Scheb_IntroAmericanLegalSystem_Ch7[1] - 7 CONTRACTS AND...

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L EARNING OBJECTIVES This chapter should enable the student to understand: • the constitutional and commercial significance of the right to contract • how contracts are classified • the elements of a contract • the legal meaning of offer and acceptance, consideration, capacity to contract, and legality of purpose • the effect of the statute of frauds and parol evidence rule • assignment and performance of contracts; legal remedies for breach of contract • the applicability of the Uniform Commercial Code to sales, commercial paper, secured transactions, and warranties C HAPTER OUTLINE Introduction Contracts The Uniform Commercial Code Business Associations Consumer Protection Bankruptcy Conclusion Summary of Key Concepts Questions for Thought and Discussion Key Terms For Further Reading 7 C ONTRACTS AND B USINESS L AW Courtesy of West Group.
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I NTRODUCTION In this chapter we examine the basic principles of contract law and related business enter- prises. The right to contract is a core value in the United States, and the freedom of indi- viduals, organizations, and businesses to enter into contracts is basic to the free enterprise system. Article 1, Section 10 of the U.S. Constitution, which provides that “No State shall pass any . . . Law impairing the Obligation of Contracts” reveals the importance the Founders placed on contractual relations. This provision came into sharp focus in 1819 when Chief Justice John Marshall, in a landmark decision of the U.S. Supreme Court, wrote that the charter King George III granted to Dartmouth College in 1769 gave the trustees the contractual right to govern the college. Consequently, the Court ruled that the state leg- islature could not impair the obligation of that contract by transferring the control of the College to a new board of overseers. 1 The basic law of contracts as developed in the English common law was accepted in the United States; however, federal and state statutes have considerably modified laws concern- ing contracts. As a result the freedom to contract is regulated to a considerable extent by leg- islative bodies and by the courts. As mentioned in Chapter 5, the American Law Institute (ALI) has developed Restatements of the Law in an attempt to bring uniformity in the appli- cation of legal principles. Because the law of contracts is so vital to commerce and the need for stability and uniformity in the law is so great, the Restatement assumes a particularly sig- nificant role in this area. The principles of contract law as restated by the ALI are frequently followed by the courts. In this chapter we make frequent references to the Restatement of Contracts, second edition. Every day we enter into contracts when we buy a newspaper, buy lunch or groceries, have a vehicle repaired, buy a theatre ticket, or board a bus. These contracts seldom result in con- troversies and seldom do the contracting parties resort to litigation. Contracts form the back- bone of modern business as individuals contract to purchase real estate, executives enter into
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Scheb_IntroAmericanLegalSystem_Ch7[1] - 7 CONTRACTS AND...

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