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Nature and Terminology

Nature and Terminology

Terminology:

  • Contract: is a legally binding agreement between two or more parties who agree to perform or to refrain from performing some act now or in the future;is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty”
  • Objective Theory of Contracts: a party’s intention to enter into a legally binding agreement (contract) is judged by outward, objective facts as interpreted by a reasonable person (objective facts include: (1)what the party said when entering into the contract, (2) how the party acted/appeared, (3) the circumstances surrounding the transaction
  • Offeror: party making the offer
  • Offeree: party to whom the offer is made
  • Excuted Contract: contract that has been fully performed on both sides (contract performance)
  • Executory Contract: contract that has not been fully performed by the parties (contract performance)
  • Voidable Contracts: a valid contract that can be avoided at the option of one or both parties
  • Unenforceable Contracts: One that can’t be enforced because of certain legal defenses against it; because valid contract rendered unenforceable by some statute or law
  • Unjust enrichment: based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others

Section 1-An overview of Contract Law:

Sources of Contract Law:

  • The common law governs all contracts except when it has been modified or replaced by statutory law

Function of Contract Law:

  • Is designed to provide stability and predictability, as well as certainty, for both buyers and sellers in the marketplace
  • Deals with formation and enforcement of agreements between parties (Latin, pacta sunt servanda—“agreements shall be kept”)
  • By providing procedures for enforcing private contractual agreements, contract law provides an essential condition for the existence of a market economy.

Objective Theory of Contracts:

  • In determining whether a contract has been formed, the element of intent is importance.
    • Intent is determined by what is called the objective theory of contracts not by the personal or subjective intent , or belief of a party

Section 2- Elements of a Contract:

Requirements of a Valid Contract:

  • Agreement: includes offer and an acceptance
  • Consideration: something of value received or promised to convince a person to make a deal
  • Contractual Capacity: law must recognize them as possessing characteristics that qualify them as competent parties
  • Legality: legal and not against public policy

Defenses to the Enforceability of a Contract:

  • Genuineness of Assent: can’t be a fraud, undue influence, mistake, or duress
  • Form: must be in whatever for the law requires, i.e. writing

Section 3- Types of Contracts:

Contract Formation: based on how and when the contract is form

  • Bilateral: a promise for a promise/Unilateral: A promise for an act. A problem arises when the promisor attempts to revoke the offer after the promise has begun performance but before the act has been completed.
    • Example Bilateral: Javier offers to buy Ann’s camcorder for $200. He says he’ll pay her next Friday after he gets paid.  Ann accepts the offer and promises to give him the camcorder when he pays
    • Example Unilateral: Bob says to Bill, “If you carry this package across the the Brooklyn Bridge, I’ll you $20.” Only on Bill’s complete crossing with the package can he fully accept Bob’s offer to pay. (other ex.: contests, lotteries, things involving prizes. Under traditional contract rule you could revoke, but modern view cannot.
  • Formal: Requires a special for creation/Informal(simple): no special form
    • Example formal: contracts under seal and letter of credit.
    • Example informal: all other contracts
  • Express: formed by words/Implied in Fact: formed at least in part by the parties’ conduct
    • Example express: A signed lease for a house is an express written contrac. If a classmate calls you on the phone and agrees to buy  your text book from last semester is an express oral contract.
    • Example implied in fact: If I need an accountant to complete my tax return. Found one and learned what fees will be charged.  Next day you return and give her administrative assistant all the necessary info and doc.  Then you walk out the door without saying anything expressly to the accountant. 
      • the conduct of the party rather than their words. What needs to exist:
        • Plaintiff furnished some service or property
        • Expected to be paid for that service or property, and the defendant knew or should have known that payment was expected
        • Defendant had a chance to reject the services or property and did not
      • Enforceablity:
        • Valid Contractà Enforceable Contract
          • Voidable Contract
          • Enforceable Contract
        • Void Contractà No Contract

Section 4- Quasi Contracts (contracts implied in law): are not actual contracts. Fictional contracts created by courts and imposed on parties in the interests of fairness and justice, are equitable

  • Quantum Meruit: Latin- “as much as she or he deserves”
    • Example: A vacationing physician is driving down the highway and finds Potter lying unconscious on the side of the road. Physician renders medical aid that saves Potter’s life.  Although Potter did not solicit the medical aid and was not aware that the aid had been rendered, Potter received a valuable benefit, and the requirements for a quasi contract were fulfilled.  Potter normally will have to pay the physician for the reasonable value of the medical services rendered.
  • Limitations on Quasi-contractual Recovery:
    • A party who has benefitted by someone else unnecessarily cannot invoke the quasi contract
    • Example: You go to the car wash and want it to go through the washer and a full tank. Employee mistakes your car to also have a hand wax and now you’re charged more.  This benefit has occurred because of a mistake not unjustly enriched.  People can’t be forced to pay for benefits “thrust” on them
  • When an Actual Contract Exists:
    • Quasi contract can’t be used when there is an actual contract that covers controversy
    • Example: Bob contracts with Bill to deliver a furnace to a building owned by Jones. Bob delivers the furnace, but Bill never pays Bob.  Jones has been unjustly enriched .  Bob, however, can’t recover from Jones in quasi contract because Bob had an actual contract with Bill.  Bob has a remedy—he can sue for breach of contract to recover the price of the furnace from Bill. Don’t need to oppose quasi.

Section 5- Interpretation of Contracts:

  • Plain Meaning Rule: when a contract’s writing is clear and unequivocal, a court will enforce it according to its obvious terms.
  • Other Rules of Interpretation:
    • Insofar as possible, as reasonable, lawful, and effective meaning will be given to all of a contract’s terms
    • A contract will be interpreted as a whole
    • Terms that were the subject of separate negotiation will be given greater consideration than standardized terms and terms that were not negotiated separately
    • A word will be given its ordinary meaning
    • Specific and exact wording will be given greater consideration than genral language
    • Written or typewritten terms will prevail over preprinted ones
    • Since a contract should be drafted in clear and unambiguous language. Thus, when the language has more than one meaning, it will be interpreted against the part who drafted the contract
    • Evidence of trade usage, prior dealing, and course of performance may be admitted to clarify the meaning of an ambiguously worded contract
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