3 PromisesContract Law deals with a very ancient concept, the keeping of promises2 Types of Promises:Moral (Social) PromisesLegal ContractsDAMAGES – 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 ContractCivil CodeExpectationsEssential Elements of a Contract
5 A. Civil CodeCalifornia 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. ExpectationsIf two parties form a contract, the expectation is that both parties will perform their obligationsWithout some procedure for enforcing these obligations, parties would be free to change their mind at any time, break the promise and have no further obligationOur 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 ContractingParties Must Each Consent to the Formation of the ContractObject of the Contract Must be LawfulA Sufficient Cause or Consideration
8 III. Types of Contracts Express / Implied Quasi Executed / Executory Bilateral / UnilateralRecap
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 ContractsA QUASI CONTRACT is one imposed by the courts to prevent unjust enrichmentRescissionQuantum MeruitCourt will need to find:that the defendant received a benefit from the plaintiffthat the benefit was not gratuitously conferredthat 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 promiseA 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 conductQUASI CONTRACT : obligation implied by law in absence of agreement in order to prevent unjust enrichmentEXECUTED CONTRACT : contract that is fully performedEXECUTORY CONTRACT : contract that is not yet performedBILATERAL CONTRACT : promise exchanged for a promiseUNILATERAL CONTRACT : promised exchanged for an act
14 IV. How a Contract is Formed – Mutual Assent Making the OfferIntention to ContractDefiniteness 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, andBe communicated to the offeree
17 1. Intention to Contract Words and Circumstances Words or conduct must show serious intent to contractReasonable person standardStatements of IntentionNot an offer in the presentInvitations to NegotiateNot offers by themselvesWriting ContemplatedSpoken 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 offerImplied TermsIf the parties intend to contract, a reasonable term will be implied to fill in the term left openOpen PriceIf the parties intended to contract, but failed to establish a sales price, a reasonable price can be enforcedTime for Performance, Delivery, and PaymentIf 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 RevocationIrrevocable OffersPromissory EstoppelRejectionTermination by Operation of Law
21 A. RevocationThe offeror may REVOKE an offer at any time prior to acceptance by the offereeIn 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 offerFIRM 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 offereePromissory 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, andThe only way to avoid an injustice is to allow the formation of the contract and to enforce it
24 D. RejectionWhen the offeree rejects the offer, the rejection terminates the offerRejections 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 expiredINCOMPETENCE or DEATH OF EITHER THE OFFEROR or OFFEREEDEATH or DESTRUCTION OF THE SUBJECT MATTER OF THE OFFERSUPERVENING 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 sentTermination of the offer:RejectionCounter OfferRevocationOperation of lawLapse of timeDeath or incompetenceDestructions of subject matterSupervening illegality- by statute or court
27 VI. Acceptance of Contract Offers Who May Accept the OfferAcceptance of Unilateral ContractsThe “Mirror Image Rule”The Grumbling AcceptanceUCC Sales Under Section 2207Communication 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 offereeIndividualGroup of peopleGeneral 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 offerorWHEN IS ACCEPTANCE EFFECTIVE? –an acceptance of an offer is normally effective once it has been dispatchedMailbox RuleWILL 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 itUNILATERAL 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 OfferIntention to ContractDefiniteness and Certainty of the OfferCommunication of the OfferTermination of OffersRevocationIrrevocable OffersPromissory EstoppelRejectionTermination by Operation of lawPromisesDefining A ContractCivil CodeExpectationsEssential Elements of a ContractTypes of ContractsExpress and ImpliedQuasiExecuted and ExecutoryBilateral and Unilateral
36 Chapter Summary Acceptance of Contract Offers Who May Accept the Offer Acceptance of Unilateral ContractsMirror Image RuleGrumbling AcceptanceUCC Sales under Section 2207Communication of the Acceptance