Chapter 1: Legal Ethics 1

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 1.What is a contract? What is the objective theory of contracts? 2.What are the four basic elements of a valid, enforceable contract? 3.What is the difference between an implied contract and a quasi contract?  2

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 4.How does a void contract differ from a voidable contract? What is an unenforceable contract? 5.Why have plain language laws been enacted? What rules guide the courts in interpreting contracts? 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overview of Contract Law 4  Sources of Contract Law. – Common Law for all contracts except sales and leases. – Sale and lease contracts - Uniform Commercial Code (UCC).  Function of a Contract. – Provides stability and predictability for commerce.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overview of Contract Law 5  Definition of a Contract. – Promise or set of promises, – For breach of which, – The law provides a remedy, or – The performance of which the law in some way recognizes as a duty.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Overview of Contract Law 6  Objective Theory of Contacts. – Circumstances to determine intent of parties. – Objective Facts include: What a party said when entering into the contract, How the party acted or appeared (intent may be inferred), and Circumstances surrounding the transaction.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Elements of a Contract 7  Requirements of a Valid Contract: – Agreement (Offer & Acceptance). – Consideration: bargained-for-exchange. – Contractual Capacity. – Legality: purpose of contract must be legal at the time of execution.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Elements of a Contract 8  Defenses to the Enforceability of a Valid Contract: – Voluntary Consent. – Form: some types of contracts must be in writing.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 10  Contract Formation. – Bilateral: Offeror accepts Offeree’s promise to perform (“a promise for a promise”). – Unilateral: Offeror is bargaining for performance. Offeree accepts by completing contract performance (“a promise for an act”). 

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 11  Contract Formation. – Unilateral Contracts. CASE 7.1 S CHWARZROCK V. R EMOTE T ECHNOLOGIES, I NC. (2011). CASE 7.1 S CHWARZROCK V. R EMOTE T ECHNOLOGIES, I NC. (2011). Did the employer owe the bonus. Revocation of Offers for Unilateral Contracts: Offeror cannot revoke promise once performance has begun, for a reasonable time period.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 12  Contract Formation. – Formal versus Informal Contracts. Formal: must be in writing to be enforceable. Informal: all other contracts.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 13  Contract Formation. – Express versus Implied Contracts. Express: oral or written. Implied: 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.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 14  Contract Performance. – Executed - A contract that has been fully performed on both sides. – Executory - A contract that has not been fully performed on either side.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Types of Contracts 15  Contract Enforceability. – Valid: agreement, consideration, contractual capacity, and legality. – Voidable (unenforceable): Valid contract can be avoided or rescinded based on certain legal defenses. – Void Contracts: no contract was ever formed. Neither party has any legal obligations nor any legal rights.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Quasi Contracts  Fictional, equitable remedy created by court to avoid unjust enrichment of one party. – Plaintiff can recover in quantum meruit. – CASE 7.2 S HEERER V. F ISHER (2010). – CASE 7.2 S HEERER V. F ISHER (2010). How did the plaintiffs prove a valid claim for a quasi contract? 

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Quasi Contracts  Limitations on Quasi-Contractual Recovery.  When a contract already exists, quasi contract cannot be used.

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Interpretation of Contracts  Plain Language Laws. – If language is clear from face of contract, court will enforce a contract according to plain terms. – If language clear, court cannot consider extrinsic evidence. 18

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Interpretation of Contracts  Plain Meaning Rule. – If language is clear from face of contract, court will enforce a contract according to plain terms. – If language clear, court cannot consider extrinsic evidence. 19

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Interpretation of Contracts  Other Rules of Interpretation. – What did the parties WRITE in the contract? – Courts will generally not remake the contract into what the parties’ claim their intent was when they made the contract.  20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Interpretation of Contracts  Other Rules of Interpretation. – Ordinary usage of terms. – Trade Usage, Custom, Prior Dealings. CASE 7.3 U.S. B ANK, N.A. V. T ENNESSEE F ARMERS M UTUAL I NSURANCE C O. (2009). What words in the insurance contract were most persuasive to the court? 21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Interpretation of Contracts  Other Rules of Interpretation. – Ordinary usage of terms. – Trade Usage, Custom, Prior Dealings. CASE 7.3 U.S. B ANK, N.A. V. T ENNESSEE F ARMERS M UTUAL I NSURANCE C O. (2009). CASE 7.3 U.S. B ANK, N.A. V. T ENNESSEE F ARMERS M UTUAL I NSURANCE C O. (2009). What words in the insurance contract were most persuasive to the court? 22