Introduction to Contracts

Introduction to Contracts 9 C H E A P T R “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 - 2

Contracts • Not every promise is legally enforceable • But 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 9 - 3

Elements of a Contract • (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 • SeeFigure 1, page 276 9 - 4

Jackson v. Connecticut Lottery Corporation • Facts: • Jackson bought a Connecticut Lotto “Quick Pick” ticket for the drawing of October 13, 1995 and won, but claimed his prize in person three days after the final day allowed to claim the prize • Ticket back provided instructions for claiming the prize online and included warning that “Prize must be claimed within one year from the drawing date.” • Connecticut Lottery Corporation (CLC) denied Jackson’s claim because one-year had elapsed • Jackson sued for breach of contract 9 - 5

Jackson v. Connecticut Lottery Corporation • Threshold Issue: Is the lotto ticket a contract? • Trial Court Ruling: • The parties did enter into a valid, unilateral contract through the purchase of a Lotto ticket • CLC made a prize offer, Jackson accepted that offer • Consideration ($) supported the contract • The one-year presentment rule was incorporated into the contract regardless whether Jackson knew of it • Public policy: without the claim period the regulatory scheme of the lottery system would be compromised • Motion for summary judgment granted 9 - 6

Contract Concepts and Types • Bilateral contracts: two parties make promises to one another • Unilateral contracts: one party makes a promise • Frequent buyer cards are offers for unilateral contracts; gaining points on the cards accept the offer and create a contract 9 - 7

Contract Concepts and Types • Valid contract: binding and enforceable agreement • Voidable contract: agreement otherwise binding, but due to circumstances surrounding execution or lack of capacity, may be rejected at option of one party • Void contract: agreement without legal effect because prohibited by law 9 - 8

Contract Concepts and Types • Express contract: agreement of parties manifested by words, written or oral • 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 9 - 9

Sources of Governing Law • Two bodies of law—Article 2 of the Uniform Commercial Code and the common law of contracts—govern contracts today • The Uniform Commercial Code (UCC) is statutory law in every state, but the common law of contracts is evolving 9 - 10

The Uniform Commercial Code • The UCC contains nine articles • Article 2 expressly applies to contracts for the sale of goods [2–102] (numbers in brackets refer to specific Code sections) • UCC [1–105]: goods are tangible, movable, personal property • Does not apply to sale of services, intangible property (stocks, intellectual property), or real estate 9 - 11

The UCC and Hybrid Contracts • Many contracts involve goods and services • The test that courts most frequently apply to decide whether Article 2 applies is to ask which element – goods or services – predominates in the contract • See Pass v. Shelby Aviation 9 - 12

International Contract Law • The United Nations Convention on Contracts for the International Sale of Goods (CISG) is body of contract rules that harmonizes contract principles from many legal systems • Sixty-five countries, including the United States and Canada, have adopted the CISG to date 9 - 13

International Contract Law • CISG automatically applies to a contract for the sale of goods between commercial parties from nations that agreed to the CISG unless the parties expressly opt out of the CISG in their contract 9 - 14

Non-Contract Obligations • Sometimes the law enforces an obligation to pay for certain losses or benefits even in the absence of mutual agreement and exchange of value: • Quasi-contract theory • Promissory estoppel 9 - 15

Quasi-Contract Theory • Quasi-contract is an obligation imposed by law to prevent unjust enrichment of one party in certain circumstances • E.g., work performed by painter thinking work justified by contract & other party, who receives benefit of work, denies the work was justified • E.g., if minor buys something but wrecks it, agreement is void by law, but the minor must pay the damages • Plaintiff recovers reasonable value of benefit conferred on defendant (reasonable price) or value of labor (quantum meruit) 9 - 16

Promissory Estoppel • 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 • Example: Holt v. Home Depot, U.S.A., Inc. 9 - 17

Holt v. Home Depot, U.S.A., Inc. • Facts & Procedural History: • Holt was a manager for Home Depot for four years • Home Depot assured employees that an open-door policy allowed complaints to management about supervisors without penalty • Home Depot moved Holt and family to Connecticut, but soon after Holt began to have difficulties with his immediate supervisor • Holt told a senior manager about the problems and later called the Impact Line to begin a formal complaint • Six days later, Home Depot fired Holt 9 - 18

Holt v. Home Depot, U.S.A., Inc. • Procedural History: • Holt sued Home Depot, claiming promissory estoppel • Jury found for Holt, awarding $467,000 in damages • Appellate Decision and Ruling: • The jury could reasonably find that Home Depot’s promise not to retaliate against employees was so clear and emphatic that Holt could reasonably believe it was inviolable and evidence indicated Holt was terminated because of the complaint about his supervisor 9 - 19

Introduction to Contracts