1 A Contract Defined “A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty.”  Restatement (Second) of Contracts 8.3 Copyright Andrew Sargent 2001

2 Sources of Contract Law Common Law of Contracts –Developed from early court decisions that became precedent for later decisions. –Limited federal common law, but large body of state common law. Uniform Commercial Code –Created a uniform system of commercial law throughout the U.S. Applies to “goods”. 8.6 Copyright Andrew Sargent 2001

3 Types of Contracts Implied-in-Law Contract – Quasi-contract – Legal remedy to prevent unjust enrichment – You notice that your neighbor’s child is mowing your grass (as he/she has done in the past) and you say nothing - you will be expected to pay a fair value for this service Based on Expression 8-5 Copyright Andrew Sargent 2001

4 Check List for K Analysis Offer Acceptance Consideration Writing Capacity Legality/Public Policy Issues Copyright Andrew Sargent 2001

5 Definitions - Offer & Acceptance An offer is an objectively reasonable communication that creates the power of acceptance in the offeree. An acceptance is the unqualified agreement to the offer Each has required parts of course. Copyright Andrew Sargent 2001

6 Elements of Offer & Acceptance Offer (ppst); [UCC] –Parties –Price –Subject –Terms Acceptance (cat) –Communicated –Absolute –Timely Copyright Andrew Sargent 2001

7 Termination of an Offer Revocation by offeror Revocation by offeror Rejection by offeree Rejection by offeree Counteroffer by offeree Counteroffer by offeree 9.6 © SoftKey Termination by acts of the parties Termination by acts of the parties

8 Termination by Operation of the Law Termination by Operation of the Law  Termination of an Offer Destruction of subject matter Destruction of subject matter Death or incompetency Death or incompetency Supervening illegality Supervening illegality Lapse of time Lapse of time 9.7

9 Options Common Law UCC

10 Acceptance Only an offeree can accept the offer. Offeree’s acceptance must be unequivocal. Also applicable is the mirror image rule. Acceptance must be properly dispatched. Effective upon dispatch. Silence does not usually mean acceptance. Offeree must accept the offer by authorized communication, sometimes specific. 9.8 Copyright Andrew Sargent 2001

11 Consideration What is it? Do something you do not have to do. Do not do something you have the right to do. What to look for in facts – What does offeror expect? What does offeree expect? Motivating Influence 8-9 Copyright Andrew Sargent 2001

12 Consideration Bill promises to pay $75 for Betty’s collection of CDs; Betty promises to deliver the CDs upon payment of $75 What is consideration? Actual performance or the mutual promises? Benefit-Detriment Analysis 8-10 Copyright Andrew Sargent 2001

13 Consideration Betty promises to pay $200 when Bill has climbed the flag pole. Where is consideration now? Issue of Adequacy - not generally a matter of concern 8-11 Copyright Andrew Sargent 2001

14 Contracts Lacking Consideration Illusory promises Illusory promises Preexisting duty Preexisting duty Moral obligations Moral obligations Illegal consideration Illegal consideration Past consideration Past consideration © SoftKey 9.10

15 Voidable Contracts Minors – Power to avoid obligation – Return existing consideration – Necessaries Incapacitated Adults – Insane; intoxicated Mistake – Bilateral -- voidable agreement – Unilateral -- enforceable agreement Fraud/Misrepresentation Duress & Undue Influence Competent Parties & Other Public Policy Issues 8-12 Copyright Andrew Sargent 2001

16 Illegal Contracts Usury laws Gambling statutes Gambling statutes 10.6 Contracts in restraint of trade Contracts in restraint of trade Covenants not to compete Covenants not to compete Exculpatory clauses Exculpatory clauses Immoral contracts Immoral contracts

17 Unconscionable Contracts Courts will uphold a contract if the following are present: – The contract is for lawful purposes, and – All other elements of the contract are met. Courts are given discretion in determining conscionability Copyright Andrew Sargent 2001

18 Elements of an Unconscionable Contract Parties possessed severely unequal bargaining power. Parties possessed severely unequal bargaining power. Dominant party used bargaining power to gain advantage. Dominant party used bargaining power to gain advantage. The other party had no reasonable alternative. The other party had no reasonable alternative

19 Remedies for Unconscionability The entire contract may be set aside. The entire contract may be set aside. The unconscionable part may be set aside. The unconscionable part may be set aside. Limit the applicability of unconscionable part to avoid further damage. Limit the applicability of unconscionable part to avoid further damage

20 Formality of Contracts Orally Stated v. Written Document – General Rules Statute of Frauds – Types of Cases Interest in Land Secondary Promise Performance Beyond One Year Goods over $500 Parol Evidence Rule 8-13 Copyright Andrew Sargent 2001

21 Remedies for Breach Damages –Compensatory –Consequential (forseeability factor) –Liquidated damages –Nominal damages –Rescission and restitution Equitable remedies –Specific performance and injunctions –Reformation

22 Implied Warranties and UCC Merchantability; Fitness for a Particular Purpose; Title; Non-Infringement –“Prominent” disclaimers

23 E-Commerce Issues “Click-wrap”, “Shrink-wrap”, etc. agreements and Pro CD, Inc. v. Ziedenberg, 86 F.3d 1447 (1996)