Chp 8: Nature And Classification(Additional Concepts)

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Contract Law(Intro)

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1. Distinguishes between morally binding and legally binding promises.

2. Must provide rules as to what contract terms will be enforced and which promises must be kept.

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Sources of Contract Law

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The common law governs all contracts except when it has been modified or replaced by statutory law, such as the Uniform Commercial Code(UCC), or by administrative agency regulations.

ex: Services, real estate, employment, and insurance governed by common law, while sale and lease of goods governed by UCC.

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Function of contracts

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1. Contractual relationships are intertwined with modern life.

2. Contract law is designed to provide stability and predictability to buyers and sellers in the marketplace

3. Assures the parties to private agreements that the promises they make will be enforceable

4. Provides a legal framework(duty and good faith aren't sufficient) for the existence of a market economy, in which it ensures that a party of a contract complies with a promise or receives relief.

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Freedom of Contract and Freedom from Contract

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1. Freedom of contract is protected in Article 1, Section 10, of the U.S. Constitution.

2. U.S. courts rarely interfere with contracts that have been voluntarily made, but there are many exceptions(such as illegal bargains).

3. Freedom from contract is provided by these exceptions to protect persons who may have been pressured into making contracts unfavorable to their interests.

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Valid Contract: 4 Elements

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1. Agreement

2. Consideration

3. Contractual Capacity

4. Legality

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Agreement

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An agreement to form a contract includes an offer and an acceptance. One party must offer to enter into a legal agreement, and another party must accept the terms of the offer.

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Consideration

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Any promises made by the parties must be supported by legally sufficient and bargained-for consideration.

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Contractual capacity

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Both parties entering into the contract must have the contractual capacity to do so, meaning the law must recognize them as possessing characteristics that quality them as competent parties.

Short ver: Parties must be competent(mentally) to enter a contract.

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Legality

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The contract's purpose must be to accomplish some goal that is legal and not against public policy.

short ver: contract can't be illegal

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Contracts may not be enforceable if these requirements are not met:

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1. Voluntary Consent

2. Form

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Voluntary consent

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The apparent consent of both parties must be voluntary.

Contract may not be enforceable if formed as a result of fraud, mistake, or duress.

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Form

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The contract must be in whatever form the law requires, such as in writing.

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Types of Contracts

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1. Formation

2. Performance(executed contracts and executory contracts)

3. Enforceability

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Classifications based on contract formation

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1. Bilateral

2. Unilateral

3. Formal

4. Informal

5. Express

6. Implied

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Revocation of offers for unilateral contracts

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1. Problem arises when promisor attempts to revoke the offer after the promisee has began performance before the act has been completed.

2. Offers are normally revocable, but once performance has been substantially undertaken, the offeror cannot revoke the offer because of the harsh effect it can have on the offeree.

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Mixed Contracts with Express and Implied Terms

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A contract can be a mixture of an express contract and implied contract.

Contract may contain some express terms, while other terms are implied.

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Types of Valid Contracts

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1. Enforceable Contract

2. Voidable Contract

3. Unenforceable Contract

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Unjust enrichment

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Based on the theory that individuals should not be allowed to profit or enrich themselves inequitably at the expense of others.

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Quantum meruit

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The extent of compensation due to plaintiff under a quasi contract, which is due to a plaintiff

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Limitations on Quasi-Contractual Recovery

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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; enrichment will not be considered unjust in these situations.

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When an actual contract exists

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Doctrine of quasi contract generally cannot be used when an actual contract covers the area in controversy.

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Interpretation of Contracts

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1. Parties agree that a contract has been formed but may not agree on its meaning or legal effect.

2. May occur because one party is not familiar with legal terminology used in the contract, thus plain language laws have been enacted.

3. Rights or obligations under the contract may not be expressed clearly, despite the use of plain language in the contract.

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Plain Language Laws

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Federal government and majority of the states have enacted plain language laws to regulate legal writing and eliminate legalese.

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The plain meaning rule

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When a contract's language is clear and unequivocal, a court will enforce the contract according to its obvious terms, in which the meaning of the terms will be determined from the face of the instrument--from the written document alone.

Words--and their plain ordinary meaning-- determine the intent of the parties at the time that they entered into the contract.

Court gives effect to contract according to this intent.

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Ambiguity

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Contract considered ambiguous:

1. When the intent of the parties cannot be determined from its language.

2. When it lacks a provision on a disputed issue

3. When a term is susceptible to more than one interpretation

4. When there is uncertainty about a provision.

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Extrinsic Evidence

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*is any evidence not contained in the document itself, and may include the testimony of the parties, additional agreements or communications, or other information relevant to determining the parties' intent

1. Court may consider extrinsic evidence when a contract term is ambiguous

2. Also may interpret the ambiguity against the party who drafted the contract term

3. Can significantly affect how a court interprets ambiguous contractual provisions and thus can affect the outcome of litigation.

4. Extrinsic evidence cannot be considered when the contract is unambiguous.

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Other rules of Interpretation

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Primary purpose of contract interpretation is to determine the parties' intent from the language used in their agreement and to give effect to that intent, not to make or remake a contract and not to interpret the language of the contract according to what the parties claim their intent was when they made the contract.

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Rules the Courts use when interpreting contractual terms

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1. Reasonable, lawful, and effective meaning will be given to all of a contract's terms

2. Contract will be interpreted as a whole, while individual, specific clauses will be considered subordinate to the contract's general intent.

3. Terms that were the subject of separate negotiation will be given greater consideration than standardized terms and terms that were not negotiated separately

4. A word will be given its ordinary, commonly accepted meaning, and a technical word or term will be given its technical meaning, unless the parties clearly intended something else

5. Specific and exact 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 responsible for the ambiguities. Thus, when the language has more than one meaning, it will be interpreted against the party that drafted the contract

8. Evidence of trade usage, prior dealing, and course of performance may be admitted to clarify the meaning of an ambiguously worded contract. What each of the parties does pursuant to the contract will be interpreted as consistent with what the other does and with any relevant usage of trade and course of dealing or performance.

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Express Terms usually given most weight

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Express terms are given the most weight, followed by course of performance, course of dealing, and custom and usage of trade.

When considering custom and usage, a court will look at the trade customs and usage common to the particular business or industry and to the locale in which the contract was made or is to be performed.