122 MODULE 23 CONTRACTS

CONTRACTS
ferent under the UCc. Since the common law and the
UCC rules have much in common, you will be learning
contract law in the most understandable and efficient
manner.
Contract law is tested by multiple-choice questions.
You need to know the essential elements of a contract
because the CP A examination tests heavily on offer and
acceptance. Also, understand that an option is an offer
supported by consideration. Distinguish between an op-
tion and a firm offer and understand how these are af-
fected by revocations and rejections. You need to com-
prehend what consideration is and that it must be bar-
gained for to be valid. The exam also requires that you
understand that "past consideration" and moral obliga-
tions are not really consideration at all. You should have
a solid understanding of the Statute of Frauds.

Once a contract is formed, third parties can obtain

rights in the contract. An assignment is one important
way this can happen.

If a contract is not performed, one of the parties may

be held in breach of contract. Notethat the possible
remedies include monetary damages, specific perfor-
mance, liquidated damages, and anticipatory repudiation.

Overview
The area of contracts is very heavily tested on the
CP A examination. A large portion of the contract rules
serves as a basis for many other law topics; consequently,
a good understanding of the material in this module will
aid you in comprehending the material in other modules.

It is important that you realize that there are two sets

of contract rules to learn. The first is the group of
common-law contract rules that, in general, apply to con-
tracts that are not a sale of goods. Examples of contracts
that come under common law are those that involve real
estate, insurance, employment, and professional services.
The second set is the contract rules contained in Article
Two of the Uniform Commercial Code (UCC). The UCC
governs transactions involving the sale of goods (i.e., tan-
gible personal property). Hence, if the contract is for the
sale or purchase of tangible personal property, the provi-
sions of the UCC will apply, and not the common law.
For every contract question, it is important that you de-
termine which set of rules to apply. Fortunately many of
the rules under the two sets are the same. The best way
for you to master this area is to first study the common-
law rules for a topic. Then review the rules that are dif-

A. Essential Elements of a' Contract

1. Offer
1. Acceptance
a. When offer and acceptance have occurred, an agreement is said to have been made
3. Consideration
4. Legal capacity
5. Legality (legal purpose)
6. Reality of consent
a. Technically not a true element, but important to consider because may be necessary for enforce-
ability of contract

7. Statute of Frauds
 a. Not a true element, but each factual situation should be examined to determine whether it applies
because certain contracts must be in writing to be enforceable, as explained later

B. Types of Contracts

1.Express contract-terms are actually stated orall:yor in writing •

2. Implied contract-terms of contract not specifically given but some or all of terms are inferred from
conduct of parties and circumstances- -
3. Executed contract-one that has been fully performed .
3. Executory contract-one that has@been fully performed by both patties
4. Unilateral contract-o~ party gives promise for completion of requested act
EXAMPLE: A promises to pay B $1,000 to cross the Golden Gate Bridge onfoot within one week. This is a unilateral
offer. Once B does the act it is a unilateral contract.

6. Bilateral contract-each party exchanges promises

EXAMPLE: A promises to deliver lOO widgets to Bfor $1,000 and B promises to buy and pay for them.
7. . Voidable contract--one that is enforceable unless party that has right pulls out of contract