CHAPTER 9

INTRODUCTION TO CONTRACTS
 Introduction to Contracts
Topics covered:
• Development of the Law of Contracts
• Definition of a contract
• Requirements of a contract
• Classification of contracts
• Promissory Estoppel
• Quasi-contracts
 Development of the Law of Contracts
Nearly every business transaction is based upon contract and the expectations the
agreed-upon promises create.
Examples:
In a contract for the sale of land, the seller promises to transfer title to the land, and the
buyer promises to pay an agreed-upon purchase price. In addition, the seller may
promise to pay certain taxes or assessments; the buyer may promise to assume a
mortgage on the property or may promise to pay the purchase price to a creditor of
the seller. If attorneys represent the parties, they very likely do so on a contractual
basis. If the seller deposits the proceeds of the sale in a bank, he enters into a contract
with the bank. If the buyer leases the property, he enters into a contract with the
tenant. When one of the parties leaves his car in a parking lot to attend to any of these
matters, he assumes a contractual relationship with the proprietor of the lot.
 Development of the Law of Contracts
Contract Law, like Law as a whole, is not static. It has undergone lots of
changes.
The twentieth century left its mark on contract law by limiting the absolute
freedom of contract and, at the same time, by relaxing the requirements of
contract formation. Accordingly, it is now considerably easier to get into a
contract and correspondingly less difficult to get out of one.
 Development of the Law of Contracts
Sources:
Common Law and The Uniform Commercial Code

There are two principal types of contracts:

1. business-to-business contracts (commercial contracts)
2. business-to-consumer contracts (consumer contracts).
 Development of the Law of Contracts
Uniform Commercial Code (The Code, UCC)
The sale of personal property forms a substantial portion of commercial
activity. The Uniform Commercial Code governs sales in almost all States.
A sale consists of the passing of title to goods from a seller to a buyer for a
price. A contract for sale includes both a present sale of goods and a
contract to sell goods at a future time. The Code essentially defines goods
as movable personal property.
 Development of the Law of Contracts
Uniform Commercial Code (The Code, UCC)
Personal property is any type of property other than an interest in real
property (land). For example, the purchase of a television, automobile, or
textbook is considered a sale of goods. All such transactions are governed
by the Code, but in cases in which the Code has not specifically modified
general contract law, the common law of contracts continues to apply.
In other words, the law of sales is a specialized part of the general law
of contracts, and the law of contracts governs unless specifically
displaced by the Code.
 Development of the Law of Contracts
Situations where the Uniform Commercial Code is not applicable:
Employment contracts, service contracts, insurance contracts, contracts
involving real property (land and anything attached to it, including
buildings as well as any right, privilege, or power in the real property,
including leases, mortgages, options, and easements), and contracts for the
sale of intangibles such as patents and copyrights.
These transactions continue to be governed by general contract law.
 Development of the Law of Contracts
International Contracts
The United Nations Convention on Contracts for the International Sales of
Goods (CISG), which has been ratified by the United States and at least
eighty-two other countries, governs all contracts for the international sales
of goods between parties located in different nations that have ratified the
CISG. Because treaties are Federal law, the CISG supersedes the Uniform
Commercial Code in any situation to which either could apply.
 Development of the Law of Contracts
International Contracts
Exclusions:
Parties to an international sales contract may, however, expressly exclude
CISG governance from their contract.
The CISG specifically excludes sales of (1) goods bought for personal,
family, or household use; (2) ships or aircraft; and (3) electricity. In addition,
it does not apply to contracts in which the primary obligation of the party
furnishing the goods consists of supplying labour or services.
Law Governing Contracts
Yes Specific provision of Yes
UCC applicable?

Sale of goods? UCC governs

No

No

General contract law

governs
 Definition of a contract
A contract is a binding agreement that the courts will enforce.
A contract as “a promise or a set of promises for the breach of which the
law gives a remedy, or the performance of which the law in some way
recognizes as a duty.”
Definition of a promise
“a manifestation of the intention to act or refrain from acting in a specified
way.”
 Definition of a contract
Promise
Those promises that meet all of the essential requirements of a binding
contract are contractual and will be enforced. All other promises are not
contractual, and usually no legal remedy is available for a breach (a failure
to perform properly) of these promises.

Thus, a promise may be contractual (and therefore binding) or non-

contractual. In other words, all contracts are promises, but not all promises
are contracts.
 Requirements of a Contract
Basic Requirements:
1. Mutual Assent
2. Consideration
3. Legality of Object
4. Capacity
 Requirements of a Contract
1. Mutual Assent
The parties to a contract must manifest by words or conduct that they have
agreed to enter into a contract. The usual method of showing mutual
assent is by offer and acceptance.

2. Consideration
Each party to a contract must intentionally exchange a legal benefit or
incur a legal detriment as an inducement to the other party to make a
return exchange.
 Requirements of a Contract
3. Legality of Object
The purpose of a contract must not be criminal, tortious, or otherwise
against public policy.

4. Capacity
The parties to a contract must have contractual capacity. Certain persons,
such as those adjudicated (judicially declared) incompetent, have no legal
capacity to contract, whereas others, such as minors, incompetent persons,
and intoxicated persons, have limited capacity to contract. All others have
full contractual capacity.
 Requirements of a Contract
Presence of the Requirements

If all of these essentials are present, the promise is contractual and legally
binding. If any is absent, however, the promise is non-contractual.
Validity of Agreements
No
Mutual Assent?
Void Yes
No
Consideration?
Yes
No
Capacity?
Void or Voidable Yes
No
Invalidating Conduct?
No
No
Subject Matter Legal?
Unenforceable Yes
No
Statute of Frauds Satisfied?
Yes
Valid Contract
 Classification of Contracts
a) Express or Implied
b) Bilateral or Unilateral
c) Valid, Void, Voidable and Unenforceable
d) Executed and Executory
e) Formal and Informal
 Classification of Contracts
Definitions and Examples
(pages 176-178)
 Promissory Estoppel
Essence
As a general rule, promises are unenforceable if they do not meet all
the requirements of a contract. Nevertheless, to avoid injustice, in
certain circumstances, courts enforce non-contractual promises under
the doctrine of promissory estoppel.
A non-contractual promise is enforceable when it is made under
circumstances that should lead the promisor reasonably to expect
that the promise would induce the promisee to take definite and
substantial action or forbearance in reliance on the promise and the
promisee does take such action or forbearance.
 Promissory Estoppel
Example:
1. Gordon promises Constance not to foreclose for a period of six months on a
mortgage Gordon owns on Constance’s land. Constance then expends $100,000 to
construct a building on the land. His promise not to foreclose is binding on Gordon
under the doctrine of promissory estoppel.
2. Alex tells Tim that Alex has a contract to make a movie and wants Tim to paint the
background scenery in return for a percentage of the profits. Tim paints and Alex then
admits he needed the scenery to try to get a movie deal which fell through and there
are no profits to share. Tim sues and the judge finds that Alex cannot deny a contract
with Tim and gives Tim judgment for the value of his work.
 Quasi-contracts/ Restitution
Definition
In addition to implied in fact contracts, there are implied in law, or quasi,
contracts, which were not included in the foregoing classification of
contracts because a quasi (meaning “as if”) contract is not a contract at all,
but is based in restitution.
Restitution is an obligation imposed by law to avoid injustice. The basic
rule of restitution is that a person who is unjustly enriched at the expense
of another is subject to liability in restitution, which usually requires the
unjustly enriched person to restore the benefit received or pay money in
an amount necessary to eliminate the unjust enrichment.
 Quasi-contracts/ Restitution
Restitution
Restitution is not a contract because it is based on neither an express nor
an implied promise. Rather, restitution is an independent basis of liability,
in addition to contract or tort liability
 Quasi-contracts/ Restitution
Example:
Anna by mistake delivers to Robert a plain, unaddressed envelope containing
$100 intended for Claudia. Robert is under no contractual obligation to return
it. However, Anna is permitted to recover the $100 from Robert. The law
imposes a quasi-contractual obligation of restitution upon Robert to prevent
his unjust enrichment at Anna’s expense.
The elements of such a recovery are (1) a benefit conferred upon the
defendant (Robert) by the plaintiff (Anna), (2) an appreciation or knowledge
by the defendant (Robert) of the benefit, and (3) acceptance or retention by
the defendant (Robert) of the benefit under circumstances rendering
inequitable the defendant’s (Robert’s) retention of the benefit without
compensating the plaintiff for its value.
 Quasi-contracts/ Restitution
Remedy
The law of restitution provides a remedy when the parties have entered
into a void contract, an unenforceable contract, or a voidable contract that
is avoided. In such a case, the law of restitution will determine the recovery
permitted for any performance rendered by the parties under the invalid,
unenforceable, or invalidated agreement.
 Contracts, Promissory Estoppel,
and Quasi Contracts
Contract Promissory Estoppel Quasi Contract
Type of Promise Contractual Non-contractual None
Void
Unenforceable
Invalidated

Requirements All of the essential Detrimental and justifiable Benefit conferred and
elements of a contract reliance knowingly accepted

Remedies Equitable Promise enforced to the extent Reasonable value of

Compensatory necessary to avoid injustice benefit conferred
Reliance
Restitution

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