Chapter 8 – Contract Law

Contract

• An legally enforceable agreement supported by consideration.

Uniform Commercial Code

• A series of model statutory provisions drafted by National Conference of Commissioners on Uniform State Law that
• governs commercial transactions and has been
• adopted by all states entirely or in part.

Uniform Commercial Code

• Uniform Commercial Code contains:
  • Eleven articles
  • Four articles relevant to contract law  (Articles 1, 2, 2A, and 9)
  • Specific rules that apply only to merchants

 When does Article 2 apply?

• When the transaction involves a sale of goods.

Elements of a Binding Contract

• A contract may be either oral or written, but in order to be considered valid, each of its three key elements must be present:
  • An offer must be made,
  • An acceptance must be given, and
  • Something of value must be exchanged (consideration).

Offer

• Definite offer must contain at least the:
  • Parties
  • Subject matter of the contract
  • Nature of the consideration
  • Time for performance

Acceptance

• According to the mirror image rule:
  • An acceptance must exactly mirror the offer or the acceptance will be viewed as a counteroffer

Consideration         

• Consideration must be present for a valid contract and can be:
  • Money, services, goods or
  • Anything that is a benefit to one party or a detriment to the other

Defenses in Contract Cases

• Lack of contractual capacity
• Lack of genuineness of assent
• Illegal contracts and those that violate public policy
• Warranties
• Lack of proper format

Contract Interpretation

• When interpreting ambiguous contractual language a court will:
  • Give words plain or common sense meaning
  • Decipher meaning from parties’ intent expressed in contract
  • Apply commonly accepted meanings

Illegal Contracts

• Adhesion contract:  a contract formed where the weaker party has no realistic bargaining power. Typically a form contract is offered on a  ‘‘take it or leave it’’ basis.
• Unconscionable contract:  a contract formed between parties of very unequal bargaining power where the terms are so unfair as to ‘‘shock the conscience.’’

Warranty

• A guarantee, made by the seller or implied by law, regarding the character, quality, or title of the goods being sold.

Statute of Frauds

• A statutory requirement that in order to be enforceable certain contracts must be in writing.

Third-Party Rights

• There are three circumstances in which a person or corporation who was not a party to the contract can obtain a legal interest in enforcing part of the terms of that agreement: 
  • Assignment
  • Delegation
  • Creation of third-party beneficiaries.

Assignment

• Assignment: the transfer by one of the original parties to the contract of part or all of his or her contractual rights to a third party.

Delegation

• The transfer by one of the original parties to the contract of his or her obligations to a third party.

Third-party Beneficiary

• Although not a party to the contract, someone the contracting parties intended to benefit.
• A third-party beneficiary relationship is written right into the original contract and is created to benefit the third party.

Specific Performance

• When money damages are inadequate, a court may use this equitable remedy and order the breaching party to perform his or her contractual obligations.

Quasi-Contract

• Quasi means “as if.”
• A quasi-contract is not a real contract, but the situation is treated “as if” there was one.
• Although no contract was formed, the courts will fashion an equitable remedy to avoid unjust enrichment.

Promissory Estoppel

• Promissory estoppel occurs when the courts allow detrimental reliance to substitute for consideration.
• For the courts to find a case of promissory estoppel:
  • 1. a promise must be made with the intent to induce action,
  • 2. it must do so, and
  • 3. the court must believe that it would be unjust not to enforce the promise.