Posted: December 20th, 2021

Definition, Sources, and Classifications of Contract Law

Proper application of the article chosen to the weekly chapter reading relative to one or all of the chapters assigned. Student support for the article and specific application to chapter reading citing the text book sections relative to the article. (MUST BE IN APA FORMAT, 2 PAGES W/REFERENCE PAGE) ____________________________________________________________________________________ Grading Rubric Item Description Points Article Choice Relative news article or journal article uploaded 5 Application Proper application of the article chosen to the weekly chapter reading relative to one or all of the chapters assigned. 5 Reasoning Student support for the article and specific application to chapter reading citing the text book sections relative to the article. 5 Submission Well worded and language specific to the topic presented at a graduate level 5
Definition, Sources, and Classifications of Contract Law
Definition
A contract is generally defined as a legally enforceable exchange of promises or an exchange of a promise for an act that assures the parties to the agreement that their promises will be enforceable. Contract law brings predictability to the exchange. For example, if a corporation manufacturing video recorders enters into an agreement with a retailer to provide a fixed number of video recorders each month, the retailer knows that it can rely on the corporation’s promise and advertise the availability of those video recorders to its customers, because if the manufacturer tries to renege on the agreement, its performance is enforceable in a court of law. Contracts are essential to the workings of a private-enterprise economy. They Help parties in the buying and selling of goods, and they make it possible to shift risks to parties more willing to bear them.
contract
A legally enforceable exchange of promises or an exchange of a promise for an act.
Sources of Contract Law
Contract law is grounded in the case law of the state and federal courts, as well as state and federal statutory law. Case law—or what is often known as the common law because it originated with the law of English courts—governs contracts dealing with real property, personal property, services, and employment contracts. Statutory law, particularly the Uniform Commercial Code (UCC), generally governs contracts for the sale of goods. The UCC has been adopted in whole or in part by all 50 states and the District of Columbia. This chapter integrates case law with the UCC.
Case Law
The law of contracts originated in judicial decisions in England and the United States. Later, states and the federal courts modified their case law through the use of statutory law. Nonetheless, the formation of contract law and its understanding are based on fundamental principles set out by the courts and, more recently, in the Restatement of the Law of Contracts. The Restatement summarizes contract principles as set out by legal scholars. Case law (or common law) applies to contracts that cover real property (land and anything attached permanently therein or thereto), personal property, services, and employment contracts.
Uniform Commercial Code
To obtain uniformity among state laws, particularly law as applicable to sales contracts, the National Conference of Commissioners on Uniform State Laws and the American Law Institute drafted a set of commercial laws applicable to all states. This effort was called the Uniform Commercial Code. Gradually, the states adopted the document in whole or in part. Thereafter, businesses had uniform requirements to expedite interstate contracts for the sale of goods.
In general, the requirements of Article 2 of the UCC regarding formation and performance of contracts are more liberal than those applied to contracts based on common-law principles. Particular differences are noted in sections of this chapter and Chapter 11. Article 2 seeks to govern the sale of goods in all states except Louisiana. A sale consists of the passing of title to goods from buyer to seller for a price. A contract for the sale of goods includes those for present and future sales. The code defines goods as tangible personal property. Personal property includes property other than real property (land and that attached thereto). When the UCC has not specifically modified the common law of contracts, common law applies.
Please note: Article 2 is continually being revised to provide coverage of contracts dealing with electronic data processing, licenses, and leases. Article 2A prescribes a set of uniform rules for the creation and enforcement of contracts for the sale of leases of goods (e.g., lease contracts for the sale of an automobile). In this case, a question of whether the case law or the UCC (Article 2) should govern.
Case 9-1 Paramount Contracting Co. v. DPS Industries, Inc.
709 S.E.2d 288 (Ga. App. 2011)
Paramount, a civil engineering firm and general contractor, submitted a bid to perform the construction of runway improvements at the Atlanta Hartsfield-Jackson International Airport. Paramount included DPS’s quote for supplying the fill dirt for the project in its bid. DPS’s written quote described its work as “furnish[ing] and haul[ing]/deliver[ing] borrow dirt from DPS’s location to the job site,” and specifically excluded the provision of “traffic control, dust control, security and escort services” from the scope of work. The quote provides that the dirt would be delivered for a price of “$140/Truck Load.”
After Paramount was awarded the airport project, it contacted DPS about the amount of dirt and number of trucks it would need for the airport project. DPS believed that the parties had a contract, and it sent a letter to Paramount confirming that it was “holding approximately 45,000 [cubic yards] of borrow dirt ready to be hauled in to your project once we receive [the] 10-day notice from you.” Paramount did not respond.
Over the next two months, DPS sent other letters to Paramount about their agreement, but Paramount did not respond. After a meeting of executives from the two companies, Paramount sent the following:
[Y]ou insisted that we give commitment to you for buying the dirt before you will give us price [for other work]. This really was a surprise to us . . . Also please note that we have never committed to buy all the fill materials from you. In the last meeting you were informed that we intend to purchase some materials from you and it may be through other subcontractors. Our decisions will be conveyed to you as soon as possible.
Ultimately, Paramount bought the dirt it needed from another vendor. DPS sued Paramount for breach of contract. The jury found for DPS. Paramount appealed.
Judge Blackwell
The question of formation depends on [whether the contract is] governed by Article 2 of the Commercial Code or the common law. It is easier, generally speaking, to form a binding contract under Article 2 than under the common law. Article 2 applies only to contracts for the sale of goods, and it does not apply to contracts for the mere provision of services or labor. When a transaction involves both the sale of a good and the provision of services or labor, whether the transaction is governed by Article 2 depends upon the “predominant purpose” of the transaction. When the predominant element of a contract is the sale of goods, the contract is viewed as a sales contract and [Article 2] applies, even though a substantial amount of service is to be rendered in installing the goods.
DPS said that the parties contemplated only that DPS would sell and deliver dirt, and DPS urged that Article 2 applies because the sale of goods—the dirt that DPS offered to furnish Paramount—was the predominant purpose of the contemplated transaction. Paramount, on the other hand, said that the parties also contemplated that DPS would perform other tasks, such as placing and compacting dirt at the construction site.
It was for the jury to weigh the conflicting evidence, resolve this disputed issue of fact, and determine exactly what the contemplated transaction involved. So long as the evidence would permit a rational jury to resolve this issue in a way that would lead to a conclusion that the sale of goods was the predominant purpose of the contemplated transaction.
The evidence is consistent with the finding that the sale of dirt was the predominant purpose of the contemplated transaction. The DPS quote contains representations and warranties about the quality of the dirt. The pricing was based on the quantity of dirt furnished, not the miles driven or time spent to deliver the dirt. DPS did not provide a separate pricing for the sale of the dirt and its delivery. Paramount itself characterized the transaction repeatedly as one for the sale and furnishing of dirt, not the hauling of dirt.
Paramount relies on testimony that the costs of furnishing and hauling dirt would amount to approximately $70 or $80 per load, and that these costs would include both the expenses of operating a backhoe to load trucks and the expenses of operating the trucks. Paramount says that these cost factors all relate to hauling dirt and establish, therefore, that most of the transaction costs were related to hauling, not furnishing, the dirt.
Under Article 2, dirt is a “good” only if it is severed from the land by the seller, so the separation of dirt from the land is a necessary component of the sale of dirt, not its transportation after sale.
Finally, Paramount asks us to attribute the majority of the costs to hauling on the basis of the conventional wisdom that “dirt is cheap.” We decline this invitation. Dirt might well be cheap, but we have no reason to believe that it is free and no basis for knowing just how cheap it is. We are not prepared to speculate that the commercial value of such dirt is negligible, much less to reverse a judgment entered on a jury verdict based on such speculation.*
* Paramount Contracting Co. v. DPS Industries, Inc. 709 S.E.2d 288 (Ga. App. 2011).
Judgment affirmed.
Classifications of Contracts
A contract is generally referred to as a binding set of promises (agreement) that courts will enforce. Terms that refer to types of contracts are sprinkled throughout this text. So that you will clearly understand what we are talking about, we define several classifications of contracts in this section.
Express and Implied Contracts
An express contract is an exchange of oral or written promises between parties, which are in fact enforceable in a court of law. Note that oral and written promises are equally enforceable. An implied (implied-in-fact) contract is established by the conduct of a party rather than by the party’s written or spoken words. For example, if you go to the dentist in an emergency and have a tooth extracted, you and the dentist have an implied agreement or contract: She will extract your throbbing tooth in a professional manner and you will pay her for her service. The existence and content of an implied-in-fact contract are determined by the reasonable-person test: Would a reasonable person expect the conduct of these parties to constitute an enforceable contract? Additionally, see the following case for an examination of various types of contracts.
express contract
An exchange of oral or written promises between parties, which are enforceable in a court of law.
implied (implied-in-fact) contract
A contract that is established by the conduct of a party rather than by the party’s written or spoken words.
Case 9-2 Pan Handle Realty, LLC v. Olins
Appellate Court of Connecticut 140 Conn. App. 556, 59A.3d 842 (2013)
The plaintiff is a Connecticut limited liability company (a form of business organization—see Chapter 17), which constructed a luxury home at 4 Pan Handle Lane in Westport [Connecticut] (the property). The defendant [Robert Olins] expressed an interest in leasing the property from the plaintiff for a period of one year. In pursuit of that interest, he submitted an application proposing to rent the property from the plaintiff at the rate of $12,000 per month, together with an accompanying financial statement. The plaintiff responded to the defendant’s proposal by preparing a draft lease for his review, which the defendant promptly forwarded to his attorney.
On January 17, 2009, the defendant and his real estate agent, Laura Sydney, met with Irwin Stillman, then acting as the plaintiff’s representative, to discuss the draft lease (January 17 meeting). At that meeting, the defendant and Irwin Stillman agreed to several revisions to the draft lease that had been proposed by the defendant’s attorney, then incorporated the revisions into the lease and signed it. The resulting lease, which was dated January 19, 2009, specified a lump sum annual rent of $138,000. At the time of the signing, the defendant gave the plaintiff a postdated check for $138,000. The lease agreement required the plaintiff to make certain modifications to the property prior to the occupancy date, including the removal of all of the furnishings from the leased premises.
On January 21, 2009, the plaintiff’s real estate broker informed it that, according to Sydney, the defendant planned to move into the property on January 28, 2009. The next day, the defendant requested information from the plaintiff for his renter’s insurance policy, which the plaintiff duly provided. By that time, the plaintiff had also completed the modifications requested by the defendant at the January 17 meeting and agreed to in the lease agreement, including the removal of the furniture. The defendant’s check, which was postdated January 26, 2009, was deposited by the plaintiff on that date.
The following day, however, Citibank advised the plaintiff that the defendant had issued a stop payment order on his postdated rental check and explained that the check would not be honored. The plaintiff subsequently received a letter from the defendant’s attorney stating that “[the defendant] is unable to pursue any further interest in the property.” Thereafter, the plaintiff made substantial efforts to secure a new tenant for the property, listing the property with a real estate broker, advertising its availability and expending $80,000 to restage it. Although, by these efforts, the plaintiff generated several offers to lease the property, was never able to find a qualified tenant, or, for that reason, to enter into an acceptable lease agreement with anyone for all or any part of the one year period of the defendant’s January 19, 2009 lease.
Thereafter, on March 6, 2009, the plaintiff filed this action [in a Connecticut state court], alleging that the defendant had breached an enforceable lease agreement. The plaintiff further alleged that, despite its efforts to mitigate [lessen] its damages, it had sustained damages as a result of the defendant’s breach, including unpaid rental payments it was to have received under the lease, brokerage commissions it incurred to rent the property again, and the cost of modifications to the property that were completed at the defendant’s request.
The court issued a memorandum of decision resolving the merits of the case in favor of the plaintiff (May 11 decision). In that decision, the court found, more particularly, that the plaintiff had met its burden of proving that the parties had entered into an enforceable lease agreement, that the defendant had breached that agreement, and that the breach had caused the plaintiff damages in lost rent and utility bills incurred during the lease period. On the basis of these findings, the court awarded the plaintiff compensatory damages in the amount of $146,000—$138,000 in unpaid rent for the term of the lease and $8,000 in utility fees incurred by the plaintiff during the lease period, plus interest and attorney’s fee.
Judge Sheldon
The defendant’s claim on appeal is that the court improperly determined that the parties entered into a valid lease agreement. The defendant contends that because “material terms were still being negotiated and various issues were unresolved,” there was no meeting of the minds, which is required to form a contract.
In order for an enforceable contract to exist, the court must find that the parties’ minds had truly met. . . . If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make.
There was evidence in the record to support the court’s finding that the parties entered into a valid lease agreement because there was a true meeting of the parties’ minds as to the essential terms of the agreement. Prior to the January 17 meeting, the plaintiff had provided the defendant with a draft lease agreement, which the defendant had forwarded to his attorney for review. The defendant testified that at the January 17 meeting, he and the plaintiff’s representative discussed the revisions proposed by the defendant’s attorney, made the revisions and signed the lease.*
* Pan Handle Realty, LLC v. Olins Appellate Court of Connecticut 140 Conn. App. 556, 59A.3d 842 (2013).
Types of Contracts
Express An exchange between parties of oral or written promises that are enforceable
Implied A contract established by the conduct of the parties
Unilateral An exchange of a promise for an act
Bilateral An exchange of one promise for another promise
Void A contract that at its formation has an illegal object or serious defects
Voidable A contract that gives one of the parties the option of withdrawing from the agreement
Valid A contract that meets all the legal requirements for a fully enforceable contract
Executed A contract the terms of which have been performed
Unenforceable A contract that exists but cannot be enforced because of a valid defense
Quasi-contract A court-imposed agreement to prevent the unjust enrichment of one party when the parties have not previously agreed to an enforceable contract
Unilateral and Bilateral Contracts
A unilateral contract is defined as an exchange of a promise for an act. For example, if City A promises to pay a reward of $5,000 to anyone who provides information leading to the arrest and conviction of the individual who robbed a local bank, the promise is accepted by the act of the person who provides the information. A bilateral contract involves the exchange of one promise for another promise. For example, Jones promises to pay Smith $5,000 for a piece of land in exchange for Smith’s promise to deliver clear title and a deed at a later date. In the case below we see the importance of whether a unilateral contract exists.
unilateral contract
An exchange of a promise for an act.
bilateral contract
The exchange of one promise for another promise.
Case 9-3 Audito v. City of Providence
United States District Court, District of Rhode Island 263 F. Supp. 2d 2358 (2003)
The city of Providence, Rhode Island, decided to hire a class of police officers in 2001. All had to graduate from the Providence Police Academy to be eligible. Two sessions were held. To be qualified, the applicants to the academy had to pass a series of tests and be deemed qualified after an interview. Those judged most qualified were sent a letter informing them that they had been selected to attend the academy if they completed a medical checkup and a psychological exam. The letter for the applicants to the 61st Academy, dated October 15, stated that it was a “conditional offer of employment.”
Meanwhile, a new chief of police was appointed in Providence. He changed the selection process, which caused some who had received the letter to be rejected. Audito and 13 newly rejected applicants (who had completed the examination) sued the City of Providence in federal district court, seeking a halt to the 61st Academy unless they attended. The plaintiffs alleged in part that the city was in breach of its contract.
Justice Torres
[T]he October 15 letter is a classic example of an offer to enter into a unilateral contract. The October 15 letter expressly stated that it was a “conditional offer of employment” and the message that it conveyed was that the recipient would be admitted into the 61st Academy if he or she successfully completed the medical and psychological examinations, requirements that the city could not lawfully impose unless it was making a conditional offer of employment.
Moreover, the terms of that offer were perfectly consistent with what applicants had been told when they appeared [for their interviews]. At that time, [Police Major Dennis] Simoneau informed them that, if they “passed” the [interviews], they would be offered a place in the academy if they also passed the medical and psychological examinations.
The October 15 letter also was in marked contrast to notices sent to applicants by the city at earlier stages of the selection process. Those notices merely informed applicants that they had completed a step in the process and remained eligible to be considered for admission into the academy. Unlike the October 15 letter, the prior notices did not purport to extend a “conditional offer” of admission.
The plaintiffs accepted the city’s offer of admission into the academy by satisfying the specified conditions. Each of the plaintiffs submitted to and passed lengthy and intrusive medical and psychological examinations. In addition, many of the plaintiffs, in reliance on the City’s offer, jeopardized their standing with their existing employers by notifying the employers of their anticipated departure, and some plaintiffs passed up opportunities for other employment.
The city argues that there is no contract between the parties because the plaintiffs have no legally enforceable right to employment. The city correctly points out that, even if the plaintiffs graduate from the Academy and there are existing vacancies in the department, they would be required to serve a one-year probationary period during which they could be terminated without cause. That argument misses the point. The contract that the plaintiffs seek to enforce is not a contract that they will be appointed as permanent Providence police officers; rather, it is a contract that they would be admitted to the Academy if they passed the medical and psychological examinations.*
* Audito v. City of Providence United States District Court, District of Rhode Island, 263 F.Supp.2d 2358 (2003).
The federal district court ruled in favor of Audito et al.
Critical Thinking About The Law
The offer of admission to the Police Academy under certain conditions does not provide a guarantee of an employment contract. It does, however, provide the opportunities promised if the applicants fulfill certain conditions.
1. When the new police chief changed the rules for employment, why was he not permitted to do so legally?
Clue: The reasoning here is similar to the reasoning whenever one party to an agreement decides it does not like the contract it previously formed.
2. What is the relevant rule of law in this case?
Clue: What requirements are imposed once one makes an offer to enter into a unilateral contract?
Void, Voidable, and Valid Contracts
A contract is void if at its formation its object is illegal or it has serious defects in its formation (e.g., fraud). If Jones promises to pay Smith $5,000 to kill Clark, the contract is void at its formation because killing another person without court sanction is illegal. A contract is voidable if one of the parties has the option of either withdrawing from the contract or enforcing it. If Jones, a 17-year-old in a state where the legal age for entering an enforceable contract is 18, executes an agreement with Smith, an adult, to buy a car, Jones can rescind (cancel) the contract before he is 18 or shortly thereafter. A valid contract is one that is not void, is enforceable, and meets the six requirements discussed later in this chapter.
void contract
A contract that at its formation has an illegal object or serious defects.
voidable contract
A contract that gives one of the parties the option of withdrawing.
valid contract
A contract that meets all the legal requirements for a fully enforceable contract.
Executed and Executory Contracts
An executed contract is one of which all the terms have been performed. In our earlier example, if Jones agrees to buy Smith’s land for $5,000, and Smith delivers clear title and a deed and Jones gives Smith $5,000, the necessary terms (assuming no fraud) have been carried out or performed. In contrast, an executory contract is one of which all the terms have not been completed or performed. If Jones agrees to paint Smith’s house for $2,500 and Smith promises to pay the $2,500 upon completion of the paint job, the contract remains executory until the house is completely painted. The importance of complete performance will be shown in Chapter11’s discussion of discharge and remedies for a breach of contract.
executed contract
A contract of which all the terms have been performed.
Quasi-Contract
A quasi-contract is a court-imposed agreement to prevent unjust enrichment of one party when the parties had not really agreed to an enforceable contract. For example, while visiting his neighbor, Johnson, Jones sees a truck pull up at his own residence. Two people emerge and begin cutting his lawn and doing other landscaping work. Jones knows that neither he nor his wife contracted to have this work performed; nevertheless, he likes the job that the workers are doing, so he says nothing. When the landscapers finish, they put a bill in Jones’s mailbox and drive off. It turns out that the landscapers made an honest mistake: They landscaped Jones’s property when they were supposed to landscape Smith’s. Jones refuses to pay the bill, arguing that he did not contract for this work. He even calls the landscapers unflattering names. The court orders Jones to pay, finding that he was unjustly enriched. (Jones would not have had to pay if he had not been in a position to correct the mistake before it took place. That is, Jones would not have had to pay had this mistaken landscaping occurred while he and his wife were vacationing in Paris.)
quasi-contract
A court-imposed agreement to prevent the unjust enrichment of one party when the parties had not really agreed to an enforceable contract.
It should be noted that the receiver of the service must pay for the value of the service, not necessarily the contract price, only if he were in a position to stop the erroneous service.

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