Introduction to Contracts

Introduction to Contracts

• The chapter introduces the concept of contracts and their significance in legal and commercial contexts
• It uses a scenario involving a prospective student, Paul, and Gigantic State University (GSU) to illustrate contract-related questions

Learning Objectives

• Explain what a contract is and why contracts are useful
• Define terms used to describe contracts and apply them to actual contracts
• Distinguish the applicability of common law and Article 2 of the UCC
• Identify when quasi-contract or promissory estoppel can provide a remedy

The Nature of Contracts

• Contract law deals with the enforcement of promises, but not all promises are legally enforceable
• Enforceable promises are distinguished from non-enforceable promises; breaching the latter would be surprising if met with a lawsuit
• A contract ensures agreements are honored, moving beyond mere good faith
• Contracting enables private law creation where agreement terms govern interactions within legal limitations
• Contracts are essential for planning in industrialized societies, vital for business investments relying on commitment from builders, suppliers, etc
• They support loans, credit sales, and property rentals

The Evolution of Contract Law

• Contract law evolved from ancient practices in Egypt and Mesopotamia
• By the 15th century, English courts had developed various enforcement theories
• The Industrial Revolution heightened the importance of contract law during the 19th century for private planning and certainty in commerce
• Freedom of contract emerged as a central principle where contracts are enforced due to the free wills of creators, defining their obligations broadly
• Courts enforced voluntarily entered contracts with a hands-off stance, regardless of fairness, assuming equal bargaining power
• Post-Civil War, large organizations used standard form contracts, exploiting bargaining power imbalances
• 20th-century contract law saw increased government regulation and fairness concerns
• Traditional rules shifted to broader standards of good faith and conscionability while agreements remain central

The Methods of Contracting

• Contracts do not always need to be written to be enforceable; oral contracts are enforceable if proven
• While written contracts are generally preferred, some contracts require written form by law
• Contracts can be made in many ways including bargaining, drafting agreements on paper, signing, and shaking hands
• Standardized form contracts are commonly used, especially online

Basic Elements of a Contract

• A contract consists of an agreement (offer and acceptance), consideration, capacity, and legality
• Contracts must be based on voluntary consent involving an offer and acceptance
• Each party’s promise must be supported by consideration
• Parties must have the capacity to contract
• Contract's objective and performance must be legal

The Case of Trapani Construction Co. v. Elliot Group, Inc

• Trapani Construction Co. and Elliot Group, Inc. had a history of working together
• Trapani had completed over $18 million in business with Elliot through the years
• The arrangement was based on Trapani's contracts, which required signatures but were never actually signed
• In 2007 Trapani and Elliot were planning "Arlington Market Site Work"
• Trapani sent in a draft of the contract which included their services on the Arlington Market Site
• Elliot made payments to Trapani without signing the contract, and often meticulously reviewed the requests before paying
• Trapani hired subcontractors and obtained insurance for Elliot
• Upon completing the project, and Elliot refused to pay the remaining $257,764.70
• Trapani sued Elliot for breach of contract
• The trial court found in favor of Trapani and Elliot appealed, claiming it never accepted Trapani's offer to provide construction services

Cyberlaw in Action

• Standardized contracts are common online
• They take the form of clickwrap contracts (agreement indicated by clicking on an icon), browse-wrap contracts (agreement indicated by the use of the product or service) and shrinkwrap contracts (agreement indicated by breaking the seal on packaging)

Basic Contract Concepts and Types

• Contracts are either bilateral (exchange of promises) or unilateral (promise for an action)

Valid, Unenforceable, Voidable, and Void Contracts

• A valid contract meets all legal requirements for binding a contract
• An unenforceable contract meets legal requirements, but it is unenforceable due to another rule
• Voidable contracts allow harmed parties to cancel obligations
• Void contracts create no legal obligations and provide no remedy

Express and Implied Contracts

• In an express contract terms are directly stated orally or written
• An implied contract is created when surrounding facts demonstrate mutual agreement

Executed and Executory contracts

• A contract is executed, when all duties are fulfilled
• A contract is executory until duties are fulfilled

Cyberlaw in Action

• The Uniform Computer Information Transactions Act (UCITA) was crafted to target information contracts
• Internet access contracts and software licenses are examples of information contracts

Sources of Law Governing Contracts

• Article 2 of the UCC and the common law of contract govern contracts today
• Determining what body of law applies is a key step

The Uniform Commercial Code: Origin and Purposes

• The UCC aims to create a uniform set of rules for commercial transactions
• the UCC formulates rules that promote fair dealing and high standards in the marketplace
• The UCC contains nine articles

Application of Article 2

• Article 2 of the UCC applies only to contracts for the sale of goods
• Goods are tangible, movable, personal property
• It does not apply to real estate or service contracts

Law Governing “Hybrid” Contracts

• Courts ask what predominates goods or services to decide if Article 2 applies

Relationship of the UCC and the Common Law of Contracts

• The UCC does not change all traditional contract rules
• Courts demonstrate a significant tendency to apply UCC contract concepts by analogy to contracts outside of Article 2

The Case of Grimes v. Young Life, Inc

• Olivia Grimes died when she fell from the giant swing owned by Young Life and built by Inner Quest
• Young Life also argued that the contract was primarily for the design and construction of the swing, so common law applies
• Henry M. Herlong stated courts may look at the language, the nature of the supplier, and the intrinsic value of material
• The court deemed that the contract was predominately for construction services
• The contract used terminology that described the work

The Global Business Environment: Dealing with Contract Disputes in International Transactions

• The United Nations Convention on Contracts for the International Sale of Goods, or CISG is a body of international contract rules
• The CISG applies by default to contracts between commercial parties from different countries
• Companies protects themselves from disputes with choice of law clauses and arbitration clauses

Basic Differences in the Nature of Article 2 and the Common Law of Contracts

• The UCC is more concerned with rewarding people’s legitimate expectations than with technical rules
• A court that applied the UCC is more likely to find that there was a contract between parties

Influence of Restatement (Second) of Contracts

• The Restatement (Second) reflect the "shift from rules to standards" in modern contract law

“Noncontract” Obligations

• Enforces duty to pay for losses even without mutual agreement
• Referred to as “noncontract” obligations

Quasi-Contract

• Provides remedy when a formal contract doesn't exist, but one party has benefited unfairly
• Enables a court to imply a promise of payment
• Prevent unjust enrichment.
• Quasi-contract liability is imposed when one party confers a benefit on another who knowingly accepts it

Promissory Estoppel

• Used when reliance can be proven on a promise even when a contract does not exist
• Promisor can't argue that no contract was created, preventing injustice