BUSFIN 3500 Final Exam Review Chapters 7 12 23 25 I Chapter 7 Nature and Classification A Sources of Contract Law B The Function of Contracts 1 Common law governs all contracts except when it has been modified or replaced by statues 1 Provide stability and predictability for buyers and sellers in the marketplace 2 Assures both parties that the promises they make will be enforceable or if not entitles the innocent party to some form of relief a Promise an assertion that something either will or will not happen in the future b Promisor the person making the promise c Promise the person to whom the promise is made C Definition of a Contract D The Objective Theory of Contracts 1 An agreement that is formed by two or more parties and can be enforced in court 1 Determines intent theory is that a party s intention to enter into a contract is judged by outward objective facts as interpreted by a reasonable person rather than by the party s own secret subjective intentions 2 Objective facts a What the party said when entering into the contract b How the party acted or appeared c The circumstances surrounding the transaction E Freedom of Contract and Freedom from Contract 1 Freedom of Contract The law recognizes everyone s ability to enter freely into contractual arrangements 2 Freedom from Contract certain contracts and clauses may not be enforceable if they are contrary to public policy fairness and justice These exceptions are for people who may have been pressured into making contracts unfavorable to themselves F Requirements of a Valid Contract 1 Agreement includes an offer and an acceptance mutual consent 2 Consideration something of value received or promised to convince a person to make a deal 3 Contractual Capacity both parties are recognized by law as competent parties 4 Legality the purpose of the contract must be to accomplish a legal goal and not be against public policy G Defenses to the Enforceability of a Contract H Contract Formation 1 Bilateral versus Unilateral Contracts 1 Genuineness of assent or voluntary consent the consent of both parties must be genuine 2 Form the contract must be in the correct form required by law ex writing a Offeror party making the offer always makes a promise so also promisor b Offeree party to whom the offer is made i Bilateral Contracts promise for a promise comes into existence at the moment the promises are exchanged ii Unilateral Contracts promise for an act formed when contract is preformed a For contests lotteries and other competitions offering prizes formed if the person complies with the rules of the contest meets requirements b Ardito v City of Providence 1 Can a school s or employer s letter of tentative acceptance to a prospective student or possible employee qualify as a unilateral contract a Yes If the letter extends a conditional offer and the prospective student employee meets the requirements iii Revocation cancelation of offers for Unilateral Contracts a Offers are normally revocable until accepted however once performance has been substantially undertaken the offeror cannot revoke the offer 2 Formal versus Informal Contracts a Formal Contracts contracts that require a special form or method of creation formation to be enforceable contracts under seal Informal Contracts simple contracts include all other contracts b 3 Express versus Implied Contracts a Express Contracts the terms of the agreement are fully and explicitly stated in words b oral or written Implied Contracts implied in fact contracts implied from the conduct of the parties which creates and defines at least some of the terms of the contract i A contract can be a mixture of an express contact and an implied contract c Requirements for an Implied in Fact Contract i The plaintiff furnished some service or property ii The plaintiff expected to be paid for that service or property and the defendant knew or should have known that payment was expected objective theory of contracts iii The defendant had a chance to reject the services or property and did not iv Uhrhahn Construction Design Inc v Hopkins a During the construction of a home the homeowner often requests that the builder make changes to the original specifications When do these changes form part of an implied contract that makes the homeowner liable to the builder for any extra expenses 1 If all elements of a contract are present then it creates an implied contract a Agreement legal purpose competent parties consideration I Contract Performance 1 Executed contract a contract that has been fully performed on both sides completed 2 Executory contract a contract that has not been fully performed on either side in progress If one party has fully performed on one side but the other side has not the contract is said to 3 be executed on one side and executory on the other still classified as executory J Contract Enforceability 1 Valid Contract has the four elements necessary for contract formation a Agreement offer and acceptance supported by legally sufficient consideration for a legal purpose made by parties who have the legal capacity to enter into the contract b May be enforceable voidable or unenforceable i Enforceable contract a valid contract that can be enforced because there are no legal defenses against it ii Voidable contracts a valid contract but one that can be avoided at the option of one or both of the parties The party with the option can either avoid any duty to perform or ratify make valid enforce the contractual obligation a If avoided both parties are released from it If ratified both parties must fully perform their respective legal obligations iii Unenforceable contracts one that cannot be enforced because of certain legal defenses against it A valid contract rendered unenforceable by some law or statue 2 Void contract no contract exists or there is a contract without legal obligations K Quasi Contracts as if 1 Implied in law contracts not true contracts because they do not arise from any agreement rather they are fictional contracts that courts can impose on the parties as if the parties had entered into an actual contract a Imposed to avoid the unjust enrichment of one party at the expense of another theory of individuals not being able to profit or be enriched unfairly at the expense of others L Limitations on Quasi Contractual Recovery 1 A party who obtains a benefit is not liable for the fair value if the enrichment is not unjust a If the benefit occurred due to a mistake but you are