptance in common law contracts o Acceptance must be precisely the same as the offer Common Law Contract Counteroffer Rejection of an offer It is a new offer o Addition to being rejected and limiting the time that an offer is valid Offers can terminate through a reasonable lapse of time Revocation Retraction of an offer before it is accepted Invitation to bargain When a party invites others to make offers to buy o Example Web Advertisements Exception first come first served Types o Bilateral Contract in which both parties make a promise o Unilateral Contract in which the accepting party may accept only through an action Common Law Contracts Must contain valid consideration o There must be a bargained for exchange of acts or promises and both parties must incur new legal detriment or obligations as a result of the contract Noncompete Agreement Contract or clause limiting the time place and scope of future competition and activities restriction o Must be considered as reasonable as to time period place restrictions Illusory Promise Statement that looks like a promise but is actually only an illusion of a promise due to its conditional nature or its otherwise lack of a firm commitment o Contains precatory words such as want desire etc o Contracts obligating a party to purchase all its needed material from the other party are not illusory requirements contract For a contract to be valid the subject matter of the contract must be for a legal purpose Minor who enters into a contract with a party who has capacity may void the contract but the other party may not o Any contract with a minor is voidable by the minor under the infancy doctrine Kobe Bryant Infancy Doctrine Legal doctrine that allows minors to disaffirm contracts Common law governs contracts for services and contracts not governed by the UCC Difference between Common law Contracts and Contracts between Merchants Contracts between merchants do not always contain offers that include definite terms and acceptances are not always mirror images o Article 2 of the UCC governs the sale of goods o UCC provides more flexibility in contract formation than exists in common law contracts o Merchants frequently use boilerplate language in their individual purchase orders and invoices Boilerplate Language Standard legal language used in contracts or other legal documents Difference between Common Law Contracts and Contracts between Merchants Battle of the forms Term that describes inconsistent elements of an agreement between merchants Contracts between merchants are also governed by article 2 of the UCC Contract law is a state law issue therefore each state can have different laws related to contracts UCC embodies elements of the Statue of Frauds o Statute of Frauds Requires certain types of contracts to be in writing to be enforceable o Required contracts to be in writing for goods priced at 500 or more an signed by the defendant for those contracts to be enforceable Difference between Contract Formations by Type of Law