chapter 10 contracts: nature and terminology business law: text & cases — legal, ethical,...

Chapter 10 Chapter 10 Contracts: Nature and Contracts: Nature and

TerminologyTerminology

BUSINESS LAW: Text & Cases — BUSINESS LAW: Text & Cases — Legal, Ethical, International, and Legal, Ethical, International, and E-Commerce EnvironmentE-Commerce Environment 1111thth Ed.Ed.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.


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§1: §1: Overview of Contract LawOverview of Contract Law Sources of Contract Law.Sources of Contract Law.

– Common Law for all contracts except Common Law for all contracts except sales and leases.sales and leases.

– Sale and lease contracts - Uniform Sale and lease contracts - Uniform Commercial Code (UCC).Commercial Code (UCC).


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Overview of Contract LawOverview of Contract Law A contract is a:A contract is a:

– Promise or set of promises,Promise or set of promises,– For breach of which,For breach of which,– The law provides a remedy, orThe law provides a remedy, or– The performance of which the law in The performance of which the law in

some way recognizes as a duty.some way recognizes as a duty. Objective Theory of Contacts. Objective Theory of Contacts.

Circumstances to determine intent of Circumstances to determine intent of parties. parties.


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§2: §2: Elements of a ContractElements of a Contract Agreement (Offer and Acceptance).Agreement (Offer and Acceptance). Consideration.Consideration. Contractual Capacity.Contractual Capacity. Legality. Legality. Defenses:Defenses:

– Genuineness of assent.Genuineness of assent.– Form.Form.


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§3: §3: Types of ContractsTypes of Contracts Bilateral v. Unilateral.Bilateral v. Unilateral.

– BilateralBilateral - Offeree must only promise to perform - Offeree must only promise to perform (“promise for a promise”).(“promise for a promise”).

– UnilateralUnilateral - Offeree can accept the offer only by - Offeree can accept the offer only by completing the contract performance (“a promise completing the contract performance (“a promise for an act”). for an act”). Irrevocable: Offer cannot be Irrevocable: Offer cannot be revoked once performance has begun.revoked once performance has begun.• CASE 10.1 CASE 10.1 Ardito v. City of ProvidenceArdito v. City of Providence

(2003).(2003).


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Express vs. Implied-in-Express vs. Implied-in-FactFact

ExpressExpress: Words (oral or written).: Words (oral or written). Implied In FactImplied In Fact: Conduct creates and : Conduct creates and

defines the terms of the contract. defines the terms of the contract. Requirements:Requirements:– PL furnished good or servicePL furnished good or service– PL expected to be paidPL expected to be paid– DEF had chance to reject and did not.DEF had chance to reject and did not.– CASE 10.2 CASE 10.2 Gary Porter Construction v. Gary Porter Construction v.

Fox Construction, Inc.Fox Construction, Inc. (2004). (2004).


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Contract PerformanceContract Performance Executed v. Executory.Executed v. Executory.

– Executed - A contract that has been fully Executed - A contract that has been fully performed on both sides.performed on both sides.

– Executory - A contract that has not been fully Executory - A contract that has not been fully performed on either side.performed on either side.


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Contract EnforceabilityContract Enforceability Valid.Valid.

– Elements: Agreement, consideration, Elements: Agreement, consideration, contractual capacity, and legality.contractual capacity, and legality.

Void.Void.– No contract.No contract.

Voidable (unenforceable).Voidable (unenforceable).– Valid contract can be avoided or rescinded.Valid contract can be avoided or rescinded.


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Contract EnforceabilityContract Enforceability


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§4: §4: Quasi ContractsQuasi Contracts Quasi Contracts are implied Quasi Contracts are implied in law.in law.

– Fictional contracts created by courts.Fictional contracts created by courts.– Imposed on parties for the interest of fairness Imposed on parties for the interest of fairness

and justice.and justice.– Equitable remedies.Equitable remedies.– Quantum Meruit. Quantum Meruit.

Limitations on Recovery.Limitations on Recovery.


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§5: Interpretation of §5: Interpretation of ContractsContracts

Plain Meaning Rule: Courts give terms their Plain Meaning Rule: Courts give terms their obvious or ordinary meaning.obvious or ordinary meaning.– CASE 10.3 CASE 10.3 Wagner v. Columbia Wagner v. Columbia

Pictures Industries, Inc.Pictures Industries, Inc. (2004). (2004).


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Other Rules of Other Rules of InterpretationInterpretation

Ambiguous Terms. If terms are ambiguous, Ambiguous Terms. If terms are ambiguous, court will attempt to interpret ambiguous court will attempt to interpret ambiguous contract terms in a reasonable, lawful, contract terms in a reasonable, lawful, effective manner. effective manner. – Contracts are interpreted as a whole.Contracts are interpreted as a whole.– Terms negotiated separately given Terms negotiated separately given

greater weight.greater weight.– Ordinary, common meaning given.Ordinary, common meaning given.


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Interpretation of Interpretation of ContractsContracts

Ambiguous Terms (cont’d)Ambiguous Terms (cont’d)– Specific wording given greater weight than Specific wording given greater weight than

general language.general language.– Written or typewritten given greater weight Written or typewritten given greater weight

than preprinted.than preprinted.– Ambiguous terms interpreted against the Ambiguous terms interpreted against the

drafter.drafter.– Trade usage, prior dealing, course of Trade usage, prior dealing, course of

performance to allowed to clarify.performance to allowed to clarify.

chapter 10 contracts: nature and terminology business law: text & cases — legal, ethical,...

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