9-1

Chapter 9—Contractual Issues – Form,

Interpretation, Performance, and Discharge

REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD

F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N

TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness

McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights

reserved.

9-2

Learning Objectives

To appreciate that valid, enforceable contacts can take many forms.

To understand concepts of how contract performance analysis occurs.

To appreciate that contractual agreements are discharged through performance.

To learn that nonperformance of contracts results in a breach unless performance is excused.

9-3

think

TANKthink

TANKthinkthink

TANKTANKAll contracts, to be valid and enforceableAll contracts, to be valid and enforceablemust be in writing and signed by the must be in writing and signed by the parties to the agreement?parties to the agreement?

a.a. TrueTrueb.b. FalseFalse

9-4

Form and Interpretation of Contracts

Written v.

Oral Contracts

Written v.

Oral Contracts

Statute of Frauds

Statute of Frauds

 

Rules of Interpretation

 

Rules of Interpretation

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Oral ContractsGenerallyGenerally

as enforceableas enforceableas written agreementsas written agreements

InformalInformal

Everyday examples:Everyday examples: Buying fast foodBuying fast food

Vending machinesVending machines

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Statute Of Frauds

Certain Contracts Must Certain Contracts Must Be In WritingBe In Writing

Land Debts of Others

1 Year Goods = $500+

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Exceptions to SOF

Part Performance

Rules involving goods

• UCC

•Specifically manufactured goods

Judicial admission

9-8

Parol Evidence Rule

Parties to a complete and final written contract

cannot introduce oral evidence in court that changes the intended

meaning of the written terms.

9-9

Contract Interpretation

Rules help solve disagreements

Usual meaning forcommon words

Interpreted against party drafting

Specialized meaning for

specialized trade

Handwritten against party drafting

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Duty to PerformOfferor Offeree

Contract Duty To Perform

Offer Acceptance

AGREEMENTCapacity and

Legality

Supported by

Consider-ation

9-11

pop

QUIZpop

QUIZpoppop

QUIZQUIZWhat is the first and most important place to What is the first and most important place to look to determine what parties to a contractlook to determine what parties to a contractagreed to?agreed to?

a.a. their current statements or testimonytheir current statements or testimonyas to what was agreed to.as to what was agreed to.b.b.notes from negotiation sessions.notes from negotiation sessions.c.c. the words of the contract.the words of the contract.d.d.none of the above.none of the above.

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Conditions of Performance

• Precedent

• Subsequent

• Concurrent

• Express

• Implied

9-13

Order of Performance

Look to contract

If not addressed, payment before delivery

Delivery – UCC gap-fillers

Tender – offer to perform

9-14

Levels Of Performance

FulfilledFulfilledall all

dutiesduties

FallenFallenshortshortafterafter

honesthonestattemptattempt

LessLessthanthan

respon-respon-siblysibly

accept-accept-ableable

COMPLETE

SUBSTANTIAL

MATERIAL BREACH

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Divisibility of Performance

Contract segments

• e.g. employment pay periods

Construction contracts generally not divisible

9-16

Contract Discharge• Discharged - Party released from

obligation• Complete performance• Tendered performance, but

rejected• Impossibility• Commercial impracticability• Waiver/release• Substantial performance• Performance part of divisible

contract

9-17

think

TANKthink

TANKthinkthink

TANKTANKA duty of performance under a contract A duty of performance under a contract is discharged because of commercial is discharged because of commercial impracticability and impossibility of impracticability and impossibility of

performance.performance.A.A.YesYesB.B. NoNo