Chapter 10 Principles of Contract Law

Contract Law Terminology Formation of Contracts Formality of Contracts Basic Issues Terminology Formation of Contracts Formality of Contracts Performance of Contracts Contracts and Third Parties 8-1

Contractual Terminology Types of Contracts Based on Enforceability Valid, enforceable Voidable Invalid, unenforceable, void Based on Form Bilateral v. Unilateral Based on Expression Express contracts Implied-in-fact contracts Implied-in-law contracts Based on Performance Executory v. Executed 8-2

Types of Contracts Bilateral Contract Unilateral Contract Based on Form Bilateral Contract Promises are exchanged Bill promised to pay $75 for Betty’s collection of CDs; Betty promises to deliver the CDs upon payment of $75 Unilateral Contract Promise made in anticipation of performance Betty promises to pay $200 when Bill has set up the computer system in Betty’s office 8-3

Types of Contracts Express Contract Implied-in-Fact Contract Based on Expression Express Contract Typical situation regardless of contract being in writing or orally stated Mutually stated agreement Implied-in-Fact Contract Based on parties’ conduct Example: Self-serve gas station 8-4

Types of Contracts Implied-in-Law Contract Quasi-contract Based on Expression Implied-in-Law Contract Quasi-contract Legal remedy to prevent unjust enrichment Example You notice that your neighbor’s child is mowing your grass (as he/she has done in the past) and you say nothing - you will be expected to pay a fair value for this service 8-5

Types of Contracts Executed Contract Executory Contract Example Based on Performance Executed Contract The expected performance of all parties is completed Executory Contract The expected performance of the parties has not yet occurred Example Bill has paid the $75 he promised, but Betty has not delivered the CDs 8-6

Remedies for Breach Legal Remedies (Money) Equitable Remedies Compensatory Damages Consequential Damages Liquidated Damages Punitive Damages Equitable Remedies Specific Performance Rescission Restitution

Formation of Contracts Elements of Valid Contracts Offer Expression of willingness to be committed Acceptance Expression of mutual assent Consideration Inducement to become contractually obligated Competent Parties Mentally able adults Beware of Minors Incapacitated parties Lawful Purpose 8-7

Meeting of the Minds -- Mutual Asset Offer and Acceptance Meeting of the Minds -- Mutual Asset Olivia says, “Art, are you interested in buying my used laptop computer for $450?” Is there an offer? If Art says, “Yes, I will buy your laptop for $450.” Is there an agreement? What exists now? If Olivia responds, “Great, I will deliver it to you tomorrow in class at 10:00.” What do we have now? 8-8

Consideration Motivating Influence What does offeror expect? What does offeree expect? Benefit & Detriment Analysis Promisor either wants To gain a benefit Or have promisee suffer a detriment Or both Example: Bill and Betty Bilateral Unilateral 8-9

Consideration Benefit-Detriment Analysis Bill promises to pay $75 for Betty’s collection of CDs; Betty promises to deliver the CDs upon payment of $75 What is the consideration? Benefits and Detriments exchanged What did Bill gain and Betty suffer and vice versa 8-10

Consideration Benefit-Detriment Analysis Betty promises to pay $200 when Bill has set up the computer system in Betty’s office Where is consideration now? When does the contract become valid and enforceable? Issue of Adequacy/Mutual Exchange Not generally a matter of concern Why? 8-11

Voidable Contracts Minors Incapacitated Adults Mistake Competent Parties & Other Issues Minors Power to avoid obligation Return existing consideration Necessaries Incapacitated Adults Mistake Bilateral -- voidable agreement Unilateral -- enforceable agreement Fraud/Misrepresentation Duress & Undue Influence 8-12

Formality of Contracts Orally Stated v. Written Document General Rules Statute of Frauds Types of Cases Interest in Land Secondary Promise Performance Beyond One Year Goods over $500 Exceptions Part Performance Judicial Admissions Parol Evidence Rule Negotiations v. Amendments 8-13

Performance of Contracts Analysis of Conditions Types of Conditions Example Bill promises to pay $75 for Betty’s collection of CDs; Betty promises to deliver the CDs upon payment of $75 Concurrent Precedent Subsequent Insurance notification example 8-14

Performance of Contracts Analysis of Conditions Satisfying Conditions Substantial Performance Betty promises to pay $200 when Bill has set up the computer system in Betty’s office Excuses for Nonperformance Impossibility Impracticability 8-15

Third Parties’ Interest Beneficiaries Donee Creditor Assignments Betty Bank Of Rights Obligee (Assignor), Assignee Tenant assigns the right to live in apartment Bill Computer Services Of Duties Obligor (Assignor), Assignee Tenant delegates obligation to pay rent to landlord Impact on nonassigning original parties 8-16