Chapter Outline
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1. The Function of Contract Law
2. Definition of a Contract
3. Elements of a Contract
4. Types of Contracts
5. Interpretation of Contracts11
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Introduction
• 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.
– Formed by two or more competent parties who
agree, for consideration, to perform or refrain
from performing some legal act now or in the
future.
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Contract vs. Promise
Promise: A person’s declaration that she will or will not make
something happen in the future.
Promisor: The person making the promise.
Promisee: The person to whom the promise is made.
Contract: An agreement between two or more competent parties, for
valuable consideration, to perform or refrain from performing
some act now or in the future.
Offeror: The person proposing an agreement.
Offeree: The person to whom proposition (the offer) is made.
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§3: Elements of a Contract
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Agreement (Offer and Acceptance).
Consideration.
Contractual Capacity.
Defense:
– Legality.
– Genuineness of assent.
– Form.
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§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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Objective Theory of Contract:
The parties’ assent is judged not by the
subjective intent of each party, but by the
objective intent that a reasonable person,
similarly situated would understand the
parties to have.
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Types of Contracts
1. Bilateral or Unilateral
2. Express, or Implied in Fact, or Quasi
contract
3. Formal or Informal
4. Executed or Executory
5. Valid, Void, Voidable, or Unenforceable
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§4: Types of Contracts
Every contract has at least two parties: the
Offeror and the Offeree
Bilateral Contracts
--Offer and Offeree exchange promises to
each other (a promise for a promise).
--A contract is formed when Offeree
promises to perform.
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§4: Types of Contracts
Unilateral Contracts:
Offeror wants performance in exchange for
his promise (a promise for and act).
Contract is formed when Offeree performs.
Rewards are good examples.
Revocation of Offer: modern view is that
offer is irrevocable once the Offeree
substantially performs.
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Types of Contracts
• Express v. Implied In Fact.
– Express: Words (oral or written).
– Implied In Fact: Conduct creates and
defines the terms of the contract.
Requirements:
• PL furnished good or service
• PL expected to be paid
• DEF had chance to reject and did not.
– Case 9.1: Homer v. Burman (2001).
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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.
• Case 9.2: Industrial Lift v. Mitsubishi
(1982).
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Types of Contracts [4]
• Formal v. Informal.
Formal: require special form or method
to be enforceable, e.g., under seal.
Informal: all other contracts.
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Types of Contracts [4]
Executed v. Executory.
– Executed - A contract that has been fully
performed on both sides.
– Executory - A contract that has not been fully
performed on either side.
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Enforceability
• Valid.
– Four Elements: Agreement, consideration,
contractual capacity, and legality (legal purposes).
• Void.
– No contract.
• Voidable (unenforceable).
– Valid contract can be avoided or rescinded by one
of the parties.
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§5: Interpretation of Contracts
• Plain Meaning Rule: Courts give terms their obvious
meaning.
• Ambiguous Terms. 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.
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Interpretation of Contracts
• Ambiguous Terms (cont’d)
– 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.
• Case 9.3: Dispatch Automation v. Richards
(2002).
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