P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction to Contracts PA E TR HC 9 “Contracts are agreements made up of big words and little type.” Sam Ewing, quoted in Saturday Evening Post, May 1993

Learning Objectives  Nature of contracts  Basic elements of a contract  Basic contract types  Non-contract obligations 9 - 5

 Not every promise is legally enforceable  When a set of promises has the status of contract, a person injured by a breach of that contract is entitled to call on the government (courts) to force the breaching party to honor the contract  Contract law is ancient law, but has evolved to reflect social change Contracts 9 - 6

 (1) agreement (2) between competent parties (3) based on genuine assent of the parties that is (4) supported by consideration, (5) made for a lawful purpose, and (6) in the form required by law, if any  See Figure 1, page 276 Elements of a Contract 9 - 7

 Bilateral contracts : two parties make promises to one another  Unilateral contracts : one party makes promise  Valid contract : enforceable agreement  Voidable contract : agreement otherwise binding, but circumstances allow one party to avoid binding nature or enforcement  Void contract : agreement prohibited by law Contract Concepts and Types 9 - 8

 Express contract : agreement of parties manifested by written or oral words  Implied contract : agreement not shown by words, but by acts and conduct of parties  Difference between express & implied contracts relates to manner of proving the existence of the contract, not the effect; one or the other arises Contract Concepts and Types 9 - 9

 Two bodies of law govern contracts: Article 2 of Uniform Commercial Code (UCC) and the common law of contracts  UCC is statutory law in every state  Contains nine articles  Article 2 expressly applies to contracts for the sale of goods [2–102] (numbers in brackets refer to specific Code sections) Sources of Governing Law

 Many contracts involve goods and services The UCC and Hybrid Contracts

 United Nations Convention on Contracts for the International Sale of Goods (CISG) is a body of contract rules that harmonizes contract principles from many legal systems  CISG automatically applies to a contract for sale of goods between commercial parties from signatory nations to CISG unless the parties expressly opt out of CISG by contract International Contract Law

 Courts may enforce an obligation to pay for certain losses or benefits even in absence of mutual agreement and exchange of value  Quasi-contract is an obligation imposed by law to prevent unjust enrichment of one party in certain circumstances  Plaintiff recovers reasonable value of benefit conferred on defendant (reasonable price) or value of labor ( quantum meruit ) Non-Contract Obligations

Non-Contract Obligations  A court may apply doctrine of promissory estoppel when one party relies upon another party’s promise to his or her detriment ( detrimental reliance ), but there’s no contract  Court will force promisor to fulfill promise or pay compensation

Review 9- 15

Test Your Knowledge  True=A, False = B  Every promise is legally enforceable  The main element of a contract is fairness  In a bilateral contract, two parties make promises to one another  The UCC is statutory law in every state  The UCC applies to the sale of goods and services

Test Your Knowledge  Multiple Choice  A void contract refers to an agreement that is:  (a) binding and enforceable agreement  (b) otherwise binding, but due to circumstances surrounding execution or lack of capacity, may be rejected at option of one party  (c) without legal effect because prohibited by law  A non-contract obligation does not include:  (a) Quasi-contract theory  (b) Promissory estoppel  (c) The CISG doctrine  (d) Quantum meruit

Though Question  What contracts have you entered into recently?