SDO 515 - Module 1 – Intro to Contracts
Contract Concepts and Sources of Law
What is a contract?
o A contract is a legally enforceable agreement between two or more parties
Can be oral or written
o It creates the “private law” governing the parties’ relationship
o Courts enforce these private, voluntary agreements on the premise that they contain
mutually beneficial exchanges (goods or money)
o Contracts relate to almost every area of our personal and business dealings
Types of Contracts
o Sales of Goods Contracts
Goods = all things movable at the time of identification to a contract for sale
o All Other Contracts
Services contracts
Sale of real property contracts
Employment contracts
Sale of intangible property (securities)
What makes a contract enforceable?
o Mutual Assent
Both parties have agreed to the terms
Offer + Acceptance = Mutual Assent
o Consideration
Bargained-for exchanges or promises
o Definiteness
Sufficient detail so that a court can identify a breach
o Exceptions/Defenses
Possible defense: a contract will not be enforceable if it was entered into by a
party that was mentally incapacitated
Breach of Contract
o A party has not performed a contractual duty or promise when it was due
o Mandatory duties vs. conditional duties
Mandatory – Required to be performed, if not performed there is a breach
Conditional – promise to do something only if a certain condition is done first
For example – in a mortgage, a buyer will buy the house on the
CONDITION that they can obtain financing
o Sometimes, there is an allowable excuse of nonperformance
Remedies
o The types of damages that a court may award in the event of a breach of contract
Most common is monetary
Subjective vs. Objective tests
o Subjective = what a specific person actually thought
o Objective = what a reasonable person under the circumstance would have thought
o Much of contract law applies an objective test
Intent of the Parties
o Contracts are generally interpreted to adhere to parties’ intent at the time of
contracting
This is a subjective test, specific to the parties involved
Freedom of contracting
o Contract law starts with the premise that individuals have the right to contract with
another party as they see fit
o Assumes parties will not voluntarily agree to a contract that is not mutually beneficial
o However, sometimes the law steps in and decides not to enforce certain contracts,
such as contracts where one party is mentally incapacitated.
Sources of Law relevant to contracts
o Common law
o Statutory law
o Restatement of contracts
Common Law
o Contract law is primarily based on common law
o Common law is the law made by the courts when deciding individual legal disputes
o State courts (not federal courts) have jurisdiction over a large majority of contract
disputes
o Courts follow the principle of stare decisis (precedent)
o What is precedent?
When an opinion of a federal or state court of appeals establishes a legal
principle or rule, it must be followed by lower courts within the same
jurisdiction when faced with similar legal issues
An Arizona court of appeals decision must be followed by trial courts in
Arizona when they are faced with similar legal issues with similar facts
Courts will not follow precedent when the facts are distinguishable in way that
is legally significant
*Keep in mind – this concept only applies to courts within the same
jurisdiction
Statutory Law
o Legislatures enact statutes (laws) that apply to some types of contracts
o Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of
goods
Goods = all things movable at the time of contracting
Mixed contracts: if predominant factor is sales, then UCC applies
Purchase of AC unit, but also purchase the installation. The primary
factor of this contract is obtaining the goods of the AC. Therefore, it
would be governed by the UCC
o Each state’s legislature adopts the UCC in whole or in part.
When a contract deals with goods, the UCC governs
Courts apply the UCC to disputes, but may not alter the law
Restatement
o The Restatement (second) of Contracts does not create or contain any binding law
o It contains the general principles of common law applied by the state courts
o It provides an excellent summary of the relevant law and is relied upon by judges as
persuasive authority
o It sets forth the common legal principles, but you must always confirm the binding
law of the relevant jurisdiction
o Only applies to the common law
o Does not apply to sales of goods contracts
Offers & Definiteness
Mutual Assent
o Offer + Acceptance = Mutual Assent
Restatement Definition
o Section 24: An offer is the manifestation of willingness to enter into a bargain, so
made as to justify another person in understanding that his assent to that bargain is
invited and will conclude it
o There must be an “offer” for there to be an enforceable contract
Four Parts of an Offer
o 1 - A manifestation of willingness
o 2 - To enter into a bargain
Implies there will be an exchange of performances
Offer cannot be to simply give a gift
o 3 - That justifiably appears to invite an offeree’s acceptance
o 4 - And that acceptance justifiably appears to conclude that transaction
o A proposal is an offer only if the recipient, the “offeree” justifiably believes that his
acceptance is invited
The offeror may extend their offer to anyone they wish to
Objective Approach
o Whether an offer exists is based on what an objective, reasonable person would have
thought under the circumstances
o The unexpressed, subjective intent of the offeror is not significant
o The subjective “understanding” of the specific offeree is not significant
What is relevant is whether a reasonable person under similar circumstances
would have believed that the four elements of an offer have been met
Is there an offer in the following?
o “I might consider selling you my old computer for $150”
Objectively – does not appear this would be an offer as it doesn’t appear there
exists a manifestation of willingness to enter into a bargain. The word “might”
suggest that the offeror is not at the point where the offeree could reasonably
believe that by accepting a contract has been concluded
o “I’d like to give you my old computer”
Does not appear that a definition of an offer has been met. Sounds more like
the offeror is suggesting a gift
o “I’m thinking about selling my old computer”
Does not appear to suggest a manifestation of willingness to enter into a
bargain
o “I’d like to sell my old computer for $150”
There is a valid offer. The individual who is hearing the offer should
reasonably be justified in accepting
Offers made in Jest
o Jest negates assent if a reasonable person would have realized the words were not
serious
o Risk lies with the person intending to speak in jest
o Focus is on what the listener is justified in believing
Illustration of offer made in Jest
o Party A and Party B were having drinks at a bar. Party A says to Party B: “Hey, why
don’t you sell me your motorcycle for $100. You never drive it anymore anyway.”
Party B replies: “Yeah, right. Come by tomorrow and I’ll give you my motorcycle
worth $1,200 for just $100.” Party A states: “Great, why don’t we both sign this bar
napkin to memorialize our deal.” Party A signs the bar napkin. B states: “I’ll sign this
bar napkin. You may want to save my autograph for when I become famous one day.”
B signs the napkin. When A comes to pay for the motorcycle, B claims he was
joking.
Based on these facts, it appears that a reasonable person in A’s position would
understand that B’s offer was made in jest.
There is not actual mutual assent to enter into a contract
Preliminary Negotiations
o Sometimes a party presumes too early that others have expressed their intent to
contract
o Question: whether a reasonable person would have concluded that the agreement
reached concluded the negotiations and formed a contract
o Negotiations often proceed over time; it is when a reasonable person would have
understood that all of the terms that the parties deem important have been agreed to
Illustration of Preliminary Negotiations
o Party A stated to Party B that he would like to hire her to develop a website for his
new company. A and B discussed the content of the website, the host platform, and
reviewed B’s portfolio. At the end of the meeting, A said “you seem like the perfect
person for the job. Let’s talk again tomorrow about details.” In an effort to make a
good impression, B went home and started working on the website. The next day, A
called and decided against entering into a contract. B claims that a contract was
formed.
In this scenario it does not seem reasonable for B to conclude that a contract
was formed. When A stated “you seem like the perfect person for the job”, she
also stated “let’s talk again tomorrow about the details.” Suggesting that there
was no manifestation of an intent to enter into a contract at that moment in
time
If B had stated right then: “I accept your offer,” it is more reasonable that A
would have advised they are just negotiation and haven’t yet gotten to a point
that a contract has been formed.
Written Contract to Follow
o Even though a writing may not be required to enforce a contract, sometimes parties
do not intend to be bound until a writing is executed
o Parties can make the execution of a written contract a condition to entering into a
binding contract
o The court must determine parties’ intent from their objective words and conduct.
Illustration of Written Contract to Follow
o Over the course of two weeks, the parties negotiated the terms of an agreement to
supply goods. During the initial phone conversation, Party A stated that her attorney
would draft up the final written contract. After the two-week period, the parties had
agreed to all of the relevant contract terms, except the specific details about delivery.
At the end of the last meeting, Party B stated “So, we have a deal!” B claims there
was a binding oral contract.
A may try to claim that she did not intend to be bound until there was a
written contract executed by both parties.
Applying the objective approach, the court would probably find that there was
an oral contract formed.
Unclear expressions create the risk that obligations may be imposed
Advertisements
o Generally, advertisements are not considered offers
o Advertisements are considered invitations for potential customers to make offers
o Customers become the offerors when they bring the item to the cash register to pay
o Historical exception: if the add is “so clear, definite, and explicit that it leaves nothing
open for negotiation”
o Modern courts have determined that the public is not justified in believing that their
assent to an ad will conclude a transaction and form an enforceable contract
o Customers cannot sue for breach if the item advertised is unavailable or different than
stated in advertisement.
Definiteness
o Definiteness is a requirement of contract formation
o Two components:
A promise must be sufficiently clear to provide a court with a basis for
determining whether it has been breached
A promise must be sufficiently clear to provide with a basis for awarding a
remedy for breach
o Definiteness does not require that every single detail be specified by the parties
o To constitute a failure to form a contract, the terms must be so vague that it is not
clear whether the parties intended to contract
o If the courts find that the parties DID intend to form a contract, courts will fill in gaps
or missing terms, if they can determine that the parties intended to enter into a
binding contract.
Illustrations
o 1 – A homeowner and a landscaper agree that the landscaper will provide
“landscaping services.” The parties do not discuss what services will be provided, the
cost, or the frequency
Likely that the lack of definiteness will prevent a court from enforcing a
contract, hard to find an intent to be bound
o 2 – Same as above, except the parties decide on specific landscaping services and the
cost per hour
Appears as though the only thing the parties have not agreed on is the
frequency and timing of the services. The court would likely find that the
parties intended to be bound. There is sufficient detail in the contracts term.
The court would be able to use gap fillers to fill in the frequency or timing
Revocation of Offers
o An offeror may revoke or withdraw his offer at any time before acceptance
o Revocation = the offeror’s manifestation of an intention not to enter into the proposed
contract.
o Ways to revoke an offer:
Direct communication from the offeror or their agent to the offeree
Indirect revocation from a third party
Indirect revocation
o To qualify as a revocation when the information is indirectly received by the offeree,
the message must involve three things
1 – definite actions taken by the offeror
2 – must be consistent with an intent to enter into the contract, and
3 – information about those actions came from a reliable source
o For example, the buyer’s real estate broker advises that seller accepted another party’s
offer for the house
Revocation of General Offers
o When dealing with general offers to the public at large, revocation is effective if:
The revocation received publicity equal to that of the offer
Unless a better means of notification was reasonably available
When is the Revocation Effective?
o Revocation must be made prior to the offer being accepted
o Revocation of an offer is effective upon receipt of the offeree
o Restatement section 68: a written revocation is received when the writing comes into
the possession of the person addressed, or of some person authorized by him to
receive it for him, or when it is deposited in some place which he has authorized as
the place for this or similar communications to be deposited for him.
Irrevocable Offers
o Offerors may promise to keep offers open for a specified time period
o Unless consideration was paid for the promise, it is not enforceable
Also called an “option contract”
o Exception under UCC
Firm offers are irrevocable without the need for consideration
Firm offers are:
1 – made by merchants
2 – in a signed writing
3 – they provide assurance that the offer will be held open until a
particular date
Contract Formation under UCC provision 2-204
o A contract for a sale of goods made be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the … contract
o An agreement … may be found even though the moment of its making is
undetermined
o Even though … terms are left open, a contract … does not fail for definiteness if the
parties have intended to make a contract and there is a reasonably certain basis for
giving an appropriate remedy
Reading and Analyzing Legal Opinions
Parts of a Legal Opinion
o 1 - Caption
o 2 - Headnotes
o 3 - Opinion
Majority decision
Concurring Decision
Dissenting Decision
Disposition of the Case
Caption
o Name of the case
o Parties – Plaintiff/Defendant or Appellant or Appellee
o Date – the date the decision was rendered
o Court – where the decision was decided
Headnotes
o Not part of the decision at all
o Drafted by the publisher of the decision
o Give you a general understanding of the issues involved in the decision
o Do not carry any authority
Opinion
o Majority
That which creates the binding authority
Written by the justices that created the majority decision
o Concurring
Sometimes a justice agrees with the decision but for different reasons,
therefore they choose to draft their own concurring decision
o Dissenting
Written by Justices that disagree with the decision
This part does not create any binding law, but sometimes contains relevant
information
o Disposition
Who the case was decided in favor of.
Critical Reading Method
o Read each case two times:
First, skim it to get a general idea of what is going on
Second, read the case critically, focusing on the purpose of the material and
why you are reading it
o Interact with the document while you are reading
Read each sentence and ask yourself what the purpose of that sentence is
Digest every paragraph before you move on to the next
Focus on legally significant details
o You should be able to explain the case to another person if you truly understand it
o Do not skip sentences if you do not understand them, look it up
Basic components of a case brief
o Caption
Case name
Court
Date
o Facts
Necessary/legally significant facts
Background facts
o Procedure
Basic information on how the dispute got to the court that decided the case
o Issues
Legal issues to be decided by the court
Question about what law means
Questions about how or whether the law applies
o Rule
Applicable law or rule relied on by court to resolve the issue: common law or
statutory elements
Inherited rule vs. processed rule
Inherited – a rule that was already in existence prior to hearing the
current case
Processed – how the court applied the inherited rule differently
o Holding
Court’s decision; resolution of the issues
Sets precedent
Different than the disposition of the case
Generally, the holding is the court’s application of the rule of law to
the relevant facts of the case
o Reasoning/rationale
Explanation for the holding
Reasons are the steps in the logical process that the court used to get to its
holding
Rationale are usually the “social or policy justifications” for a court’s decision
o Dictum
Court’s pronouncement of law which is unnecessary to resolution of parties’
dispute
Why include this?
The dictum often gives the reader some insight as to why the court
decided the way it did
Explanation behind the rationale of the court’s decision
The facts of the case that the reader is focusing on, may be different
than the facts that the court focused on.
Example Case Decision:
**PROCEDURE**
Action by Joseph Hoffman (hereinafter ‘Hoffman’) and wife, plaintiffs, against defendants Red
Owl Stores, Inc. (Hereinafter ‘Red Owl’) and Edward Lukowitz.
The complaint alleged that Lukowitz, as agent for Red Owl, represented to and agreed with
plaintiffs that Red Owl would build a store building in Chilton and stock it with merchandise for
Hoffman to operate in return for which plaintiffs were to put up and invest a total sum of $18K;
that in reliance upon the above mentioned agreement and representation plaintiffs **269 sold
their bakery building and business and their grocery store and business; also in reliance on the
agreement and representations Hoffman purchased the building site in Chilton and rented a
residence for himself and his family in Chilton; plaintiffs’ actions in reliance on the
representations and agreement disrupted their personal and business life; plaintiffs lost
substantial amounts of income and expended large sums of money as expense. Plaintiffs
demanded recovery of damages for the breach of defendants’ representations and agreements.
The action was tried to a court and jury. The facts hereafter stated are taken from the evidence
adduced at the trial. Where there was a conflict in the evidence, the version favorable to the
plaintiffs has been accepted since the verdict rendered was in favor of plaintiffs.
**ISSUES**
Because we deem the doctrine of promissory estoppel, as stated in sec. 90 of Restatement, 1
Contracts, is one which supplies a needed tool which courts may employ in a proper case to
prevent injustice, we endorse and adopt it.
Applicability of Doctrine to Facts of this Case
The record here discloses a number of promises and assurances given to Hoffman by Lukowitz
on behalf of Red Owl upon which plaintiffs relied and acted upon to their detriment. Foremost
were the promises that for the sum of $18K Red Owl would establish Hoffman in a store. After
Hoffman had sold his grocery store and paid the $1,000 on the Chilton lot, the $18K figure was
changed to $24,100. Then in November, 1961, Hoffman assured that if the $24,100 figure were
increased by $2,000 the deal would go through. Hoffman was induced to sell his grocery store
fixtures and inventory in June, 1961, on the promise that he would be in his new store by fall. In
November, plaintiffs sold their bakery building on the urging of the defendants and on the
assurance that this was the last step necessary to have the deal with Red Owl go through.
**HOLDING**
We determine that there was ample evidence to sustain the answers of the jury to the questions of
the verdict with respect to the promissory representations made by Red Owl, Hoffman’s reliance
thereon in the exercise of ordinary care, and his fulfillment of the conditions required of him by
the terms of the negotiations he had with Red Owl.
**DISPOSITION**
Order affirmed.
