Introduction to ContractsThe Agreement: Offer

The Agreement: AcceptanceConsideration

Reality of Consent

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Capacity to ContractIllegality

WritingRights of Third Parties

Performance and Remedies

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Contracts are agreements made up of big words and little type.

Sam Ewing, quoted in Saturday Evening PostMay 1993

Introduction to Contracts

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

Nature of contractsBasic elements of a contractBasic contract typesNon-contract obligations

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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

Contracts

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(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

See Figure 1, page 292

Elements of a Contract

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Lambert v. Barron

Facts: Lambert and Barron had friendly as well as

professional relationship Barron had financial troubles, so Lambert flew from

New Orleans to Farmerville to meet with Barron Lambert claims that he and Barron orally

contracted for Lambert to provide consulting services for one year at a monthly rate of $3100

Barron paid one invoice, but refused to pay on a second, claiming that he had not agreed to such a price or term

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Procedural History and Issue: Lambert sued for breach of contract and lost Issue on appeal: was there a valid contract?

Trial Court Ruling: Two competing views without evidence that

contract was formed or that substantive business benefit was realized by Barron from his friend

No contract formed, lower court ruling affirmed

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Lambert v. Barron

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

Contract Concepts and Types

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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

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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

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Contract Concepts and Types

Two bodies of law govern contracts: Article 2 of Uniform Commercial

Code Common law of contracts

Uniform Commercial Code (UCC) is statutory law in every state, but the common law of contracts is evolving

UCC contains nine articles

Sources of Governing Law

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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

UCC Article 2

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Many contracts involve goods and services

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

The UCC and Hybrid Contracts

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The UCC or Common Law

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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 Seventy-one nations, including the United

States and Canada, are parties to the CISG See

UN Commission on International Trade Law website

International Contract Law

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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

International Contract Law

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Sometimes the law enforces an obligation to pay for certain losses or benefits even in the absence of mutual agreement and exchange of value; the court then applies: Quasi-contract theory Promissory estoppel

Non-Contract Obligations

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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 work was justified

E.g., minor buys something but wrecks it, agreement is void by law, but the minor must pay the damages

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Quasi-Contract Remedies

Plaintiff recovers either the reasonable value of the benefit conferred on the defendant (reasonable price) or value of labor (quantum meruit)

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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.

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Holt v. Home Depot, U.S.A., Inc.

Facts & Procedural History: Holt was a Home Depot manager 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 Called Impact Line to begin formal complaint Six days later, Home Depot fired Holt

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Holt v. Home Depot, U.S.A., Inc.

Procedural History: Holt sued claiming promissory estoppel Jury found for Holt, awarding $467,000 damages

Appellate Decision and Ruling: 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; evidence indicated Holt terminated because of complaint about supervisor

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Review

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Test Your Knowledge

True=A, False = B Every promise is legally enforceable The main element of a contract is

fairness In a bilateral contract, two parties

make promises to one another The UCC is statutory law in every state The UCC applies to the sale of goods

and services9 - 25

Test Your Knowledge

Multiple Choice A void contract refers to an agreement

that is: (a) Binding and enforceable agreement(b) Otherwise binding, but due to

circumstances surrounding execution or lack of capacity, may be rejected at option of one party

(c) Without legal effect because prohibited by law

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Test Your Knowledge

Multiple Choice Non-contract obligations include all of

the following except: (a) Quasi-contract theory(b) Promissory estoppel(c) The CISG doctrine(d) Quantum meruit

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Thought Question

What contracts have you entered into recently?

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