CSULA Contract Law Summary

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AN OVERVIEW OF CONTRACT LAW (1 of 2)
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Sources of Contract Law: The common law governs all
contracts except when it has been modified or replaced by
statutory law or by administrative agency regulations.
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Contracts relating to services, real estate, employment, and
insurance are generally governed by the common law of
contracts. Contracts for the sale and lease of goods are
governed by the UCC—to the extent that the UCC has
modified general contract law.
The Function of Contract Law: Contract law assures the
parties to private agreements that the promises they make will be
enforceable.
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The person making the promise is the promisor.
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The person to whom the promisor made the promise is the
promisee.
The Definition of a Contract: A contract is an agreement that
can be enforced in court. It is formed by two or more parties
who agree to perform or to refrain from performing some act
now or in the future.
Ch. 11: Nature and Terminology – No. 1
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
AN OVERVIEW OF CONTRACT LAW (2 of 2)
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The Objective Theory of Contracts: In contract law, intent is
determined by what is called the objective theory of contracts,
not by the personal or subjective intent (belief) of a party.
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The theory is that a party’s intention to enter into a contract
is judged by outward, objective facts. The facts are as
interpreted by a reasonable person, rather than by the
party’s own secret, subjective intentions. Objective facts
may include:
(1) What the party said when entering into the contract.
(2) How the party acted or appeared (intent may be
manifested by conduct as well as by oral or written
words).
(3) The circumstances surrounding the transaction.
Ch. 11: Nature and Terminology – No. 2
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
ELEMENTS OF A CONTRACT
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Requirements of a Valid Contract: Four requirements must be
met before a valid contract exists. If any element is lacking, no
contract will have been formed.
(1) Agreement. An agreement to form a contract includes an
offer and an acceptance. One party must offer to enter into
a legal agreement, and another party must accept the terms
of the offer.
(2) Consideration. Any promises made by the parties to the
contract must be supported by legally sufficient and
bargained-for consideration (something of value received
or promised to convince a person to make a deal).
(3) Contractual capacity. Both parties entering into the
contract must have the contractual capacity to do so. The
law must recognize them as possessing characteristics that
qualify them as competent parties.
(4) Legality. The contract’s purpose must be to accomplish
some goal that is legal and not against public policy.
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Defenses to the Enforceability of a Contract: A contract is
unenforceable if these requirements are not met:
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Voluntary consent: Each party must give consent voluntarily.
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Form: The agreement must be in the form the law requires.
Ch. 11: Nature and Terminology – No. 3
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TYPES OF CONTRACTS (1 of 4)
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Contract Formation: Contracts can be classified according to
how and when they are formed.
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Bilateral versus Unilateral Contracts: Every contract
involves at least two parties: the offeror (party making the
offer) and the offeree (party to whom the offer is made).
Whether the contract is bilateral or unilateral depends on
what the offeree must do to accept the offer and bind the
offeror to a contract.
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Bilateral Contracts: A bilateral contract arises
when a promise is given in exchange for a promise
(e.g., X promises to deliver a car to Y, and Y promises
to pay X an agreed price).
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Unilateral Contracts: A unilateral contract results
when an offer can be accepted only by the offeree’s
performance (e.g., X delivers a car to Y, who promises
to pay X an agreed price).
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Contests, Lotteries, and Prizes: Contests, lotteries,
and other competitions involving prizes are examples
of offers to form unilateral contracts. If a person
complies with the rules of the contest, a unilateral
contract is formed.
Ch. 11: Nature and Terminology – No. 4
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TYPES OF CONTRACTS (2 of 4)
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Revocation of Offers for Unilateral Contracts:
Once the offeree of a unilateral contract begins to
perform, the offeror loses the ability to revoke her
offer (e.g., if Y offered to pay X an agreed price in
exchange for X delivering a car to Y, once X delivered
the car, Y could not revoke her offer to pay X).
Formal versus Informal Contracts:
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Formal contracts require a special form or method of
formation (creation) in order to be enforceable.
Examples of formal contracts include negotiable
instruments such as checks, promissory notes, bills of
exchange, and certificates of deposit.
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Informal (or simple) contracts do not require a
specified form or method of formation in order to be
valid.
Ch. 11: Nature and Terminology – No. 5
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TYPES OF CONTRACTS (3 of 4)
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Express versus Implied Contracts:
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In an express contract, the terms of the agreement
are explicitly stated orally or in writing.
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An implied contract is formed in whole or in part by
the conduct (as opposed to the words) of the parties.
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Requirements for Implied Contracts: To establish
an implied-in-fact contract:
(1) the plaintiff must have furnished some service or
property to the defendant,
(2) the plaintiff expected to be paid for that service
and the defendant knew or should have known
that payment was expected, and
(3) the defendant must have had the opportunity to
reject the service or property and failed to do so.
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Mixed Contracts with Express and Implied Terms:
A contract may be a mixture of an express contract
and an implied contract, with some express terms and
some implied terms.
Ch. 11: Nature and Terminology – No. 6
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TYPES OF CONTRACTS (4 of 4)
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Contract Performance: Contracts are also classified according
to the degree to which they have been performed.
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An executed contract has been completely performed by
both (or all) parties.
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An executory contract is a contract that has not yet been
fully performed by one or more parties.
Contract Enforceability: A valid contract is a contract satisfying the requisites of agreement, consideration, legal purpose,
capacity, and form.
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Voidable Contracts: A voidable contract is an otherwise
valid contract that one of the parties may legally avoid,
cancel, or annul (e.g., a contract entered into under duress
or under false pretenses).
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Unenforceable Contracts: An unenforceable contract is
an otherwise valid contract rendered unenforceable by
some statute or law (e.g., an oral contract that, due to the
passage of time, must be evidenced by a writing to be
enforceable).
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Void Contracts: A void contract is a contract having no
legal force or binding effect (e.g., a contract entered into
for an illegal purpose).
Ch. 11: Nature and Terminology – No. 7
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
QUASI CONTRACTS
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Quasi contracts (or contracts implied in law) are not actual
contracts but fictional contracts that courts can impose on the
parties “as if” the parties had entered into an actual contract.
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Quasi contracts are equitable rather than legal contracts and
are usually imposed to avoid unjust enrichment.
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The doctrine of unjust enrichment is based on the theory
that individuals should not be allowed to profit or enrich
themselves inequitably at the expense of others.
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Limitations on Quasi-Contractual Recovery: In general, a
party who has conferred a benefit on someone else
unnecessarily—or as a result of misconduct or negligence—
cannot invoke the principle of quasi contract. Enrichment in
those situations will not be considered “unjust.”
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When an Actual Contract Exists: The doctrine of quasi
contract generally cannot be used when there is an actual
contract that covers the matter in controversy.
Ch. 11: Nature and Terminology – No. 8
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTERPRETATION OF CONTRACTS (1 of 3)
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Parties may agree that a contract has been formed but disagree
on its meaning or legal effect—possibly because one of the
parties is not familiar with the legal terminology used in the
contract.
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Plain language laws (enacted by the federal government and a
majority of the states) have helped to alleviate this difficulty.
However, a dispute may arise over the meaning of a contract
simply because the rights or obligations under the contract are not
expressed clearly—no matter how “plain” the language used.
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The Plain Meaning Rule: When a contract’s writing is clear
and unequivocal, a court will enforce it according to its obvious
terms—set forth on the face of the instrument.
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Ambiguity: A court will consider a contract to be unclear,
or ambiguous, in the following situations:
(1) When the intent of the parties cannot be determined
from the contract’s language.
(2) When the contract lacks a provision on a disputed term.
(3) When a term is susceptible to more than one
interpretation.
(4) When there is uncertainty about a provision.
Ch. 11: Nature and Terminology – No. 9
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTERPRETATION OF CONTRACTS (2 of 3)
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Extrinsic Evidence: If a contract term is ambiguous, a
court may interpret the ambiguity against the party who
drafted the term. The court may also consider extrinsic
evidence (any evidence not contained in the document
itself such as the testimony of parties and witnesses). When
a contract is clear and unambiguous, a court cannot
consider extrinsic evidence.
Other Rules of Interpretation: Generally, a court will interpret
the language to give effect to the parties’ intent as expressed in
their contract.
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Rules the Courts Use: The courts use the following rules
in interpreting contractual terms:
(1) As far as possible, a reasonable, lawful, and effective
meaning will be given to all of a contract’s terms.
(2) A contract will be interpreted as a whole. Individual,
specific clauses will be considered subordinate to the
contract’s general intent. All writings that are a part of
the same transaction will be interpreted together.
(3) Terms that were the subject of separate negotiation
will be given greater consideration than standardized
terms and terms that were not negotiated separately.
Ch. 11: Nature and Terminology – No. 10
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
INTERPRETATION OF CONTRACTS (3 of 3)
(4) A word will be given its ordinary, commonly accepted
meaning, and a technical word or term will be given
its technical meaning, unless the parties clearly
intended something else.
(5) Specific and exact wording will be given greater
consideration than general language.
(6) Written or typewritten terms will prevail over
preprinted ones.
(7) Because a contract should be drafted in clear and
unambiguous language, a party who uses ambiguous
expressions is held to be responsible for the
ambiguities. Thus, when the language has more than
one meaning, it will be interpreted against the party
who drafted the contract.
(8) Evidence of usage of trade, course of dealing, and
course of performance may be admitted to clarify the
meaning of an ambiguously worded contract.
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Express Terms Usually Given the Most Weight: Express
terms (terms expressly stated in the contract) are given the
greatest weight, followed by course of performance, course
of dealing, and custom and usage of trade—in that order.
Ch. 11: Nature and Terminology – No. 11
Clarkson/Miller Business Law: Text and Cases (15E)
© 2021 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.