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PowerPoint_Chapter_9 - Kulper Econ 189 Kulper 1 The Purpose...

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Unformatted text preview: Kulper - Econ 189 Kulper 1 The Purpose of a Contract • Contracts exist to make business matters • Judicial Activism vs. Judicial Restraint more predictable. – Judicial restraint makes the law less flexible but more predictable. – Judicial activism makes the law more flexible but less predictable. Kulper - Econ 189 Kulper 2 • Agreement Elements of a Contract • Consideration • Legality – One party must make a valid offer, and the other party must accept it. – There has to be bargaining that leads to an exchange between the parties. – The contract must be for a lawful purpose. – The parties must be adults of sound mind. Kulper - Econ 189 Kulper 3 • Capacity Contracts • Definition • Development of Contract Law – A promise that the law will enforce. – Common law once required all contracts to be in writing, with a seal affixed. – Later, some payment was required before a contract could be enforced. – Mutual promises became enforceable in the 1600’s. – By the 1900’s, courts began to consider the fairness of contracts before enforcing them. Kulper - Econ 189 Kulper 4 Types of Contracts (or Agreements) vs. Unilateral Bilateral Express Executory vs. Implied vs. Executed Valid vs. Unenforceable vs. Voidable vs. Void Kulper - Econ 189 Kulper 5 Types of Contracts (or Agreements) • Bilateral and Unilateral Contracts – Bilateral: both parties make a promise (to do something) to each other. – Unilateral: one party makes a promise to the other that the other party can accept only by doing something specific. Kulper - Econ 189 Kulper 6 Types of Contracts (cont’d) • Express and Implied Contracts – Express: the two parties to the contract explicitly state all of the important terms of their agreement. – Implied: the words and conduct of the parties indicate that the parties intended to make an agreement. (Demasse v. ITT Corp. – Changed Employee Handbook re layoffs) Kulper - Econ 189 Kulper 7 • Executory and Executed Contracts Types of Contracts (cont’d) – Executory: when one or more parties has not fulfilled its obligations under the contract. – Executed: when all parties to the contract have fulfilled their obligations under the contract. Kulper - Econ 189 Kulper 8 Types of Contracts (cont’d) • Valid, Unenforceable, Voidable, and Void Agreements – Valid: satisfies the law’s requirements. – Unenforceable: when the parties intend to form a valid bargain but some rule of law prevents enforcement. – Voidable: when the law permits one party to terminate the agreement. – Void: one that neither party can enforce, usually because the purpose is illegal or one of the parties had no legal authority. Kulper - Econ 189 Kulper 9 Promissory Estoppel • Even when there is no contract, a plaintiff may use promissory estoppel to enforce the defendant’s promise if he can show that: – The defendant made a promise knowing that the plaintiff would likely rely on it. – The plaintiff did rely on the promise; and – The only way to avoid injustice is to enforce the promise. Kulper - Econ 189 Kulper 10 Quasi­contract • Even when there is no contract, a court may use quasi­contract to compensate a plaintiff who can show that: – He gave some benefit to the defendant. – He reasonably expected to be paid for the benefit and the defendant knew this; and – The defendant would be unjustly enriched if she did not pay. The damages awarded are called quantum meruit, meaning that the plaintiff gets “as much as he deserved.” Kulper - Econ 189 Kulper 11 • (Novak v. Credit Bureau Collection Service – medical center treats unconscious patient) • Common Law • Uniform Commercial Code Sources of Contract Law • Restatement (Second) of Contracts Kulper - Econ 189 Kulper – UCC Article 2 governs the sale of goods. “Goods” means anything moveable, except for money, securities, and certain legal rights. – In a mixed contract, Article 2 governs only if the primary purpose was the sale of goods. 12 Meeting of the Minds • The parties can form a contract only if they had a meeting of the minds. – They must understand each other and intend to reach an agreement. – A judge will make an objective assessment of any disagreements about whether a contract was made ­­ whether or not a reasonable person would conclude that there was an agreement, based on the parties’ conduct. Kulper - Econ 189 Kulper 13 An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms. Offer • Problems with Intent • Problems with Definiteness – Invitation to bargain is not an offer. – An advertisement is generally not an offer. – A letter of intent may or may not be an offer, depending on the writer’s intent. – The term of the offer must be definite. (Baer v. Chase – Lack of agreement re The Sopranos) Kulper - Econ 189 Kulper 14 • Termination by Revocation • Termination by Rejection Termination of Offers – Effective when the offeree receives it. – If an offeree rejects an offer, the rejection immediately terminates the offer. – If an offeree counteroffers, it is a rejection that immediately terminates the offer. Kulper - Econ 189 Kulper 15 • Termination by Counteroffer • Termination by Expiration Termination of Offers (cont’d) • Termination by Destruction – When an offer specifies a time limit for acceptance, that period if binding. – If the offer specified no time limit, the offeree has a reasonable period in which to accept. – Destruction of subject matter terminates offer. Kulper - Econ 189 Kulper 16 • The offeree must say or do something to accept. – In a bilateral contract, the offeree generally must accept by making a promise. – In a unilateral contract, the offeree must accept by performing. – Requires that acceptance be on precisely the same terms as the offer. Kulper - Econ 189 Kulper 17 Acceptance • Mirror Image Rule (Common Law) UCC and the Battle of Forms • Under UCC §2­207, an acceptance that adds additional or different terms may form a contract for sales of goods in certain cases. – For a sale of goods, the most important factor is whether the parties believe they have formed an agreement. – New terms added by the offeree do not void the agreement if accepted by the offeror. – If terms are changed, a court will rely on general principles of the UCC to create a fair contract. – If a party wants to contract only on his terms, the agreement must clearly state that. Kulper - Econ 189 Kulper 18 A Bargain and an Exchange • Consideration means that there must be bargaining that leads to an exchange between the parties. someone might want to bargain for. • Consideration can be anything that • A promisor is the person who makes the promise, and promisee, the person to whom the promise is made. Kulper - Econ 189 Kulper 19 A Bargain and an Exchange “Bargaining is obligating yourself in order to induce the other side to agree.” • The thing bargained for canbe: – another promise. – an action without a promise. – a promise to do something or a promise to refrain from doing something. (Famous Case: Hamer v. Sidway) Kulper - Econ 189 Kulper 20 A A to give B a benefit Bargain B B to give A a benefit Which There is consideration to support a contract between A and B, causes... when they bargain... and their bargaining causes BOTH parties ... OR OR A to suffer a detriment AND B to suffer a detriment …to either give a benefit to the other or to Consideration supports a contract! suffer a detriment themselves. Kulper - Econ 189 Kulper 21 Mutuality of Obligations • Illusory Promise – If one party’s promise is conditional, the other party is not bound to the agreement. (You Be the Judge: Culbertson v. Brodsky – Option contract to buy land) Kulper - Econ 189 Kulper 22 “If you understand the contract issues that courts scrutinize, the agreement you draft is likelier to be enforced. You thus achieve greater control over your affairs ­­ the very purpose of a contract.” Kulper - Econ 189 Kulper 23 ...
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