Essay: Contracts Chapter

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Contracts

Chapter 1 introduces the general notion of a contractual agreement by underlining the relationship between promise and consideration, in terms of making such a relation enforceable. According to the introduction to chapter 1, a promise becomes enforceable if there is such a consideration, namely a benefit received by the promisor or a detriment of the promisee.

While a bargain is an exchange of promises or acts, the second part of the chapter on consideration deals with the general approach to bargains (as a general rule, most bargains constitute considerations) and with the exceptional cases when bargains are not consideration.

Such exceptions include nominal consideration (a situation when the consideration does not really reflect the actual contractual situation: paying too little for a higher value, for example), promises to surrender or forbear from asserting a legal claim (which can be deemed consideration, but only if it is honest or reasonable. In some situations, depending on the authorities, a written release is sufficient, without the honesty clause) or illusory promises (in which one of the parties makes an illusory promise, while the other party makes a real promise. In this case, none of the parties is bound to the bargain). Chapter 1 also discusses the legal duty rule as another exception.

For a bilateral contract to exist and function, the parties involved in it need to exchange a promise for a promise, which means that the contract requires the mutuality of obligation (referred to as the mutuality rule). There are certain exceptions to that rule as well, which are detailed subsequently in the chapter: unilateral contracts, limited promises, voidable, conditional or alternative promises, requirement and output contracts or agreements to allow one party to supply a material term.

Chapter 1 continues to detail some of the relevant elements of contracts, including notion such as accord and satisfaction or the waiver (as always detailed, the chapter continues to explain the situations when the waiver is enforceable and when it can be retracted). The last parts of the chapter deal with unrelied and relied-upon donative promises and with moral and past consideration.

Chapter 2 presents the notion of mutual assent as the fundamental of a contractual relationship. According to this notion, the contract takes place and is formed by the mutual assent of the party. The writers propose the objective theory of contracts, by which the fact whether there is a mutual assent between parties can be decided through the judgment and understanding of a third reasonable person, when the case is presented to that contract. Some particular contracts are the express contracts, described as contract where the mutual assent is expressed in words of agreement, and implied contracts (both in fact and in law).

The chapter continues to discuss in detail the two actions that need to be concluded in order for a mutual assent to take place: offer and acceptance. As the book clearly mentions, the offer "creates a power of acceptance," which means that once the firm offer is made, the contract can be concluded through the acceptance of the offeree (binding the offeror). This part of the chapter explains the elements that make up an offer and points out to the rules that are used in special situations, such as advertisements or offering circulars. The power of acceptance is considered to be terminated in several different cases, including when the offer has expired, when it has been rejected by the offeree, when there is a counteroffer or when there is a conditional acceptance of the offer. All these situations are amply discussed and described in the chapter.

Following the part detailing particularities of the offer, chapter 2 moves on to analyze the perspective of the accepting side. The promise mandatory rule is introduced as the general rule, meaning that an offer can be accepted only by a promise (promissory acceptance). Chapter 2 explains the particularities of the acceptance offer in the case of a unilateral contract and the differences that appear between this type of contract and a bilateral one. The chapter also deals with certain cases when silence does denote the acceptance of the contract.

Once the acceptance is concluded, the chapter presents the conclusions as to when the contract can be considered to be effective and when the rights and obligations deriving henceforth start. As a general rule, the contract is considered to be effective on the dispatch of the acceptance. The last two parts of the chapter are concerned with the interpretation of the contract and the parol evidence rule.

Regarding the interpretation, the approach that the book takes is similar to other chapters: the general rule is presented and exceptions are addressed after that. This is also used in the paragraphs referring to the parol evidence and to the rules and exceptions that govern its application.

Chapter 3 discusses defenses, namely those situations and conditions in which an agreement may not be enforced by the authority. The general rule presents the terms that are required for that to occur: there are incomplete terms or the terms cannot be determined with reasonable certainty. The chapter notes, both in the introductory paragraphs and in a specific section dealing with the U.C.C. provisions, that a contract does not become invalid if some terms were omitted, if the parties clearly wanted to conclude a contract. In such cases, the court can fill these gaps by implication.

The chapter continues to detail some of the omissions that can occur and the ways that the court can fill these gaps by implication (according to a specific framework). Some of the most important ones include the omission of price or time for performance in a contract. In terms of the former, while many of the contracts in the present day lack this element (most likely due to confidentiality issues), a reasonable price can be estimated by the court and used as the implied price. Similarly, a reasonable time for performance can also be implied by the court.

Another situation where a defense is possible is in the case of a mistake. There are several types of mistakes described in this subchapter, the most important ones being the mutual mistake and the unilateral mistake. In the case of the mutual mistake, other than the fact that both parties entered the contract under a mistake, one should also mention the fact that the mistake needs to have a material effect on the contract for it to be voidable.

In the case of a unilateral mistake, one of the parties made a mechanical error when entering the contract. As usual, the book goes into minute details to describe the different categories that can appear in each case, depending on whether the other party was aware of the mistake (in the case of a unilateral mistake) etc. The subchapter is completed with several other types of mistakes that can be used as defenses, including mistranscription, misunderstanding or mistakes that were induced by communication problems when an intermediary was involved.

The chapter continues to detail situations where misrepresentation, nondisclosure, duress or undue influence can represent proper defenses in contractual relations. Each of these particular situations are detailed before the chapter moves on to uncoscionability, statute of frauds and lack of contractual capacity. The latter includes three different situations when a contract is voidable: if a minor, a person lacking full mental capacity or a person who has been drugged or drunken are parties to the contractual relation. Finally, the chapter ends with a final situation when the contract can be voidable: when the contract is illegal.

Chapter 4 deals with third-party rights and obligations. The general framework of this case is described in the very beginning of the chapter: one can discuss third-party rights and obligations when the contractual agreement between two parties benefits a third party. As a general rule, the respective third-party beneficiary cannot enforce the contract on the other two parties, but in modern practice, this is not often the case. Usually, it is in cases when the third-party beneficiary is a creditor or a donee that he or she can sue, and not when the beneficiary is incidental. The chapter continues detailing particular situations, such as government contracts or subcontractor vs. prime contractors contractual relations where one of the third-party beneficiaries could sue. At the same time, the chapter does a good job of mentioning what some of the defenses that the promisor can use against the beneficiary.

The second part of the chapter deals with the assignment of rights and delegation of duties. This is an ample subchapter that starts with the basic nature of an assignment and continues to discuss how rights are assigned and other issues regarding assignments of rights, including general requirements for effective assignment, effectiveness of assignments of future rights and wage assignments.

Chapter 5 refers to the performance and breach of contracts and what the parties can do in the respective situations. The bottom line, fundamental rule of contract performance is that each party has an obligation… [END OF PREVIEW]

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