Class 23 - Contracts

Final - Dec 10th

Recognize a contract issue when it comes up. What are the red flags that you need to look out for.

Not all agreements are contracts. Some are not binding. Definition of a contract: An agreement between two or more parties, the breach of which, the law affords a remedy.

A void contract is not a contract. Some contracts are "voidable", may or may not be void. Ex: contracts by minors. Lacks capacity to enter into a contract. If its for a luxury item (ex: car), it's void. If, after the minor reaches the age of 18, the person continues with the contract, it becomes valid.

Oral agreements for purchase of real property is unenforceable. Must be in writing. Other important, unique or unusual types of agreements must also be in writing. Ex: Sale of more than $500, to pay debts of other people, marriage.

Two bodies of law cover contracts: common law and Article II of Uniform Commercial Code (UCC) covers contracts for the sale of goods.

Quasi-contract: It's a contract remedy. Prevents unjust enrichment. "As if there were a contract". Ex: Painters paint your house with your knowledge, but it's the wrong house. This is a quasi-contract, because you were knowingly and unjustly enriched and took advantage of it. Quasi-contract allows the painters to get a remedy (payment) from you.

Unsolicited books, newspapers (etc) don't create a quasi-contract with the recipients.

There must be a "meeting of the minds" - manifistation of mutual assent. Both parties agree to be bound by the contract. Requires an offer and an acceptance. What constitutes an offer/acceptance? Offer must be communicated directly by the offeror to the offeree. Indirect is not sufficient (unless through an agent). Requires intent. Clear, concise, definite. Never in the form of a question. "Would you like to buy my car for $60k?" does not consistute an offer.

If an advertisement is definite, it may be an offer. But courts sometimes consider it an invitation for the customer to make an offer. "We'll beat any competitor's price" or "Come in and make an offer" are not offers.

See Lefkowitz v Great Minneapolis Surplus Store. Quantity, price and other terms were specified, so GMSS had to honor it. It was an offer.

Words can constitute an offer, even if you didn't mean it. It's an objective test - what would an ordinary, reasonable person mean in such a case?

Common law: quantity, price, identify the item.
UCC: some terms can be left open. you can even leave off the price sometimes. "price to be determined at the time of delivery"

How long is an offer good for? If stated in the contract, that is what's binding. It might be able to be revocation or rejection or counter-offer or death/insanity of either party or subsequent illegality. Otherwise, after a "reasonable" amount of time.

Revocation: an offer can be revoked by the offeror at any time even if the offeror had promised to keep it open for longer. Even if the offeror is revoking it because he got a better offer from someone else. However, this can't be done if someone puts a down payment on it. It's an option contract. That under common law.

Under UCC, which covers moveable items, an option contract is called a firm merchant's offer rule - if a merchant puts an offer in writing and promises not to revoke it, that offer is irrevokable for the stated time, not to exceed 3 months.

Rejection - If offeree rejects and offer, it kills the offer. It cannot be revived (unless the offeror agrees). Must be definite.

Counter-offer - rejection by the offeree and then the offeree becomes the offeror. it kills the original offer.
A: I'll give you my car for 60k.
B: I'll give you 50k.
A: No.
B: Ok, I'll give you 60k.
A: No. The offer is gone.
The offer is gone because the counter-offer killed it.

Counter offer must be definite and certain, otherwise, it's not a counteroffer and the original offer is still in force.

Always get agreements in writing. If not, people will lie in court.

Offer dies if any of the parties dies while the offer is pending.

Contracts don't die with the parties, unless it's for personal services. Option contracts don't die with one of the parties.

If the subject matter is destroyed, the contract dies. After the time of delivery, the buyer must still pay.

Subsequent illegality: ex: sporting goods contract with smith & wesson when chicago made it illegal. contract was dead.

Acceptance. Must be definite, certain and unequivocal. Not a question. Simply "I accept".

Under common law, we have mirror image rule. must be an exact restatement of the offer. Under UCC, changes in the terms, do not constitute a counter-offer so long as the terms are not material.

Do the additional terms become part of the contract? Not necessarily. But if both are merchants, the party has 10 days to object or accept additional terms.

When does the acceptance form a contract? When it is sent, as long as it is sent by an authorized means of communication. i.e. the means that the offeror requires or the means either equal to or faster than the offer. if offer is first class mail and acceptance is first class mail, the contract is in effect the minute the acceptance is mailed.

If the acceptance is sent by unauthorized means of communication, it is only considered a contract when it is received by the offeror.

Rejection kills an offer only when received. If you mailed a rejection and you want to revoke the rejection, you have to send the acceptance and it must be received before the rejection.