Introduction to Contracts

1. CHAPTER 9 Introduction to Contracts

2. Click your mouse anywhere on the screen when you are ready to advance the text within each slide. After the starburst appears behind the blue triangles, the slide is completely shown. You may click one of the blue triangles to move to the next slide or the previous slide.

3. Quote of the Day “The whole duty of government is to prevent crime and to preserve contracts.” Lord Melbourne, British Prime Minister

4. ThePurpose of a Contract • Contracts exist to make business matters more predictable. • Judicial Activism vs. Judicial Restraint • Judicial restraint makes the law less flexible but more predictable. • Judicial activism makes the law more flexible but less predictable.

5. Elements of a Contract • Agreement • One party must make a valid offer, and the other party must accept it • Consideration • There has to be bargaining that leads to an exchange between the parties. • Legality • The contract must be for a lawful purpose. • Capacity • The parties must be adults of sound mind.

6. Issues to Consider • Consent – both sides must agree to contract. • Written form – some contracts must be written to be enforceable. • Third party interests – the effect of the contract on third parties must be considered. • Performance and discharge – when one party fulfills his obligation, the duty is discharged. • Remedies – a court will award money or relief to an injured party if a contract is broken.

7. Contracts • Definition • A promise that the law will enforce. • Development of Contract Law • Common law once required all contracts to be in writing, with a seal affixed. • Later, some payment was required before a contract could be enforced. • Mutual promises became enforceable in the 1600’s. • By the 1900’s, courts began to consider the fairness of contracts before enforcing them.

8. Bilateral Unilateral Express Implied vs. vs. Executory Executed vs. Valid Unenforceable Voidable Void vs. vs. vs. Types of Contracts (or Agreements)

9. Types of Contracts (cont’d) • Bilateral and Unilateral Contracts • Bilateral: both parties make a promise. • Unilateral: one party makes a promise that the other party can accept only by doing something. • Express and Implied Contracts • Express: the two parties explicitly state all important terms of their agreement. • Implied: the words and conduct indicate that the parties intended an agreement. • Executory and Executed Contracts • Executory: one or more parties has not fulfilled its obligations. • Executed: all parties have fulfilled their obligations.

10. Types of Contracts (cont’d) • Valid, Unenforceable, Voidable, and Void Agreements • Valid: satisfies the law’s requirements. • Unenforceable: when the parties intend to form a valid bargain but some rule of law prevents enforcement. • Voidable: when the law permits one party to terminate the agreement. • Void: one that neither party can enforce, usually because the purpose is illegal or one of the parties had no legal authority.

11. Remedies Created by Judicial Activism • Sometimes, a court needs to provide a remedy for an injury, even if there was no contract. • The two remedies created by judicial activism in these situations are promissory estoppel and quasi-contract. • In promissory estoppel cases, the defendant made a promise that the plaintiff relied on. • In quasi-contract cases, the defendant did not make any promise, but did receive a benefit from the plaintiff.

12. Promissory Estoppel • Even when there is no contract, a plaintiff may use promissory estoppel to enforce the defendant’s promise if he can show that: • The defendant made a promise knowing that the plaintiff would likely rely on it. • The plaintiff did rely on the promise; and • The only way to avoid injustice is to enforce the promise.

13. Quasi-contract • Even when there is no contract, a court may use quasi-contract to compensate a plaintiff who can show that: • He gave some benefit to the defendant. • He reasonably expected to be paid for the benefit and the defendant knew this; and • The defendant would be unjustly enriched if she did not pay. • The damages awarded are called quantum meruit, meaning that the plaintiff gets “as much as he deserved.”

14. Sources of Contract Law • Common Law • Uniform Commercial Code • UCC Article 2 governs the sale of goods. “Goods” means anything moveable, except for money, securities, and certain legal rights. • In a mixed contract, Article 2 governs only if the primary purpose was the sale of goods. • Restatement (Second) of Contracts

15. “If you understand the contract issues that courts scrutinize, the agreement you draft is likelier to be enforced. You thus achieve greater control over your affairs -- the very purpose of a contract.”