CHPT 6 Contracts - Nature and Terminology

CHAPTER 10
Contracts: Nature and Terminology
Wests Business Law

10th Edition
Kenneth W. Clarkson, University of Miami
Roger LeRoy Miller, Institute for University Studies, Arlington, Texas
Gaylord A. Jentz, University of Texas, Austin, Emeritus
Frank B. Cross, University of Texas, Austin
COPYRIGHT 2006 West Legal Studies in Business, a part of The Thomson Corporation. Thomson,
the Star logo, and West Legal Studies in Business are trademarks used herein under license.
Roscoe Pound
The noted legal
scholar Roscoe
Pound once said that
the social order rests
upon the stability and
predictability of
conduct, of which
keeping promises is a
large item.
Contract Law: Why???

- Promises society believes should be legally
binding.
-Excuses society will accept for breaking promises.
-Promises that are against public policy so legally
void.
-Important because foundation of commercial
activity is contracts.
1: Overview of Contract Law

Sources of Contract Law.
Common Law for all contracts except sales and leases.
Sale and lease contracts - Uniform Commercial Code (UCC).
A contract is a:
Promise or set of promises,

For breach of which,
The law provides a remedy, or
The performance of which the law in some way recognizes as
a duty.
Video: The Big Bang Theory - room mate agreement
https://www.youtube.com/watch?v=XIm6_2NzIc4
2: Elements of a Contract
Agreement (Offer and Acceptance). The offeror
must offer to enter into an agreement, and the
offeree must accept the terms of the offerors offer.
Consideration. Something of value given or
promised to convince a party to agree to the deal.
Contractual Capacity. Both parties must be legally
competent to enter into the agreement.
Defense:
Legality. The contracts purpose must be to
accomplish some goal that is legal and not against
public policy.
Genuineness of assent. The apparent consent of both
parties must be genuine.
Form. The agreement must be in whatever form (e.g.,
written, under seal) the law requires.
Parties to a Contract
General:
Promisor
(Obligor)
Promisee
(Obligee)
Parties may be: individuals,

partnerships, corporations,
governments
Examples:
Insurer
Parties to an Insurance Policy

Landlord
(Lessor)
Carrier
Insured
Shipper
Parties to a Transportation Contract
Tenant
(Lessee)
Parties Agreeing Upon Occupation

of a Building for Money (a Lease)
Vendor
Vendee
Parties to a Sales Contract
3: Types of Contracts
Bilateral v. Unilateral.
Bilateral - Offeree must only promise to perform (promise
for a promise).
Unilateral - Offeree can accept the offer only by completing
the contract performance (a promise for an act).
Irrevocable: Offer cannot be revoked once performance has
begun.
Once the offeree of a unilateral contract begins to perform, the
offeror loses the ability to revoke her offer (e.g., if X offered Y
$25 to mow Xs yard, on Y had substantially begun to perform,
X could not revoke her offer to pay Y for mowing her yard).
Video: Contracts Charlie Brown

http://www.youtube.com/watch?
v=HPYz2IzIii0&feature=related
Case 10.1: Ardito v. City of
Providence (2003).
Ardito v. City of Providence

The City of Providence, Rhode Island, decided to begin hiring police
officers to fill vacancies in its police department. Because only
individuals who graduated from the Providence Police Academy were
eligible, the city also decided to conduct two training sessions, the
60th and 61st Police Academies. The applicants deemed most
qualified were sent a letter informing them that they had been selected
to attend if they successfully completed a medical examination and a
psychological examination. The letter to the applicants to the 61st
Academy, dated October 15, stated that it was a conditional offer of
employment. Meanwhile, a new Chief of Police, Dean Esserman,
decided to revise the selection process, which caused some of those
who had received the letter to be rejected. Derek Ardito and thirteen
other newly rejected applicants filed a suit in a federal district court
against the city, alleging in part that the city was in breach of contract.
10
Ardito v. City of Providence

The court issued an injunction to prohibit the city from conducting
the 61st Police Academy unless the plaintiffs were included. The
October 15 letter was a unilateral offer that the plaintiffs had
accepted by passing the required medical and psychological
examinationsa classic example of an offer to enter into a
unilateral contract. The October 15 letter expressly stated that it was
a conditional offer of employment and the message that it
conveyed was that the recipient would be admitted into the 61st
Academy if he or she successfully completed the medical and
psychological examinations, requirements that the City could not
lawfully impose unless it was making a conditional offer of
employment. . . . The plaintiffs accepted the Citys offer of
admission into the Academy by satisfying the specified conditions.
11
Express vs. Implied-in-Fact

Express: A contract in which the terms of the agreement are
explicitly stated orally or in writing.
Implied In Fact: Conduct creates and defines the terms of
the contract. Requirements:
PL furnished good or service
PL expected to be paid
DEF had chance to reject and did not.
Video: House Painting
http://www.youtube.com/watch?v=VKW7BTpVsws
12
Types of Contracts
Formal v. Informal.
Formal Contract: A contract that requires a special form or
method of formation (creation) in order to be enforceable. For
example:
Contract Under Seal: A formalized writing with a special

seal attached.
Recognizance: A promise, made in open court, to perform

a specific task or pay a specified sum.
Negotiable Instrument: A check, note, draft, or certificate

of deposit each of which requires certain formalities.
Informal Contract: A contract that does not require a specified
form or method of formation in order to be valid.
13
Types of Contracts
Executed v. Executory.
Executed - A contract that has been fully performed on both
sides.
Executory - A contract that has not been fully performed on
either side.
Video: Bowfinger
http://www.youtube.com/watch?v=yVGlKrziG5E
-Does a contract exist?
-Bilateral or unilateral?
-Express or Implied-in-Fact?
-Formal or Informal?
14
Contract Enforceability
Valid.
Elements: Agreement, consideration, contractual
capacity, and legality.
Void.
No contract.
Voidable (unenforceable).
Valid contract can be avoided or rescinded.
15
4: Quasi-Contracts
Quasi Contract: A fictional contract imposed on parties by
a court in the interests of fairness and justice, typically to
(1) prevent the unjust enrichment of one party at the
expense of the other, and
(2) allow the party whose actions would otherwise
unjustly enrich the other party to recover in quantum
meruit.
Video: Drake Sued Over 'Marvin's Room' by ExGirlfriend?!
http://www.youtube.com/watch?v=eCH4Gbfzxr8
16
5: Interpretation of Contracts
Plain Meaning Rule: Courts give terms their obvious
or ordinary meaning.
Ambiguous Terms. If terms are ambiguous, court will
attempt to interpret ambiguous contract terms in a
reasonable, lawful, effective manner.
17
Interpretation of Contracts
Ambiguous Terms (contd)
Specific wording given greater weight than general

language.
Written or typewritten given greater weight than
preprinted.
Ambiguous terms interpreted against the drafter.
Trade usage, prior dealing, course of performance to
allowed to clarify.
Video: Mitchell & Webb - Needlessly ambiguous terms
http://www.youtube.com/watch?v=U6cake3bwnY
18
Rules of Contract Interpretation
19

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CHAPTER 10

Contracts: Nature and Terminology

Wests Business Law

Contract Law: Why???

1: Overview of Contract Law

Promise or set of promises,

Parties may be: individuals,

Parties to an Insurance Policy

Parties to a Transportation Contract

Parties Agreeing Upon Occupation

Parties to a Sales Contract

Video: Contracts Charlie Brown

Ardito v. City of Providence

Ardito v. City of Providence

Express vs. Implied-in-Fact

Contract Under Seal: A formalized writing with a special

Recognizance: A promise, made in open court, to perform

Negotiable Instrument: A check, note, draft, or certificate

Ambiguous Terms (contd)

Specific wording given greater weight than general

Rules of Contract Interpretation

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