1 Chapter Outline 1. The Function of Contract Law 2. Definition of a Contract 3. Elements of a Contract 4. Types of Contracts 5. Interpretation of Contracts11

2 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. –Formed by two or more competent parties who agree, for consideration, to perform or refrain from performing some legal act now or in the future.

3 Contract vs. Promise Promise: A persons declaration that she will or will not make something happen in the future. Promisor: The person making the promise. Promisee: The person to whom the promise is made. Contract: An agreement between two or more competent parties, for valuable consideration, to perform or refrain from performing some act now or in the future. Offeror: The person proposing an agreement. Offeree: The person to whom proposition (the offer) is made.

4 §3: Elements of a Contract Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Defense: –Legality. –Genuineness of assent. –Form.

5 §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.

6 Objective Theory of Contract: The parties assent is judged not by the subjective intent of each party, but by the objective intent that a reasonable person, similarly situated would understand the parties to have.

7 Types of Contracts 1. Bilateral or Unilateral 2. Express, or Implied in Fact, or Quasi contract 3. Formal or Informal 4. Executed or Executory 5. Valid, Void, Voidable, or Unenforceable

8 §4: Types of Contracts Every contract has at least two parties: the Offeror and the Offeree Bilateral Contracts --Offer and Offeree exchange promises to each other (a promise for a promise). --A contract is formed when Offeree promises to perform.

9 §4: Types of Contracts Unilateral Contracts: Offeror wants performance in exchange for his promise (a promise for and act). Contract is formed when Offeree performs. Rewards are good examples. Revocation of Offer: modern view is that offer is irrevocable once the Offeree substantially performs.

10 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).

11 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).

12 Types of Contracts [4] Formal v. Informal. Formal: require special form or method to be enforceable, e.g., under seal. Informal: all other contracts.

13 Types of Contracts [4] 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.

14 Enforceability Valid. –Four Elements: Agreement, consideration, contractual capacity, and legality (legal purposes). Void. –No contract. Voidable (unenforceable). –Valid contract can be avoided or rescinded by one of the parties.

15 §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.

16 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).