Introduction to Contract Law MBAD 5191: Legal Environment in
Business Slide 2 Key Questions What are contracts? Why are
contracts formed? Why should contracts be enforced? When is a valid
contract created? When can a party avoid the requirements of a
contract? Slide 3 Contract Terminology Oral vs. Written Express vs.
Implied Bilateral vs. Unilateral Entire vs. Divisible Executory vs.
Executed Valid vs. Void vs. Voidable Slide 4 Evaluating Contract
Claims I. Identify the applicable body of contract law II.
Determine if the legal elements of a contract are present
III.Consider Non-Contract obligations IV.Consider legal doctrines
of contract avoidance Slide 5 Applicable Body of Contract Law
Uniform Commercial Code (UCC) -Statutory law -Governs commercial
transactions -Article 2 deals with the sale of goods Common Law of
Contracts -Product of judicial decisions -Constantly evolving
-Guided by the Restatement of Contracts Slide 6 Common Law vs.
Uniform Commercial Code Sale of Goods? YES: UCC UCC on Point? YES:
UCC Applied NO: Common Law NO: Common Law UCC can be applied by
analogy Slide 7 Contract for Goods or Services??? Hybrid Contracts
-Include both goods and services -Difficult to identify appropriate
body of law Test: -Is the major purpose of the contract for goods
or services? -Contact must be viewed in its entirety to identify
predominant factor Slide 8 II. Elements of a Contract 1. Offer and
Acceptance -Willingness to enter contract/willingness to be bound
by the terms 2. Mutual Agreement -Meeting of the minds 3.
Consideration -Something of legal value given up by all parties in
the contract 4. Competent Parties -Legal age and normal mentality
5. Legality of Purpose -Contract formed for a legal purpose 6.
Proper Form -Satisfies requirements regarding writing, signatures,
etc. Slide 9 Elements of an Offer 1. Definite and Certain Terms
Definite enough to signal intent/provide for enforcement Different
standards for UCC and common law 2. Communication of the Offer Must
be communicated directly to the offeree 3. Intent to Contract
Governed by the objective standard of intent Slide 10 UCC
Gap-Fillers Price: Reasonable at the time of delivery Quantity:
Output contracts Exclusive dealing Time for Performance: Reasonable
time for performance Indefinite term contracts cancelled with
reasonable notice Slide 11 Place of Delivery: Sellers place of
business; if no place of business, sellers home Buyers Right of
Inspection: Reasonable time, place and manner Payment: Check
acceptable, but seller may demand cash within a reasonable period
of time No obligation to extend credit UCC Gap Fillers Slide 12
Offers- Special Situations Advertisements -General Rule: not
considered offers due to multiple acceptance problem -Exception:
Ads written with enough clarity to avoid multiple acceptance
Rewards (Public Offer): -Offer to enter a unilateral contract
requiring full performance Bids and Auctions: -Treated as an
invitation to offer Slide 13 Termination of an Offer General Rule:
An offer can be revoked at any time up until acceptance. Exceptions
include: -Option Contracts -Unilateral Contracts -Promissory
Estoppel -Firm Offers (UCC) Rejection: Terminates an offer and is
effective at the time received by the offeror. Lapse of Time:
defined in the contract or reasonable based on circumstances
Counteroffer: Terminates original offer and acts as a new offer.
Special Situations: death or insanity of the offeror, destruction
of the property that is the subject of the offer, and intervening
illegality terminate an offer. Slide 14 Elements of Acceptance 1.
Communicated to Offeror: -Manner of Acceptance: any reasonable
manner unless specified in the offer -Time of Acceptance:
reasonable time, before revocation of offer, unless specified -Only
Offeree Can Accept: unless agent accepts on offerees behalf 2.
Unconditional (acceptance of terms offered): -Mirror Image vs.
Material Terms Slide 15 Acceptance- Special Situations UCC Battle
of the Forms: - Governs the exchange of standardized forms between
merchants for the purchase of goods. - Additional terms included in
the contract, unless: Acceptance expressly limited to offerors
terms New terms materially alter the offer Objection to new terms
raised within a reasonable period of time. Mailbox Rule:
-Acceptance effective at the time it is dispatched. Common Law:
faulty dispatch makes acceptance valid upon receipt UCC: faulty
dispatch only matters if it increases time before acceptance is
received Slide 16 Consideration Consideration may be: Something
given up that a party has a legal right to keep OR Performing an
action that a party has no legal responsibility to do OR Refraining
from an action a party has the legal ability to do Slide 17
Characteristics of Consideration Legality -Refraining from illegal
activities cannot serve as consideration -Pre-existing contractual
obligations cannot serve as consideration Adequacy -Courts
generally do not determine adequacy of consideration Possibility of
Performance -An action must be possible to perform to serve as
consideration Past Consideration -Benefit already received cannot
act as new consideration Illusory Promises -Promises that dont
create a real obligation to act or refrain are not consideration
Slide 18 Contract Modification & Consideration Common Law
-General Rule: contract modification must be supported by new
consideration -Exceptions: Unforeseen circumstances Mutually
agreeable termination and formation of a new contract Uniform
Commercial Code -General Rule: written modification does not
require new consideration -Safeguards: Neither party has a duty to
agree to the modification Good faith and fair dealings requirements
of UCC applied Settlement of Debts -Liquidated debts: due and
certain; modification requires new consideration -Unliquidated
debts: not due and certain; new consideration not required Slide 19
Capacity and Legality Legal Capacity -Age of majority -Mental
competent -Not impaired by controlled substance Legality of Purpose
-Consistent with common law -Consistent with statutory requirements
-Consistent with public policy Slide 20 Proper Form Statute of
Frauds- contracts pertaining to the following must be in writing:
1. Agreements by executor/administrator to pay debts of estate 2.
Agreements to answer for debts of another 3. Agreements that cannot
be completed in less than one year 4. Agreements made in
contemplation of marriage 5. Agreements to sell any interest in
real property 6. Agreements to sell personal property for $500 or
more Slide 21 III. Non-Contract Obligations Quasi-Contract:
Prevents unjust enrichment 1. One party conveys benefit to another
2. Benefit is knowingly accepted 3. Unjust to deny injured party
compensation Promissory Estoppel: Protects reasonable expectations
1. Promise made, which was foreseeable to induce reliance 2.
Reliance by the recipient of the promise 3. Damages as a result of
the reliance Slide 22 IV. Doctrines of Contract Avoidance
Misrepresentation Fraud Mistake Duress Undue Influence Slide 23
Misrepresentation Misstatement or nondisclosure of a material fact
Reasonable reliance by the complaining party Induces contract
formation Contract is voidable by the complaining party, although
some states do not allow recovery for additional damages Slide 24
Fraud Intentional misstatement or nondisclosure of a material fact
intended to induce the formation of a contract Misstatement or
misrepresentation relied upon by complaining party Contract is
voidable by the complaining party and recovery may be available for
additional damages Slide 25 Mistake Contract may potentially be
voidable by the complaining party if the mistake was bilateral
(both parties mistaken) Mistake must pertain to a material fact
present at the time the contract was formed, not a mistake about
conditions in the future Mistakes regarding facts readily
observable or available to the public do not generally make a
contract voidable Slide 26 Undue Influence Contract voidable if
person of influence improperly uses position to encourage contract
formation in an unfair manner Examples: -Parent/Child
-Doctor/Patient -Lawyer/Client -Teacher/Student -Employer/Employee
Slide 27 Duress Contract voidable if improper pressure used to
encourage contract formation Victim had no reasonable alternative
but to enter contract Examples: -Physical threat -Threat to
property -Threat to reputation Slide 28 Conclusions Defending a
Contract - Identify appropriate body of contract law - Demonstrate
all elements of a valid contract exist - If element missing,
explore non-contract obligations Challenging a Contract - Identify
appropriate body of contract law - Demonstrate the absence of a
required element - If all elements are present, explore doctrines
of contract avoidance
