1. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law 6 th Edition Chapter 7 Contracts: Nature and Classification

2. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 2 The Function of Contracts Designed to provide stability and predictability, as well as certainty, for both, buyers and sellers in the marketplace. Necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief. Designed to provide stability and predictability, as well as certainty, for both, buyers and sellers in the marketplace. Necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief.

3. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 3 Definition of a Contract What is a Contract? –Contract is an agreement (based on a promise) that can be enforced in court. Objective Theory of Contracts. –Intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions. What is a Contract? –Contract is an agreement (based on a promise) that can be enforced in court. Objective Theory of Contracts. –Intention to enter into a legally binding agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.

4. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 4 Requirements of a Contract Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Legality. Genuineness of assent. Form. Agreement (Offer and Acceptance). Consideration. Contractual Capacity. Legality. Genuineness of assent. Form.

5. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 5 Bilateral vs. Unilateral Contracts Bilateral - Offeree must only promise to perform (“promise for a promise”). Unilateral - Offeree can accept the offer only by completing the contract performance (“promise for an act”). –Case 7.1 Ardito v. City of Providence (2003). –Offers for Unilateral Contracts are generally revocable unless substantial work. Bilateral - Offeree must only promise to perform (“promise for a promise”). Unilateral - Offeree can accept the offer only by completing the contract performance (“promise for an act”). –Case 7.1 Ardito v. City of Providence (2003). –Offers for Unilateral Contracts are generally revocable unless substantial work.

6. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 6 Express vs. Implied Contracts Express-words (oral or written). Implied In Fact - Conduct creates and defines the terms of the contract. –Case 7.2 Homer v. Burman (2001). Express-words (oral or written). Implied In Fact - Conduct creates and defines the terms of the contract. –Case 7.2 Homer v. Burman (2001).

7. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 7 Quasi Contracts Quasi Contracts are implied in law. –Fictional contracts created by courts. –Equitable remedy imposed on parties in the interest of fairness and justice. Limitations On Recovery. –Cannot claim if misconduct or negligence. Quantum Meruit. Quasi Contracts are implied in law. –Fictional contracts created by courts. –Equitable remedy imposed on parties in the interest of fairness and justice. Limitations On Recovery. –Cannot claim if misconduct or negligence. Quantum Meruit.

8. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 8 Types of Contracts Formal vs. Informal Contracts. Executed v. Executory. –Executed - A contract hat has been fully performed on both sides. –Executory - A contract that has not been fully performed on either side. Formal vs. Informal Contracts. Executed v. Executory. –Executed - A contract hat has been fully performed on both sides. –Executory - A contract that has not been fully performed on either side.

9. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 9 Enforceability Valid. –Elements: Agreement, consideration, contractual capacity, and legality. Voidable (unenforceable). –Valid contract can be avoided or rescinded. Void. –No contract. Valid. –Elements: Agreement, consideration, contractual capacity, and legality. Voidable (unenforceable). –Valid contract can be avoided or rescinded. Void. –No contract.

10. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 10 Interpretation of Contracts Plain Meaning Rule: Courts give terms their obvious meaning. Other Rules of Interpretation –Ambiguous terms are interpreted in a reasonable, lawful, effective manner. –Contracts are interpreted as a whole. –Terms negotiated separately given greater weight. –Specific wording given greater weight than general language. –Written or typewritten given greater weight than preprinted. –Ambiguous terms interpreted against the drafter. –Trade usage, prior dealing, course of performance to allowed to clarify. –Case 7.3 Dispatch Automation, Inc. v. Richards (2002). Plain Meaning Rule: Courts give terms their obvious meaning. Other Rules of Interpretation –Ambiguous terms are interpreted in a reasonable, lawful, effective manner. –Contracts are interpreted as a whole. –Terms negotiated separately given greater weight. –Specific wording given greater weight than general language. –Written or typewritten given greater weight than preprinted. –Ambiguous terms interpreted against the drafter. –Trade usage, prior dealing, course of performance to allowed to clarify. –Case 7.3 Dispatch Automation, Inc. v. Richards (2002).