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ACC 405 OUTLINE

Spring Contracts Basics

Four Elements of a Valid Contract

1. Agreement (Offeror makes offer & Offeree accepts)

2. Consideration (Bargained for exchange)

3. Contractual Capacity (Legal ability to enter a K)

4. Lawful object (K must have a lawful purpose and/or subject)

Two categories of Defenses Against Contract Enforcement

1. Lack of Genuine Assent

· Mistake (Unilateral v. Mutual)

· Misrepresentation (Innocent v. Negligent v. Fraudulent)

· Undue Influence

· Duress

· Unconscionability

2. Lack of Proper Form* (does this K need to be in writing?)

Classification of Contracts

· Bilateral (promise for a promise) v. Unilateral (promise in return for performance)

· Express (written or spoken words) v. Implied (based on actions of the parties)

· Executed (all terms fully performed) v. Executory (a term remains to be fulfilled)

· Formal (K requires special form due to nature of K) v. Informal (no formalities)

· Valid (all elements satisfied), Void (illegal, adjudicated insane), or Voidable (minors, crazy, impaired – can withdraw)

· Quasi-contract is an implied-in-law contract to avoid unjust enrichment

Agreement (Element 1)

· Requires Offer & Acceptance

· Valid offer has 3 requirements:

1. Manifestation of offeror’s intent to be bound (reasonable person standard)

2. Definite and certain terms

3. Communication of offer to offeree

· Offer can be terminated 5 ways:

1. Revocation by offeror before acceptance by offeree

2. Rejection by offeree (counter-offer is a rejection and a new offer)

3. Death or incapacity of offeror

4. Destruction or subsequent illegality of subject matter

5. Lapse of time/Failure of condition(s) specified in offer

· Valid acceptance has 3 requirements

1. Manifestation of offeree’s intent to be bound (silence generally insufficient)

2. Identical terms of offer (Mirror Image Rule)

3. Effective when communicated to offeror (Mailbox Rule)

Consideration (Element 2)

· Something of value, given in exchange for something else of value, which is the product of a mutually bargained for exchange

· Generally there must be consideration for contract to be enforceable

· Exception: Promissory estoppel (ex – aunt condo Costa Rica)

· Forbearance of a legal right can be consideration (Ex. I will not smoke for a year)

· No consideration: Gift, illusory promise, past consideration, pre-existing duty (unless unforeseen circumstances)

· Requirement Ks and Output Ks require parties to act in “good faith” – UCC Ks

Capacity (Element 3)

· Those adjudicated insane completely lack capacity = VOID

· Minor may disaffirm K up to a reasonable time after reaching age of majority = VOIDABLE

· Minor can ratify a K after they reach age of majority (implied or express)

Legality (Element 4)

· K must have legal subject matter and performance must be legal. IF illegal = VOID.

Contracts in Writing

· *Statute of Frauds applies to: (these types of Ks need to be in writing to be enforceable) MYLEGS

· Contracts for land

· Contract to pay the debts of another (guarantor)

· Promise in consideration of marriage

· Sale of goods > $500

· Performance of K requires more than one year

Third Party Rights to Contracts

· Obligor owes duty; Obligee is owed duty

· Assignment of contract rights: Obligor, Obligee/Assignor, Assignee

· Delegation of contract duties: Obligee, Obligor/Delegator, Delegatee

· Intended third party beneficiary can sue (life insurance)

· Incidental third party beneficiary cannot sue (Circle K example)

Discharge and Remedies

· Performance is the most common cause of discharge

· Material breach

· Anticipatory breach/repudiation is a breach occurring before performance is due

· In anticipatory breach, non-breaching party immediately discharged and can sue

· Mutual rescission – We both walk away

· Types of damages: Compensatory, Consequential, Punitive, Nominal, Liquidated

· Non-breaching parties have a duty to mitigate their damages

· Review damage calculation slides Re: Substitute goods & Substitute work