BUL3330-LAW FOR ACCOUNTANCYEXAM 1: CHAPTERS 9-18: CONTRACTS Chapter 9: Introduction to ContractsI. Common Lawa. Contracts are primarily governed by State common lawi. Orderly presentation of this law found in Restatements of the Law of Contractsregarded as a valuable authoritative reference work and extensively relied upon and quoted in judicial opinionsII. The Uniform Commercial Code (UCC)a. The sale of personal property forms a substantial portion of commercial activity b. Article 2 of the UCC governs sales in all states except Louisianac. Sale- consists of the passing of title to goods from a seller to a buyer for a price (goods defined as movable personal property) i. Includes both a present sales of goods and a contract to sell goods in future d. Personal Property- any type of property other than an interest in real property (land)[ex. Tv set, car, textbook]i. All transactions governed by article 2 of UCC, but, where the Code has not specifically modified general contract law, the common law of contracts applies1. In other words; when there is a sale of goods, the general contract law will govern unless there is a specific provision under the UCC applicableIII. Definition of a Contract a. Contract- a binding agreement that the courts will enforcei. Specifically defined in the Restatement as “a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty”ii. Promise- a manifestation of the intention to act or refrain from acting in a specified way1. Promises that meet all essential requirements of a binding contract are contractual and enforceable and if breached, a legal remedy is usually available 2.Breach- failure to perform properlya. Remedies typically include: compensatory damages, equitable remedies, reliance damages, and restitutioniii. “All contracts are promises, but not all promises are contracts”IV. Requirements of a Contract1. Mutual Assent - the parties to a contract must manifest by words or conduct that they have agreed to enter into a contract; typically by offer and acceptance2. Consideration - each party to a contract must intentionally exchange a legal benefit or incur a legal detriments as an inducement to the other party to make a return exchange3. Legality of Object - contract must be legal4. Capacity - each party must have contractual capacitya. Those judicially declared incompetent have no legal capacity to contractb.Minors, incompetent person and intoxicated persons have limited capacity to contract V. Classification of Contractsa. Various classifications based on certain characteristicsb. Standard classifications (not mutually exclusive):i. Express or implied contractsii. Unilateral or bilateral contractsiii. Valid, void, voidable or unenforceable contractsiv. Executed or executor contractsv. Formal or informal contracts c. Express and Implied Contractsi. Assent expressed either by express language or by conduct that implies such willingnessii. Contract may be entirely oral, partly oral and partly written, entirely written, partly oral or written and partly implied from the conduct of the parties, wholly implied from the conduct of the parties iii. Entirely oral, partly oral & partly written, entirely written are known as express contracts, while the last two are implied contracts. Both are genuine contracts and equally enforceable iv. Express Contract- one in which the parties have manifested their agreement by oral or written language, or bothv. Implied Contract- one that is inferred from the parties’ conduct, not from spoken or written wordsd. Unilateral and Bilateral Contractsi. Typical contractual transaction, each party makes at least one promise ii. Bilateral Contract-contract in which both parties exchange promises1. Each party is both promisor and promisea. Ex. Obama promises to pay Romney $20 to mow the White House lawn. Promises are exchangedObama promises to pay while Romney bitterly promises to mow. iii. Unilateral Contract- contract in which only one party makes a promise 1. Ex. Obama says, “If you mow my lawn, I will pay you $20”2. The contract is formed only when Romney finishes mowing the lawn and not before3. The offer was an exchange from Romney’s act of mowing the lawn, not a promise to mow the lawna. Romney was never under the duty to mow the lawn since he never made a promisee. Valid, Void, Voidable, and Unenforceable Contractsi. Valid Contract - one that meets all requirements of a binding contracts, an enforceable promise or agreementii. Void Contract - an agreement that does not meet all of the requirements of a binding contractsa. Thus, not a contract at all and carries no legal valueiii. Voidable Contract -not wholly lacking in legal effect because of the manner in which it was formed or a lack of capacity of a party to it, law permits one or more of the parties to avoid the legal duties the contract creates a. If the contract is avoided, both parties are relieved of their legal duties under the agreement f. Unenforceable Contracti. One for the breach of which the law provides no remedy ii. For example, contract may be unenforceable because of a failure to satisfy the requirements of the Statute of Frauds, which requires certain kinds of contracts to be evidenced by a writing to be enforceable g. Executed and Executory Contractsi. Executed contract - a contract full performed by all of the parties, a completed contractii. Executory - “unperformed” applies to situations in which one or more promises by any party to the contract are unperformeda. Or where the contract is wholly unperformed by one or more of the parties h. Formal and Informal Contractsi. Formal Contract- depends on a particular form, or mode of expression, for its legal existenceii. Informal Contract- contracts which do not depend upon formality for their legal validity VI. Promissory Estoppela. Certain circumstances arise in which courts will enforce noncontractual promises under the doctrine of promissory estoppelb. “Noncontractual Promise” is enforceable when made under circumstances that should lead the promisor reasonably to expect that the promise would induce the promise to take definite and substantial action or forbearance in reliance on the promise, and the promise does take such action or forbearance i. Ex. Brady promises Flacco not to foreclose for a period of six months on a mortgage Brady owns on Flacco’s