CHAPTTR

8
H*k*t#ffi

65The CHA P TE R (lUI T I NT T E A RNI I { G (lB I E CI I V E S

socialorder
-AN OVERVIEW
OFCONTRACT LAW AFTER READINC THISCHAPTER, YOUSHOULD BEABLE TO
rests
upon the ANSWER THE FOLLOWING QUESTIONS:
-ELEMENTSOFA CONTRACT
stabilitv
and OFCONTRACTS I What is a contract?What is the obiectivetheory
-TYPES
of
predictability -QUASICONTRACTS
of contracts?

conduct,
of OFCONTRACTS
-I NTERPRETATION
What are the four basic elementsnecessaryto the
l. t I formation of a valid contract?
wnlcnKeePrng
What is the differencebetrveenan implied-in-fact
isa
promises contractand an implied-inJaw contract (quasi
large
item.l! contract)?

RoscoePound, 1870-1964 How doesa void conhact differ fiom a voidable

(American jurist) contract?What is an unenforceablecontract?

Why have plain languagelawsbeen enacted?What

rules guide the courts in interpretingcontracts?

s the eminent lurist Roscoe Pound observedin the chapter-openingquotation,

"keeping promises"is important to a stablesocial order. Contract law dealswith,
PROMISE among other things,the formation and keepingof promises.A promise is an assertionthat
An assertionthat something eithet somethingeither will or will noi happen in the future.
will or w i l l n o t h a p p e n i n t h e
future.
Like other typesof law, contract law reflectsour socialvalues,interests,and expecta-
tions at a given point in time. It shows,for example,what kinds of promisesour society
thinks should be legally binding. It distinguishesbetweenpromisesthat create only moral
obligations(such as a promise to take a friend to lunch) and promisesthat are legally
binding (such as a promiseto pay for merchandisepurchased).Contract law alsodemon-
strateswhat excllsesour societyacceptsfor breakingcertain typesof promises.In addition,
it showswhat promisesare consideredto be contraryto public policy-against the inter-
estsof societyasa whole-and thereforelegally invalid. When the personmaking a prom-
ise is a child or is mentally incompetent,for example,a questionwill ariseas to whether
the prorniseshould be enforced.Resolvingsuch questionsis the essenceof contractlaw.

Before we look at the r-rumerous rules that courts use to determine whether a particular
promisewill be enforced,it is necessary to understandsomefundamentalconceptsof con-
tract law. In this section,we describethe sourcesand generalfunction of contractlaw. We
250tlNIIi[E
CONTRACTS alsoprovidethe definition of a contractand introduce the objectivetheory of conhacts.
 2il G!ffftTtril
NATURE
ANDCLASSIFICATION

law
of Contract
Sources
The common law governsall contractsexceptwhen it has been modified or replacedby
statutory law, such as the Uniform Commercial Code (UCC),I or by administrative
agency regulations.Contracts relating to services,real estate,employment, and insur-
ance, for example,generallyare governedby the common law of contracts.
Contractsfor the saleand leaseof goods,howevet,are govened by the UCC-to the
extentthat the UCC has modified generalcontractlaw. The reiationshipbeh.veengeneral
contractlaw and the law governingsalesand leasesof goodswill be exploredin detail in
Chapter lB. In this unit coveringthe common law of contracts(ChaptersB through l7),
we indicatebriefly ir-ifootnotesthe areasin which the UCC hassignificantlyalteredcom-
mon law contractprinciples.

of € o n t r a c t s
Th eFunc t ion
No aspectof modern life is entirely free of contractualrelationships.You acquire rights
and obligations,for example,when you borrow funds, when you buy or leasea house,
when you obtain insurance,when you form a business,and when you purchasegoodsor
services.Contract law is designedto provide stability and predictability for both buyers
and sellersin the marketplace.
Contract law assuresthe partiesto privateagreementsthat the promisesthey make will be
enforceable.Clearly,many promisesare kept becausethe partiesinvolvedfeel a moral obli-
gation to do so or becausekeeping a promise is in their mutual self-interest.The promisor PROMISOR
(the person making the promise) and the promisee (the person to whom the promise is A personwho makesa promise.
PROMTSEE
made)may decideto honor their agreementfor other reasons. Nevertheless, the rulesof con-
A personto whom a promiseis
tractlaw are often followedin businessagreements to avoidpotentialproblems. made.
By supplying proceduresfor enforcing private agreements,conhact law providesan
essentialcondition for the existenceof a market economy.Without a legal frameworkof
reasonablyassuredexpectationswithin which to plan and venture,businesspersons would
CONTRACT
be able to rely only on the good faith of others.Duf, and good faith are usuailysufficient, An agreementthat can be enforced
but when dramatic price changesor adverseeconomic conditionsmake it costlyto com- in court;formed by tvvoor more
ply with a promise,theseelementsmay not be enough.Conhact law is necessary to ensure competentpartieswho agree,for
to performor to
consideration,
compliancewith a prorniseor to entitle the innocent party to someform of relief. refrainfrom performingsomelegal
act now or in the future.
De finit ion
of a C o n t r a c t OB'ECTIVETHEORY OFCONTRACTS
A theoryunderwhichthe intentto
A contract is an agreementthat can be enforcedin court. It is formed by hvo or more par- form a contractwill be judgedby
outward,objectivefacts(what the
ties who agreeto perform or to refrain from performing some act now or in the future.
partysaidwhen enteringinto the
Generally,contract disputesarisewhen there is a promise of future performance.If the contract,how the partyactedor
contractualpromise is not fulfiiled, the party who made it is subjectto the sanctionsof a appeared, and the circumstances
surrounding the transaction)as
court (seeChapter 15). That parf may be required to pay monetary damagesfor failing person,
interpretedby a reasonable
to perform the contractualpromise;in iimited instances,the party may be requiredto per- ratherthan by the party'sown secret,
form the promisedact. subjectiveintentions.

Theory
TheObjective of Contracts
In determiningwhethera contracthasbeenformed,the elementof intent is of prime impor- An extensivedefinition of
tance. In contract law, intent is determined by what is referredto as the objective theory of the term contrad is offered
contracts, not by the personalor subiectiveintent, or belief, of a party.The theory is that a by the 'LectricLaw Libraryat
party'sintention to enter into a contract is fudged by ouhvard,objective factsas interpreted

of the significance
L see Chapter l and Chapterl8 for furtherdiscussions and coverage
of the Uniform
CommercialCode (UCC). Excerphfrom the UCC arepresentedin AppendirC at the end of this book.
r(

232l!ililu[I
CONTRACTS

by a reasonableperson,ratherthan by the party'sown secret'

intentions.Obiectivefactsinclude (l) what the
sr-rbjective
partysaidwhen enteringinto the contract,(2) how the party
actedor appeared,and (3) the circumstancessurrounding
the transaction. later in this chapter'in
fu will be discussed
the sectionon exPressversusimplied conhacts,intent to
form a contractmay be manifestedby conduct, aswell asbv
words,oral or written.

ol Conttatt
Freedom
andFreedomfromContract
As a generalrule, the law recognizeseveryone'sability to
enter freely into contractualarrangements'This recogni-
tion is called freedomof contract,a freedom protectedbv
The monoger of o ToyotodeolershiP the U.S. Constitution in Article I, Section 10. Becausefreedomof contractis a funda-
in GIendoro, Colifornio, disPloYs mental public policy of the United States,courtsrarely interferewith contractsthat have
the same contract wriften in four been voluntarily n-rade.
different Asian langu ag es (Chi nese,
Of course,as in other areasof the law, there are many exceptionsto the generalrule
Koteon, Vietnamese, and Tagalog).
that contractsvoluntarily negotiated wiil be enforced. For example, illegal bargains,
A consumerprotection low in
Colifornia requires certoin businesses,
agreementsthat unreasonablyrestraintrade,and certain unfair contractsmade between
such os car deolers and aPartment one party with a greatamount of bargainingpower and anotherwith little Powerare gen-
owners, that hove emPloYeeswho .rrlly ttot enforc"ed. In addition,.t yo.t will read in Chapter ll, certain contractsand
orolly negotiote contracts in these .la.rr., nay not be enforceableif they are contraryto public policy, fairness,and ir-rstice'
longuoges to provide written These exceptionsprovidefreedomfrom contractfor personswho may havebeen pressured
contrads in those some languoges. into making contractsunfavorableto themselves.
Why might it be important to the
enforceobility of o written contrad
thot the consumer odually be oble to
reod its provisions? The many topics that will be discussedin the following chapterson contractlaw require
(APPhoto/Damian Dovarganes) .rr'rd.ritr,'rdingof the basicelementsof a valid contractand the way in which the con-
"rr
tract wascreatedlThe topicsto be coveredin this unit on contractsalsorequire an under-
standingof the typesof tircumstances in which even legally valid contractswill not be
enforced.

(ontratt
of a Valid
Requirements
The following list briefly describesthe four requirementsthat must be met for a valid con-
tract to exist.If any of theseelementsis lacking, no contractwill havebeen formed. (Each
item will be explainedmore fr-rllyin subsequentchapters.)

I AgreementAn agreementto form a contractincludes an offerand an acceptance.One

pirty must offerlo enter into a legal agreement,and another party must accept the
terms of the offer (seeChapter 9).
ConsiderationAny promisesmade by partiesmust be supportedby legally sufficient
and bargained-forconsideration(somethingof value receivedor promisedto convince
a personto make a deal) (seeChapter l0)'
Contractualcdpacity.Both partiesenteringinto the contractmust havethe contractual
capacityto do so; the law must recognizethem as possessingcharacteristicsthat qual-
ify them as competentparties(seeChapter I 1)
Legatity.The contract'spurposemust be to accomplishsomegoal that is legal and not
againstpublic policy (seeChapter I I).
 2]IEIMM
NATURE
ANDCLASSIFICATION

Defenstes
o t heE n f o r c e a b iol iftay C o n t ra ct
Even if all of the elementsof a vaiid contract are present,a contract may be unenforce-
able if the following requirementsare not met.

I Gerutinenessof assent,or voluntary consent.The consent of both parties must be

genuine. For example,if a contractwasformed as a result of fraud, mistake,or duress,
the contract may not be enforceable.
2 Form.The contractmust be in whateverform the law requires;for example,somecon-
tractsmust be in writing to be enforceable.

The failure to fulfill either requirementmay be raisedas a defenseto the enforceabil-

ity of an otherwisevalid contract.Both requirementswill be explainedin more detaii in
Chaotersl2 and 13.

There are numerous typesof contracts.They are categorizedbasedon legal distinctions

asto their formation, performance,and enforceability.Exhibit B-1 illustratesthree classi-
fications,or categories,of contractsbasedon their mode of formation.

Contract
Formation
As you can see in Exhibit B-1, three classifications,or categories,ofcontracts are based
on how and when a contract is formed. The bestway to explain each type of contract is
to compareone type with another,as we do in the following pages.

Bilateral versusUnilateral Contracts Every contract involvesat leasttwo parties.The

ofiferoris the party making the offer. The offeree is the party to whom the offer is made. OFFEROR
The offeror alwayspromisesto do or not to do something and thus is also a promisor. A person who makes an offer.
Whether the contract is classifiedas bilateral or unilateral dependson what the offeree OFFEREE
A person to whom an offer is made.
must do to acceptthe offer and bind the offeror to a contract.

BilateruI Contracts. If the offereecan accept the offer simply by promising to perform,
the contract is a bilateral contract. Hence, a bilateral contract is a "promise for a prom- BIIATERAI CONTRAET
A type of contract that ariseswhen
ise."An example of a bilateral contract is a contract in which one person agreesto buy
a promise is given in exchangefor
another person'sautomobile for a specifiedprice. No performance,such as the payment a return promise.

j
'i::'

:l
BIIATERAI FORMAI- EXPRESS
A Promrseror a Promrse Requiresa specialform for Formed by words
a
UNITATERAT creation
IMPLIEDIN FACT
A promisefor an act INFORMAL Formedat leastin part by
Requiresno specialform the parties'conduct
for creation
1r4l@
CONTRACTS

of funds or delivery of goods,need take place for a bilateral contract to be formed. The
contract comes into exiitence at the moment the promisesare exchanged.
FExAMpLE 8.il feff offersto buyAnn's digital camerafor $200.leff tellsAnn that he will
give her the cashfor the cameraon the following Friday when he getspaid. An-naccepts
her on Friday.)eff and Ann
iefft offer and promisesto give him the camerawhen he pays
have formed a bilateral contract. ill

IJnilaterul Contracts. If the offer is phrasedso that the offereecan accept only by con'i-
coNTRAcr
SNTLATERAL pleting the contract performance,the contract is a unilateral contract. Hence' a unilat-
when
thatresults
A contract an offer lral c6ntract is a "Dromisefor an act." h'r other words,the contract is formed not at the
onlybytheofferee's
canbe accepted
performance' moment when prtmises are exchanged but rather when the contract is performed.
f:€GJvrprE82-l R..r. ,ry, to Celia, "lf"yo,r drive my car from New York to Los Angeles,
I'li give you $1,000."Only on Celia'scompletion of the act-bringing the car to Los
Angeles-doesshe fully acceptReese's offer to pay $1,000.If she choosesnot to accept
the ofler to drive the car to Los Angeles,there are no iegal consequences. E
Contests,lotteries,and other competitions offering prizes are also examplesof offers
for unilateralcontracts.If a personcomplieswith the rules of tl'recontest-such asby sub-
mitting the right iottery number at the right place and time-a unilateral contract is
for*.J, bindiig the organizationoffering the prize to a contractto perform as promised
in the offer.
Can a school's,or an employer's,letter of tentativeacceptanceto a prospectivestudent,
or a possibleemployee,q"lify as a unilateral contract?That was the issuein the follow-
rng case.

558 (2003).
UnitedStatesDistrictCourt,Districtof RhodeIsland,263 F.SuPP.2d

ANDFACTS academyif they successfully
BACKGROUND
In 2001,the cityof Providence,
Rhodelsland,decidedto beginhiringpoliceofficersto fill
vacancies in its policedepartment. Because only individuals
who had graduatedfrom the ProvidencePoliceAcademywere
eligible,the cityalsodecidedto conducttwo trainingsessions,
the "6oth and 6l st PoliceAcademies." To be admitted,an
applicant had to pass a of
series testsand be deemed
quali{iedby membersof the departmentafteran interview
The applicantsjudged most qualifiedwere sent a letter
informingthem that they had beenselectedto attendthe
completeda medicalcheckup
and a psychological examination' The letterfor the applicants
to the 6l st Academy,dated October15,statedthat it was
"a conditionaloffer of employment'"Meanwhile,a new chief
of police,DeanEsserman, decidedto revisethe selection
process,which causedsome of thosewho had receivedthe
letterto be rejected.DerekArditoand thirteenother newly
rejectedapplicantsfiled a suit in a federaldistrictcourt against
the city,seekinga halt to the 6lst Academyunlessthey were
allowedto attend.Theyallegedin part that the citywas in
breachof contract.

Ch ieSDis
I t l T H EW0RDS0F THECOURT... E RNE S T C. T I RRE f, t ric t J u d g e .

:::;0, * * * is a classic
exampleof an offerto enterinto a unilateral
Ortober 15 letter
contract.The October l5 letter expresslystatedthat it was a "conditional offer of employ-
ment" and the messagethat it conveyedwasthat the recipientwould be admittedinto the
6lstAcademy if he oishe successfully completedthe medical and psychologicalexamina-
tions, requirementsthat the City could nof lawfully impose uniessit was making a condi-
tional offer of employment.lEmphasisadded.]
Moreover,the ierms of that offerwereperfectlyconsistentwith what applicantshad been
told when they appearedlfor their interviews].At that time, IPoliceMa jor Dennis] Simoneau
 255
EInTEU
NATURE
ANDCLASSIFICATION

C ASE
8. 1- Cont inued
informed them that, if they "passed"the iinterviews],they wouid be offereda place in the
Academyprovidedthat they alsopassedmedicaland psychologicalexaminations.
The October I5 letter also was in marked contrastto noticessent to applicantsby the
City at earlier stagesof the selectionprocess.Those notices merely informed appiicants
that they had completeda step in the processand remained eligible to be consideredfor
admissioninto the Academy.Unlike the October 15 letter, the prior noticesdid not pur-
port to extenda "conditional offer" of admission.
The plaintiffsacceptedthe Cityt offer of admissioninto the Academyby satisfyingihe
specifiedconditions.Each of the plaintiffs submittedto and passedlengthy and intrusive
medical and psychologicalexaminations.In addition, many of the plaintiffs, in reliance
on the City's offer, jeopardizedtheir standingwith their existingemployersby notifying
the employersof their anticipateddeparture,and some plaintiffs passedup opportunities
at*o*.j employment.

The City arguesthat there is no contractbehveenthe pariiesbecausethe plaintiffshave

no legallyenforceableright to employment.The Ciq, correctlypoints out that, even if the
plaintiffsgraduatefrom the Academyand there are existingvacanciesin the Department,
they would be requiredto servea one-yearprobationaryperiod during which they could
be terminatedwithout cause* x * . That argument missesthe point. The contractthat
the plaintiffs seekto enforce is not a contract that they will be appointedas permanent
Providencepolice officers;rather, it is a contract that ihey would be admitted to the
Academyif they passedthe medical and psychologicalexaminations.

DECISION
ANDREMEDY
rnecourt
issued
aninjunction WHATIF THEFACTS
WEREDIFFERENT?
to prohibitthe cityfrom conducting the 6l st PoliceAcademy Supposethot the Odober I 5 letterhad used the
unlessthe plaintiffswere included.TheOctoberl5 letterwas phrose potentialoffer of employmentrother thon the word
a unilateralofferthat the plaintiffshad acceptedby passing conditional.Wouldthe court in this case stillhove considered
the requiredmedicaland psychological examinations. the letter to be o unilqterol contracfl

tr
Revocation of Offers for Unilateral Contracts. A problem arisesin unilateral contracts
when the promisorattemptsto revoke(cancel)the offer after the promiseehasbegun per-

re
formance but before the act has been completed. trex=-AMnFsJ-l Roberia offers io buy
Ed's saiiboat,moored in San Francisco,on delivery of the boat to Roberta'sdock in
Newport Beach, three hundred miles south of San Francisco.Ed rigs the boat and sets
sail. Shortly before his arrival at Newport Beach, Ed receives, odio messageirom Foreasy-to-understand
Roberta withdrawing her offer. Roberta'soffer is to form a unilateral contract, and only definitionsof legalterms
and concepts,includingterms and
Ed's deliveryof the sailboatat her dock is an acceptance.p
conceptsrelatingto contractlaw
In contract law, offers are normally revocable(capable of being taken back, or can- go to dictionary.law.com
and key in
celed)until accepted.Under the traditionalview of unilateralcontracts,Roberta'srevo- a term, such as controd ol
cation would terminate the offer. Becauseof the harsh effect on the offeree of the consideration.
revocationof an offer to form a unilateral contract,the modern-dayview is that once per-
formance has been substantiallyundertaken,the offeror cannot revokethe offer. Thus,
in our example, even though Ed has not yet acceptedthe offer by complete perform-
ance, Roberta is prohibited from revoking it. Ed can deliver the boat and bind Roberta
to the contract.
FORMALCONTRACT
Formal versusInformal Contracts Another classificationsystemdividescontractsinto A contractthat by law requiresa
specificform,suchas beingexecuted
formal contractsand informal contracts.Formal contracts are contractsthat require a underseal,for its validiV
256IINIIUU
CONTRACTS
INFORMAT CONTRAfi
A contractthat doesnot requirea
specifiedform or formalityto be valid.
Ifffffr{Tirilf{fil Not everycontract
is a documentwith "Contracf'
printedin blocklettersat the
top. A contractcan be expressed
in a letter,a memo,or another
document.
EXPRESS CONTRACT
A contractin whichthe termsof the
agreementare statedin words,oral
or written.
IMPLITD-IN-FACTCONTRACT
A contractformedin whole or in part
from the conductof the parties(as
opposedto an expresscontract).
specialform or method of creation (formation) to be enforceable.2Contractsunder seal
are a type of formal contract that involves a formalized writing with a special seal
attached.l In the past,the sealswere often made of wax and impressedon the paper doc-
ument. Today,the significanceof the sealin contractlaw has lessened,though standard-
form contractsstill sometimesinclude a place for a sealnext to the signaturelines. Letters
of credit, which are frequently used in international salescontracts,are another type of
formal contract.As will be discussedin Chapter 46, lettersof credit are agreementsto pay
contingent on the purchaser'sreceipt of invoicesand bills of lading (documentsevidenc-
ing receipt of, and title to, goodsshipped).
Informal contracts (alsocalled simple contracts)include all other contracts.No spe-
cial form is required (exceptfor certain typesof conhactsthat must be in writing), as the
contractsare usually based on their substancerather than their form. Typically, busi-
nesspersons put their contractsin writing to ensurethat there is someproof of a contract's
eristenceshouldproblemsarise.
Expressversus Implied Contracts Contracts may also be formed and categorizedas
expressor implied by the conduct of the parties.We look here at the differencesbehveen
thesetwo typesof contracts.
ExpressContracts. In an expresscontract, the terms of the agreementare fully and
explicitly statedin words,oral or written. A signedleasefor an apartmentor a houseis an
expresswritten contract. If a classmateacceptsyour offer to sell your textbooksfrom last
semesterfor $300, an expressoral contract has been made.
Implied Contracts. A contract that is implied from the conduct of the partiesis called
an implied-in-fact contract, or an implied contract.This fpe of contract differsfrom an
expresscontract in that the conduct of the parties,rather than their words, createsand
definesat leastsome of the terms of the contracr.
Requirementsfor an lmplied-in-Fact Contract. For an implied-in-factcontractto arise,
certain requirementsmust be met. Normally, if the following conditionsexist,a court will
hold that an implied contractwas formed:
I The plaintiff furnished son-reserviceor property.
2 The plaintiff expectedto be paid for that serviceor property,and the defendantknew
or should have known that payment was expected(by using the obiective-theory-of-
contractstest discussedon pages231 and2)Z).
5 The defendanthad a chance to reject the servicesor propertyand did not.
lrExAMpaLETn Supposethat you need an accountantto Fill out your tax return this
year. You look through the Yellow Pagesand find an accounting firm located in your
neighborhood.You drop by the firm's office, explain your problem to an accountant,and
learn what feeswill be charged.The next day you return and give the receptionistall of
the necessaryinformation and documents,such ascanceledchecksand W-2 forms.Then
you walk out the door without sayinganything expresslyto the accountant.
2. SeeRestatement(Second)of Contracts,Section6, which explainsthat formal contractsinclude ( 1) contractsunder
seal,(2) recognizances,(3) negotiableinstruments, and (4) lettersofcredit.As mentionedin Chapterl,Restatements
of the Law are booksthat summarizecourt decisionson a particular topic and that courtsoften refer to for guidance.
3. A sealmay be actual(madeofwax or someotherdurablesubstance), impressed on the paper,or indicatedsimply
by the word sealor the lettersL.S. at the end of the docunent. L.S. stands{or locussigilli, which means"the place
for the seal."
 zliGIM
NATURE
ANDCLASSIFICATION

..,+ .riJ:i1ffi
What determines whether o contract
" for accounting, tox preparation, or
:l,L :li'+
,!:
ony other seruice is an express
controct or on implied-in-fad
contrad? (Cettylmages)

In this situation,you have enteredinto an implied-in-factcontract to pay the accolin-

tant the usual and reasonablefeesfor her accountingservices.The contractis impiied by
your conduct and by hers.She expectsto be paid for completingyour tax return. By bring-
ing in the recordsshe will need to do the work, you have irnplied an intent to pay for her
services.H (f'ot another example of how an in-iplied-in-factcontract can arise,see the
Application featureat the end of this chapter.)
Note that a contractcan be a mixture of an expresscontractand an irnplied-in-factcot-i-
tract. In other words, a contract may contaii-rsome expressterms, rvhile others are
implied. During the constrr-rctionof a horne, the homeowner often requeststhat the
builder rnakechangesin the original specifications.When do thesechar-rges forrn part of
an implied-in-fact contract that makes the homeowner liable to the builder for any extra
expenses? That was the issuein the following case.

#,{Eq*;f,s$j*riltHiel i+:;r:;.ii1l1iir,
Court of Appealsof Utah, 179 P3d 808 (2008).

ANDFACTS Theoriginalproposalspecifiedcinderblocks,but Hopkinstold

BACKGROUND
..---=ffi.*.-i UhrhahnConstructionwas hired
by LamarHopkins(Hopkins)and hiswife,Joan,for several
projectsin the buildingof their home.Eachprojectwas based
Eachof the proposals
on a cost estimateand specifications.
acceptedby Hopkinssaidthat any changesin the signed
contractswould be madeonly "uponwrittenordersi'When
work was in progress,Hopkinsmade severalrequestsfor
changes.Therewas no written recordof thesechanges,but
Uhrhahnperformedthe work and Hopkinspaidfor it. A
disputearoseafterHopkinsrequested that Uhrhahnuse
Durisolblocksratherthan cinderblocksin someconstruction.
Uhrhahnthat the changeshouldbe madebecauseDurisol
was "easierto installthan traditionalcinderblockand would
takehalfthe time."Hopkinssaidthe total costwould be the
same.Uhrhahnorallyagreedto the change,but discovered
that Durisolblockswere more complicated to usethan cinder
blocksand demandedextrapayment.Hopkinsrefusedto Pay,
claimingthe costshouldbe the same.Uhrhahnsued.Thetrial
courtheldfor Uhrhahn,findingthat the Durisolblockswere
more costlyto install.Thehomeownersappealed.
C A S E8 . 2 - C o n t i n u e sn e x t p ag e
 llElro[
23S
CONTRACTS

8 . ?- G ont inued
CASE

Judge'
in rnr w0RDs0FTHEcouRT. . ' zRME,

here. The propo-salconsti-

The essentialelementsof contract formation were present
certain detailed construction proiectsfor certain
tuted an offer by Uhrhahn to complete
terms regardingJhl work and the parties'relation-
pri..r,'""a it clearly,"t forttr additional
times-o11.-iot each proposed
!t ip. Wil.r, Hopkins signedthe written propor"i-ultiple
"Acceptance oiP-porrl"-he accePtedUhrhahn's offerand
projectunder sectionstitled
for the various projects' Uhrhahnt promise to
pr"i"i*a to pay the amounts delineated
to pay constituted bargained-for consideration'
oerform and the homeowners'promise
Thur, , valid contractwasformed betweenthe parties'
that an implied-in-factcon-
The homeow,l.r, .hull.nge the trial court'sdltermination
which requires-any chan-ges to the
tract existed.They arguethaithe proposalagreement,
in writing, controls'.They therefore assert
original estimatesand specificatio,',,io be p'ut
amounts that deviated from the orig-
;i;1il;;; ;"i untf."hn for work or monetary
"r". to writing. we disagree' we conclude that
inal proposalagreementand were not reduced
l*plicit factual findings show that through his conduct
the trial court's
""pr.r, ",-,d requiring
il;p;i;;, a,.tdth.ieforethe ho-"o*"t", implicitlvltl"tq.tt.Piovision
a .ottirrct implied in fact that perraitted
change ordersto U" p.rii,-r *ritingand created
.hun[., to the original contract to be made orally'
frequently make changesto the
First, we note that partiesto construction contracts
originally Additionally, provisions in construction contracts
pr;;;'^;
"gr."d-upon. held to be for the protection of
requiring ordersfor extr"awork tL be written "t" g.,.errlly
the owrtir, and the owner can waive such provisions'
"the evidencemust be of a
To prove that the owner intended to waive such a provision,
distinct agreement that the work be
clear and satisfactory.tt*tr.i"t and clearly show a
the owner to pay extra for such extrawork'"
deemedextrawork r*a r aJi"it" ,gr""-.,.i*ith
****
that an implied-in-factcon-
We alsoconciude that ihe trial court correctlydetermined
allowed the partiesto agreeon
hact was establishedthrough the parties'conduct, which
-'--A work orallY.
extra
equitablerem.-
contract implied in fact is the secondbranch of quantum ry'*yi! lan
s).A contract implied in fact is a "contract"
edy that literally meansas much as he deserve
x x x are. (1) the defendantrequested the plaintiff to
establishedby conduct.ihe elements
compensdte him or her for those
perform work; (2) tnu pioi"ti1l nxpectedthe defendant to
pnn* or should'haveknown that the plaintiff expected com-
;;;;rrj, and'd)'tt n di-ir"io,i
pensation.lEmPhasisadded'l
that the-parties'conduct estab-
In this case, [the] triJ .onrtt factual findings show
found that Hopkins "made several
lished an implied-in-iact contract. The trial court * * x completeda substan-
*ork to the home," and that "Uhrhahn
,"q"**, i",
"iaitio.,"t the tnal court stated that
tial amount of the additional work requested'"Additionally,
Moreover, Hopkins paid at least
Hopkins "acceptedtn. i.,-r.fit of Uhrhahnb hard work."
invoices itemized the extra(or addi-
three differerrtinvoicesfor the additionalwork, which
tional) work performedby Uhrhahn'
repeatedlyaskedUhrhahn to per-
The firsi element is clearlysatisfiedbecauseHopkins
agreement'The secondelement
form constructionwork that deviatedfrom the proposal
it expectedPiyT""l in return for
is also satisfiedbecauseUhrhahn's conduct ,ho*, ihrt
attd Uhthahn had a businessrela-
the work it performei ,i iopkin* request-Hopkins
pttfot* a 1ob' Under these circum-
ii""rftip, ,.,d Uhrh"h' *"' ii'"d by Hopkins io
 2r9G![Em
ANDCLASSIFICATION
NATURE

8 .2 - Cont inued
C ASE

stances,Uhrhahn clearly expectedto be paid for any work it performedat the homeown-
ers' request,as shown by the regular invoices it sent Hopkins for its completed work,
including invoicesfor the additional work orally requestedby Hopkins. Finally, the last
element is also satisfiedbecar-rseHopkins'sconduct showedhe knew Uhrhahn expectecl
to be paid. Up until the disputeover the Durisoi blocksensued,Hopkins paid or partially
paid for the work that deviated from the proposal agreement pursuant to Uhrhahn's
invoicesthat referencedchangeorders.His paymentsclearlyshowthat I'reknew Uhrhahn
expectedto be paid. Thus, the trial court correctlydeterminedthat a contraci implied in
fact existed,which Hopkins-and thereforethe homeowners-breached when they failed
a .."T+"j"it pay Uhrhahn for the extrawork performed.

We affirm the trial court's determinationthat Hopkins, through his conduct, created
an implied-in-factcontractthat allowed the partiesto orally agreeto extrasor changesto
the original proposalagreement.

court
rneutahappeals
ANDREMEDY
DECISI0N F0RCRITICAt ANAtYSIS- Technol ogi c al
affirmedthe decisionof the trial courf findingthat therewas a Considerationwould ofthiscose
theoutcome
valid contractbetweenthe partiesand that both partieshad hove been differentif the parties hod communicotedby e-moil
agreedto oral changesin the contract.The changescreatedan for oll detqils regording chonges in the work performed? Why
implied-in-factcontractby which the builderagreedto provide or why not?
extrawork in exchangefor extracompensationfrom the
homeowners.

Petformance
Contract
Contracts are also classifiedaccording to their state of performance.A contract that
hasbeen ftrlly performedon both sidesis called an executedcontract. A contractthat has EXECUTED CONTRACT
A contractthat hasbeencompletely
not been fully performed on either side is called an executory contract. If one party performedby both parties.
has fully performedbut the other has not, the contract is said to be executedon the one EXECUTORYCONTRACI
side and executoryon the other, but the contract is stiil classifiedas execr-itory. A contractthat hasnot yet beenfully
performed.
IrExAffFiE&5 | Assume that you agree to buy teir tons of coal from Westeri-iCoal
Company.Further assumethat Westernhas deliveredthe coal to your steelmill, where it
is now being burned. At this point, the contract is an executorycontract-it is executed
on the part of Westernand executoryon youl pari. After you PayWesternfor the coal, the
contract will be executedon both sides.E

Enlorceability
Conttart
A valid contract has the four elementsnecessaryfor contractformation: ( I ) an agreement VATIDCONTRACT
A contract that resultswhen the
(offer and acceptance)(Z) supportedby legallysufficientconsideration(3) for a legal pur-
elements necessaryfor contract
poseand (4) made by partieswho havethe legalcapacityto enterinto the conhact.As men- formation (agreement, consideration,
tioned, we will discusseach of theseelementsin the following chapters.As you can seein legal purpose, and contractual
capacity)are present.
trxhibit B-2 on the next page,valid contractsmay be enforceable,voidable,or unenforce-
able.Additionally,a conhactmay be referredto asavoid contract.Welook nextat the mean-
ing of the Iermsyoidable,unenforceable,and void in relaiion to contract enforceability. VOIDABLECONTRACT
A contract that may be legally
avoided (canceled,or annulled)
Voidable Contracts A voidable contract is avalid contractbut one that can be avoided at the oDtion of one or both of
at the option of one or both of the parties.The party having the option can elect either to the oarties.
240llNililu
CONTRACTS
UNENFORCEABIE CONTRACT
A valid contract rendered
unenforceableby some statute
or t a w
VOID CONTRACT
A contract having no legal force or
binding effect.
QUASICONTRACT
A fictionalcontractimposedon the
partiesby a courtin the interestsof
fairnessand justice;usuallyimposed
to avoidthe unjustenrichmentof
one partyat the expenseof another.
ENFORCEABTE CONTRACI
A valid contractthat can be
enforcedbecausethere are
no legaldefensesagainstit
VOIDABLE CONTRACT
A partyhasthe optionof
avoidingor enforcing
the
contractualobligation.
UNENFORCEABTE
CONTRACT
A contract exists,but it
cannotbe enforcedbecause
or a regaroeTense.
avoid any duty to perform or to ratify (makevalid) the contract.If the contractis avoided,
both pariies are releasedfrom it. If it is ratified, both parties must fully perform their
respectivelegal obligations.
As you will read in Chapter ll, contractsmade by minors, insanepersons,and intoxi-
cated personsmay be voidable.As a generalrule, for example,contractsmade by minors
are voidableat tl-reoption of the minor. Additionally, contractsenteredinto r-rnderfraud-
ulent conditionsare voidableat the option of the defraudedparty.Contractsenteredinto
under legallydefinedduressor undue influenceare voidable(seeChapter l2).
Unenforceable Contracts An unenforceable contract is one that cannot be enforced
becauseofcertain legal defensesagainstit. It is not unenforceablebecausea party failed
to satisfta legal requirementof the contract;rather, it is a valid contract renderedLlnen-
forceableby sorne statute or law. For exampie, some contractsmust be in wriiing (see
Chapter i3), and if ihey are not, they will not be enforceableexcept in certain excep-
tional circurr-rstances.
Void Contracts A void contract is no contract at all. The terms yoid and contract are
contradictory'.None of the partieshasany legal obligationsif a contractis void. A contract
can be void because,for example,one of the partieswaspreviouslydeterrninedby a court
to be legallyinsane(and thus lackedthe legal capacityto enter into a contract)or because
the purposeof the contractwas illegal.
Quasi contracts, or contraclsimplied in law, are wholly different from actual contracts.
contractsare actual or true contractsformed by tl-re
Expresscontractsand in-rplied-in-fact
wordsor actionsof the parties.The word quasi is Latin for "as if" or "analogousto." Quasi
contractsare not true contractsbecausethey do not arisefrom any agreement,expressor
Rather, quasi contractsare fictional contracts
implied, behveen the partiestherr-rselves.
 24rtrlnE@
NATURE
ANDCTASSIFICATION

that courts can impose on the parties"as if" the partieshad entered into an actual con-
hact. They are equitablerather than legal contracts.Usually,quasicontractsare imposed
to avoid th,euniust enrichmentof one party at the expenseof another.The doctrine of
unjust enrichment is basedon the theory that individuaisshould not be allowed to profit
or enrich themseivesinequitably at the expenseof others.
l*xAMpLEsA A vacationing physician is driving down the highway and finds
Emerson lying unconsciouson the side of the road. The physicianrendersmedical aid
that savesEmerson'slife. Although the injured, unconsciousEmerson did not solicit the
medical aid and was not awarethat the aid had been rendered,Emerson receiveda valu-
able benefit, and the requirementsfor a quasicontractwere fulfilled. In such a situation,
the law normally will impose a quasi contract, and Emerson will have to pay the physi-
cian for the reasonablevalue of the medical servicesprovided. El

When does enrichment qualify os "unjust enrichment"? Sometimes,a party is enriched by

(benefitsfrom) the actionsof another,yet the benefitsdo not necessarily constituteunjust
enrichment. Forexample,in one case the owner of a building (the lessor) leased the build-
ing to a commercialtenant (the lessee)for five years. The lessee,which assumed all respon-
sibilityfor repairs,maintenance, and alterations,hired DCB Construction Company to make
alterationsto the premises at a costof about $300,000. The lessortold DCB that it would not
be responsiblefor any of the costs.Nonetheless,when the lessee quit paying rent, was
evicted,and failedto pay DCBfor the completedwork, DCBsuedthe lessorfor the amount
still owing ($280,000).In this case,clearlythe lessorhad benefitedfrom DCB'swork. Yetdid
this benefitamountto unjustenrichmentunderthe law? No, statedthe court.The court
pointedout that DCBdid the work for the lesseeand was notifiedby the lessorthat it would
not be liablefor the costsof the work. Further,no fraud or mistakewas involved.The court
notedthat the courtsalmostalwaysrejectunjustenrichmentclaimssuchas this one.a

E
0nQ ua s i - € o n t r a cRt u
[ imi tat ions eaco
l v er y
Although quasicontractsexistto preventunjust enrichment, the partywho obtainsa ben-
efit is not liable for the fair value in some situations.Basically,a party who has conferred
a benefiton someoneelseunnecessarily or as a resultof misconductor negligencecan-
not invoke the doctrine of quasicontract.The enrichment in thosesituationswill not be
considered"unjust."
irExAMpLFs.Tl You take your car to the iocal car wash and askto have it run through
the washerand to have the gastank filied. While your car is being washed,you go to a
nearby shopping center for two hours. In the meantime, one of ihe workersat the car
wash mistakenlyassumesthat your car is the one that he is supposedto hand wax.When
you come back, you are presentedwith a bill for a full tank of gas,a wash iob, and a hand
wax. Clearly, a benefit hasbeen conferredon you. But this benefit occurred becauseof a
mistakeby the car wash employee.You have not been uniustly enriched under thesecir-
cumstances.Peoplenormally cannot be forced to pay for benefits"thtust" on them. E]

When
anActual Exists
Contract
The doctrine of quasi contract generallycannot be used when an actual contract covers
the area in controversy.This is becausea remedy already existsif a party is unlustiy
enriched as a result of a breach of contract:the nonbreachingparty can sue the breach-
ing party for breach of contract.In this instance,a court doesnot need to impose a quasi

Co.,940 P.Zd958 (Colo.App.1997)

Co. v CentralCity Development
4. DCB Construction
 contractto achievejustice. ITExAMFLE Br I Fung contractswith Cameron to deliver a fur-
nace to a building owned by Bateman. Fung deliversthe furnace, but Cameron never
paysFung. Bateman has been unjustly enriched in this situation,to be sure.Nevertheless,
Fung cantrot recover from Bateman in quasi contract becauseFung had an actual con-
traclwith Cameron. Fung already has a remedy-he can sue for breach of contract to
recover the price of the furnace from Cameron. No quasi contract need be imposed by
the court in this situation to achieve iustice.E

Sometimes,partiesagreethat a contracthas been formed but disagreeon its meaning or

legal effect.Or. ,."ror that this may happen is that one of the partiesis not familiar with
the legal terminologyusedin the contract.To an extent,plain languagelawshave helped
to avoid this difficulty. Sometimes,though, a disputemay still ariseover the meaning of a
contract simply becausethe rights or obligationsunder the contract are not expressed
clearly-no matter how "plain" the languageused.
In this section,we look at some common law rules of contract interpretation.These
rules, including the plain meaningrule and various other rules that have evolved over
time, provide the courtswith guidelinesfor deciding disputesover how contractterms or
provisionsshould be interpreted.Exhibit 8-3 providesa brief graphic summary of how
theserules are applied.

To avoid disputes over contract interpretation, make sure that your intentions are
clearly expressed in the contracts. Careful drafting of contracts not only helps
prevent potential disputes over the meaning of certain terms but may also be
crucial if your firm brings or needs to defend against a lawsuit for breach of
contract. By using simple, clear language and avoiding legalese, you take a maior
step toward avoiding contract disputes.

tr
P l a i nL a n g u aLgaews
Today,the federal governmentand a majority of the stateshave enactedplain language
laws to regulatelegal writing. All federal agenciesare required to use plain languagein
most of their forms and written communications.Plain languagerequirementshavebeen
extendedto agencyrulemaking as well.
At the statelevel, plain languagelawsfrequer-rtly apply to consumercontractsthat are
primarily for personal, family, or household purPoses. For example, a New York law
iequiresresidential leases and other consumer contracts to be (1) "written in a clear and
coherent manner using words with comrnon and everyday meanings" and (2) "appropri-
a te l y d i v i d e d a n dcapti onedby[the] vari oussecti ons." Ifapartytoacontract,su
) chasan
insurancecompany, violatesa plain language statute, a consumer can slle that party for
damagesif she or he suffersharm (unless the party can show that it made a good faith
effort to comply with the statute).Some state statuteseven allow partiesto submit pro-
posedcontractsto the stateattorneygeneral,whoseapprovalthen eliminatesany liability
for damagesbecauseof a supposedviolation of the plain languagestatute.
The legal professionis also moving toward plain English, and court rules in many
jurisdictionsrequire attorneysto use plain languagein court documents.At times, iudges
rihnEffiTftm Most laws,like most
in plain havereftrsedto acceptmotions that are incoherentdue to their highly technical
legal lan-
contracts,can be expressed
English. guage. A number of states have also rewritten their fury instructions. Generally, the

5. NewYork GeneralOblisationsLaw Section5-702

 245ftnErrfril
NATURE
ANDCLASSIFICATION

revisedinstructionsare phrasedin simpler language,usethe activevoice more often, and

avoid "legalese"to the extentthat it is possibleto do so.

ThePl ainM eani nRgu l e

When a contract'swriting is clear ar-rdunequivocal,a court will enforceit accordingto its IEIE trtoone canavoidcontractual
-of obligationsby claimingthat she or
obvious terms. The meaning of the terms must be determined from the face the
he did not readthe contract.A
instrument-from the written document alone. This is sometimesreferredto as the plain
contractnormallyis interpreted
meaningru1e.Under this rule, if a contract'swordsappearto be clearand urrambigllous. a as if eachpartyreadeveryword
court cannot considerextrinsicevidence,which is any evidencenot contained in the doc- carefully.
ument itself.Admissibiliiyof extrinsicevidencecan significantlyaffect how a court inter-
pretsambiguouscontractualprovisionsand thus can affectthe outcome of litigation.6

0 therRules
of I nte r p r e t a t i o n
Generally, a court will interpret the language to give effect to the parties' intelt as
expressed in their contract.This is the prirnary plrrposeof the rr,rlesof interpretation-to
determinethe parties'intent from the languager-rsed in their agreementand to give effect
to thai intent. A court normally will not make or rernakea contract,nor will iinorrnally
interpret the langrrageaccording to what the parties claim their intent was when they
rnadethe contract.TThe courts use the following rules in interpretingcontractualterrns:

I Insofaras possible,a reasonabie,lawful, and effectivemeaning will be given to all of a

contract'sterms.
2 A contract will be interpretedas a whole; individual, specific clauseswill be consid-
ered subordinateto the contract'sgeneralintent. All writingsihat are a part of the same
transactionwill be interpretedtogether.
I Terms that were the subject of separatenegotiationwill be given greaterconsideration
than standardizedterms and terms that were not negotiatedseparately.
4 A word will be given its ordinary,commonly acceptedmeaning,and a technical word
or term will be given its technical meaning, unlessthe partiesclearly intended sorne-
thins else.

6. See,for example,Wagnerv. ColumbiaPicturesIndustries, lnc., 116Cal.App.4th586,52 Cal.Rptr.Sd898 (2007).

7. Nevertheless,
if a court findsthat,evenafterapplyingthe rulesof interpretaiion,
the terrnsaresnsceptible
to nore
than one meaning,the court nay permit extrinsicevidenceto provewhat the partiesintended.See,for example,
Langdony. UnitedRestaurdnts, lnc., 105S.W.3d882 (Mo.Ct.App.2003).
244I@
CONTRACTS

Thisspocecroftot Astrotech
Corporotion in Florido is designed to
,collectinformotion on conditionsin
spoce thot con couse damoge to
com m unicotion systemq powe r g rids,
ond sotellites.Supposethat o
visiting engineet suggests o design
modification that the compony
incorporatesinto later models of the
spocecroft.Should thot engineer
receive compensation for the
modificotion even though she or
he had no written contract with the
companyTWhy or why not? Under
whot doctrine could a court impose
o fictional controd to compensate
the visiting engineer? (Rereod pages
240 ond 241.) (APPhoto/John Raoux)

language.
5 Specificand exactwording lvill be given greaterconsiderationthar-rger-reral
6 Written or typewrittenterms prevail over preprinted terms.
7 Becausea contractsl'rouldbe draftedin clear and unarnbiguouslanguage,a party that
''
tt_-

Howmanya disputecouldhave usesambiguousexpressions is held to be responsiblefor the ambiguities.Thus, wl-ien

beendeflatedinto a single the languagel-iasmore than one meaning, it rvil1be interpretedagainstthe part,vthat
had draftedthe contract.
paragTaphifthe disputants
dareddefinetheirterms. 8 Evidenceof tradeusage,prior dealing,and courseof performancemay be admittedto
ARISIOTLE, clarifi the meaning of an ambiguouslyworded contract. (We define and discr-rss these
38 4 1 2 2B.C.E terms in Chapter 18.)What each of the partiesdoespursuantto the contractwill be
(Greckphilosopher)
interpretedas consistentwith what the other doesand with any relevantusageof trade
and courseof dealingor performance.Erpressterms (termsexpresslystatedin the cor-t-
tract)aregiventhe greatestrveight, followedby courseof perforrnance,courseof deal-
ing, and custom and usageof trade-in that order.When consideringcr-rstom and
usage,a court rvill look at the trade customsand usagecolnmon to the particularbusi-
nessor industryand to the locale in which the contractu'asmade or is to be perforned.

In the following case,the ordinary meaning of a word was at the heart of a significant
dispute.

UnitedStatesDistrictCourt,Districtof Connecticut,303 F.Supp.2d197 (2OO4)

ANDFACTS Telephone,which offersservicesin thirtystates.Citizensprovides

BACKGROUND
.=-ffi':-,' CitizensCommunications to its nearlyfivethousandemployeesundera
healthinsurance
Companyis one of the largesttelecommunications in
companies healthplan.Undersucha plan,a comPany
self-funded normally
the UnitedStatesand is the parentcomPanyto Frontier buysan insurancepolicyto coverclaimsthat exceeda certain
 2458@
ANDCTASSIFICATION
NATURE

8. 5- Cont inued
C ASE
amount.Citizensboughta policyfrom Trustmark Insurance to
coverclaimsthat exceeded$100,000,subjectto a $t million
maximumbenefitper employee.In November1999,Garry
Lonquis!a Citizensemployee,experienced complicationsfrom
heartsurgerythat requiredintensivecare.ByJanuaryLonquist's
medicalbillsexceeded$l million.Trustmark refusedto renew
Citizens'policyunless,amongotherthingl it includedan
amendmentprovidinga seParate $l milliondeductiblefor
Lonquis! effectivelyremovinghim from coverage.This
amendmentwas referredto as the "LonquistLaserj'Citizens
acceptedthis offer in a letter dated March6, 2000. Later,Citizens
and
filed a suit in a federaldistrictcourtagainstTrustmark
othert seekingdamagesand otherrelieffor an allegedbreach
of contract.Citizensclaimedin partthat the "LonquistLasef was
not valid.Bothpartiesfiled motionsfor summaryjudgment'

0F THEC0URT. . . KRAVITz,
lN THEWORDS D.J.[DistrictJudge]
* * * rc

There seemsto be no dispute that the March 6 agreementbehveen Citizens and

Trustmark,in which the partiesagreedupon the premium for the policy renewaland also
agreedupon the Lonquist Laser,ordinarily would constitutea valid contract.The stan-
dard for creating a contract is well settled. To form a valid and binding contract in
Connecticut, there must be a mutual understandingof the terms that are definite and cer-
* * * If the minds of the parties haye not truIy met, no enforce'
tain betweenthe parties.
able contract exists.Here, there was an offer by Trustmark, an acceptanceby Citizens,
intent by the partiesto form a contract,a meeting of the minds about its terms, definite
terms, and consideration.Under traditional contract principles, therefore,the March 6
agreementunquestionablywould qualify as a valid amendment to the existinginsurance
the parties.lEmphasisadded.l
"olatl.lb*.*een
* * * Both sidesagreethat an agreementwas reachedand what that agreementspec-
ifies. The sole point of contention is whether the agreementconstitutesa valid amend-
x x * Although the policy definesmany
ment under the terms of the insurancepolicy.
of its terms, it does not define the term "amendment"; nor does anything in the policy
specifypreciselywhat an amendment must look like, other than that it must be approved
by Trustmarkand signedby Citizens, both of which occurred here.

ANDREMEDY
DECISI0N rtrecourt TrustmarKslanguageof the contract,it was a valid and enforceable
granted
motionfor summaryjudgment.The insurance policydid not amendment.
defineomendmenfspecifically, so the court referredto a
dictiona{s definitionof the word: "a changemade by ALNA t Y S I S - S o c ial
F 0 RCRI T I CA
correction,addition,or deletion."Both partiessignedand Consideration whotmighttheporties
havedone
approvedthe "LonquistLaser"change,and underthe plain to ovoid this litigotion?

GrantBorman,who Allied Equipment,usedthe craneto installa transformerfor a

was engagedin a utilitycompany,which paid Crosstownfor the job. Crosstown
constructionproject, then deliveredthe craneto Borman'sconstructionsite at the
leaseda cranefrom appointedtime of delivery.WhenAlliedEquipmentlearnedof '
AlliedEquipmentand the unauthorizeduse of the craneby Crosstown,it sued
hired CrosstownTruckingCompanyto deliverthe craneto the Crosstownfor damages,seekingto recoverthe rentalvalueof
constructionsite.Crosstown,while the cranewas in its Crosstown'suse of the crane.Usingthe informationpresented
possessionand without permissionfrom either Bormanor in the chapter,answerthe followingquestions'
 247
GInEm
NATURE
ANDCLASSIFICATION

bilateralcontract255 informalcontract255 quasicontract240

contract251 objectivetheoryof contracts231 contract240
unenforceable
executed contract259 offeree235 contract254
unilateral
executory contract259 offeror 255 validcontract259
expresscontract256 promisezlo voidcontract240
formalcontract255 promisee231 contract259
voidable
contract255
implied-in-fact promisorzlt

An Overview 1. Sourcesof controd low-The common law governsall contractsexceptwhen it has been
of ContractLaw modifiedor replacedby statutorylaw suchas the UniformCommercialCode (UCC),or by
(Seepages230-232) agencyregulations.
administrative The UCCgovernscontractsfor the saleor leaseof goods
(seeChapterl8).
law establishes
2. Thefunctionof controcts-Contract what kindsof promiseswill be legally
bindingand suppliesproceduresfor enforcinglegallybindingpromises,or agreements.
3. The definition of o controct-A contractis an agreementthat can be enforced in court. lt is
formed by two or more competentpartieswho agreeto performor to refrainfrom performing
some act now or in the future.
4. Objectivetheory of controcts-ln contractlaw intent is determined by objectivefacts,not by
the personalor subjectiveintent,or belief,of a party.
Elementsof a Contract 1. Requirementsof o valid controct--Thefour requirementsof a valid contractare agreement,
(Seepages232-233) contraduaI capacity,and legality.
consideration,
2. Defensesto the enforceobilityof o controd-Even if the four requirementsof a valid contract
are met, a contractmay be unenforceableif it lacksgenuinenessof assentor is not in the
requiredform.
Typesof Contracts 1. Biloterol-A promisefor a promise.
(Seepages233-240.1 of
2. unilaterol-A promisefor an act (acceptanceis the completed-or substantial-performance
the contractby the offeree).
a specialform for contractformation.
3. Formol-Requires
no specialform for contractformation.
4. Informal-Requires
by words (oral,written,or a combination).
5. Express-Formed
6. lmplied in fod-Formed at least in part by the conduct of the parties.
7. Executed-Afullyperformedcontract.
8. Executory-Acontractnot yet fully performed.
9. Valid-A contractthat hasthe necessarycontractualelementsof offer and acceptance,
partieswith legalcapacity,and a legalPurpose.
consideration,
10. Voidoble-Acontractthat a partyhasthe option of avoidingor enforcing.
11. Ilnenforceable-Avalidcontractthat cannotbe enforcedbecauseof a legaldefense.
12. Void-No contractexists,or there is a contractwithout legalobligations.

lContinued)
248IM
CONTRACTS

" QuasiContracts A quasicontract,or a contractimplied in law is a contractthat is imposedby law to prevent

(Seepages240-242.) unjustenrichment.

Interpretation Increasingly,plain languagelaws are requiringprivatecontractsto be written in plain languageso

of Cdntracts that the terms are clearand understandable to the parties.Underthe plain meaningrule,a court
(Seepages242-245.) will enforcethe contractaccordingto its plainterms,the meaningof which must be determined
from the written documentalone.Other rulesappliedby the courtswhen interpretingcontracts
includethe following:
lawful,and effectivemeaningwill be givento all contractterms.
l. A reasonable,
2. A contractwill be interpretedas a whole, specificclauseswill be consideredsubordinateto the
contracfsgeneralintent,and all writingsthat are a part of the sametransactionwill be
interpretedtogether.
5. Termsthat were negotiatedseparatelywill be givengreaterconsideration
than standardized
terms and terms not negotiatedseparately.
4. Wordswill be giventheir commonlyacceptedmeaningsand technicalwords their technical
meanings,unlessthe partiesclearlyintendedotherwise.
than generallanguage.
5. Specificwordingwill be givengreaterconsideration
6. Written or typewrittenterms prevailover preprintedterms.
is held to be responsiblefor the ambiguities.
7. A partythat usesambiguousexpressions
8. Evidenceof prior dealing courseof performance,or usageof trade is admissibleto clarifyan
ambiguouslyworded contract.

Answersfor the even-numberedquestionsin this For Reviewsection can be found on this text's accompdnyingWeb site at
wwwrengage.com/blaw/blt. Select"Chapter8" and click on "For Review."

I What is a contract?Wl-ratis the objectivetheoryof contracts?

2 What are the for-rrbasicelementsnecessary
to the fonnation of a valid contract?
5 What is the differencebetweenan implied-in-factcontractand an implied-inJawcontract(quasicontract)?
4 How doesa void contractdiffer from a voidablecontract?What is an unenforceablecontract?
5 Why haveplain languagelawsbeen enacted?What rulesguide the courtsin interpretingcontracts?

ffi HypoTHETrcAr ANDcAsEpRoBr.EMs

scENARIos
S"I Expressversuslmplied Contrack. Supposethat a local busi-
ressperson,McDougal, is a good friend of Krunch, the
owner of a loca1candy store.Every day on his iulch hour
McDougal goesinto Krunch's candy storeand spendsabout
five minutes looking at the candl'.After exarniningKrunch's
candy and talking with Krunch, McDougal usually buys one
or hvo candy bars.One afternoon,McDougal goesinto
Kmnch's candy shop, iooks at the candy,and picks up a $1
that Krunch is very busy,he catches
car.rdybar. Seeir-rg
Krunch's eye, wavesthe candy bar at Krunch u'ithout saying
a rvord,and walks out. Is there a contract?Ifso, classif,it
within the categoriespresentedir-rthis chapter.