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Chapter 9
Contracts: Nature
and Terminology
© 2004 West Legal Studies in Business
A Division of Thomson Learning
1
Introduction
Promise is a declaration that something will or
will not happen in the future.
What is a Contract?
 Contract is an agreement (based on a promise) that
can be enforced in court.
What law governs?
 Service contracts - common law of contracts.
 Sale and lease contracts - Uniform Commercial Code
(UCC).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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§1: Function of Contract Law
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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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§2: Definition of a Contract
A contract is a:
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Promise or set of promises,
For which breach of which,
The law provides a remedy, or
The performance of which the law in some way
recognizes as a duty.
Objective Theory of Contacts. Circumstances to
determine intent of parties.
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A Division of Thomson Learning
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§3: Elements of a Contract
Agreement (Offer and Acceptance).
Consideration.
Contractual Capacity.
Defense:
 Legality.
 Genuineness of assent.
 Form.
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A Division of Thomson Learning
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§4: Types of Contracts
Bilateral v. Unilateral.
 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”).
• Irrevocable: Offer cannot be revoked once
performance has begun.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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Types of Contracts
Express v. Implied In Fact.
 Express: Words (oral or written).
 Implied In Fact: Conduct creates and
defines the terms of the contract.
Requirements:
• PL furnished good or service
• PL expected to be paid
• DEF had chance to reject and did not.
 Case 9.1: Homer v. Burman (2001).
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A Division of Thomson Learning
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Types of Contracts [3]
Quasi Contracts - Implied in law.
 Fictional contracts created by courts.
 Imposed on parties for the interest of fairness and
justice.
 Equitable remedies.
 Quantum Meruit.
Case 9.2: Industrial Lift v. Mitsubishi (1982).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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Types of Contracts [4]
Formal v. Informal.
Executed v. Executory.
 Executed - A contract that has been fully performed
on both sides.
 Executory - A contract that has not been fully
performed on either side.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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Enforceability
Valid.
 Elements: Agreement, consideration, contractual
capacity, and legality.
Void.
 No contract.
Voidable (unenforceable).
 Valid contract can be avoided or rescinded.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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§5: Interpretation of Contracts
 Plain Meaning Rule: Courts give terms their obvious
meaning.
 Ambiguous Terms. If terms are ambiguous, court will
attempt to interpret ambiguous contract terms in a
reasonable, lawful, effective manner.
 Contracts are interpreted as a whole.
 Terms negotiated separately given greater weight.
 Ordinary, common meaning given.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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Interpretation of Contracts
 Ambiguous Terms (cont’d)
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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 9.3: Dispatch Automation v. Richards
(2002).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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Law on the Web
‘Lectric Law Library on Contracts.
 Legal Research Exercises on the Web.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
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