THE LEGAL ENVIRONMENT OF BUSINESS

CHAPTER 10

The Law of Contracts and Sales I -1

Ch. 10-1

I. Definition, Sources and Classifications of Contract Law

Definition
A contract is a legally enforceable exchange of promises or an exchange of a promise for an act.

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Purpose of Contracts
To provide businesses and individuals with predictability and security via understandable rules for the formation and performance of agreements; as well as recognized remedies for breach

Ch. 10-3

Sources of Contract Law

Case/Common Law Real Property Services Employment Statutory Law UCC Art. 2- Sales

PART 2. FORM, FORMATION AND READJUSTMENT OF CONTRACT 2-201. Formal Requirements; Statute of Frauds. 2-202. Final Written Expression: Parol or Extrinsic Evidence. 2-203. Seals Inoperative. 2-204. Formation in General.

2-205. Firm Offers.

2-206. Offer and Acceptance in Formation of Contract.

(Uniform Commercial Code) 2-207. Additional Terms in Acceptance or

Confirmation.
2-209. Modification, Rescission and Waiver. 2-210. Delegation of Performance; Assignment of Rights.

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Classifications of Contracts
Express and implied Unilateral and bilateral Void, Voidable, and Valid Executed and executory Quasi-contract

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Express and implied Contract

Express Contract: an exchange of oral or written promises between parties that are enforceable in a court of law. Implied Contract: one that is established by the conduct of a party rather than by the partys written or spoken words.

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Unilateral and Bilateral Contract

Unilateral Contract: an exchange of a promise for an act.

Bilateral Contract: the exchange of one promise for another promise.

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Void, Voidable and Valid Contract

Void Contract: one that at its formation has an illegal object or serious defects. Voidable Contract: one that gives one of the parties the option of withdrawing. Valid Contract: one that meets all legal requirements for a fully enforceable contract.
Ch. 10-8

Executed and Executory Contract

Executed Contract: one for which all the terms have been performed. Executory Contract: one for which all the terms have not been completed or performed. Quasi-contract: a court-imposed agreement to prevent the unjust enrichment of one party when the parties had not really agreed to an enforceable contract.

Ch. 10-9

II. Elements of a Legal Contract

Offer Acceptance Consideration
Genuine assent Competent parties Legal object

1-Legal Offer
An offer that shows objective intent to enter into the contract, is definite, and is communicated to the offeree.

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Requirements of the Offer

Definiteness Objective intent to be bound Communication to offeree

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Termination of Offers

Lapse of time Death of party Destruction of subject matter Rejection by offeree Revocation by offeror
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2-Legal Acceptance
An acceptance that shows objective intent to enter into the contract, that is communicated by proper means to the offeror, and that mirrors the terms of the offer.

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Requirements for Acceptance

Intent to accept Communication to offeror
Mirror Image Rule (Common Law): Terms in the purported acceptance that vary from the terms of the offer constitute a rejection and counteroffer
Note: UCC Art. 2-207, where applicable, displaces the common law rule.
Ch. 10-15

Invitation to Treat ()
Invitation to treat (or invitation to bargain in the US) comes from the Latin phrase invitatio ad offerendum and means an "inviting an offer".

"an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed."

1-merely indicates the interest of one party to enter into negotiations 2-is by no means supposed to form a binding contract.
Ch. 10-16

Invitation to Treat ()
Invitations to treat include the display of goods; the advertisement of a price or an auction; and an invitation for tenders (or competitive bids). There may however be statutory or complementary obligations, so consumer protection laws prohibit, misleading advertising and at auctions without reserve there is always a duty to sell to the highest bona fide bidder (). But the general rule is that unlike an actual offer, an invitation to treat is not binding. The "inviter" can change his or her mind. The Parking lot Case

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3-Consideration
A bargained-for exchange of promises in which a legal detriment is suffered by the promisee

the legal concept of value in connection with contracts. It is anything of value in the common sense, promised to another when making a contract, which can take the form of money, physical objects, services, promised actions, or even abstinence from a future action. If either promisee already had a legal obligation to render such payment, it cannot be seen as consideration in the legal sense.
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Theoretical Source of Consideration

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3-Consideration
A bargained-for exchange of promises in which a legal detriment is suffered by the promisee Adequacy Preexisting Duty Rule

Promises Enforceable without ConsiderationPromissory estoppel and unjust enrichment

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Liquidated & Unliquidated Debts

Liquidated debts () no dispute about amount Result - preexisting duty to pay allows claim based on underlying agreement despite partial payment

Unliquidated debt: amount claimed is disputed Result - there is new consideration for second agreement to make partial payment; therefore, claim based upon first underlying agreement not supported
Legal term: Accord and satisfaction
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4-Genuine Assent
meeting of the minds

Problems: Fraud Duress Undue Influence Mutual Mistake

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Fraud
Misrepresentation of a material fact Made with intent to deceive Reasonable reliance Injury

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Duress
Wrongful act or threat Prevents a party from exercising free will Interferes with meeting of the minds Threats can be physical, or mental

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Undue Influence
Unbalanced power relationship Abuse of trust: doctor-patient; lawyerclient
Coercive influence

Detriment to the subservient party

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Mistake
Unilateral Court will not rescind the contract Bilateral Court may rescind the contract
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5- Competency
DEFINITION Major Issues: The ability to understand the Minors nature of the transaction and Insanity the consequences of entering Intoxication into at the time the contract is formed

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6-Legal Object
General Rule Contracts with illegal subject matter are void

Statutory Law:
Contracts with unlicensed vendors are unenforceable

Case Law:
Unreasonable noncompetition agreements are unenforceable
Ch. 10-28

Contracts That Must Be in Writing

Law: Statute of Frauds 1677

Contracts for the sale of land Contracts to pay the debts of another

Contracts not performable in one year

Sale of goods of $500 or more Contracts in consideration of marriage Contracts of an executor to answer for debts of

deceased

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Parol Evidence Rule

Elements: Where there is a written contract Any oral agreements made prior to or contemporaneously with That vary, alter, or contradict Are not admissible

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Exceptions to the Parol Evidence Rule

Rule: Offers of oral agreements are not admissible to contradict the written agreement. Oral agreements are admissible for the following purposes:
1. to prove a subsequent modification of the written agreements 2. to clarify ambiguities 3. to prove fraud, mistake, illegality, duress, etc. 4. to fill in a gap (supplement) the writing

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Third-Party Beneficiary Contracts

Donee-beneficiaries
Where the parties intend to make a gift

Creditor-beneficiaries
Where the intent is to fulfill an obligation

Ch. 10-32

Assignments
the present transfer of an existing right.
Obligor must receive notice of assignment Assignment not valid when: It results in material change in the duty of obligor Prohibited by statute Prohibited by contract
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Assignment Process
Obligee Promisee Assignor

Obligor

Assignee
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Summary
A contract is a legally enforceable promise Minimal requirements for enforceability:
Offer Acceptance Consideration Genuine assent Competent parties Legal object

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