BUSINESS LAW TODAY Standard 8th Ed.

Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A. Jentz - University of Texas at Austin, Emeritus

Chapter 8

Contracts: Nature and Classification

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning

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Learning Objectives 
What is a contract? What is the objective theory    
of contracts? What are the four basic elements of a valid, enforceable contract? What is the difference between an implied-in-fact and implied-in-law (quasi) contract? How does a void contract differ from a voidable contract? What is an unenforceable contract? Why have plain language laws been enacted? What rules guide the courts in interpreting the contracts?
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Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning

Contracts 
Function of Contracts:
± Fundamental to business. ± Creates rights and duties between parties. ± Provides stability and predictability. 

Parties: Promisor (makes the promise)
and Promisee (accepts the promise).
± Good faith in commercial agreements

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Contracts 
Definition of a Contract.
± Agreement that can be enforced in court. ± Formed by two or more parties. ± Failure to perform results in breach and damages. 

Objective Theory of Contracts.
± Reasonable person standard. ± Circumstances surrounding contract formation.
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Elements of a Contract 
A valid, enforceable contract includes:
± Agreement. ± Consideration. ± Capacity. ± Legality. 

Defenses to Enforceability:
± Genuineness of Assent. ± Form.

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Bilateral Contracts 
Every contract has at least 2 parties: the
Offeror (Promisor) and the Offeree (Promisee).  Bilateral Contracts:
± Offeror and Offeree exchange promises to each other. ± A contract is formed when Offeree promises to perform.

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Bilateral vs. Unilateral Contracts

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Unilateral Contracts 
Unilateral Contracts:
± Offeror wants performance in exchange for his promise. ± CASE 8.1 Ardito v. City of Providence (2003). ± Contract is formed when Offeree performs. ± Contests and lotteries are examples. ± Revocation of Offer: modern view is that offer is irrevocable once the Offeree substantially performs.
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Express vs. Implied Contracts 
Express: terms of contract are set forth
either in writing or orally.  Implied: based on conduct.
± Plaintiff furnished service or product. ± Plaintiff expects to be compensated. ± Defendant had a chance to reject and did not.

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Formal vs. Informal Contracts 
Formal: require special form or method to
be enforceable, e.g., under seal.  Informal: all other contracts.

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Contract Performance 
Executed vs. Executory Contracts.
± Executed: fully performed by both sides. ± Executory: at least one of the parties has not performed.

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Contract Enforceability 
Valid Contract.
± Four Elements: Agreement, Consideration, Legal Purposes, Parties have legal capacity. 

Voidable Contract.
± Valid contract that is legally defective and can be avoided (rescinded) by one of the parties. 

Void Contract.
± No contract at all.

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Contract Formation

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Quasi Contracts 
Implied-in-Law Contracts (Quasi Contract).
± Fictional, created by court to avoid unjust enrichment. ± Limitations on quasi-contractual recovery. ± Cannot be used when an actual contract exists.

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Interpretation of Contracts 
Plain Language Laws.
± If language is clear from face of contract, court will enforce a contract according to plain terms. ± If language clear, court cannot consider extrinsic evidence. 

± CASE 8.2 Wagner v. Columbia Pictures Industries, Inc. (2007). Other Rules of Interpretation.
± Trade usage, custom, prior dealings.

± CASE 8.3 Citizens Communications Co. v. Trustmark Insurance (2004).
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Interpretation of Contracts

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