Chapter 9 Introduction to Contracts The Nature of Contracts Law on contracts enforcement of promises Not every promise is legally enforceable Essence of a contract is that it is a legally enforceable promise or set of promises The Functions of Contracts Contracts give us the ability to enter into agreements with confidence that we may call on the law to make sure that those agreements will be honored The Evolution of Contract Law Egyptians and Mesopotamians realized the importance on contracts Contract law did no assume major importance in the legal system until the 19th 15th century England common law courts century industrial revolution o Central principle from this period freedom of contract The idea that contracts should be enforced because they are the products of the free wills of their creators who should within broad limits be free to determine the extent of their obligations With the emergence of large business organizations after the Civil War contract law during the 20th century saw a dramatic increase in government regulation of private contractual relationships larger business more unequal bargaining power o Protects persons who lack sufficient bargaining power who can t protect themselves o Ex basic terms of insurance contracts employment contracts maximum hours worked minimum wage Contract law created concerning fair results employer liability for on the job injuries unemployment compensation retirement benefits o Good faith injustice reasonableness and unconscionability The Methods of Contracting Unless the law specifically requires a certain kind of contract to be in writing an oral contract that can be proven is as legally enforceable as a written one Standardized form contracts contracts that are preprinted by one party and presented to the other party for signing o Party who drafts and presents the standard contract usually has more bargaining power o Usually nonnegotiable o Efficient method for standardizing common transactions Basic Elements of a Contract To qualify as a contract a set of promises must be based on a voluntary agreement which is made up of an offer and an acceptance of that offer Usually must be consideration to support each party s promise The contract must be between parties who have capacity to contract and the object and performance of the contract must be legal Basic Contact Concepts and Types Bilateral and Unilateral Contracts Unilateral only one party makes a promise o Ex frequent buyer card buy 10 coffees get one free ect Bilateral both parties exchange promises and the contract is formed as soon as the promises are exchanged o Ex renting a space promise to pay x amount per month one promise promise to give the space solely to customer y another promise o When both promises are made a bilateral contract is formed at that point even before the parties begin performing any of the acts they have promised to do Valid Unenforceable Voidable and Void Contracts Valid contract meets all of the legal requirements for a binding contract o Enforceable in court Unenforceable contract meets the basic legal requirements for a contract but may not be enforceable because of some other legal rule Voidable contracts those in which one or more of the parties have the legal right to cancel their obligations under the contract o Important feature the injured party has the right to cancel the contract if he chooses Void contracts agreements that create no legal obligations and for which no remedy will be given o Ex illegal contracts hits Express and Implied Contracts Express contract the parties have directly stated the terms of their contract orally or in writing at the time the contract was formed When the surrounding facts and circumstances indicate that an agreement has in fact been reached an implied contract has been created o Ex doctor s visit Executed and Executory Contracts A contract is executed when all of the parties have fully performed their contractual duties A contract is executory until such duties have been fully performed Sources of Law Governing Contracts 2 Article 2 of the Uniform Commercial Code UCC o Statutory law in every state Common law of contracts o Court made law that is in a constant state of evolution The Uniform Commercial Code Origin and Purposes All of the states have adopted it except Louisiana only adopted parts Several purposes o Establish a uniform set of rules to govern commercial transactions which are often conducted across state lines o Create a body of rules that would realistically and fairly solve the common problems occurring in everyday commercial transactions o Formulate rules that would promote fair dealing and higher standards in Contains 9 articles Article 2 deals with the sale of goods Article 2A governs the the marketplace lease of goods Application of Article 2 Article 2 expressly applies only to contracts for the sale of goods Goods tangible moveable personal property o Ex motor vehicles books appliances clothing does not apply to contracts for the sale of real estate or intangibles such as stocks and bonds does not apply to service contracts Application of the Common Law of Contracts Contracts for the sale of real estate services and intangibles are governed by the common law of contracts Law Governing Hybrid Contracts Hybrid contracts involving goods and services The test that the courts use most frequently to determine whether Article 2 applies to such a contract is to ask which element goods or services predominates the contract predominant factor test gravamen test looks to the portion of the transaction upon which the complaint is based to determine if it involved goods or services Relationship of the UCC and the Common Law of Contracts 2 important qualifications must be made concerning the application of Code contract principles o The Code does not change all of the traditional contract rules Where no specific Code rule exists traditional contract law rules apply to contracts for the sale of goods o more importantly Courts have demonstrated a significant tendency to apply Code contract concepts by analogy to some contracts that are not technically covered by Article 2 Basic Differences in the Nature of Article 2 and the Common Law of Contracts Code is more concerned with rewarding people s legitimate expectations than with technical rules so it is generally more flexible than the common law of contracts Court that applies the Code is more likely to find that the parties had a contract vs court
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