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Chapter 7: Contracts – Nature and Classification

Chapter 7: Contracts – Nature and Classification. Learning Objectives. What is a contract? What is the objective theory of contracts? What are the four basic elements of a valid, enforceable contract? What is the difference between an implied contract and a quasi contract? .

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Chapter 7: Contracts – Nature and Classification

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  1. Chapter 7: Contracts – Nature and Classification

  2. Learning Objectives • What is a contract? What is the objective theory of contracts? • What are the four basic elements of a valid, enforceable contract? • What is the difference between an implied contract and a quasi contract? 

  3. Learning Objectives • How does a void contract differ from a voidable contract? What is an unenforceable contract? • Why have plain language laws been enacted? What rules guide the courts in interpreting contracts?

  4. 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). • Function of a Contract. • Provides stability and predictability for commerce.

  5. Overview of Contract Law • Definition of a Contract. • 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.

  6. Overview of Contract Law • Objective Theory of Contacts. • Circumstances to determine intent of parties. • Objective Facts include: • What a party said when entering into the contract, • How the party acted or appeared (intent may be inferred), and • Circumstances surrounding the transaction.

  7. Elements of a Contract • Requirements of a Valid Contract: • Agreement (Offer & Acceptance). • Consideration: bargained-for-exchange. • Contractual Capacity. • Legality: purpose of contract must be legal at the time of execution.

  8. Elements of a Contract • Defenses to the Enforceability of a Valid Contract: • Voluntary Consent. • Form: some types of contracts must be in writing.

  9. Types of Contracts

  10. Types of Contracts • Contract Formation. • Bilateral: Offeror accepts Offeree’s promise to perform (“a promise for a promise”). • Unilateral: Offeror is bargaining for performance. Offeree accepts by completing contract performance (“a promise for an act”). 

  11. Types of Contracts • Contract Formation. • Unilateral Contracts. • CASE 7.1 Schwarzrock v. Remote Technologies, Inc. (2011). Did the employer owe the bonus. • Revocation of Offers for Unilateral Contracts: Offeror cannot revoke promise once performance has begun, for a reasonable time period.

  12. Types of Contracts • Contract Formation. • Formal versus Informal Contracts. • Formal: must be in writing to be enforceable. • Informal: all other contracts.

  13. Types of Contracts • Contract Formation. • Express versus Implied Contracts. • Express: oral or written. • Implied: 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.

  14. Types of Contracts • Contract Performance. • Executed - A contract that has been fully performed on both sides. • Executory - A contract that has not been fully performed on either side.

  15. Types of Contracts • Contract Enforceability. • Valid: agreement, consideration, contractual capacity, and legality. • Voidable (unenforceable): Valid contract can be avoided or rescinded based on certain legal defenses. • Void Contracts: no contract was ever formed. Neither party has any legal obligations nor any legal rights.

  16. Quasi Contracts • Fictional, equitable remedy created by court to avoid unjust enrichment of one party. • Plaintiff can recover in quantum meruit. • CASE 7.2 Sheerer v. Fisher (2010). How did the plaintiffs prove a valid claim for a quasi contract? 

  17. Quasi Contracts • Limitations on Quasi-Contractual Recovery. • When a contract already exists, quasi contract cannot be used.

  18. Interpretation of Contracts • Plain Language Laws. • If language is clear from face of contract, court will enforce a contract according to plain terms. • If language clear, court cannot consider extrinsic evidence.

  19. Interpretation of Contracts • Plain Meaning Rule. • If language is clear from face of contract, court will enforce a contract according to plain terms. • If language clear, court cannot consider extrinsic evidence.

  20. Interpretation of Contracts • Other Rules of Interpretation. • What did the parties WRITE in the contract? • Courts will generally not remake the contract into what the parties’ claim their intent was when they made the contract. 

  21. Interpretation of Contracts • Other Rules of Interpretation. • Ordinary usage of terms. • Trade Usage, Custom, Prior Dealings. • CASE 7.3 U.S. Bank, N.A. v. Tennessee Farmers Mutual Insurance Co. (2009). What words in the insurance contract were most persuasive to the court?

  22. Interpretation of Contracts • Other Rules of Interpretation. • Ordinary usage of terms. • Trade Usage, Custom, Prior Dealings. • CASE 7.3 U.S. Bank, N.A. v. Tennessee Farmers Mutual Insurance Co. (2009). What words in the insurance contract were most persuasive to the court?

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