Introduction to Contracts

1
Introduction to Contracts

• Nature and Terminology
• Requirements for a Contract
• Third Party Rights
• Performance and Discharge
• Breach of Contract Remedies

2
Todays Class

• Contract Function
• Definitions
• Introduction to Requirements, Defenses
• Classification of Contracts
• Types of Contracts
• Interpretation of Contracts

3
Contracts K

• What are they?
• Why are Ks important? What function do they
  serve?
• What do you need for a K to exist?

4
Definitions of Contract

• R2d a promise or 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.
• Text promise enforceable at law... promise is an
  undertaking that something will or will not
  happen in the future.
• Promises.... written, verbal, enforceable,
  unenforceable

5
Function of Contracts

• Social Utility
• provides procedures for enforcing private
  agreements
• facilitates private planning
• fosters economic development
• Precludes need to rely entirely on duty and good
  faith
• Why are most K promises kept?

6
The Elements of a Contract

• Agreement
• Consideration
• Capacity
• Legality

7
Agreement

• Valid offer and valid acceptance
• Voluntariness

8
Consideration

• Inducement
• Bargained-for exchange
• Legal value

9
Contractual Capacity

• ...recognized by the law as possessing
  characteristics that qualify them as competent
  parties...

10
Legal

• Not illegal
• Not against public policy

11
Defenses to a claim on a contract

• Genuineness of Assent
• consent of the parties to enter into the
  agreement must be real
• Improper Form
• the law may require the agreement to take a
  particular form....
• of particular importance are requirements that
  some contracts be in writing in order to be
  enforced.

12
Understanding Contracts (Ks)

• By classification of the different types along
  different lines
• Not so important in and of itself
• But it ought to help us do several things
• Group them together to aid our understanding
• Figure out whether or not something is actually a
  K
• Figure out whether the K can actually be enforced

13
A way to classify contracts

• How they are formed
• How they are performed
• How they are enforced

14
Classification by Contract Formation

• K is either Bilateral or Unilateral
• K is either Express or Implied
• Note all contracts require at least two parties,
  an offeror and an offeree

15
Classification by Contract Formation

• Some Ks arent really Ks
• they dont rise from mutual agreement between
  parties
• what are they?
• what are they called?
• K is either Formal or Informal...
• not of great significance...

16
Bilateral v. Unilateral K

• Bilateral
• a promise for a promise
• mutuality of obligation consideration
• Unilateral
• promise for an act

17
Bilateral or Unilateral?

• Ill pay you 20 upon your removal of the snow
  from my driveway.
• Ill pay you 100 this winter for your agreement
  to shovel my driveway within 24 hours of each and
  every snowfall.
• Problem Review

18
Problems with Unilateral K

• a K only exists when there has been performance
  of the required act
• offer to enter into a unilateral K rather than
  an actual unilateral K
• if promisor attempts to revoke the offer after
  the promisee has begun performance but before
  performance of act has been completed

19
Unilateral Contracts

• Traditional view tough luck.... only possible to
  accept by full performance of the requested act
• Modern view partial performance is not
  acceptance, but it may make the K irrevocable

20
Unilateral v. Bilateral... Who Cares?

• May be critical to determining whether or not a K
  has actually been entered into or not

21
Classification of Contracts...

• Express
• one in which the terms of the agreement are fully
  and explicitly stated in words, oral or written
• as with a contract to purchase a home

• Implied-in-fact
• one that is implied (involved or indicated by
  inference, association, or necessary consequence
  rather than by direct statement)
• conduct, rather than words, form intention

22
Implied-in-Fact K

• Furnish service or property
• Expectation of being paid, knowledge that payment
  was expected
• Opportunity to reject and did not

23
Ks that arent really Ks...

• Quasi-Ks, or Ks implied in law
• Mutual Agreement?
• Quantum Meruit
• doctrine under which court implies a K
• provider will get as much as court deems she
  deserves

24
Executed v. Executory

• Executed
• a K that has been fully performed on both sides

• Executory
• a K that has not been fully performed on both
  sides

A contract may be considered executed or
executory with respect to one or the other or
both partys performance...
25
Classification of Contracts by...

• ... whether or not they are enforceable

26
Valid or Void K

• Valid a valid K results when
• parties have legal capacity,
• have agreed to do (or not do) something for a
• legal purpose, and
• agreement is supported by legally sufficient
  consideration

• Void
• its not a K at all
• K to commit a crime
• contract for a hit
• no binding legal obligation

27
Void v. Voidable

• Void
• its not a K at all
• K to commit a crime
• contract for a hit
• no binding legal obligation

• Voidable
• one or more of the parties have the legal right
  to cancel (or avoid)their obligations under the
  K
• avoid or ratify
• e.g.., frauds, duress, most contracts made by
  minors

28
Unenforceable K

• Valid K (meets basic requirements), but there
  exists an impediment to legal enforcement,
  frequently SOF or K Statute of Limitations

29
Interpretation of Contracts

• The law attempts not only to enforce a K, but to
  enforce the K that the parties made

30
Interpretation of Contracts

• Has a K been made?
• the Objective Theory of Contracts
• intention to enter into a K judged by outward,
  objective facts as they would be interpreted by a
  reasonable person
• Increasing emphasis on fair and just results
• less precision, more judicial discretion
• less certainty and predictability
• less private control over obligations

31
Interpretation of Contracts

• Plain Meaning Rule
• enforcement according to the terms of the
  instrument
• not the job of the court to fashion a contract
  for the parties
• Interpretation using rules in the Restatement
  (Second) of Contracts and the UCC

32
Contract Interpretation Exercises

• Barrels of crude
• Two by fours
• Bakers Dozen
• Preprinted, Typed, _______________
• Ambiguous terms.... who cut the cake?
• Defined terms... du Lac terms

33
Chapter 10 Problem Review
34
Problem 10-1

• Elements of a valid K
• offer and acceptance
• consideration exchanged
• capacity of both parties
• legal
• no special form required

35
Problem 10-1

• Valid
• Enforceable
• Informal
• Implied in fact - no explicit agreement between
  the parties
• Bilateral - implied promise to sell in exchange
  for implied promise to buy
• Executory - fully or partially?

36
Problem 10-2

• Quasi-K
• Implied in law
• Value of services provided
• quantum meruit

37
Problem 10-3

• Bilateral K
• Offer required only a promise of payment, not
  actual payment
• Acceptance by placing paper in window... Isnt
  that performance of an act?
• Placing the paper in the window is a substitution
  for what?

38
Problem 10-4

• Offer to enter into a Unilateral K
• Unilateral upon completion
• Modern v. Traditional views
• Executory, valid, enforceable, informal

39
Problem 10-5

• Offer to enter into a Unilateral K
• Significance of distinction between Unilateral
  and Bilateral
• failure to mow would or would not constitute a
  breach
• prior to performance can offer be withdrawn w/o
  liability?
• result with partial performance?

40
Problem 10 - 5

• Courts will differ
• offer now irrevocable
• performance promise, resulting in formation of
  a bilateral k
• withdrawal permitted, reward for reasonable value
  of services provided
• revocable until completion