Chapter 9Contracts—Nature

and Terminology

Chapter 9Contracts—Nature

and Terminology

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IntroductionIntroduction

Promise is a declaration that something will or will not happen in the future.

What is a Contract?Contract is an agreement (based on a promise) that can

be enforced in court.

What law governs?Service contracts - common law of contracts.Sale and lease contracts - Uniform Commercial Code

(UCC).

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§1: Function of Contract Law§1: Function of Contract Law

Designed to provide stability and predictability, as well as certainty, for both, buyers and sellers in the marketplace.

Necessary to ensure compliance with a promise or to entitle the innocent party to some form of relief.

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§2: Elements of a Contract§2: Elements of a Contract

Agreement (Offer and Acceptance).

Consideration.

Contractual Capacity.

Legality.

Genuineness of assent.

Form.

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§3: The Objective Theory of Contracts§3: The Objective

Theory of Contracts Intention to enter into a legally binding

agreement, or contract, is judged by outward, objective facts as interpreted by a reasonable person, rather than by the party’s own secret, subjective intentions.

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§4: Types of Contracts§4: Types of Contracts

Bilateral v. Unilateral.Bilateral - Offeree must only promise to

perform (“promise for a promise”).Unilateral - Offeree can accept the offer only

by completing the contract performance (“promise for an act”).

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Types of Contracts [2]Types of Contracts [2]

Expressed v. Implied In Fact.Express-words (oral or written).Implied In Fact - Conduct creates and

defines the terms of the contract.

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Types of Contracts [3]Types of Contracts [3]

Quasi Contracts - Implied in law. Fictional contracts created by courts.Imposed on parties for the interest of fairness

and justice.Equitable remedies.Quantum Meruit.

Formal v. Informal.

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PerformancePerformance

Executed v. Executory.Executed - A contract hat has been fully

performed on both sides.Executory - A contract that has not been fully

performed on either side.

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EnforceabilityEnforceabilityValid.Elements: Agreement, consideration,

contractual capacity, and legality.

Void.No contract.

Voidable (unenforceable).Valid contract can be avoided or rescinded.

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§5: Interpretation of Contracts§5: Interpretation of ContractsPlain Meaning Rule: Courts give terms their obvious meaning.If terms are ambiguous, court will attempt to interpret ambiguous contract terms in a reasonable, lawful, effective manner. Contracts are interpreted as a whole. Terms negotiated separately given greater weight. Ordinary, common meaning given. Specific wording given greater weight than general language. Written or typewritten given greater weight than preprinted. Ambiguous terms interpreted against the drafter. Trade usage, prior dealing, course of performance to allowed to clarify.

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Case 9.1: Homer v. Burman(Implied Contracts)

Case 9.1: Homer v. Burman(Implied Contracts)

FACTS:Homer hired Burman Electric Service for

$2,650 to rewire the house. The parties did not sign a written contract.

After the work was completed, Homer noticed damage to outlets and various appliances were destroyed when plugged in.

Homer sued Burman for breach of contract. The court ruled against the Homers, who appealed.

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HELD: REVERSED. FOR HOMER.The court stated, “An offer, acceptance, plus

consideration make up the basis for a contract. A mutual assent or a meeting of the minds on all essential elements or terms must exist in order to form a binding contract. Assent to the terms of a contract may be expressed by acts which manifest acceptance.”

The court concluded that the parties had a contract even though they did not put anything in writing.

Case 9.1: Homer v. Burman(Implied Contracts)

Case 9.1: Homer v. Burman(Implied Contracts)

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Case 9.2: Industrial Lift v. Mitsubishi(Quasi Contracts)

Case 9.2: Industrial Lift v. Mitsubishi(Quasi Contracts)

FACTS:Industrial Lift (IL) agreed to buy fork lift trucks from

Mitsubishi to service and sell. Under the agreement, Mitsubishi could terminate the deal without just cause on ninety days’ notice.

IL made design changes in the truck to better suit the American market, which Mitsubishi did not request but later incorporated into the trucks it sold to other dealers.

In 1978, Mitsubishi terminated the agreement. IL sued under quasi-contract principles to recover benefits conferred on Mitsubishi by the design changes. The suit was dismissed, and IL appealed.

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HELD: AFFIRMED. FOR MITSUBISHI.Under the agreement, Mitsubishi did not have to

compensate IL for its forklift improvements, which were outside the express provisions of the contract.

The court described a quasi contract as “fictitious and arising by implication of law wholly apart from the usual rules” of contract formation.

When a written contract already exists, however, nor mally no quasi-contractual claim can arise.

Case 9.2: Industrial Lift v. Mitsubishi(Quasi Contracts)

Case 9.2: Industrial Lift v. Mitsubishi(Quasi Contracts)

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Case 9.3: United Airlines v. Good Taste

(Interpretation of Contracts) Case 9.3: United Airlines v. Good Taste

(Interpretation of Contracts) FACTS:Good Taste, DBA Saucy Sisters Catering, contracted

with United Airlines to handle its in‑flight catering.The agreement included a ninety days’ termination

clause. A year later United exercised the clause, and Saucy Sisters sued United alleging breach of contract and amiguous terms.

The judge ruled that the clause was not ambiguous and that United had not breached the contract. The jury returned a verdict in favor of the plaintiff on its other claims.

Both parties appealed to the Alaska Supreme Court.

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HELD: FOR UNITED.Term is not ambigous. “A disagreement as to contract terms

does not in itself create an ambiguity. *  *  * Here, the meaning of the disputed termination clause is clear and unambiguous on its face when its words are given their plain, ordinary, popular, and natural meaning.

Case 9.3: United Airlines v. Good Taste

(Interpretation of Contracts) Case 9.3: United Airlines v. Good Taste

(Interpretation of Contracts)