Presentation on theme: "The Essentials of Contract Law"— Presentation transcript:
1 The Essentials of Contract Law UNIT 7The Essentials of Contract LawSUNY CRIMINAL & BUSINESS LAW/MUSOLINO
2 Learning Objectives Explain the three theories of contract law. Identify the six elements of a contract.Explain the place of the UCC in contract law.Distinguish contracts from other agreements between different parties.Explain the concept of privity and contract law.Explain the nature of valid, void, voidable, and unenforceable contracts
3 Learning ObjectivesContrast unilateral and bilateral contractual arrangements.Outline the difference between express and implied contracts.Discuss the difference between quasi-contracts and implied-in-fact contracts.Differentiate between formal and informal contracts.Explain how executory contracts differ from executed contracts.
4 What is an agreement between two or more competent parties? Question?What is an agreement between two or more competent parties?DealBondTreatyContractThe correct answer is “D” – contract. See next slide.
5 The Basics of Contract Law an agreement between two or more competent parties, based on mutual promises, to do or refrain from doing some particular thing that is neither illegal nor impossibleresults in an obligation or a duty that can be enforced in a court of lawGetting Students InvolvedDiscuss with the students what constitutes a contract and why contracts are necessary. Ask students to surmise howand when contracts originate.Suggest that they write down at least three questions they have about the nature of contracts and encourage them to refer tothese questions periodically throughout the chapters on contracts to see if they have found any answers.
6 What is the contracting party who makes a promise? Promisee Promisor Question?What is the contracting party who makes a promise?PromiseePromisorObligeeObligorThe correct answer is “B” – promisor. See slide 7-8.
7 What is the contracting party to whom a party owes an obligation? Question?What is the contracting party to whom a party owes an obligation?PromiseePromisorObligeeObligorThe correct answer is “C” – obligee. See next slide.
8 The Basics of Contract Law Promisorthe contracting party who makes a promisePromiseethe one to whom the promise is made is theObligorthe party who is obligated to deliver on a promise or undertake some act of performanceObligeethe contracting party to whom this party owes an obligationThe contracting party who makes a promise is known as the promisor ; the one to whom thepromise is made is the promisee . The party who is obligated to deliver on a promise orundertake some act of performance is called the obligor . The contracting party to whomthis party owes an obligation is called the obligee
9 The Objectives of Contract Law The court’s goal in the remedy phase of a contract dispute is to place the injured party in as good a position as he or she would have been had the contract been carried outMitigationPunitive damagesThere are built-in modificationsto this theory however. For instance, the innocent party is not permitted to takeadvantage of the breach by deliberately raising the level of damages that the otherparty will have to pay as a consequence of the breach. This rule is known as the principleof mitigation . Another modification involves punitive damages. Punitive damagesare damages that are designed to punish the offender.
10 Question?Which theory states that a contract will exist once all of the parties with the legal capacity to contract have actually accepted all obligations and benefits under the contract ?Equal value theoryEquity theoryWill theoryJudgment theoryThe correct answer is “C” – will theory. See next slide.
11 Three Theories of Contract Law The will theorya general principle of law that states that a contract will exist once all of the parties with the legal capacity to contract have actually accepted all obligations and benefits under the contract and have exchanged, or promised to exchange, things of valueAt times, to outsiders, the terms of a contract may seem disproportionate or unfair. However, as longas the parties freely enter a legal agreement with equal bargaining power and full contractualcapacity, a valid contract will result.
12 Three Theories of Contract Law The equal value theory or equity theoryinsisted that a contract would be valid only if the things exchanged were of equal valuebarteringIn an era when bartering was the primary way to create a contract, the equitytheory worked very well. Bartering generally involves an exchange of services and/or goods that are equal in value, rather than a payment of money. In the nineteenthcentury, however, with the advent of industrial capitalism, the equity theory proved tobe unworkable most of the time, because when an industrial capitalist invests moneyin a factory, a coal mine, or a railroad, that capitalist must make a profit to stay inbusiness.
13 Three Theories of Contract Law If each element is present, then a contract exists, regardless of what the parties may argue after the factThe formalist theory of contract lawthe courts look to see if certain elements existoffer, acceptance, mutual, assent, capacity, consideration, and legality.Offer An offer is a proposal made by one party to another indicating a willingness toenter a contract. The person who makes an offer is called the offeror; the person to whomthe offer is made is the offeree. (See Chapter 8.)Acceptance In most cases, only a specifically identified offeree or his or her authorizedagent has the right to accept an offer. Acceptance means that the offeree freely agreesto be bound by the terms of the offer at the exact time that the acceptance is communicatedto the offeree. (See Chapter 8.)Mutual Assent If a valid offer has been made by the offeror, and a valid acceptancehas been made by the offeree, then mutual assent exists between them. Often the court willsay that mutual assent exists only if there has been a “meeting of the minds” among theparties to the agreement. If mutual assent has been destroyed, the relationship that resultsis said to be a defective agreement. (See Chapter 9.)Capacity The fourth element necessary to a make a contract complete is capacity. Capacityis the legal ability to make a contract. (See Chapter 10.)Consideration The fifth element to any complete contract is the freely exercisedmutual exchange of benefits and sacrifices. This willful exchange is called consideration.Consideration is the thing of value promised to the other party in exchange for somethingelse of value promised by the other party. (See Chapter 11.)Legality The final element of a binding contract is legality. Parties cannot be allowed toenforce a contract that involves doing something that is illegal. (See Chapter 12.)
15 Contracts and the UCCThe Uniform Commercial Code (UCC) is a unified set of statutes designed to govern almost all commercial transactionsArticle 2 of the UCC sets down the rules that govern sale-of-goods contractsAll other types of contracts, including employment contracts and real property contracts, are governed by common law rules and certain special statutory provisions
16 Contracts and Other Agreements All contracts are agreements, but not all agreements are contracts.To be enforceable, an agreement must conform to the law of contracts.The courts have never been agreeable to the enforcement of social agreements: dates,dinner engagements, or the like. Many states have extended this concept to include agreementsto marry and agreements to live together without the benefit of a marriage contract.
17 Contractual obligation Gordon defense Question?When both parties have a legally recognized interest in the subject of the contract it is called ________.PrivityJudgmentContractual obligationGordon defenseThe correct answer is “A” – privity. See next slide.
18 Privity Contracts and Privity both parties have a legally recognized interest in the subject of the contract if they are to be bound by itTerms When an offer is accepted and there is consideration, the process is called “objective manifestationof mutual assent.” This process is commonly referred to as “making a deal.”The word deal comes from the Middle English deel, through the Old English dael or dal, meaning division orportion, which in turn is derived from the Old High German teil, meaning part. Before the twelfth century,engaging in bargaining or trade was known as dealing. In the late sixteenth century, a deal came to mean what itdoes today—a transaction for mutual benefit.
19 Contractual Characteristics Valid contractone that is legally binding and fully enforceable by the courtVoid contractone that has no legal effect whatsoeverA valid contract is one that is legally binding and fully enforceable by the court. Incontrast, a void contract is one that has no legal effect whatsoever. For example, a contractto perform an illegal act would be void.
20 Contractual Characteristics Voidable contractone that may be avoided or canceled by one of the partiesUnenforceable contractone that, because of some rule of law, cannot be upheld by a court of lawA voidable contract is one that may beavoided or canceled by one of the parties. Contracts made by minors or induced byfraud or misrepresentation are examples of voidable contracts. An unenforceable contractis one that, because of some rule of law, cannot be upheld by a court of law. Anunenforceable contract may have all the elements of a complete contract and still beunenforceable.
21 What type of contract is one in which both parties make promises? Question?What type of contract is one in which both parties make promises?Voided contractUnilateral contractExpress contractBilateral contractThe correct answer is “D” – Bilateral contract. See next slide.
22 Contractual Characteristics Unilateral contractan agreement in which one party makes a promise to do something in return for an act of some sortBilateral contractone in which both parties make promisesBreach of contractoccurs when one of the two parties fails to keep the promiseThe classic example of a unilateral contract is a rewardcontract. A person who promises to pay $5 to the finder of a lost compact disk doesnot expect a promise in return. Rather, the person expects the return of the lost CD. Whenthe CD is returned, the contract arises and the promisor owes the finder $5.
23 Contractual Characteristics Express contractrequires some sort of written or spoken expression indicating a desire to enter the contractual relationshipImplied contractcreated by the actions or gestures of the parties involved in the transactionWhen contracting parties accept mutual obligations, eitherthrough oral discussion or written communication, they have created an express contract.Oral negotiations in many cases will be reduced to writing, but this is not alwaysnecessary.One who knowingly accepts benefits from another person maybe obligated for their payment, even though no express agreement has been made. Anagreement of this type can be either implied-in-fact or implied-in-law.
24 Contractual Characteristics Informal contractAny oral or written contract that is not under seal or is not a contract of recordFormal contracthas to be (1) written; (2) signed, witnessed, and placed under the seal of the parties; and (3) deliveredContract of recordAn informal contract generally has no requirements as to language,form, or construction. It comprises obligations entered into by parties whose promises areexpressed in the simplest and usually most ordinary, non-legal language.A seal is a mark or an impression placed on a writtencontract indicating that the instrument was executed and accepted in a formal manner. TheUCC removed the requirement for a seal in sale-of-goods contracts. Some states, however, stillrequire the use of the seal in agreements related to the sale and transfer of real property.
25 Contractual Characteristics Executory contractA contract that has not yet been fully performed by the parties is called anExecuted contractWhen a contract’s terms have been completely and satisfactorily carried out by both partiesBackground InformationEarly Roman law, like Anglo-Saxon law and other early legal systems, recognized only executed contracts that involvedface-to-face dealings and an exchange of property at the moment the deal was made. With the expansionof the Roman Empire and increased foreign trade, rules to address unfulfilled promises developed, allowingnew flexibility in commerce.