1. Contracts: Concepts, Terms, and the Agreement
Chapter 7
Contracts: Concepts, Terms, and the Agreement

2. I. Promises

3. Promises
Contract Law deals with a very ancient concept, the keeping of promises
2 Types of Promises:
Moral (Social) Promises
Legal Contracts
DAMAGES – may require the payment of money or a specific performance as promised in the contract

4. Civil Code Expectations Essential Elements of a Contract
II. Defining a Contract
Civil Code
Expectations
Essential Elements of a Contract

5. A. Civil Code
California Civil Code section 1549 defines a contract as “…an agreement to do or not do a certain thing.”
Civil Codes 1428 and 1427 add further meaning by stating “An obligation arises …from…the contract of the parties…” “An obligation is a legal duty, by which a person is bound to do or not do a certain thing.”
A simple definition of a contract would be: an agreement to do or not do a certain thing, enforceable by the courts.

6. B. Expectations
If two parties form a contract, the expectation is that both parties will perform their obligations
Without some procedure for enforcing these obligations, parties would be free to change their mind at any time, break the promise and have no further obligation
Our society has developed a legal system that enforces contracts since they are an essential part of the market economy

7. Essential Elements of a Contract
Parties Capable of Contracting
Parties Must Each Consent to the Formation of the Contract
Object of the Contract Must be Lawful
A Sufficient Cause or Consideration

8. III. Types of Contracts Express / Implied Quasi Executed / Executory
Bilateral / Unilateral
Recap

9. A. Express and Implied Contracts
An EXPRESS CONTRACT is characterized by stating the terms in words [CC§1620]. Terms can either be in spoken word, written word, or both.
An IMPLIED CONTRACT is one, the existence and terms of which are manifested by conduct [CC§1621]. An implied contract is created by conduct, NOT spoken words.

10. B. Quasi Contracts
A QUASI CONTRACT is one imposed by the courts to prevent unjust enrichment
Rescission
Quantum Meruit
Court will need to find:
that the defendant received a benefit from the plaintiff
that the benefit was not gratuitously conferred
that it would be unjust for the defendant to retain the conferred benefit without compensating the plaintiff for its value

11. C. Executed and Executory Contracts
An EXECUTED CONTRACT is one, the object of which is fully performed. All others are EXECUTORY [CC§1661].

12. D. Bilateral and Unilateral Contracts
An BILATERAL CONTRACT is one in which a promise is exchanged for another promise
A UNILATERAL CONTRACT is one in which a promise is given in exchange for the future performance of an act

13. E. Recap EXPRESS CONTRACT : terms expressed orally or in writing
IMPLIED CONTRACT : terms implied from conduct
QUASI CONTRACT : obligation implied by law in absence of agreement in order to prevent unjust enrichment
EXECUTED CONTRACT : contract that is fully performed
EXECUTORY CONTRACT : contract that is not yet performed
BILATERAL CONTRACT : promise exchanged for a promise
UNILATERAL CONTRACT : promised exchanged for an act

14. IV. How a Contract is Formed – Mutual Assent
Making the Offer
Intention to Contract
Definiteness and Certainty of the Offer

15. Mutual Assent
- is formed when one party, the offeror, makes an offer to another party, the offeree, and the offeree accepts the terms of the offer.

16. A. Making the Offer An offer must:
Show a present serious intention to enter into a contract;
Be definite and certain in its terms, and
Be communicated to the offeree

17. 1. Intention to Contract Words and Circumstances
Words or conduct must show serious intent to contract
Reasonable person standard
Statements of Intention
Not an offer in the present
Invitations to Negotiate
Not offers by themselves
Writing Contemplated
Spoken words or writings to arrive at a contract

18. Definiteness and Certainty of the Offer
To be definite and certain, there are minimal terms that must be contained in the offer
Implied Terms
If the parties intend to contract, a reasonable term will be implied to fill in the term left open
Open Price
If the parties intended to contract, but failed to establish a sales price, a reasonable price can be enforced
Time for Performance, Delivery, and Payment
If the parties have not agreed otherwise, delivery of the goods must be made within a reasonable time [UCC§ 2309(1)].

19. 3. Communication of the Offer
Without communication of the offer to the offeree, there can be no contract

20. V. Termination of Offers
Revocation
Irrevocable Offers
Promissory Estoppel
Rejection
Termination by Operation of Law

21. A. Revocation
The offeror may REVOKE an offer at any time prior to acceptance by the offeree
In California, revocations are effective to terminate offers when they are sent or ed [CC§ 1587]

22. B. Irrevocable Offers THE OPTION CONTRACT FIRM OFFERS (Sale of Goods)
is a contract in which a potential buyer purchases the right to have an irrevocable offer
FIRM OFFERS (Sale of Goods)
a firm offer is irrevocable even though the offeror did not receive anything of value from the offeree in order to hold the option open

23. C. Promissory Estoppel Detrimental Reliance
The offeror will be prevented from revoking an offer, even though no consideration was given by the offeree
Promissory Estoppel will allow the contract to be formed ONLY if:
The offeror made the promise knowing that the offeree was likely to rely on it;
The offeree did rely on the offer, and
The only way to avoid an injustice is to allow the formation of the contract and to enforce it

24. D. Rejection
When the offeree rejects the offer, the rejection terminates the offer
Rejections are effective to terminate offers when they are received by the offeror

25. Termination By Operation of Law
LAPSE OF TIME –an offer will terminate after the stated time period in the offer has expired
INCOMPETENCE or DEATH OF EITHER THE OFFEROR or OFFEREE
DEATH or DESTRUCTION OF THE SUBJECT MATTER OF THE OFFER
SUPERVENING ILLEGALITY OF THE SUBJECT MATTER OF THE OFFER – after an offer is made, a court decision or statute makes the subject matter of the offer illegal, the offer is immediately terminated

26. F. Recap Offer – communicates power to accept by offeree
Acceptance – agree to all terms of offer, effective when sent
Termination of the offer:
Rejection
Counter Offer
Revocation
Operation of law
Lapse of time
Death or incompetence
Destructions of subject matter
Supervening illegality- by statute or court

27. VI. Acceptance of Contract Offers
Who May Accept the Offer
Acceptance of Unilateral Contracts
The “Mirror Image Rule”
The Grumbling Acceptance
UCC Sales Under Section 2207
Communication of the Acceptance

28. Who May Accept the Offer
The offeror is the master of the offer and can designate whomever the offeror desires to be the intended offeree
Individual
Group of people
General public

29. Acceptance of Unilateral Contracts
Since a unilateral contract offer is a promise for performance of an act, FULL COMPLETION of the act constitutes the acceptance and forms the unilateral contract

30. C. The “Mirror Image Rule”
The acceptance must be unqualified, unequivocal and in absolute agreement with each and every term of the offer [CC§ 1585]

31. D. The Grumbling Acceptance
An acceptance still mirrors the exact terms of the offer EVEN though the offeree grumbles about the acceptance

32. UCC Sales Under Section 2207
Section 2207 of the UCC has completely altered the common law rule that an acceptance must be the mirror image of the offer.
Under this section, if the contract is for sale of goods, additional or different terms may automatically become a part of the contract if both parties are merchants.
If the offer and the acceptance contain different or conflicting terms, a contract is formed. However, the conflicting terms do not become part of the contract.
The conflicting terms cancel each other out and the blank is filled in as provided under the U.C.C.

33. F. Communication of the Acceptance
BILATERAL CONTRACTS – an acceptance must be communicated to the offeror in order to show a present intention to contract with the offeror
WHEN IS ACCEPTANCE EFFECTIVE? –an acceptance of an offer is normally effective once it has been dispatched
Mailbox Rule
WILL THE OFFEREE’S SILENCE CONSTITUTE ACCEPTANCE? – silence is rarely an effective acceptance of an offer, because an acceptance must be communicated

34. F. Communication of the Acceptance (cont.)
UNSOLICITED MERCHANDISE – Civil Code Section provides, that silence does not constitute acceptance for unsolicited merchandise sent by the offeror to the offeree, and that merchandise can be kept without any obligation to pay for it
UNILATERAL CONTRACTS – if the offeror proposes acceptance by performance, then only performance can operate as an acceptance

35. Chapter Summary How a Contract is Formed Promises Defining A Contract
Making the Offer
Intention to Contract
Definiteness and Certainty of the Offer
Communication of the Offer
Termination of Offers
Revocation
Irrevocable Offers
Promissory Estoppel
Rejection
Termination by Operation of law
Promises
Defining A Contract
Civil Code
Expectations
Essential Elements of a Contract
Types of Contracts
Express and Implied
Quasi
Executed and Executory
Bilateral and Unilateral

36. Chapter Summary Acceptance of Contract Offers Who May Accept the Offer
Acceptance of Unilateral Contracts
Mirror Image Rule
Grumbling Acceptance
UCC Sales under Section 2207
Communication of the Acceptance