Chapter 10 Contracts-Nature and Terminology (Terms)

Valid Contract

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

Quasi Contract

An obligation or contract imposed by law (a court), in the absence of an expressed or implied agreement, to prevent the unjust enrichment of one party.

Why is contract law important?

Contract law is necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief.

Offeree

the person to whom an offer is made to enter into a contract

Offeror

the person who makes the offer

Implied Contracts

A contract that is implied from the conduct of the parties is called an implied contract or an implied-in-fact contract.

Voidable Contract

A contract that may be legally avoided (canceled, or annulled) at the option of one of the parties.

Executed Contract

a contract that has been fully performed by both parties

Quantam Meruit

"as much as deserved" Quantum meruit essentially describes the extent of compensation owed under a contract implied in law.

Expectancy vs Restitution Based recovery

1) Goal: put the aggrieved party in the same position if the contract was performed 2) Expectancy interest: goal is not restitution or punishment 3) Restitution: restores status quo

Formal Contract Examples

1) negotiable instruments, which include checks, drafts, promissory notes, and certificates of deposit 2) Letters of credit, which are frequently used in international sales contracts (see Chapter 23), are another type of formal contract. 3) Letters of credit are agreements to pay contingent on the purchaser's receipt of invoices and bills of lading (documents evidencing receipt of, and title to, goods shipped).

Other Rules of Interpretation

1. A reasonable, lawful, and effective meaning will be given to all of a contract's terms 2. A contract will be interpreted as a whole 3. Terms that were the subject of separate negotiation will be given greater consideration than standardized terms and terms that were not negotiated separately 4. A word will be given it ordinary, commonly accepted meaning, and a technical word or term will be given its technical meaning, unless the parties clearly intended something else 5. Specific and exact wording will be given greater consideration than general language 6. Written or typewritten terms will prevail over preprinted ones 7. A party who uses ambiguous expressions is held to be responsible for the ambiguities 8. Evidence of usage of trade, course of dealing, and course of performance may be admitted to clarify the meaning of an ambiguously worded contract

What are the four requirements of a valid contract?

1. Agreement 2. Consideration 3. Contractual Capacity 4. Legality

What are the 6 types of contract formation?

1. Bilateral—A promise for a promise. 2. Unilateral—A promise for an act (acceptance is the completed performance of the act). 3. Formal—Requires a special form for creation. 4. Informal—Requires no special form for creation. 5. Express—Formed by words (oral, written, or a combination). 6. Implied—Formed by the conduct of the parties.

What are the 2 types of contract performance?

1. Executed—A fully performed contract. 2. Executory—A contract not fully performed.

Requirements for Implied Contracts

1. The plaintiff furnished some service or property. 2. The plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected. 3. The defendant had a chance to reject the services or property and did not.

What are the four factors of enforceability?

1. Valid—The contract has the necessary contractual elements: agreement (offer and acceptance), consideration, legal capacity of the parties, and legal purpose. 2. Voidable—One party has the option of avoiding or enforcing the contractual obligation. 3. Unenforceable—A contract exists, but it cannot be enforced because of a legal defense. 4. Void—No contract exists, or there is a contract without legal obligations.

Objective theory of contracts

3rd party involved. A theory 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.

Void Contract

A contract having no legal force or binding effect.

Contract

A contract is a legally binding agreement between two or more parties who agree to perform or to refrain from performing some act now or in the future.

Formal Contract

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

Promisee

A person to whom a promise is made.

Promisor

A person who makes a promise.

promise

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

Plain Meaning Rule

A rule of interpretation which states that words in a contract should be given their ordinary meaning.

Unenforceable Contract

A valid contract rendered unenforceable by some statute or law.

Contract Formation

Bilateral (A promise for a promise) or Unilateral (A promise for an act) Formal (requires a special form) or Informal (Requires no special form) Express (words) or Implied (actions)

Javier offers to buy Ann's digital camcorder for $200. Javier tells Ann that he will give her the $200 for the camcorder next Friday, when he gets paid. Ann accepts Javier's offer and promises to give him the camcorder when he pays her on Friday. Javier and Ann have formed a bilateral contract. What type of contract is this?

Bilateral Contract Example

Uniform Commercial Code (UCC)

Body of laws governing commercial transactions between a merchant and the sale of goods at $500 or greater in the United States.

What are the 2 sources of law that govern contracts?

Common law and Uniform Commercial Code (UCC)

Common Law versus Uniform Commercial Code (UCC) contracts

Common law is for contracts for services and interest in real property but UCC for sales of goods priced at $500 or more and contracts between merchants Common law mirror image acceptance required but UCC any manner that shows agreement to contract (words, actions writing) Common law essential terms must be definite but UCC quantity term required; other terms may be filled with gap fillers

What type of contract is contests, lotteries, and other competitions involving prizes?

Contests,lotteries, and other competitions involving prizes are examples of offers to form unilateral contracts. If a person complies with the rules of the contest—such as by submitting the right lottery number at the right place and time—a unilateral contract is formed, binding the organization offering the prize to a contract to perform as promised in the offer. If the person fails to comply with the contest rules, however, no binding contract is formed

What type of contract is this? A signed lease for an apartment or a house is an express written contract. If one classmate calls another on the phone and agrees to buy his textbooks from last semester for $300, an express oral contract has been made.

Express Contract

True or False An unenforceable contract can occur because a party failed to satisfy a legal requirement of the contract

False If a party failed to satisfy a legal requirement of the contract; it is a valid contract. An unenforceable contract is only rendered unenforceable by some statute or law.

True or false A quasi contract is used even when there is a written contract?

False. The doctrine of quasi contract generally cannot be used when there is an actual contract that covers the matter in controversy.

What are the three aspects of a contract?

Formation Performance Enforceability

Suppose that a business owner needs an accountant to complete his tax return this year. He notices an accountant's office in the neighborhood. He drops by the firm's office, explains his problem to an accountant, and learns what fees will be charged. The next day, he returns and gives the receptionist all of the necessary information and documents, such as W-2 forms. Then he walks out the door without saying anything expressly to the accountant. In this situation, the business owner has entered into an implied contract to pay the accountant the usual and reasonable fees for her services. What type of contract is this?

Implied contract

Implied contract vs. Express Contract

Implied- conduct of the parties, rather than their words, creates and defines the terms of the contract. Express: stated in word (Note that a contract may be a mixture of an express contract and an implied contract. In other words, a contract may contain some express terms, while others are implied.)

Informal Contracts (Simple Contracts)

No special form is required (except for certain types of contracts that must be in writing), as the contracts are usually based on their substance rather than their form.

A vacationing physician is driving down the highway and finds Potter lying unconscious on the side of the road. The physician renders medical aid that saves Potter's life. Although the injured, unconscious Potter did not solicit the medical aid and was not aware that the aid had been rendered, but Potter received a valuable benefit. What type of contract is this?

Quasi Contract In such a situation, the law will impose a quasi contract, and Potter normally will have to pay the physician for the reasonable value of the medical services rendered.

Restatements of the Law

Summaries of common law rules in a particular area of the law. Restatements do not carry the weight of law but can be used to guide interpretations of particular cases.

Rules of Contract Interpretation

The plain meaning rule Other rules for interpretation

When can a unilateral contract be revoked?

The present- day view, is that an offer to form a unilateral contract becomes irrevocable—cannot be revoked—once performance has begun.

Reese says to Celia, "If you drive my car from New York to Los Angeles, I'll give you $1,000." Only on Celia's completion of the act—bringing the car to Los Angeles—does she fully accept Reese's offer to pay $1,000. If she chooses not to accept the offer to drive the car to Los Angeles, there are no legal consequences. What type of contract is this?

Unilateral Contract

Bilateral Contract

a bilateral contract is a "promise for a promise." No performance, such as payment of funds or delivery of goods, need take place for a bilateral contract to be formed. The contract comes into existence at the moment the promises are exchanged.

Unilateral Contract

a unilateral contract is a "promise for an act." The time of contract formation in a unilateral contract is not the moment when promises are exchanged but the moment when the contract is performed

executory contract

contract not fully performed on both sides

Contract Law

the body of legal rules that relate to the formation, discharge, and breach of legal promises

What is contract performance?

the degree to which they have been performed. 1) A contract that has been fully performed on both sides is called an executed contract. 2) A contract that has not been fully performed by the parties is called an executory contract. 3) 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, but the contract is still classified as executory. EX: Jackson, Inc., agreed to buy ten tons of coal from the Northern Coal Company. Northern delivered the coal to Jackson's steel mill, where it is being burned. At this point, the contract is executed on the part of Northern and executory on Jackson's part. After Jackson pays Northern, the contract will be executed on both sides.

Express Contract

the terms of the agreement are fully and explicitly stated in words, oral or written.