Chapter 9 Contracts: Nature and Terminology

2004 West Legal Studies in Business A Division of Thomson Learning

Introduction
Promise is a declaration that something will or
will not happen in the future. What is a Contract?
Contract is an agreement (based on a promise) that can be enforced in court.

What law governs?

Service contracts - common law of contracts. Sale and lease contracts - Uniform Commercial Code (UCC).
2004 West Legal Studies in Business A Division of Thomson Learning

1: Function of Contract Law

Designed to provide stability and predictability,
as well as certainty, for both, buyers and sellers in the marketplace. Necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief.

2004 West Legal Studies in Business A Division of Thomson Learning

2: Definition of a Contract
A contract is a:
Promise or set of promises, For breach of which, The law provides a remedy, or The performance of which the law in some way recognizes as a duty.

Objective Theory of Contacts. Circumstances to

determine intent of parties.
2004 West Legal Studies in Business A Division of Thomson Learning

3: Elements of a Contract
Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Defense:
Legality. Genuineness of assent. Form.
2004 West Legal Studies in Business A Division of Thomson Learning

4: Types of Contracts
Bilateral v. Unilateral.
Bilateral - Offeree must only promise to perform (promise for a promise). Unilateral - Offeree can accept the offer only by completing the contract performance (promise for an act). Irrevocable: Offer cannot be revoked once performance has begun.
2004 West Legal Studies in Business A Division of Thomson Learning

Types of Contracts
Express v. Implied In Fact.
Express: Words (oral or written). Implied In Fact: Conduct creates and defines the terms of the contract. Requirements:
PL furnished good or service PL expected to be paid DEF had chance to reject and did not.

Case 9.1: Homer v. Burman (2001).

2004 West Legal Studies in Business A Division of Thomson Learning

Types of Contracts [3]

Quasi Contracts - Implied in law.
Fictional contracts created by courts. Imposed on parties for the interest of fairness and justice. Equitable remedies. Quantum Meruit.

Case 9.2: Industrial Lift v. Mitsubishi (1982).

2004 West Legal Studies in Business A Division of Thomson Learning

Types of Contracts [4]

Formal v. Informal.
Executed v. Executory.
Executed - A contract that has been fully performed on both sides. Executory - A contract that has not been fully performed on either side.

2004 West Legal Studies in Business A Division of Thomson Learning

Enforceability
Valid.
Elements: Agreement, consideration, contractual capacity, and legality.

Void.
No contract.

Voidable (unenforceable).
Valid contract can be avoided or rescinded.

2004 West Legal Studies in Business A Division of Thomson Learning

10

5: Interpretation of Contracts
Plain Meaning Rule: Courts give terms their obvious
meaning. Ambiguous Terms. If terms are ambiguous, court will attempt to interpret ambiguous contract terms in a reasonable, lawful, effective manner. Contracts are interpreted as a whole. Terms negotiated separately given greater weight. Ordinary, common meaning given.

2004 West Legal Studies in Business A Division of Thomson Learning

11

Interpretation of Contracts
Ambiguous Terms (contd)
Specific wording given greater weight than general language. Written or typewritten given greater weight than preprinted. Ambiguous terms interpreted against the drafter. Trade usage, prior dealing, course of performance to allowed to clarify.

Case 9.3: Dispatch Automation v. Richards

(2002).
2004 West Legal Studies in Business A Division of Thomson Learning

12

Law on the Web

Lectric Law Library on Contracts.
Legal Research Exercises on the Web.

2004 West Legal Studies in Business A Division of Thomson Learning

13