Business Law Chapter 11 Nature and Terminology

void contract

A contract that is a _____ is no contract. A _____ gives rise to no legal obligation on the part of any party. An illegal contract is, for example, a _____. A contract having no legal force or binding effect.

valid contract

A contract that results when the elements necessary for a contract formation (agreement, consideration, legal purpose, and contractual capacity) are present.

contract

A legally binding agreement between two or more parties who agree to perform or refrain from performing some act now or in the future A promise for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty (in other words, an agreement that can be enforced in court). An agreement that can be enforced in court; formed by two or more parties, each of whom agrees to perform or to refrain from performing some act now or in the future.

objective theory of contracts

A theory that determines intent and under which the intent to form a contract will be judged by outward, objective facts (what the party said when entering into the contract, how the party acted or appeared, and the circumstances surrounding the transaction) as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions.

voidable contract

A valid contract in which one or both of the parties have the option of avoiding his or her legal obligations. If the contract is avoided, both parties are released. If it is ratified, both parties must perform. A contract that may be legally avoided (canceled, or annulled) at the option of one of the parties.

unenforceable contract

A valid contract that cannot be enforced due to certain statutes or law or defenses. For example, a valid contract barred by a statute of limitations is __________ A valid contract rendered unenforceable by some statute or law. The contracts has all of the elements, but there is a problem enforcing.

The Function of Contract Law

All contractual relationships involve promises, but all promises do not establish contractual relationships. Most contractual promises are kept; keeping a promise is generally in the mutual self-interest of the promisor and the promisee. But, contract law is needed to ensure compliance with a promise or to entitle a non-breaching party to relief when a contract is breached.

Case 11.2: Seawest Services Association v. Copenhaver

There was a quasi contract because the Copenhavers knowingly enjoyed and were enriched so they must pay.

Case 11.3: Wagner v. Columbia Pictures Industries, Inc. (2007): Rule

Under the plain meaning rule, extrinsic evidence is not admissible "to show intention independent of an unambiguous written instrument."

Under the plain meaning rule, extrinsic evidence is

not admissible "to show intention independent of an unambiguous written instrument."

With unilateral contracts, offeror is

not seeking an exchange of promises; rather offeror is seeking an act in exchange for its promise

A party who does not fulfill his or her promise - who breaches may be subject to

sanctions, including damages or, under some circumstances, being required to perform the promise.

executed contract

A contract that has been completely performed by both parties.

executory contract

A contract that has not has not yet been fully performed.

Case 11.1: Pan Handle Realty, LLC v. Olins

"There is no evidence in the record to support the defendant's contention that he did not intend to be bound by the lease when he signed it. The defendant's apparent unilateral change of heart regarding the lease agreement does not negate the parties' prior meeting of the minds that occurred at the time the lease was executed. There is ample evidence in the record evincing the intent of the parties to be bound by the lease when they signed it."

Essential Elements of a Contract

(1) agreement, (2) consideration, (3) contractual capacity, and (4) legality

Defenses to the formation or enforcement of a contract include

(1) genuineness of assent (2) form

To establish an implied-in-fact contract:

(1) the plaintiff must have furnished some service or property; (2) the plaintiff must have expected to be paid and the defendant knew or should have known that payment was expected; and (3) the defendant had a chance to reject the service or property and did not.

Under the objective theory of contracts, the objective facts include

(1) what the party said; (2) how the party acted or appeared; and (3) the circumstances surrounding the transaction.

promisee

A person to whom a promise is made.

offeree

A person to whom an offer is made.

promisor

A person who makes a promise.

offeror

A person who makes an offer (promises to do or not to do something)

promise

A person's assurance that he or she will or will not do something

bilateral contract

A promise for a promise Offeree must only promise to perform A type of contract that arises when a promise is given in exchange for a return promise.

unilateral contract

A promise for an act Offeree can accept the offer only by completing the contract performance A contract that results when an offer can only be accepted by the offeree's performance.

Uniform Commercial Code (UCC)

A statutory law that governs all contracts for the sale and lease of goods

Types of Contracts

Bilateral Unilateral Formal Informal Express Implied in Fact

Sources of Contracts Law

Common Law Uniform Commercial Code (UCC)

Examples of unilateral contracts

Contests, Lotteries, and Other competitions involving prizes

If terms are ambiguous, a 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 Specific wording given greater weight than general language Written or typewritten given greater weight than preprinted Course of performance in this contract, prior course of dealing between parties, and usage of trade, in that order, allowed to clarify Ambiguous terms interpreted against the drafter How have they acted in the past? Industry standard?

Plain Meaning Rule

Courts give terms their obvious or ordinary meaning If a court determines that the terms of the contract are clear from the written document alone, the _____ will apply, and the contract will be enforced according to what it clearly states. Under this ______, the meaning of the words must be determined from the face of the instrument—a court cannot consider evidence extrinsic to the document.

extrinsic evidence

Evidence that relates to a contract but is not contained within the document itself, such as the testimony of parties and witnesses, or additional agreements or communications. A court may consider extrinsic evidence only when a contract term is ambiguous and the evidence does not contradict the express terms of the contract.

implied contract or implied in fact contract

Formed at least in part by the parties' conduct The parties' conduct reveals that they intended to form a contract and creates and defines its terms. A contract formed in whole or in part from the conduct of the parties (as opposed to an express contract).

quantum meruit

Latin for "as much as he deserved," the actual value of services performed. Quantum meruit determines the amount to be paid for services when no contract exists or when there is doubt as to the amount due for the work performed but done under circumstances when payment could be expected. Literally, "as much as he deserves"-- an expression describing the extent of liability on a contract implied in law (quasi contract). An equitable doctrine based on the concept that one who benefits from another's labor and materials should not be unjustly enriched thereby by should be required to pay a reasonable amount for the benefits received, even absent a contract.

quasi contract

Not an actual contract-not based on an express promise to pay for a benefit received or on conduct implying such a promise. It is a fictional contract imposed on parties by a court in the interests of fairness and justice to avoid unjust enrichment. Equitable rather than contractual in nature. Equitable remedies. Usually, _____s are imposed to avoid the unjust enrichment of one party at the expense of another.

Silence as Acceptance

Ordinarily, silence cannot be acceptance Silence can operate as acceptance if an offeree takes the benefit of offered goods or services even though he or she had an opportunity to reject and knew that they were offered with the expectation of compensation Silence can operate as acceptance when the parties have had prior dealings in which the offeree has led the offeror reasonably to understand that the offeree will accept all offers unless the offeree sends notice to the contrary

Limitations on Quasi Contractual Recovery

People cannot normally be forced to pay for benefits thrust on them or conferred on them by mistake or negligence. A quasi contract will not normally be imposed when there is a contract that covers the matter.

formal contract

Requires a special form for creation A contract that by law requires a specific form, such as being executed under seal, to be valid.

informal contract

Requires no special form for creation A contract that does not require a specified form or formality in order to be valid.

Consideration

an exchange of promises, something of value, quid pro quo ("something for something")

The law treats a contract largely as

an economic transaction

Defense of Genuineness of assent

consent of both parties must be genuine, e.g., no fraud, duress

Defense of Form

e.g., some contracts must be in writing

Contractual capacity

each party must have the requisite capacity to enter into a contract the parties had legal capacity to contract

If one party has fully performed but the other has not, the contract is said to be

executed on the one side and executory on the other, and it is classified as executory

Common Law

governs all contracts except sale of goods and leases or when statutory law or administrative agency regulations have been modified or replaced it Services Real Estate Employment Insurance

Legality

lawful purpose the contract is for a legal purpose

The contract equals the difference between

making or losing money

When the contract writing is ambiguous, a court will

interpret the language to give effect to the parties' intent as expressed in their contract. A court will not make or remake a contract nor interpret the language according to what the parties claim their intent was when they made it.

A unilateral contract's offer becomes irrevocable once

substantial performance has been completed. [or once performance has begun as publisher's PowerPoints say?]

The foundation for most commercial activity is

the contract

Under the plain meaning rule, the meaning of a contract must be determined by reference to

the face of the instrument, i.e., the contract.

If ambiguities appear in a contract, they ultimately will be construed against

the party who drafted the contract

Contract law shows

what promises or commitments our society believes should be legally binding It shows what excuses our society will accept for the breaking of promises And it shows what kinds of promises will be considered to be against public policy and therefore legally void

Agreement

when the parties agree, through an offer and an acceptance, to form a contract Offer and Acceptance

express contract

which the terms are expressed in words, oral or written Formed by words A contract in which the terms of the agreement are fully and explicitly stated in words, oral or written.