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Introduction to Contracts

The Agreement: Offer

The Agreement: Acceptance

Consideration

Reality of Consent

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Capacity to Contract

Illegality

Writing

Rights of Third Parties

Performance and Remedies

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Contracts are agreements made up of big words and little type.

Sam 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

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  • 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

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  • (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

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  • 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

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  • 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

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Contract Concepts and Types

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  • 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

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Contract Concepts and Types

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  • 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

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  • Click to add notes
  • 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 2

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  • Click to add notes
  • 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

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  • Click to add notes

The UCC or Common Law

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  • Click to add notes
  • 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

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  • Click to add notes

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

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Quasi-Contract Remedies

  • Plaintiff recovers either the reasonable value of the benefit conferred on the defendant (reasonable price) or value of labor (quantum meruit)

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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.

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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

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  • Hyperlink is to the opinion (pdf format) on the court’s website.

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

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  • Click to add notes

Review

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Thought Question

  • What contracts have you entered into recently?

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  • Opportunity to discuss the contracting each person does almost every day.