An Overview of Contract Law

1. 
   Sources of contract law
   
   —The common law governs all contracts except when it has been modified or replaced by statutory law, such as the Uniform Commercial Code (UCC), or by administrative agency regulations. The UCC governs contracts for the sale and lease of goods.
2. 
   The function of contracts
   
   —Contract law establishes what kinds of promises will be legally binding and supplies procedures for enforcing legally binding promises, or agreements.
3. 
   The definition of a contract
   
   —A contract is an agreement that can be enforced in court. It is formed by two or more parties who agree to perform or to refrain from performing some act now or in the future. Each party has a legal duty to the other and the right to seek a remedy for breach of the promise or duty.
4. 
   The objective theory of contracts
   
   —In contract law, intent is determined by objective facts, not by the personal or subjective intent or belief of a party.
5. 
   Requirements of a valid contract
   
   —The four requirements of a valid contract are agreement, consideration, contractual capacity, and legality.
6. 
   Defenses to the enforceability of a contract
   
   —Even if the four requirements of a valid contract are met, a contract may be unenforceable if it lacks voluntary consent or is not in the required form.
7. 
   Types of contracts
   
   —
   1. 
      Bilateral
      
      —A promise for a promise.
   2. 
      Unilateral
      
      —A promise for an act.
   3. 
      Formal
      
      —Requires a special form for contract formation.
   4. 
      Informal
      
      —Requires no special form for contract formation.
   5. 
      Express
      
      —Formed by words (oral or written).
   6. 
      Implied
      
      —Formed at least in part by the conduct of the parties.
   7. 
      Executed
      
      —A fully performed contract.
   8. 
      Executory
      
      —A contract not yet fully performed.
   9. 
      Valid
      
      —A contract that has the four necessary contractual elements.
   10. 
       Voidable
       
       —A contract in which a party has the option of avoiding or ratifying the contractual obligation.
   11. 
       Unenforceable
       
       —A valid contract that cannot be enforced because of some statute or law.
   12. 
       Void
       
       —No contract exists.
   13. 
       Quasi contract
       
       —A fictional contract that is imposed by a court to prevent unjust enrichment of one party at the expense of another.

Agreement—Offer

1. 
   Intention
   
   —There must be a serious, objective intent by the offeror to become bound by the offer. Nonoffer situations include
   1. expressions of opinion,
   2. statements of future intent,
   3. preliminary negotiations,
   4. invitations to bid,
   5. advertisements and price lists, and
   6. live and online auctions.
2. 
   Definiteness
   
   —The terms of the offer must be sufficiently definite to be ascertainable by the parties or by a court.
3. 
   Communication
   
   —The offer must be communicated to the offeree.
4. 
   Termination of the offer
   
   —The offer can be terminated either by the action of the parties or by operation of law.
   1. The parties can either revoke or reject the offer. Some offers, such as a merchant’s firm offer and option contracts, are irrevocable. A counteroffer is a rejection of the original offer and the making of a new offer.
   2. An offer terminates by operation of law through a lapse of time, destruction of the specific subject of the offer, death or incompetence of the parties, or the supervening illegality of the proposed contract.

Agreement—Acceptance

1. Can be made only by the offeree or the offeree’s agent.
2. Must be unequivocal. Under the common law (mirror image rule), if new terms or conditions are added to the acceptance, it will be considered a counteroffer.
3. Except in a few situations, an offeree’s silence does not constitute an acceptance.
4. Communication of acceptance depends on the nature of the contract. In a unilateral contract, full performance is called for. In a bilateral contract, communication of acceptance is necessary because acceptance is in the form of a promise.
5. Acceptance in bilateral contracts must be timely and takes effect when the offeree sends or delivers the acceptance via the mode of communication authorized by the offeror.

Consideration

1. 
   Elements of consideration
   
   —
   1. Something of
      
      legally sufficient value
      
      must be given in exchange for a promise. This may be a promise, the performance of an action, or a forbearance.
   2. There must be a
      
      bargained-for exchange
      
      . The item of value must be given or promised in return for the other party’s promise or performance.
2. 
   Adequacy of consideration
   
   —Adequacy relates to “how much” consideration is given and whether a fair bargain was reached. Courts will inquire into the adequacy of consideration only when fraud, duress, or undue influence may be involved.
3. 
   Contracts that lack consideration
   
   —Consideration is lacking in the following situations:
   1. Preexisting duty—A promise to do what one already has a legal duty to do is not legally sufficient consideration for a new contract.
   2. Past consideration—Actions or events that have already taken place do not constitute legally sufficient consideration.
   3. Illusory promises—When the nature or extent of performance is too uncertain, the promise is rendered illusory (without consideration and unenforceable).
4. 
   Promissory estoppel—
   
   Under the equitable doctrine of promissory estoppel, a person who has reasonably and substantially relied on the promise of another can obtain some measure of recovery. The promise is binding, even though there is no consideration, if injustice can be avoided only by enforcement of the promise.

E-Contracts

1. 
   Online offers
   
   —The terms of online contract offers should be as inclusive as the terms in any other offer. The offer should be displayed in an easily readable format and should include some mechanism, such as an “I agree” or “I accept” box, for accepting the offer. Because jurisdictional issues frequently arise with online transactions, the offer should include dispute-settlement provisions and may include a forum-selection clause.
2. 
   Online acceptances
   
   —
   1. Click-on agreements are created when a buyer, completing an online transaction, is required to indicate her or his assent to be bound by the terms of an offer by clicking on a box that says, for instance, “I agree.”
   2. The terms of a shrink-wrap agreement are expressed inside a box in which goods are packaged. The party who opens the box is informed that, by keeping the goods, he or she agrees to the terms of the shrink-wrap agreement.
   3. Browse-wrap terms do not require the buyer or user to assent to the terms before, say, downloading or using certain software.
3. 
   Federal law on e-signatures and e-documents
   
   —An e-signature is “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) gave validity to e-signatures by providing that no contract, record, or signature may be “denied legal effect” solely because it is in an electronic form.
4. 
   The Uniform Electronic Transactions Act (UETA)
   
   —This uniform act has been adopted, at least in part, by most states, to support the enforcement of e-contracts. The UETA does not apply to certain transactions governed by the UCC or to wills or testamentary trusts.