chapter 7: contracts – nature and classification

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Chapter 1: Legal EthicsCHAPTER 7: CONTRACTS –

NATURE AND CLASSIFICATION

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Learning Objectives1. 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?

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Learning Objectives4. 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?

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Overview of Contract Law 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.

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Overview of Contract Law 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.

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Overview of Contract Law 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.

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Elements of a Contract 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.

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Elements of a Contract Defenses to the Enforceability of a

Valid Contract:–Voluntary Consent.–Form: some types of contracts must be

in writing.

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Types of Contracts

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Types of Contracts 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”).

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Types of Contracts Contract Formation.–Unilateral Contracts.• CASE 7.1 SCHWARZROCK V. REMOTE

TECHNOLOGIES, INC. (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.

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Types of Contracts Contract Formation.–Formal versus Informal Contracts.• Formal: must be in writing to be

enforceable. • Informal: all other contracts.

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Types of Contracts 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.

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Types of Contracts 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.

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Types of Contracts 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.

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Quasi Contracts• Fictional, equitable remedy created by court

to avoid unjust enrichment of one party.– Plaintiff can recover in quantum meruit.– CASE 7.2 SHEERER V. FISHER (2010). How did the

plaintiffs prove a valid claim for a quasi contract?

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Quasi Contracts• Limitations on Quasi-Contractual Recovery.• When a contract already exists, quasi contract

cannot be used.

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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.

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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.

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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.

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Interpretation of Contracts• Other Rules of Interpretation.– Ordinary usage of terms.– Trade Usage, Custom, Prior Dealings.• CASE 7.3 U.S. BANK, N.A. V. TENNESSEE FARMERS

MUTUAL INSURANCE CO. (2009). What words in the insurance contract were most persuasive to the court?

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Interpretation of Contracts• Other Rules of Interpretation.– Ordinary usage of terms.– Trade Usage, Custom, Prior Dealings.• CASE 7.3 U.S. BANK, N.A. V. TENNESSEE FARMERS

MUTUAL INSURANCE CO. (2009). What words in the insurance contract were most persuasive to the court?