1. Fundamentals of Business Law Summarized Cases, 8 th Ed., and Excerpted Cases, 2 nd Ed. ROGER LeROY MILLER Institute for University Studies Arlington, Texas GAYLORD A. JENTZ Herbert D. Kelleher Emeritus Professor in Business Law University of Texas at Austin

2. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 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-in- fact and implied-in-law (quasi) contract? 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?

3. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 Overview of Contract Law Sources of Contract Law. –Common law governs all contracts except when modified by statutory law such as the UCC. Function of Contracts: –Fundamental to business. –Creates rights and duties between parties. –Provides stability and predictability. Parties: Promisor (makes the promise) and Promisee (accepts the promise). –Good faith in commercial agreements

4. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4 Agreement that can be enforced in court. Formed by two or more parties. Failure to perform results in breach and damages. Definition of a Contract

5. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Requirements of a Contract A valid, enforceable contract includes: –Agreement. –Consideration. –Capacity. –Legality. Defenses to the Enforceability of a Contract: –Genuineness of Assent. –Form.

6. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Types of Contracts

7. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7 Types of Contracts--Formation Every contract has at least 2 parties: the Offeror (Promisor) and the Offeree (Promisee). Bilateral Contracts: –Offeror and Offeree exchange promises to each other. –A contract is formed when Offeree promises to perform.

8. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 Unilateral Contracts: –Offeror wants performance in exchange for his promise. –Contract is formed when Offeree performs. –Contests and lotteries are examples. –Revocation of Offer: modern view is that offer is irrevocable once the Offeree substantially performs. CASE 7.1 Ardito v. City of Providence (2003). Types of Contracts: Formation

9. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 Types of Contracts: Formation Formal vs. Informal Contracts. –Formal: require special form or method to be enforceable, e.g., under seal. –Informal: all other contracts. Express vs. Implied Contracts. Express: terms of contract are set forth either in writing or orally.

10. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Types of Contracts: Formation Implied-in-Fact: based on conduct. –Plaintiff furnished service or product. –Plaintiff expects to be compensated. –Defendant had a chance to reject and did not. –CASE 7.2 Uhrhahn Construction & Design, Inc. v. Hopkins (Utah, 2008).

11. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 Contract Performance Contract Performance: Executed vs. Executory. –Executed: fully performed by both sides. –Executory: at least one of the parties has not performed.

12. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Contract Enforceability

13. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 Contract Enforceability Valid Contract. –Four Elements: Agreement, Consideration, Legal Purposes, Parties have legal capacity. Voidable Contract. –Valid contract that is legally defective and can be avoided (rescinded) by one of the parties. Void Contract. –No contract at all.

14. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Quasi Contracts Fictional, created by court to avoid unjust enrichment. Limitations on Quasi-Contractual Recovery. When a contract already exists, quasi contract cannot be used.

15. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 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.

16. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 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. –CASE 7.3 Wagner v. Columbia Pictures Industries, Inc. (California, 2007).

17. Copyright © 2010 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 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. –Ordinary usage of terms. –Trade Usage, Custom, Prior Dealings.