5-3 Learning Objectives Give the two sources of contract law Define a contract and what it is designed to do Understand the difference between the various classifications of contracts Recite the remedies available for breach of contract Provide the requirements for a valid contract Define mutual ascent and know what comprises it Give at least five bases for termination of offers Distinguish between acceptance under the UCC and the Restatement Determine what is and is not sufficient consideration to support a contract
5-4 Learning Objectives cont’d Discuss the various ways that parties can lack capacity to contract List several ways for contracts lacking legality and the impact of such Distinguish between the Statute of Frauds and the Parol Evidence Rule Understand the difference between assignment and delegation of contracts Determine whether one not a party to a contract can still benefit there from Tell how conditions impact contract performance
5-5 Contracts - Definition A contract is a voluntary agreement between two or more parties for which the law will provide remedies for nonperformance (breach).
5-6 Parties to a Contract Every contract involves at least two parties. Offeror – the party who makes an offer to enter into a contract. Offeree – the party to whom an offer to enter into a contract is made.
5-7 Remedies If one party fails to perform as promised, the other party can use the court system to enforce the contract and recover damages or other property. Remedies put the non-breaching party in the position he or she would have been in had there been no breach. Legal Damages o Money damages o Punitive damages Equitable Damages
5-8 Sources of Contract Law Two sources of Contract Law: Restatement of Contracts (Common Law) Compilation of the most common approaches to states’ common law of contracts, but is not, in and of itself, law. Uniform Commercial Code (UCC) Addresses contracts for the sale of goods, defined as tangible, movable, personal property. Article 2 of the UCC deals with buying and selling goods.
5-9 Classification of Contracts Valid, Void, Voidable, Unenforceable Executory: Not all obligations performed Executed: All obligations performed Unilateral: A promise for an act Bilateral: A promise for a promise Express: All terms actually agreed – oral or written Implied in Fact: Created by parties’ conduct Implied in Law: Quasi Contract
5-10 Valid Contract Requirements (1) Legal subject matter (2) Capacity of the parties to enter into contracts (3) Exchange of consideration or something of agreed value between parties (4) Mutual assent between the parties (1) Legal subject matter (2) Capacity of the parties to enter into contracts (3) Exchange of consideration or something of agreed value between parties (4) Mutual assent between the parties
5-11 Termination of Offer Death of Either Party Destruction of the Subject Matter Revocation by the Offeror Rejection by the Offeree Incapacity of either party Illegality of the subject matter Lapse of stated or reasonable time
5-12 Effective Dates of Actions Offer – When received by offeree If not properly done, effective when received by offeree Acceptance — Effective when sent if properly done Acceptance after a prior rejection —first response to reach offeror is effective Rejection —Effective when received by offeror Revocation —Effective when received by the offeree
5-13 Acceptance Intent to accept Communication to offeror “Mirror Image Rule” (Common Law): Offer must be unequivocal and a mirror image of the offer. If it is not, and any terms are changed by the offeree, it is considered to be a counteroffer which terminates the original offer. Note: UCC Art. 2: any means of acceptance reasonable under the circumstances is effective as an acceptance and creates a contract
5-14 Acceptance Types of Acceptance Direct Occurs when the offeree communicates to the offeror his wish to enter into the contract. Indirect Occurs when the offeror does some act consistent with acceptance, such as sending a check for the amount of the offer within the time specified. When is Acceptance effective? Mailbox Rule
5-15 Acceptance Genuineness of Assent –Voluntary and legitimate Challenges to Mutual Assent: Duress Undue Influence Mutual Mistake Unconscionability Fraud in the Inducement Fraud in the Execution
5-16 Consideration A bargained for legal detriment exchanged between the parties. Anything of value exchanged between the parties to a contract Adequacy Legal Detriment Legal Benefit
5-17 Consideration Inadequate Consideration Gratuitous Promises Promissory Estoppel Past Consideration Pre-existing legal or contractual obligation Moral obligation Illusory promise
5-18 Capacity Ability of parties to understand the consequences of entering into an agreement at the time the contract is formed Minors Mentally incompetent persons Intoxicated persons
5-19 Legality If subject matter of contract is illegal, the contract is void. Usury Gambling Unlicensed professionals Violation of public policy
5-20 Enforceable Contracts Statute of Frauds Certain contracts must be in writing to be enforceable in court: Marriage (contracts made in consideration of marriage) Y ear (Contracts incapable of being performed within a year from the time they are made) Land (Contracts for an interest in land) Executor (Executor’s promise to be personally liable for decedent’s debts) Goods (Contracts for goods of $500 or more) Surety (Contract of a surety to be bound for the debts of debtor if debtor does not pay)
5-21 Enforceable Contracts Parol Evidence Rule –If there is a valid, written, integrated contract between the parties, then evidence of prior or contemporaneous agreements will not be permitted to vary or alter its terms. Parol Evidence Rule –If there is a valid, written, integrated contract between the parties, then evidence of prior or contemporaneous agreements will not be permitted to vary or alter its terms.
5-22 Contracts Involving Third-Parties Assignment The transfer of rights under a contract by the obligee to a third party Delegation A transfer of contractual duties by the obligor to a third party for performance. “Assignment of all rights” Assignment of all rights under a contract, and Delegation of all duties under a contract
5-23 Third-Party Beneficiaries Third parties can sometimes claim rights under others’ contracts. Such third parties are either: Intended third-party beneficiaries Donee beneficiaries or Creditor beneficiaries OR Incidental third-party beneficiaries
5-24 Conditions to Contract Performance Conditions Precedent An event that must occur before a party is obligated to perform under a contract. Conditions Subsequent Performance is not due until and unless a condition is met. Concurrent Conditions Parties to a contract must perform at the same time.