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UNIT I (notes) (***** Note : THE BOLD fonts Are Important topics ******)

1. The function of contract law. (2m or 8m)

2. The definition of the term contract and the basic elements that is required for
contract formation. (2 marks)

3. The objective theory of contracts. (2marks)

4. The types of contracts. (16 marks)

5. The rules that govern the court’s interpretation of contracts. (4 m)

Contract law concerns the formation and keeping of promises, the excuses our society accepts
for breaking such promises, and what promises are considered contrary to public policy and
therefore legally void. This chapter introduces the basic terms and concepts of contract law,
including the rules for interpreting contract language.

I. FUNCTIONS OF CONTRACT LAW

A. ENFORCE PROMISES
Contract law assures the parties to private agreements that the promises they make will be
enforceable. Without the framework that the law provides, businesspersons could rely only
on the good faith of others to keep their promises.

B. AVOID PROBLEMS
The rules of contract law are often followed in business agreements to avoid
potential problems.

C. SUPPORT THE EXISTENCE OF A MARKET ECONOMY


Businesspersons can usually rely on the good faith of others to keep their promises, but
when price changes or adverse economic factors make it costly to comply with a promise,
good faith may not be enough.

II. FREEDOM OF CONTRACT AND FREEDOM FROM CONTRACT

A. FREEDOM OF CONTRACT
Generally, everyone may enter freely into contracts. This freedom is a strongly held public
policy, and courts rarely interfere with contracts that have been voluntarily made.

B. FREEDOM FROM CONTRACT


Illegal bargains, agreements unreasonably in restraint of trade, and unfair contracts
between one party with a great amount of bargaining power and another with little power
are generally not enforced. Contracts are not enforceable if they are contrary to public policy,
fairness, and justice.

III. THE BASIC REQUIREMENTS OF A CONTRACT

THE ELEMENTS OF A CONTRACT (2 marks)_

1. Agreement
Includes an offer and an acceptance. One party must offer to enter into a legal
agreement, and another party must accept the offer.
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2. Consideration
Promises must be supported by legally sufficient and bargained-for consideration.

3. Contractual Capacity
Characteristics that qualify the parties to a contract as competent.

4. Legality
A contracts purpose must be to accomplish a goal that is not against public policy.

DEFENSES TO THE ENFORCEMENT OF A CONTRACT

1. Genuineness of Assent
The apparent consent of both parties must be genuine.

2. Form
A contract must be in whatever form the law requires (some contracts must be in writing).

THE OBJECTIVE THEORY OF CONTRACTS


Intention to enter into a contract is judged by objective (outward) facts as interpreted by
a reasonable person, rather than by a partys subjective intention. Objective facts include
(1) what the party said when entering into the contract, (2) how the party acted or
appeared, and (3) the circumstances surrounding the transaction.

TYPES OF CONTRACTS (16 mark)

. BILATERAL VERSUS UNILATERAL CONTRACTS

1. Bilateral Contract
A promise for a promise to accept the offer, the offeree need only promise to perform.

2. Unilateral Contract
A promise for an act the offeree can accept only by completing the contract performance.
A problem arises when the promisor attempts to revoke the offer after the promisee
has begun performance but before the act has been completed.

a. Revocation Traditional View


The promise can accept the offer only by performing fully. Offers are revocable
until accepted.

b. Revocation Modern View


The offer becomes irrevocable once performance begins. Thus, even though it has
not yet been accepted, the offeror cannot revoke it.

EXPRESS VERSUS IMPLIED CONTRACTS

1. Express Contract
The terms of the agreement are fully and explicitly stated in words (oral or written).

2. Implied-in-Fact Contract
implied from the conduct of the parties.
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QUASI CONTRACTSCONTRACTS IMPLIED IN LAW
In the absence of an actual contract, a quasi contract is imposed by a court to avoid the unjust
enrichment of one party at the expense of another. Cannot be invoked if there is an actual
contract that covers the area in controversy.

FORMAL VERSUS INFORMAL CONTRACTS

1. Formal Contract
Requires a special form or method of creation to be enforceable (such as a contract
under seal, a formal writing with a special seal attached).

2.Informal Contract
All contracts that are not formal. Except for certain contracts that must be in writing,
no special form is required.

EXECUTED VERSUS EXECUTORY CONTRACTS

1. Executed Contract
A contract that has been fully performed on both sides.

2. Executory Contract
A contract that has not been fully performed by one or more parties.

VALID, VOID, VOIDABLE, AND UNENFORCEABLE CONTRACTS

1. Valid Contract
Has all the elements necessary for contract formation.

2. Void Contract
Has no legal force or binding effect (for example, a contract is void if its purpose
was illegal).

3. Voidable Contract
Valid contract that can be avoided by one or more parties (for example, contracts by minors
are voidable at the minors option).

4. Unenforceable Contract

Contract that cannot be enforced because of certain legal defences (for example, if a contract
that must be in writing is not in writing).
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INTERPRETATION OF CONTRACTS

Rules of contract interpretation provide guidelines for determining the meaning of


contracts. The primary purpose of these rules is to determine the parties’ intent from
the language of their agreement and to give effect to that intent.

A. THE PLAIN MEANING RULE


When the writing is clear and unequivocal, it will be enforced according to its plain
terms. The meaning of the terms is determined from the written document alone.

B. OTHER RULES OF INTERPRETATION


when the writing contains unclear terms, courts use the following rules

1. A reasonable, lawful, and effective meaning is given to all terms.

2. A contract is interpreted as a whole; individual, specific clauses are considered subordinate


to the contracts general intent. All writings that are part of the same transaction are
interpreted together.

3. Terms that were negotiated separately are given greater consideration than standard
terms and terms that were not negotiated separately.

4. A word is given its ordinary, common meaning, and a technical word its technical
meaning, unless the parties clearly intended otherwise.

5. Specific, exact wording is given greater weight than general language.

6. Written or typewritten terms prevail over pre-printed ones.

7. When the language has more than one meaning, it is interpreted against the party
who drafted the contract.

8. Evidence of trade usage, prior dealing, and course of performance may be admitted
to clarify meaning.

C.PLAIN-LANGUAGE LAWS
The federal government and most states require an agreement to be written clearly,

What is a Tender Process?

A Tender Process (or "Invitation to Tender" process) is a method by which suppliers are
selected for the provision of products and services to an organization. The process involves
creating a suite of Tender Documents to manage the supplier selection process. The Tender
Documents help the organization to select the best possible supplier available, and include
documents such as the "Statement of Work", "Request for Information" and "Request for
Proposal
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Earnest money -- A sum of money given to bind an agreement, such as the sale of real
estate, the advance of a loan or some other transaction requiring a deposit. Earnest money is
forfeited by the donor if he or she fails to carry out the terms of the contract or agreement