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Contracts

This section discusses contract law in general. Many types of contracts are governed by special statutes and rules. For instance, contracts for the sale of goods are covered by the Uniform Commercial Code.

Contracts are agreements which are enforceable by courts. Agreements contain promises to do or not do something. Not all promises are enforceable. For instance, a promise to deliver 1000 barrels of something tomorrow to someone for $50 per barrel is not enforceable. If you don't deliver you bear no responsibility. However, if the person you promise to deliver it to agrees to accept delivery and pay the $50 per barrel your promise is enforceable, and so is his.

Enforcement of contracts is a misleading idea. Courts do not usually order parties to a contract to perform what they promised to do. When this is done it is called the remedy of specific performance. However, usually courts only give money damages for non-performance.

To be enforceable contracts must have reasonably definite terms. A promise to deliver "something" is unenforceable. One type of supposed contract that runs afoul of this rule is very common. People make agreements that contain a term that something will be agreed on in the future. This is unenforceable because a court cannot tell what the parties would have agreed on. An example of this is a lease in which the tenant has an option to renew for a rent to be agreed on.

In order to create a contract there must be an offer, acceptance and consideration. The offer is an offer to do something, i.e. I will perform five shows at $500 per show. Acceptance is when the other party agrees to the offer. Consideration is something of value running to the offeror in return for his promise. The something of value is ordinarily the return promise to pay for the shows, as opposed to the actual payment. Performance of the shows and payment for them are acts of performance.

Performance of or a promise to perform what someone is already obligated to do does not constitute consideration. Nor do illegal acts.

Most contracts contain mutual promises. However unilateral contracts do not. This type of contract consists of a promise to do something if the other party does something. For instance a promise to pay $500 per show if a performer puts on 5 shows creates an enforceable contract when the performer puts on the shows. The performer does not have to do so, but if the performer does, the offeror is obligated to pay the $500 per show.

Contracts start with offers. Offers do not last forever. They cannot be accepted after they expire. Many offers have explicit time limits on them. The time limit is part of the offer. When there is no explicit time limit on an offer it is open only for a reasonable time. What is a reasonable time is determined by the type of offer and the circumstances. For instance, an offer to buy tickets for a game will have expired after the game.

Offers must be accepted exactly as they are made or there is no contract. If the response varies any of the terms there is a rejection of the offer and a counter-offer is made. Once rejected an offer cannot later be accepted. An illustration of this is an offer to perform 5 shows for $500 per show at X location on 5 specific dates starting at 8:00 P.M. and with each show lasting 2 hours. If the offeree says "Agreed, but made the shows 2-1/2 hours each", the offer is rejected! A new counter-offer has been made and there is no contract unless all the terms of the counter-offer are accepted. If the performer says "No", and the other party says, "OK then I will take 2 hour shows", there is no contract. The original offer of 2 hour shows was rejected and terminated. The mention of 2 hour shows is now a new offer.

A contract is usually the result of an explicit offer and acceptance. However, sometimes contracts are implied from the acts of the parties and the surrounding facts and circumstances. These are called contracts implied in fact and are a recognition that people can express agreement in ways other than explicit words.

There are also contracts implied in law where there is no actual agreement. These are called quasi-contracts and they exist when a benefit is conferred by one party on another under circumstances that ought reasonably to have shown that the party conferring the benefit expected to be paid and that it would be unjust to retain the benefit without paying fair value.

There is also an area where promises are enforced without consideration. This area is covered by the law of promissory estoppel. Generally a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. It must be reasonable to expect others to rely on it and the other party must actually rely on it. The importance of this concept is that the premise is enforceable without consideration.

When contractual liability is asserted there are various defenses. The usual defenses are:

1. Minority. However a minor can be liable for necessaries. If a minor disaffirms a contract the minor must return the consideration.

2. Lack of mental capacity.

3. Fraud.

4. Mutual (both parties) mistake of a material fact. Mistakes as to the law are not a defense.

5. Statute of Frauds. Some contracts must be in writing to be enforceable. Some of the agreements that must be in writing are agreements that cannot be performed in one year, agreements for an interest in land, agreements for the sale of goods valued at $500 or more and certain others. Among the exceptions are contracts that have been fully performed. They are enforceable whether or not the Statute of Frauds applies and whether or not they are written. Note that if a contract is unenforceable because not in writing quasi-contractual relief may be available. Sometimes the word quantum meruit is used.

6. Unconscionability. This refers to contracts where one party has all the power and in which the terms are unconscionable. This defense rarely works.

7. Impossibility of performance due to an intervening cause.

8. Illegality.

9. Duress. If entry into the contract is not voluntary due to physical compulsion or threats, there is no agreement or contract. Use of bargaining power does not constitute duress.

Third persons can have rights under contracts if the contracts are entered for their benefit. These contracts are called third party beneficiary contracts. An example is where A and B agree that A will clean C's carpets and B will pay A $100. Whether or not B is discharging an obligation to C or merely making a gift to C, C has a right to enforce A's promise.

Rights under contracts can be assigned. Under the contract where A and B agree that A will clean C's carpets and B will pay A $100, A has a right to the $100 if A performs the cleaning. The right can be transferred or assigned, as can other rights under contracts. Ordinarily a contractual right can be assigned unless the assignment would materially change the duty of the promisor or materially increase the burden or risk imposed on him or materially impair his chance of obtaining performance from the other party. The right to receive services under a personal service contract (employee services, services of an architect, etc.) is ordinarily not assignable. A's duties ordinarily cannot be transferred or delegated.

Whether or not contract rights or duties are assignable or delegable under applicable law, they can always be made assignable or delegable or not as part of the contract.

When there is a breach of contract, an unexcused failure to perform, the other party is usually given damages, rather than specific performance. The rules of damages vary, but are usually intended to make the injured party whole. A party who was supposed to be paid something for that party's performance gets the amount of the payment due, if the performance has been rendered. A party who was supposed to get something of value sometimes gets the difference between the price agreed and the market price. Or, if the party has already paid the paying party sometimes gets the money back. If a party was supposed to get services, the damages are often set at the difference between the contract price and the actual cost of getting the services elsewhere. In some cases lost profits can be recovered, but the burden is on the injured party to prove them with certainty. In no case, absent a provision in the contract or a statute providing therefor, are attorneys fees and the costs of suit recoverable.

 

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Donald M. Thompson * Chicago Contract Lawyers - 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email:
donthompsonlaw@sbcglobal.net