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TEXTBOOK: LAW FOR BUSINESS: CHAPTER 9

CHAPTER 9: THE NATURE AND ORIGINS OF CONTRACTS


Overview of Topics Covered by Chapter 9

I. What is a Contract?
II. Why have Contracts?
III. How has Contract Law Developed?
IV. The Uniform Commercial Code (UCC)
V. Article 2 of the UCC
VI. Contracts for the International Sale of Goods
VII. Types of Contracts

I. What Is a Contract: A legally enforceable promise or set of promises


A. 5 Basic Requirements
1. Agreement = an offer + an acceptance
2. Consideration = a benefit to each party (some exceptions)
3. Capacity = an ability to contract
4. Voluntary = entry into contract of free will
5. Legal = subject of contract must be an legal act
B. Sometimes 6th Requirement: contract must be written = Statute of Frauds

Section I Class Notes:


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II. Why Have Contracts?


A. Force people to honor promises
B. Rely on agreements in industrialized market economy
C. Basis for business transactions

Section II Class Notes:


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III. How Has Contract Law Developed?


A. Social conditions: Long ago:
- parties knew each other (personally or by reputation to be fair)
- goods purchased were simple
- simplicity resulted in buyer knowing enough to select intelligently
B. Laissez-faire (French) = let do, government abstention from interference
- economic theory = hands off/free market/freedom of contract
C. Industrial Revolution resulted in:

- more complex transactions


- less knowledge about parties and purchased goods
D. Form contracts = parties didnt negotiate = benefited party preparing
E. Legislation (statutory laws) begins to evolve to protect parties
- Ex: employment laws, workmans comp., implied warranties

F. Online commerce (E-commerce): evolving, re-examining current laws

Section III Class Notes:


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IV. The Uniform Commercial Code (a/k/a UCC): covers sales of goods
A. Created by American Law Institute and National Conference of Commissioners on
Uniform State Laws
- two private groups w/o legislative or any other rights (well respected)
- most states enacted the UCC into law with some differences (statutory law)
- Louisiana adopted UCC, except Article 2 (this state was sold toUS by France; laws of
Louisiana heavily influenced by Napoleonic Code, in contrast to other 49 states
whose laws are based on English common law)
B. Purposes:
- promote fair dealing & higher standards of behavior in the marketplace

- establish a uniform law to govern multi-state commercial transactions


Section IV Class Notes:


- Courts do not care what we think! Subjective contract. They dont care what or why we think that.
Court will use the objective standard. The court will not put in the QUALITY in the contract. __________
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V. Article 2 of the UCC
A. Art. 2 applies to Contracts for Sale of Goods = tangible personal property (movable
property), not:
- real property a/k/a land and improvements on land

- fixtures = so attached to improvements cant be removed w/o damage (dont need to


know this)
- stocks, bonds, information, services or other intangibles
B. Creation of Practical Contract Rules:
- UCC is more flexible than common law contract law
- reality of current marketplace mandates practicality
C. Cyber Contracts - UCC excludes contracts for information (ex. down-loading software)
- Computer Information Transaction Act (UCITA) adopted by some states.
- Internet sales issues usually resolved by general contract law (not UCC)
No question will be asked about the highlighted green above
D. Good Faith and Fair Dealing (covers everything in article 2)
- parties must act in good faith (not unconscionable i.e., grossly unfair or one-sided)
- implied warranties, i.e., limits disclaimers by sellers
- merchant = one regularly dealing in goods being sold/or pretends to have
special knowledge/ or employs a sales agent who is/does foregoing 2 items:
held to a higher standard than a non-merchant.

Section V Class Notes:


We need to know the definition of Merchant. Know definition of goods.
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VI. Contracts for the international sale contracts for goods


A. United Nations Convention on Contracts for International Sale of Goods (CISG)
- CISG fundamental goal: unify and codify an international law of sales (like an
international UCC, Art. 2)

CISG provides rules governing formation of international sale contracts (again,


like UCC, Art. 2, but commerce among countries, rather than among US states)

CISG regulates the transfer of goods under international contracts

CISG applies to contracts between/among signing countries

Skip all in green!!!

Section VI Class Notes:


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VII. Types of Contracts


A. Valid, Unenforceable, Voidable and Void Contracts (4)
1. Valid contracts satisfy all legal requirements
2. Unenforceable contracts satisfy basic legal requirements, but will not be
enforced by the courts due to some other applicable legal rule precluding
enforcement
3. Voidable contracts satisfy may be enforceable, but may be canceled by one or
both of the parties, but enforceable if not cancelled
4. Void contracts lack one or more of the basic requirements for a contract
B. Unilateral and Bilateral Contracts
1. Unilateral contract = only one of the parties makes an oral or promise, and
other party performs an act in exchange for oral promise
2. Bilateral contract = both parties make an oral or written promise
C. Executed and Executory Contracts
1. Executed = fully performed
2. Executory = not fully performed
D. Express and Implied Contracts

1. Express = terms stated when the contract is formed


2. Implied = surrounding facts/behavior indicates a contract has been form
(reasonable fee for services)

Section VII Class Notes


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VIII. Contract Created by Court to Prevent Injustice


A. Quasi Contract = party voluntarily receiving a benefit must pay for it, if nonpayment would be unfair
B. Promissory Estoppel = if reasonably rely on a promise = enforceable even if
no consideration was given
Section VII Class Notes
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