BLAW, CH. 10: Nature and classification

What happens if the offerror revokes the offer to the offeree, even though the offeree has already begun performance ?

- *traditional view*: revocation can occur at any time prior to acceptance ex: even though Jin has not yet accepted the offer by complete performance, Seiko is prohibited from revoking it. Jin can deliver the boat and bind Seiko to the contract. -*contemporary view*: once performance has been substantially completed, the offeror can not revoke the offer ex: even though Jin has not yet accepted the offer by complete performance, Seiko is prohibited from revoking it. Jin can deliver the boat and bind Seiko to the contract.

Revocations of offers for unilateral contracts:

- A problem arises in unilateral contracts when the promisor attempts to revoke (cancel) the offer after the promisee has begun performance but before the act has been completed.

To avoid disputes over contract interpretation, make sure your intentions are clearly expressed in your contracts:

- Careful drafting of contracts not only helps prevent potential disputes over the meaning of terms but may also be crucial if the firm brings a lawsuit or needs to defend against a lawsuit for breach of contract. By using simple, clear language and avoiding legalese, you can take a major step toward avoiding contract disputes. - legalese: parties may sometimes agree that a contract has been formed but disagree on its meaning or legal affect

Contractual obligations ...

- No one can avoid contractual obligations by claiming that she or he did not read the contract. A contract normally is interpreted as if each party had read every word carefully. - but if the contract's language is not clear, courts apply several rules in interpreting contractual terms ex: Jim and Kathy have a contract with a term that is not clear. Kathy and Jim both have a different interpretation of the contract. If Kathy wrote the contract, a court will: accept Jim's interpretation because Kathy wrote the contract.

Sources of contract law: What type of laws govern contracts?

- The common law governs all contracts except when it has been modified or replaced by statutory laws or agency regulations * common law: governs contracts involving services, real estate, employment and insurance *Uniform Commercial Code (UCC): governs contracts involving sale and lease of goods * agency regulations: government contacts - Contracts relating to services, real estate, employment, and insurance, for example, generally are governed by the common law of contracts.

What is a contract?

- it is formed by 2 or more parties who agree to perform or refrain from performing some act now or in the future - an exchange of promises - an agreement - voluntary creation of obligations where none existed b/f - an agreement containing obligations enforceable by law (in court)

TYPES OF CONTRACTS: Formal vs Informal contracts:

1) *Formal Contract:* agreement that requires a special form or method of creation (formation) to be enforceable - Negotiable instruments: checks, drafts, promissory notes, and certificates of deposits that must follow a special form and language per the UCC 2) *Informal Contract*: agreement does not require a specific form or method of creation to be valid Based on substance rather than form

Types of contracts, based on their state of performance:

1) *executed contract*: a contract that has been fully performed by both parties 2) *executory contract*: a contract that has NOT been fully performed by both parties EX: Jackson, Inc., agreed to buy ten tons of coal from the Northern Coal Company. Northern has delivered the coal to Jackson's steel mill, but Jackson has not yet paid. 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.

TYPES OF CONTRACTS: express vs implied contracts

1) *express contract*: the terms of the agreement are fully and explicitly stated in words, oral or written. ex: A signed lease for an apartment or a house is an express written contract. If a classmate accepts your offer to sell your textbooks from last semester for $100, an express oral contract has been made. 2) *implied contract*: an agreement created by actions of the parties involved, but it is not written or spoken. ex: dropping off clothes at dry cleaner, getting a haircut - implied in law - implied in fact ( you know that you will have to pay for a haircut once you walk in )

Types of contracts based on enforceability:

1) *valid contract*: a contract that has the necessary contractual elements: an agreement, consideration, legal capacity of the parties, and a legal purpose.

Types of contacts, based on how they are *formed*:

1) bilateral: a promise for a promise ex: a contract in which one person agrees to buy another person's automobile for a specified price. (The contract comes into existence at the moment the promises are exchanged.) *Javier offers to buy Ann's smartphone for $200. Javier tells Ann that he will give her the cash for the phone on the following Friday, when he gets paid. Ann accepts Javier's offer and promises to give him the phone when he pays her on Friday. Javier and Ann have formed a bilateral contract. * if you promise to repair my car, I'll promise to pay you $350 2) unilateral: a promise for an act - the contract is formed not at the moment when promises are exchanged but rather when the contract is performed. ex: Reese says to Kay, "If you drive my car from New York to Los Angeles, I'll give you $1,000." Only on Kay'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. - if you shovel my driveway today, I'll pay you $25

valid contracts may be:

1) enforceable: a valid contract that cannot be enforced b/c there are no legal defenses against it 2) voidable: a party has the option of avoiding or enforcing the contractual obligation 3) unenforceable: a contract exists, but it cannot be enforced b/c of a legal defense

Objective facts include:

1) what the party said when entering into the contract, 2) how the party acted or appeared, and 3) the circumstances surrounding the transaction.

Even if all requirements of a valid, enforceable contract are met, a contract may not be enforceable if the following are lacking:

1. *Voluntary consent:* consent of both parties must be voluntary and not result from fraud, mistake, or duress (coercion) 2. *Form:* contract must be in whatever form the applicable law requires (e.g., in writing if required) These requirements are typically raised as defenses to the enforceability of what otherwise appears to be a valid, enforceable contract

what is a void contract?

A void contract is not a valid contract—it is not a contract at all.

the function of contracts

Contract law is designed to provide stability and predictability for both buyers and sellers in the marketplace by assuring the parties to these private agreements that the promises they make will be enforceable.

House purchases always are completed with explicit contracts , why?

Contracts for the sale and lease of goods, however, are governed by the UCC—to the extent that the UCC has modified general contract law.

what happens if the contractual promise is not fulfilled?

That party may be required to pay damages for failing to perform the contractual promise. In a few instances, the party may be required to perform the promised act.

Requirements of a valid contract:

The following list briefly describes the four requirements that must be met for a valid contract to exist: 1) *Agreement* An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer. 2) *Consideration* Any promises made by the parties must be supported by legally sufficient and bargained-for consideration (something of value received or promised to convince a person to make a deal). 3) *Contractual capacity* Both parties entering into the contract must have the contractual capacity to do so. The law must recognize them as possessing characteristics that qualify them as competent parties. 4) *Legality* The contract's purpose must be to accomplish some goal that is legal and not against public policy. * If any of these elements is lacking, no contract will have been formed. Each item will be explained more fully in subsequent chapters.

the objective theory of contracts

The view that contracting parties shall only be bound by terms that can be objectively inferred from promises made.

Rules of contract interpretation: the plain meaning rule

The words—and their plain, ordinary meanings—determine the intent of the parties at the time they entered into the contract. A court is bound to give effect to the contract according to this intent.

Types of contracts:

There are many types of contracts. They may be categorized based on legal distinctions as to their *formation*, *performance*, and *enforceability*.

who is a promisee?

a person to whom promise is made

Who is a promisor?

a person who makes a promise

Types of contracts: Quasi "as if" contracts

def: An obligation or *contract imposed by law* (a court), in the absence of an agreement, to prevent the unjust enrichment of one party. - does not arise from any agreement (express or implied) - no contract exists - fictional contracts imposed by a court out of fairness - provides recourses for injured party when no other exists *unjust enrichment*: doctrine which states that individuals should not be allowed to profit or enrich themselves unfairly (i.e., unjustly) at the expense of another *Quantum meruit*: "as much as he/she deserves:, extent of compensation owed under a quasi contract