How can we help?

You can also find more resources in our Help Center.

22 terms

Business Law - Chapter 7

Sources of contract law
Common law governs all contracts except when it has been modified or replaced by statutory law, such as Uniform Commercial Code (UCC), or by administrative agency regulations.
- Contracts relating to services, real estate, employment, and insurance, for example, generally are govrned by the common law contracts.
- Contracts for the sale and lease of goods, however, are governed by the UCC, to the extent tha the UCC has modified eneral contract law.
The function of contracts
- to provide stability and predictability for both buyers and sellers in the marketplace.
- assures the parties to private agreements that the promises they make will be enforceable (when good will is not enough)
- to ensure compliance with a promise or to entitle the innocent party to some form of relief
promisor and promisee
person making the promise and person to whom the promise is made
definition of a contract
is an agreement that can be enforced in court. It is formed by two or more parties who agree to perform or to refrain from performing some act now or in the future.
The objective theory of contracts
a party's intention to enter into a contract is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party's own secret, subjective intentions. Objective facts include:
1. what the party said when entering in the contract
2. how the party acted or appeared
3. the circumstances surrounding the transaction

Intent can be implied based on conduct only (implied contracts)
freedom of contract, and, freedom from contract
to enter freely into contractual arrangements, and, for persons who may have been pressured into making contracts unfavorable to themselves... a fundamental public policy of the United States... though exceptions provide freedom from contract for persons who may have been pressured into making contracts unfavorable to themselves.
Requirements of a valid contract

Contract enforceability
1. Agreement (includes offer and acceptance)
2. Consideration (any promises made by parties must be supported by legally sufficient and bargained-for consideration... something of value received or promised to convince another person to make a deal)
3. Contractual capacity (law must recognize them as possessing characteristics that qualify them as competent parties)
4. Legality (must accomplish some goal that is legal and not against public policy)

1. same as above
2. same as above but phrased as "supported by legally sufficient consideration"
3. same as #4 above
4. same as #3 but phrased as "made by parties who have the legal capacity to enter into the contract"
Defenses to the enforceability of a contract (even if 4 elements are met)
1. Genuineness of assent (voluntary consent) e.g., if instead formed as a result of fraud,stake or duress not enforceable
2. Form (must be in whatever from law requires... some must be in writing to be enforceable)
Bilateral contract
Promise for a promise: No performance need take place as the contract comes into existence at the moment the promises are exchanged (goods for money)
Unilateral contract
Promise for an act: Contract is formed when the contract is performed (if she chooses not to accept the offer to drive the car to Los Angeles for $1000, there are no legal consequences). Lotteries and contests are also examples of offers for unilateral contracts.
- When offer is phrased so that the offeree can accept only be completing the contract performance
- Normally offers are revocable, except once performance has been substantially undertaken in a unilateral contract.
Formal vs informal (simple) contracts
Requiring a special form or method of creation to be enforceable vs no special form is required... Contracts under seal are a type of contract that involves a formalized writing with a special seal attached. Letters of credit are formal.
All other contracts are informal that don't require be a special form or be in writing.
Express vs Implied by fact contract
agreements are fully and explicitly stated in words, oral or written vs contracts that are expressed by the conduct of parties (rather than words).
Requirements for an implied-in-fact contract
1. plaintiff furnished some service or property
2. plaintiff expected to be paid for that service or property, and the defendant knew or should have known that payment was expected
3. Defendant has a chance to reject the services or property and did not

- A contract can be a mixture of an express contract and an implied-in-fact contract.
Executed vs executory contracts
fully performed on both sides vs. not fully performed on at least one side
voidable contracts
is a valid contract but one that can be avoided at the option of one or both of the parties. The party having the option can elect either to avoid any duty to perform or to ratify (make valid) the contract. If the contract is avoided, both parties are released from it. If it is ratified, both parties must fully perform their respective legal obligations.
Contracts made by what type of parties may be voidable?
Minors, insane persons, and intoxicated persons, as well as contracts entered into under fraudulent conditions or under legally defined duress or undue influence. As a general rule, contracts are voidable at the option of the above incompetent parties.
Unenforceable contracts
is one that cannot be enforced because of certain legal defenses against it. It does meet the legal requirements, but a valid contract is rendered unenforceable by some statute or law, e.g., an oral contract that is required to be in writing.
Void contract
is no contract at all, i.e., if not all requirements are met for a contract to be valid.
quasi contracts "implied by law"
are fictional contracts that courts can impose on the parties "as if" the parties had entered into an actual contract.
- they are equitable rather than legal contracts.
- are imposed to avoid the unjust enrichment of one party at the expense of another
- the doctrine of unjust enrichment is based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others.
Limitations on quasi contracts
when a party who has conferred a benefit on someone else unnecessarily or as a result of misconduct or negligence cannot invoke the doctrine of quasi contract. It is not considered unjust. Example is a business giving more service than contracted to do (car wash example in book, but isn't this just a breach of existing contract?). Like next section that doctrine of quasi contract can't be used when a contract exists, when remedy already exists to sue for not delivering what promised (as opposed to giving more than promised and wanting more than promised in return...when quasi contract can be used?).
Interpretation of contracts when disputes on meaning arises
- Plain language laws for federal and a majority of states, as well as for agency rulemaking (avoiding 'legalese' as much as possible, to be written using words with common and everyday language)
- The plain meaning rule of interpretation on its face, not to go beyond the words as written in using "extrinsic evidence" to interpret its meaning, as long as written clearly and unambiguously
Other rules of interpretation to determine the parties' intent as expressed in their contract from the language used in their agreement and to give effect to that intent... only if plain meaning is absent
1. a reasonable, lawful, and effective meaning will be given to all contract terms
2. a contract will be interpreted as a whole, specific clauses will be considered subordinate to the contract's general intent, and all writings that are a part of the same transaction will be interpreted together
3. terms that were negotiated separately will be given greater consideration than standardized terms and terms not negotiated separately
4. words will be given their commonly accepted meanings and technical words their technical meanings, unless the parties clearly intended otherwise.
5. specific wording will be given greater consideration than general language
6. written or typewritten terms prevail over preprinted terms
7. a party that uses ambiguous expressions is held to be responsible for the ambiguities (the court will interpret with the meaning that goes against the party that drafted the contract)
8. evidence of prior dealings, course of performance, or usage of trade is admissible to clarify an ambiguously worded contract.