CHAPTER 7 Contracts: Nature, Classification, Agreement and Consideration

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CHAPTER 7Contracts Nature, Classification,
Agreement and Consideration
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Learning Objectives

• What is a contract? What are the four basic
  elements necessary to the formation of a valid,
  contract?
• What are the various types of contracts?
• What are the requirements of an offer?
• How can an offer be accepted?
• What are the elements of consideration?

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Contracts

• Function of Contracts
• Fundamental to business.
• Creates rights and duties between parties.
• Provides stability and predictability.
• Parties Promisor (makes the promise) and
  Promisee (accepts the promise).
• Good faith in commercial agreements.

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Contracts

• Definition of a Contract
• Agreement that can be enforced in court.
• Formed by two or more parties.
• Failure to perform results in breach and damages.
• Objective Theory.
• Reasonable person standard.
• Circumstances surrounding contract formation.

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Requirements of a Contract

• A valid, enforceable contract includes
• Agreement.
• Consideration.
• Capacity.
• Legality.
• Defenses to formation include
• Genuineness of Assent.
• Form.

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Types of Contracts

• Every contract has at least 2 parties the
  Offeror (Promisor) and the Offeree (Promisee).
• Bilateral Contracts.
• Offeror and Offeree exchange promises to each
  other.
• A contract is formed when Offeree promises to
  perform.

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Types of Contracts

• Unilateral Contracts.
• Offeror wants performance in exchange for his
  promise.
• Contract is formed when Offeree performs.
• Contests and lotteries are examples.
• Revocation of Offer modern view is that offer
  is irrevocable once the Offeree substantially
  performs.
• Ardito v. City of Providence (2003).

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Types of Contracts

• Express vs. Implied Contracts
• Express terms of contract are set forth either
  in writing or orally.
• Implied-in-Fact based on conduct.
• Plaintiff furnished service or product.
• Plaintiff expects to be compensated.
• Defendant had a chance to reject and did not.
• Implied-in-Law (Quasi Contract).
• Fictional, created by court to avoid unjust
  enrichment.

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Types of Contracts

• Formal vs. Informal Contracts
• Formal require special form or method to be
  enforceable, e.g., under seal.
• Informal all other contracts.
• Executed vs. Executory Contracts
• Executed fully performed by both sides.
• Executory at least one of the parties has not
  performed.

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Contract Enforceability

• Valid Contract.
• Four Elements Agreement, Consideration, Legal
  Purposes, Parties have legal capacity.
• Voidable Contract.
• Valid contract that is legally defective and can
  be avoided (rescinded) by one of the parties.
• Void Contract.
• No contract at all.

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Quasi Contracts

• Implied-in-Law Contracts (Quasi Contract).
• Fictional, created by court to avoid unjust
  enrichment.
• Limitations on Quasi-Contractual Recovery.

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Agreement Offer

• Agreement Offer and Acceptance.
• An offer is the Offerors promise to perform. An
  offer requires
• Serious, objection intention.
• Opinions are not offers.
• Good Intentions are not offers.
• Preliminary Negotiations are not offers.
• Agreements to Agree are not offers.
• Lucy v. Zehmer (1954).

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Offer

• An offer requires (continued)
• Reasonably definite terms.
• Communication to Offeree.
• Termination of Offer.
• By Act of the Parties.
• Revocation by Offeror (unless irrevocable).
• Rejection by Offeree (or counteroffer).
• Operation of Law (destruction, death).

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Agreement Acceptance

• Voluntary act by Offeree that shows assent to
  terms of original offer.
• Unequivocal Acceptance Mirror Image Rule.
• Offeree must unequivocally accept offer.
• Additional terms may be considered a
  counteroffer.
• Acceptance by Silence.

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Acceptance

• Communication of Acceptance.
• Authorized Means of Communication is either
  express or implied by form of offer (e.g., U.S.
  mail, fax, email).
• Mailbox Rule Offeree accepts offer when the
  acceptance is dispatched to Offeror in the form
  it was received, unless offer requires a
  different method (e.g., Fed-Ex, or receipt by
  Offeror).

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Termination of Offer

• Termination of Offer.
• By Act of the Parties.
• Revocation by Offeror (unless irrevocable).
• Rejection by Offeree (or counteroffer).
• Operation of Law lapse of time, destruction,
  death or incompetence, supervening illegality.

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Acceptance

• Voluntary act by Offeree that shows assent to
  terms of original offer.
• Mirror Image Rule.
• Offeree must unequivocally accept offer.
• Additional terms may be considered a
  counteroffer.
• Acceptance by Silence.

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Acceptance

• Communication of Acceptance.
• Authorized Means of Communication is either
  express or implied by form of offer (e.g., U.S.
  mail, fax, email).
• Mailbox Rule Offeree accepts offer when the
  acceptance is dispatched to Offeror in the form
  it was received, unless offer requires a
  different method (e.g., Fed-Ex, or receipt by
  Offeror).

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Consideration

• Consideration is value given in return for a
  promise.
• Elements
• Something of legally sufficient value given in
  exchange for a promise and
• That is bargained for between the parties.
• Seaview Orthopedics v. National Healthcare
  Resources, Inc. (2004).

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Consideration

• Contracts that Lack Consideration
• Pre-Existing Duty.
• Unforeseen Difficulties.
• Past Consideration.
• Illusory Promises.
• Settlement of Claims
• Accord and Satisfaction.
• Release.
• Covenant Not to Sue.

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Promissory Estoppel

• Promissory Estoppel (detrimental reliance)
  doctrine applies when a person relies on the
  promise of another to her legal detriment.
• Promisor is estopped (precluded) from revoking
  the promise. There must be
• Clear and definite promise with substantial
  reliance.
• Justice is served by enforcement of the promise.