1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 9 Contracts: Nature and Terminology Chapter 9 Contracts: Nature and Terminology

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 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. What law governs?  Service contracts - common law of contracts.  Sale and lease contracts - Uniform Commercial Code (UCC). 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. What law governs?  Service contracts - common law of contracts.  Sale and lease contracts - Uniform Commercial Code (UCC).

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 §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. 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.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 §2: Definition of a Contract A contract is a:  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. Objective Theory of Contacts. Circumstances to determine intent of parties. A contract is a:  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. Objective Theory of Contacts. Circumstances to determine intent of parties.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 §3: Elements of a Contract Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Defense:  Legality.  Genuineness of assent.  Form. Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Defense:  Legality.  Genuineness of assent.  Form.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 §4: Types of Contracts Bilateral v. Unilateral.  Bilateral - Offeree must only promise to perform (“promise for a promise”).  Unilateral - Offeree can accept the offer only by completing the contract performance (“promise for an act”). Irrevocable: Offer cannot be revoked once performance has begun. Bilateral v. Unilateral.  Bilateral - Offeree must only promise to perform (“promise for a promise”).  Unilateral - Offeree can accept the offer only by completing the contract performance (“promise for an act”). Irrevocable: Offer cannot be revoked once performance has begun.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 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). 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).

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 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). 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).

9. © 2004 West Legal Studies in Business A Division of Thomson Learning 9 Types of Contracts [4] Formal v. Informal. 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. Formal v. Informal. 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.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 Enforceability Valid.  Elements: Agreement, consideration, contractual capacity, and legality. Void.  No contract. Voidable (unenforceable).  Valid contract can be avoided or rescinded. Valid.  Elements: Agreement, consideration, contractual capacity, and legality. Void.  No contract. Voidable (unenforceable).  Valid contract can be avoided or rescinded.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 §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. 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.

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 Interpretation of Contracts Ambiguous Terms (cont’d)  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). Ambiguous Terms (cont’d)  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).

13. © 2004 West Legal Studies in Business A Division of Thomson Learning 13 Law on the Web ‘Lectric Law Library on Contracts.Lectric Law Library Legal Research Exercises on the Web. ‘Lectric Law Library on Contracts.Lectric Law Library Legal Research Exercises on the Web.