Contracts Definition

A promise that the law will enforce.

Development of Contract Law Common law once required all contracts to

be in writing, with a seal affixed.

Later, some payment was required before a

contract could be enforced.

Mutual promises became enforceable in the

1600’s.

By the 1900’s, courts began to consider the

fairness of contracts before enforcing them.

Auckland University of Technology

College of Engineering

Contract Law in

Engineering Presented by

Prof. Tomas Ucol-Ganiron Jr

Types of Contracts (or Agreements)

Bilateral and Unilateral Contracts

Bilateral: both parties make a promise.

Unilateral: one party makes a promise that the other party can accept only by doing something

Bilateral vs. Unilateral Express vs. Implied

Executory vs. Executed

Valid vs. Unenforceable vs. Voidable vs. Void

Types of Contracts (cont’d)

Express and Implied Contracts

Express: the two parties explicitly state all

important terms of their agreement.

Implied: the words and conduct indicate

that the parties intended an agreement.

Executory and Executed Contracts

Executory: when one or more parties has

not fulfilled its obligations.

Executed: when all parties have fulfilled

their obligations.

Types of Contracts (cont’d)

Valid, Unenforceable, Voidable, and

Void Agreements

Valid: satisfies the law’s requirements.

Unenforceable: when the parties intend to

form a valid bargain but some rule of law

prevents enforcement.

Voidable: when the law permits one party

to terminate the agreement.

Void: one that neither party can enforce,

usually because the purpose is illegal or

one of the parties had no legal authority.

Sources of Contract Law

Common Law

Uniform Commercial Code

UCC Article 2 governs the sale of

goods. “Goods” means anything

moveable, except for money,

securities, and certain legal rights.

In a mixed contract, Article 2 governs

only if the primary purpose was the

sale of goods.

Elements of a Contract Agreement

offer, and

acceptance

Consideration There has to be bargaining that leads to

an exchange between the parties.

Legality The contract must be for a lawful purpose.

Capacity The parties must be adults of sound mind.

Meeting of the Minds

The parties can form a contract only if they had a

meeting of the minds.

They must understand each other and intend to

reach an agreement.

A judge will make an objective assessment of

any disagreements about whether a contract

was made -- whether or not a reasonable

person would conclude that there was an

agreement, based on the parties’ conduct.

Objective Theory of Contract: Lucy v. Zehmer

Negotiation Terms

JOE BOB

Offer Accept or

Reject or

Accept or Counteroffer

Reject or

Counteroffer

Offer

Problems with Intent Invitation to bargain is not an offer. Price quote is generally not an offer. An advertisement is generally not an offer. Placing an item up for auction is not an offer, it

is merely a request for an offer.

Problems with Definiteness

The term of the offer must be definite.

An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms.

Definiteness/Invitations to Bargain

I’ll give a blueberry muffin and a cup of coffee to the first person who shows up next class in class in a full clown suit and makeup.

Would you consider showing up in a full clown suit and makeup if I gave you a blueberry muffin and a cup of coffee?

I couldn’t take less than $400 for that 1974 Dodge Dart.

General common law rule: all important/essential terms (price, quantity, etc.) must be specified. EXCEPTIONS: UCC situations, and where industry practice suggests how the missing terms will be filled in. E.g., seafood restaurant example.

Termination of Offers Termination by Revocation

Effective when the offeree receives it.

Firm Offers and Revocability

Common Law Rule

Revocation of a firm offer is effective if the

offeree receives it before he accepts.

Option Contract

The offeror may not revoke an offer during the

option period.

Sale of Goods

A writing signed by a merchant, offering to hold

an offer open, may not be revoked.

Termination of Offers (cont’d) Termination by Rejection

If an offeree rejects an offer, the rejection immediately terminates the offer. A counteroffer operates as a rejection.

Termination by Expiration

When an offer specifies a time limit for acceptance, that period if binding.

If the offer specified no time limit, the offeree has a reasonable period in which to accept.

Acceptance The offeree must say or do something

to accept.

In a bilateral contract, the offeree generally must accept by making a promise.

In a unilateral contract, the offeree must accept by performing.

Mirror Image Rule (Common Law)

Requires that acceptance be on precisely the same terms as the offer.

Normile v. Miller

Mirror Image Rule

1. Stan offers Eric $6 for Eric’s Carl Yastremski rookie

baseball card.

2. Eric answers, “ Throw in a bag of cheesie poofs and

you’ve got a deal.”

3. Stan responds, “I’ll do you one better. Let’s meet back

here in 20 minutes.”

4. In 20 minutes Stan returns with $6 and Eric’s favorite

meal – a chicken nugget happy meal.

5. Eric refuses to give Stan the card, saying he’s having

second thoughts.

DID STAN AND ERIC HAVE A DEAL?

UCC and the Battle of Forms Where the UCC applies, an offeree may include

in the acceptance terms that are additional to or different from those in the offer.

Additional terms are those that bring up new issues. If both parties are merchants, the additional terms will

generally become part of the contract.

Different terms are those that contradict terms in the offer. The majority of states hold that different (contradictory)

terms cancel each other out/UCC fills gaps.

Why have this rule? What terms must be agreed upon? What about material alterations? What sorts of terms are “material”?

Communication of Acceptance

Wucherpfennig v. Dooley

and Manner of Acceptance

If an offer demands acceptance in a particular

medium or manner, the offeree must follow

those requirements.

If the offer does not specify a type of

acceptance, the offeree may accept in any

reasonable manner and medium.

Time of Acceptance: The Mailbox Rule

An accceptance is generally effective upon

dispatch, meaning the moment it is out of the

offeree’s control.

Consideration

Bargaining that leads to an exchange

of value between the parties.

Consideration can be anything that

someone might want to bargain for. It

is the inducement to make the deal, or

the thing that is bargained-for.

McInerny v. Charter Golf

What is the consideration

supporting each promise?

1. Stan agrees to pay Eric $6 for Stan’s baseball

card; exchange to take place next Tuesday.

2. Professor promises to give a cup of coffee and a

blueberry muffin to the first person to come into

class in a full clown suit and makeup.

3. I agree to pay you $500 for your lovely painting,

“Dogs Playing Poker (on Velvet)”.

4. I promise to pay my son $100 if he does not watch

South Park for one year.

A Bargain and an Exchange

The thing bargained for can be:

another promise or action.

a benefit to the promisor or a detriment to

the promisee.

a promise to do something or a promise to

refrain from doing something.

“Bargaining is obligating yourself in

order to induce the other side to

agree.”

Mutuality of Obligations

Illusory Promise

If one party’s promise is conditional, the other party

is not bound to the agreement.

Promise to pay in return for past favors.

Is this consideration?

Was it bargained-for?

Passante v. McWilliam

Preexisting Duty

A promise to which the promisor is

already obligated is not consideration.

Exceptions:

If the scope of the promisor’s task increases,

that increase is consideration.

When unforeseen circumstances cause a party

to make a promise regarding an unfinished

project, that promise is valid consideration.

Must be something beyond normal risk

assumed by the parties.

Exceptions to the Requirement of

Consideration: Promissory Estoppel

Promise meant to induce action,

On which the promisee reasonably relies

To his/her detriment

Is enforceable in the absence of consideration

Supervisor was pleased with employee’s work

In March, Supervisor promised employee that she would get 5% of the company stock as a Christmas bonus

Employee turns down several higher paying job offers between March and December

Supervisor never made good on that promise

Employee sues to enforce the promise.

RESULT?

Promissory Estoppel (cont’d)