Essential Contract Law Principles | Understanding and Applying Contracts

1. Chapter 11: Nature and Terminology Business Law Text and Cases The First Course Fourteenth Edition Miller

2. §1: An Overview of Contract Law (1 of 4) • Sources of Contract Law: Common law governs all contracts except sales and leases. • Sale and lease contracts are governed by the Uniform Commercial Code (UCC). • Function of Contract Law: To assure the parties to private agreements that the promises they make will be enforceable.

3. An Overview of Contract Law (2 of 4) • Promise: A person’s declaration that he will perform or refrain from performing some present or future act. • The promisor makes the promise and the promisee is the person to whom the promisor made the promise.

4. An Overview of Contract Law (3 of 4) • Definition of a Contract: A contact is an agreement formed by two or more parties who agree to a promise (or set of promises). • Contracts can be enforced in court.

5. An Overview of Contract Law (4 of 4) • Objective Theory of Contacts: The circumstances that determine the intent of the parties. Objective facts include: • What a party said when entering into the contract. • How the party acted or appeared. • The circumstances surrounding the transaction. • See CASE 11.1 Pan Handle Realty, LLC v. Olins (2013).

6. §2: Elements of a Contract (1 of 2) • Requirements of a Valid Contract: • Agreement (Offer and acceptance). • Consideration (Legally sufficient and bargained-for). • Contractual Capacity (All parties must be competent). • Legal (Purpose of contract must be legal at time of execution).

7. Elements of a Contract (2 of 2) • Defenses to Enforceability: • Voluntary Consent: All parties must voluntarily consent to the contract. • Form: Some types of contracts must be in writing.

8. §3: Types of Contracts (1 of 8)

9. Types of Contracts (2 of 8) • Bilateral versus Unilateral Contracts: • Bilateral: Offeree must only promise to perform (“promise for a promise”). • Unilateral: Offeree can accept the offer only by completing the contract performance (“a promise for an act”). • Irrevocable: Offer cannot be revoked once performance has begun. 

10. Types of Contracts (3 of 8) • Formal versus Informal Contracts: • Formal Contract: A contract that requires a special form or method in order to be enforceable.   • Informal Contract: A contract that does not require a specified form or method of formation in order to be valid.

11. Types of Contracts (4 of 8) • Express versus Implied Contracts: • Express: The terms of the agreement (oral or written) are explicitly stated. • Implied (In Fact): Conduct creates and defines the terms of the contract. • A contract can be a mixture of an express and an implied contract—with some express terms and implied terms.

12. Types of Contracts (5 of 8) • Contract Performance: • Executed: A contract that has been fully performed by both (or all parties). • Executory: A contract that has not been fully performed by one or more parties.

13. Types of Contracts (6 of 8) • Contract Enforceability: • Valid: A contract with agreement, consideration, contractual capacity, form, and legality. • Voidable: A valid contract that can be legally avoided, canceled, or annulled by one of the parties. 

14. Types of Contracts (7 of 8) • Contract Enforceability: • Unenforceable: An otherwise valid contract that is rendered unenforceable by some statute or law. • Void: A contract with no legal or binding effect.

15. Types of Contracts (8 of 8)

16. §4: Quasi Contracts (1 of 2) • Quasi contracts (or contracts impliedin law) are fictional contracts that the courts impose on the parties “as if” the parties had entered into an actual contract. • Quasi contracts are imposed in the interest of fairness and justice. • CASE in Point 11.9 Seawest Services Ass’n v. Copenhaver (2012).

17. Quasi Contracts (2 of 2) • Limitations on Quasi-Contractual Remedy: The enriched party is not held liable in certain situations. • When an actual contract exists that covers the matter in controversy, the doctrine of quasi contract generally cannot be used.

18. §5: Interpretation of Contracts (1 of 7) • Plain language laws have helped to alleviate disputes on the legal meaning and effect of a contract. • “Plain Meaning” Rule: A court will enforce a contract according to its obvious terms when it is clear and unequivocal. 

19. Interpretation of Contracts (2 of 7) • Ambiguity: A contract is unclear or ambiguous when: • The parties’ intent cannot be determined from the contract’s language. • The contract lacks a provision on a disputed term. • A term is susceptible to more than one interpretation. • When there is uncertainty about a provision.

20. Interpretation of Contracts (3 of 7) • Extrinsic Evidence: • A court may interpret ambiguous terms against the party who drafted the term, or consider extrinsic evidence. • When a contract is clear and unambiguous, a court cannot consider extrinsic evidence. • CASE 11.3 Wagner v. Columbia Pictures Industries, Inc. (2004).

21. Interpretation of Contracts (4 of 7) • Other Rules of Interpretation: • A reasonable, lawful, and effective meaning will be given to all of a contract’s terms as much as possible. • Contracts are interpreted as a whole. • Terms that are negotiated separately are given greater weight than standardized terms. 

22. Interpretation of Contracts (5 of 7) • Other Rules of Interpretation: • Words will be given their ordinary, commonly accepted meanings. • Specific wording given greater weight than general language. • Written or typewritten given greater weight than preprinted. 

23. Interpretation of Contracts (6 of 7) • Other Rules of Interpretation: • Ambiguous terms will be interpreted against the drafter. • Trade usage, prior dealing, and course of performance can be used to clarify the contract. 

24. Interpretation of Contracts (7 of 7) • Other Rules of Interpretation: • Express terms are given the greatest weight, followed by course of performance, course of dealing, and custom and usage of trade—in that order.