Transcript Chapter 9

P A R T
3
Contracts
Introduction to Contracts
The Agreement: Offer
The Agreement: Acceptance
Consideration
Reality of Consent
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
P A R T
3
Contracts
Capacity to Contract
Illegality
Writing
Rights of Third Parties
Performance & Remedies
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
C H A P T E R
9
Introduction to Contracts
“Contracts are agreements made
up of big words and little type.”
Sam Ewing, quoted in Saturday
Evening Post, May 1993
Learning Objectives
 Nature
of contracts
 Basic elements of a contract
 Basic contract types
 Non-contract obligations
9-5
Contracts
Not every promise is legally enforceable
 But when a set of promises has the status of
contract, a person injured by a breach of that
contract is entitled to call on the government
(courts) to force the breaching party to honor
the contract
 Contract law is ancient law, but has evolved
to reflect social change

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Elements of a Contract
(1) agreement (2) between competent parties
(3) based on genuine assent of the parties
that is (4) supported by consideration, (5)
made for a lawful purpose, and (6) in the
form required by law, if any
 See Figure 1, page 276

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Jackson v. Connecticut
Lottery Corporation

Facts:
Jackson bought a Connecticut Lotto “Quick Pick”
ticket for the drawing of October 13, 1995 and won,
but claimed his prize in person three days after the
final day allowed to claim the prize
 Ticket back provided instructions for claiming the
prize online and included warning that “Prize must be
claimed within one year from the drawing date.”
 Connecticut Lottery Corporation (CLC) denied
Jackson’s claim because one-year had elapsed
 Jackson sued for breach of contract

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Jackson v. Connecticut
Lottery Corporation


Threshold Issue: Is the lotto ticket a contract?
Trial Court Ruling:

The parties did enter into a valid, unilateral contract
through the purchase of a Lotto ticket


CLC made a prize offer, Jackson accepted that offer
Consideration ($) supported the contract
The one-year presentment rule was incorporated into
the contract regardless whether Jackson knew of it
 Public policy: without the claim period the regulatory
scheme of the lottery system would be compromised
 Motion for summary judgment granted

9-9
Contract Concepts and Types
Bilateral contracts: two parties make
promises to one another
 Unilateral contracts: one party makes a
promise


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Frequent buyer cards are offers for unilateral
contracts; gaining points on the cards accept
the offer and create a contract
Contract Concepts and Types
Valid contract: binding and enforceable
agreement
 Voidable contract: agreement otherwise
binding, but due to circumstances
surrounding execution or lack of capacity,
may be rejected at option of one party
 Void contract: agreement without legal effect
because prohibited by law

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Contract Concepts and Types
Express contract: agreement of parties
manifested by words, written or oral
 Implied contract: agreement not shown by
words, but by acts and conduct of parties
 Difference between express & implied
contracts relates to manner of proving
the existence of the contract, not the
effect; one or the other arises

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Sources of Governing Law
Two bodies of law—Article 2 of the
Uniform Commercial Code and the
common law of contracts—govern
contracts today
 The Uniform Commercial Code (UCC) is
statutory law in every state, but the
common law of contracts is evolving

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The Uniform Commercial Code
The UCC contains nine articles
 Article 2 expressly applies to contracts for
the sale of goods [2–102] (numbers in
brackets refer to specific Code sections)

UCC [1–105]: goods are tangible, movable,
personal property
 Does not apply to sale of services, intangible
property (stocks, intellectual property), or real
estate

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The UCC and Hybrid Contracts
Many contracts involve goods and services
 The test that courts most frequently apply
to decide whether Article 2 applies is to ask
which element – goods or services –
predominates in the contract


9 - 15
See Pass v. Shelby Aviation
The UCC and Common Law
9 - 16
International Contract Law

The United Nations Convention on
Contracts for the International Sale of
Goods (CISG) is body of contract rules that
harmonizes contract principles from many
legal systems

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Sixty-five countries, including the United States and
Canada, have adopted the CISG to date
International Contract Law

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CISG automatically
applies to a contract for
the sale of goods
between commercial
parties from nations
that agreed to the CISG
unless the parties
expressly opt out of the
CISG in their contract
Non-Contract Obligations

Sometimes the law enforces an obligation to
pay for certain losses or benefits even in the
absence of mutual agreement and exchange
of value:


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Quasi-contract theory
Promissory estoppel
Quasi-Contract Theory

Quasi-contract is an obligation imposed by
law to prevent unjust enrichment of one
party in certain circumstances



E.g., work performed by painter thinking work justified by
contract & other party, who receives benefit of work,
denies the work was justified
E.g., if minor buys something but wrecks it, agreement is
void by law, but the minor must pay the damages
Plaintiff recovers reasonable value of benefit
conferred on defendant (reasonable price) or
value of labor (quantum meruit)
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Promissory Estoppel

A court may apply doctrine of promissory
estoppel when one party relies upon another
party’s promise to his or her detriment
(detrimental reliance), but there’s no contract
 Court will force promisor to fulfill
promise or pay compensation
 Example: Holt v. Home Depot, U.S.A., Inc.
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Holt v. Home Depot, U.S.A., Inc.

Facts & Procedural History:





9 - 22
Holt was a manager for Home Depot for four years
Home Depot assured employees that an open-door
policy allowed complaints to management about
supervisors without penalty
Home Depot moved Holt and family to Connecticut,
but soon after Holt began to have difficulties with his
immediate supervisor
Holt told a senior manager about the problems and
later called the Impact Line to begin a formal complaint
Six days later, Home Depot fired Holt
Holt v. Home Depot, U.S.A., Inc.

Procedural History:
Holt sued Home Depot, claiming promissory estoppel
 Jury found for Holt, awarding $467,000 in damages


Appellate Decision and Ruling:

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The jury could reasonably find that Home Depot’s
promise not to retaliate against employees was so clear
and emphatic that Holt could reasonably believe it was
inviolable and evidence indicated Holt was terminated
because of the complaint about his supervisor
Review
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Test Your Knowledge

True=A, False = B
 Every promise is legally enforceable
 The main element of a contract is fairness
 In a bilateral contract, two parties make
promises to one another
 The UCC is statutory law in every state
 The UCC applies to the sale of goods and
services
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Test Your Knowledge

Multiple Choice
 A void contract refers to an agreement that is:

(a) binding and enforceable agreement

(b) otherwise binding, but due to circumstances
surrounding execution or lack of capacity, may be
rejected at option of one party
(c) without legal effect because prohibited by law


A non-contract obligation does not include:
(a) Quasi-contract theory
 (b) Promissory estoppel
 (c) The CISG doctrine
 (d) Quantum meruit

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Though Question

What contracts have you entered into
recently?
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