Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent © 2010 The McGraw-Hill Companies, Inc. All rights reserved. Contracts

Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies © 2010 The McGraw-Hill Companies, Inc. All rights reserved. Contracts

Contracts are agreements made up of big words and little type. S am Ewing, quoted in Saturday Evening Post May 1993 Introduction to Contracts © 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives  Nature of contracts  Basic elements of a contract  Basic contract types  Non-contract obligations 9 - 4

 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 Contracts 9 - 5

 (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 292 Elements of a Contract 9 - 6

 Bilateral contracts : two parties make promises to one another  Unilateral contracts : one party makes a promise  Frequent buyer cards are offers for unilateral contracts; gaining points on the cards accept the offer and create a contract Contract Concepts and Types 9 - 7

 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 any legal effect because prohibited by law 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 Contract Concepts and Types

 Two bodies of law govern contracts:  “Article 2” of Uniform Commercial Code  “Common law” of contracts  Uniform Commercial Code (UCC) is statutory law in every state, but the common law of contracts is evolving  UCC contains nine articles Sources of Governing Law

 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 UCC Article

 Many contracts involve goods and services  Test that courts most frequently apply to decide whether Article 2 applies is to ask which element – goods or services – predominates in the contract The UCC and Hybrid Contracts

The UCC or Common Law

 Sometimes the law enforces an obligation to pay for certain losses or benefits even in the absence of mutual agreement and exchange of value; the court then applies:  Quasi-contract theory  Promissory estoppel Non-Contract Obligations

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 work was justified  E.g., minor buys something but wrecks it, agreement is void by law, but the minor must pay the damages

Quasi-Contract Remedies  Plaintiff recovers either the reasonable value of the benefit conferred on the defendant (reasonable price) or value of labor ( quantum meruit )

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

Holt v. Home Depot, U.S.A., Inc.  Facts & Procedural History :  Holt was a Home Depot manager 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  Called Impact Line to begin formal complaint  Six days later, Home Depot fired Holt

Holt v. Home Depot, U.S.A., Inc.  Procedural History :  Holt sued claiming promissory estoppel  Jury found for Holt, awarding $467,000 damages  Appellate Decision and Ruling:  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; evidence indicated Holt terminated because of complaint about supervisor

Review 9- 20

Thought Question  What contracts have you entered into recently?