CONTRACT LAW
I.DEFINITION
A contract has been defined as “an agreement between two or more persons consisting of a promise or mutual promises which the law will enforce or the performance of which the law in some way recognized as a duty”. A contract has also been defined as “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty”.
The essence of a contract is mutuality. A contract requires an agreement between two or more persons. It is impossible for one person to make contract or for two persons to contract if they have not agreed on the terms of the contract. A common expression of the requirement of mutuality is that there must be a “meeting of minds”. This generally recognizes that parties to a contract must come to some understanding that has similar, if not identical, implications in their minds.
Another essential element of a contract is the idea of a bargained exchange. A gratuitous promise is usually not enforceable as a contract. For example, if I promise to give you $500 and you say you’ll take it, a contract is not formed. A gratuitous promise does not create a meeting of the minds but merely shows an intention on my part to do something that I may or may not follow through on.
II. CLASSIFICATION
Formal and informal contracts
A formal contract is one that is binding because of the form of the contract. Formal contracts include contracts under seal, negotiable instruments, and such.
Express and implied
Express contracts are formed where the agreement of the parties is in oral or written form. If the agreement of the parties and its terms are inferred from their actions, the contract is said to be implied or implied in fact.
Unilateral and bilateral
A unilateral contract is a contract is in which a promise of one party is exchanged for performance by the other party. A bilateral contract is one in which each party makes a promise to the other.
Executed and executory
An executed contract is one in which all parties have performed their obligations under the contract. An executory contract is one in which the performances have not been completed. Voidable, valid and void
A contract that is voidable is one in which one of the parties has a right to select to avoid or disaffirm his or her obligation, e.g., a contract entered into by a minor. Unless the selection is made, the law will enforce the contractual obligation. A valid contract is one which is either voidable nor void. A void contract is a nullity from its inception.
III. OFFER AND ACCEPTANCE
a. Offer
Generally, in order for a contract to be formed, one party must take an offer to the other. The party making the offer is called the offeror; the party receiving the offer is called offeree. A statement that purports to be an offer must be definite and certain and must show the intent to make an offer. A statement by an individual to another like “I would like to sell you my car for $100. Do you wish to purchase it?” is a definite and certain offer showing intent. A statement like “I am thinking about selling my car for $100” is not an offer because it lacks certainty as to the offeror’s intent to sell.
The intent of the offeror to make an offer is of primary importance. Though it is impossible to know what is happening in the mind of an individual, one can look to circumstances surrounding the transaction to determine the intent of the offeror. Courts use an objective standard to determine intent. If a reasonable person would interpret the statements and circumstances to create an offer, it will be interpreted as such even where the offeror had not intended to make an offer.
Communication is a second important element of an offer. The communication need not be words, but the offeree must be aware of the offer. A person who is not aware of the offer cannot accept it.
Termination of an offer occurs with the occurrence of one of several events: acceptance by the offeree, revocation by the offeror, rejection by the offeree, death or insanity of the offeror or offeree, subsequent illegality of the subject matter of the offer, destruction or prior sale of the
subject matter, expiration of the time stated in the offer, or expiration of a reasonable period of time.
b. Acceptance
The nature of acceptance is strictly defined. An acceptance must conform to the terms of the offer. An acceptance that makes only minor changes will not be considered a rejection. The specific determination of whether a change is a major or minor one is a matter of fact that has to be determined in each situation. An acceptance that adds terms may operate either as an acceptance or a rejection. If the additional terms are major, the acceptance will operate as a rejection of the original offer and become a counteroffer. If the new terms are minor in comparison with the rest of the contract, then the acceptance will be effective.
Communication of acceptance take various forms. An acceptance creates a contract. In order for an acceptance to take place, it must be communicated to the offeror. The most desirable medium to communicate an acceptance to an offer is the same that was used by the offeror to communicate the offer to the offeree. An acceptance, if communicated in the same manner as the offer, is effective when the acceptance is placed into the channels of communication.
Consideration if there has been an offer and an acceptance, a contract is normally created. a promise that is unsupported by consideration，however, even if accepted, does not create a contract. If i promise to pay you $500 and you say that you accept my promise, a contract does not result. There is no reason why i should pay you this money, and though i may fulfill my gratuitous promise, it will not be enforced by law. Consideration is giving something that has value to another party (benefit) or giving up something that has value to oneself(detriment). For a contract to exist, consideration must go both ways. Courts recognize that there is a determent to the promisors if they agree to do something they are not otherwise obliged to do or agree to refrain from doing something which they have a right to do.
A promise that is so indefinite and uncertain that it cannot be enforced cannot be consideration. Such promises are often referred to as illusory because they appear enforceable when, in fact, they are not.
If a person promises not to do something that he or she has no right to do in the dirst place, it is nor consideration. Consideration is also nor present where a person does something that he or she is already legally obligated to do. Where a promise is made to do something as a result of moral obligations, many cours take the position that there is no legal consideration.
V. DECEIT, DURESS, AND MISTAKE
Deceit has several subcategories. Where two parties have exchanged what appears to be consideration and entered into what appears to be a contract, there are several defenses that may be raised that will cause the contract to be voidable by one of the parties. The first of the defenses is fraud, which is defined as an intentional misrepresentation of a material fact made for the purpose of inducing another person to rely upon that fact to do something that would not otherwise have been done.
Misrepresentatio n, a second act that allows a party to a contract to disaffirm the contract, is essentially the same as fraud except that a misrepresentation need not have been made intentionally, puffing is another aspect to consider. Not every statement that is untrue constitutes deceit. It is important that there be a misstatement of a material fact. An opinion or comments such as are generally recognized as salespersons puffing are not statement of fact and, therefore, would not constitute an act of decit. Furthermore, if a particular fact is misrepresented but it is not material (i.e., knowledge of the true state of facts would not have caused a person to change his or her conduct), then disaffirmance of the contract would not be allowed. It is also essential for the defense of deceit to precail that the palintiff has relied on the statement of the defendant and not on some independent source.
Duress and indue influence comprise a second category of acts that allows one party to a contract to disaffirm the contract. Duress is any action taht causes individuals to do something that they would not otherwise have done or to refrain from doing something that they would otherwise do. Undue influence is taking advantage of a differencce in the bargaining capacity of parties that results from a special position that is occupied by one of the parties. Undue influence exists where there is a special obligation on the part of the stronger party to protect the interests of the weaker party. This obligation is referred to under law as a fiduciary obligation. It exists in relationships such as attorney-client, doctor-patient, executor-beneficiary(under a will), and trustee-beneficiary(in a trust arrangement).
Mistakes come in several kinds, some of which make the contract voidable. A mistake is
different from ignorance or the exercise of poor judgement. If you purchase a piece of property with knowledge of the fact that is has thousands of dollars worth of marketable timber on it and i, the selller, am unaware of this fact, this is a situation of ignorance and poor judgement; there has been no mistake.
VI. CAPACITY
Despite the presence of an offer and an acceptance, freely given by both parties, and consideration, the law recognized that contracts are entered into by certain persons shall be voidable by those persons. The two major categories of persons who lack capacity to enter into a contract are minors and persons who have a degree of mental limitation because of insanity or drunkenness. A contract entered into by a person who lacks contractual capacity bacause of one of the preceding reasons will be voidable by the person who lacks the capacity.
VII. THIRD PARTY BENEFICIARY CONTRACTS
A contract entered into between two individuals specifying that a third individual is to reveive certain rights is called a third party beneficiary contract. There are three types of third party beneficiary contracts:creditor beneficairy, donee beneficiary, and incidental benefic iary. These contracts are distinguished by two features. The first is the beneficiary’s relationship to the promisor, and the second the the beneficiary’s rights with respect to the contract.
VIII. DISCHARGE AND REMEDIES
A discharge of contract is anything that will cause a binding promise to cease to be binding. Discharge may result from performance, breach of contract of disaffirmance, release, discharge of a joint debtor, novation, material alteration, merger and such. In addition, certain laws, such as subsequent illegality or bankruptcy or both will also cause a contract to be discharged. Remedies are alternatives the individual who has been harmed has when a contract has been diachrged because of a wrongful act. These alternatives are called remedies and include monetary damages, which can be liquidatedm conpensatory or punitive. Damages are computed by taking into consideration what the individual, who is not guilty of the breach, has lost from the other individual’s actions. These damages can include wages, and such. Another remedy that may be available is pecific performance. Specific performance is a mandate by the court ordering the defendant to perform under the terms of the original agreement. This remedy is appropriate when a specific, unique, and unusual property exists, such as real estate or reare antiques and monetary compensation woule be inadequate or inappropriate.