Ch. 10 – Nature and Terminology AN OVERVIEW OF CONTRACT LAW Common Law o Governs all contracts except when it has been modified or replaced by statutory law, such as the Uniform Commercial Code (UCC) or by administrative agency regulations. o Contracts relating to services, real estate, employment, and insurancegenerally are governed by the common law of contracts. Contract Law o Designed to provide stability and predictability, as well as certainty, for both buyers and sellers in the marketplace. o The formation and enforcement of agreements between parties Promisor : the person who makes the promise Promisee : the person to whom the promise is made Contract : A legally binding agreement between two or more parties who agree to perform or to refrain from performing some act now or in the future. 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, or belief, of a party. Case in Point – Linear Technology Corporation (LTC): o Issue : LTC makes and sells integrated circuits for use in cell phones and computers. LTC sued its competitor, Micrel, Inc., for patent infringement of a particular chip. In its defense, Micrel claimed that LTC’s patent was invalid because LTC had offered to sell the chip commercially before the date on which it could be legally sold. The issue was whether LTC had entered into sales contracts when it solicited input on pricing and accepted distributors’ purchase orders using a “will advise” procedure before the critical date. o Ruling : The court ruled that under the objective theory of contracts, no reasonable customer could interpret LTC’s requests for information about pricing and potential orders as an offer that could bind LTC to a sale. Therefore, LTC did not violate the ban on sales and could continue its suit against Micrel for patent infringement. ELEMENTS OF A CONTRACT Requirements of a valid contract : o 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 o 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, such as money, to convince a person to make a deal) o 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 1
Ch. 10 – Nature and Terminology o Legality – the contract’s purpose must be to accomplish some goal that is legal and not against public policy Defenses to the enforceability – a contract may be unenforceable if the following requirements are not met: o Voluntary consent – the consent of both parties must be voluntary. If a contract was
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- Fall '08
- Business Law Outlines