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Business Law and the Legal Environment for a New Century
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Quote of the Day
“The whole duty of government is to
prevent crime and to preserve
contracts.”
Lord Melbourne,
British Prime Minister
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Business Law and the Legal Environment for a New Century
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The Purpose of a Contract
 Contracts exist to make business
matters more predictable.
 Judicial Activism vs. Judicial Restraint
• Judicial restraint makes the law less
flexible but more predictable.
• Judicial activism makes the law more
flexible but less predictable.
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Business Law and the Legal Environment for a New Century
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Elements of a Contract
 Agreement
• One party must make a valid offer, and the
other party must accept it
 Consideration
• There has to be bargaining that leads to an
exchange between the parties.
 Legality
• The contract must be for a lawful purpose.
 Capacity
• The parties must be adults of sound mind.
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Business Law and the Legal Environment for a New Century
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Contracts
 Definition
• A promise that the law will enforce.
 Development of Contract Law
• Common law once required all contracts to
be in writing, with a seal affixed.
• Later, some payment was required before a
contract could be enforced.
• Mutual promises became enforceable in the
1600’s.
• By the 1900’s, courts began to consider the
fairness of contracts before enforcing them.
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Business Law and the Legal Environment for a New Century
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Types of Contracts
(or Agreements)
Bilateral
vs. Unilateral
Executory
Valid
vs.
Unenforceable
Express
vs. Implied
vs. Executed
vs. Voidable
vs.
Void
 Bilateral and Unilateral Contracts
• Bilateral: both parties make a promise.
• Unilateral: one party makes a promise that
the other party can accept only by doing
something.
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Business Law and the Legal Environment for a New Century
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Types of Contracts (cont’d)
 Express and Implied Contracts
• Express: the two parties explicitly state all
important terms of their agreement.
• Implied: the words and conduct indicate
that the parties intended an agreement.
 Executory and Executed Contracts
• Executory: when one or more parties has
not fulfilled its obligations.
• Executed: when all parties have fulfilled
their obligations.
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Business Law and the Legal Environment for a New Century
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Types of Contracts (cont’d)
 Valid, Unenforceable, Voidable, and
Void Agreements
• Valid: satisfies the law’s requirements.
• Unenforceable: when the parties intend to
form a valid bargain but some rule of law
prevents enforcement.
• Voidable: when the law permits one party to
terminate the agreement.
• Void: one that neither party can enforce,
usually because the purpose is illegal or
one of the parties had no legal authority.
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Business Law and the Legal Environment for a New Century
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Promissory Estoppel
 Even when there is no contract, a
plaintiff may use promissory estoppel to
enforce the defendant’s promise if he
can show that:
• The defendant made a promise knowing
that the plaintiff would likely rely on it.
• The plaintiff did rely on the promise; and
• The only way to avoid injustice is to enforce
the promise.
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Business Law and the Legal Environment for a New Century
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Quasi-contract
 Even when there is no contract, a court
may use quasi-contract to compensate
a plaintiff who can show that:
• He gave some benefit to the defendant.
• He reasonably expected to be paid for the
benefit and the defendant knew this; and
• The defendant would be unjustly enriched if
she did not pay.
 The damages awarded are called
quantum meruit, meaning that the
plaintiff gets “as much as he deserved.”
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Sources of Contract Law
 Common Law
 Uniform Commercial Code
• UCC Article 2 governs the sale of goods.
“Goods” means anything moveable, except
for money, securities, and certain legal
rights.
• In a mixed contract, Article 2 governs only if
the primary purpose was the sale of goods.
 Restatement (Second) of Contracts
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Business Law and the Legal Environment for a New Century
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“If you understand the contract
issues that courts scrutinize, the
agreement you draft is likelier to be
enforced. You thus achieve greater
control over your affairs -- the very
purpose of a contract.”
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Business Law and the Legal Environment for a New Century
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