Business Law Notes Essay

CONTRACTS INTRODUCTION

Common Law governs contracts outside the UCC. The UCC governs contracts for the sale of goods. A good is defined as anything movable at the time of sale but also includes unborn young of animals and growing crops. See UCC 1-205 (page 5 of Appendix B)

Contract - Four Essential Elements
1. Mutual Agreement - each party, by word or act, indicates intent to K
2. Mutual Consideration - each party gives consideration in some form
Benefit or Detriment
3. Capacity of Parties - legal ability to contract. (voidable contracts)
Limited ability - minors, intoxicated or incapacitated persons
If person is adjudicated incapacitated, those contracts are void.
4. Legal Subject Matter

Steinberg v. Chicago Medical School (1976) pp. 181-182 Plaintiff applied for admission to school and submitted $15 fee. He was denied admission and he sued, arguing that he was not judged on criteria set forth in brochure but on subjective standards; parents, money.
Court found a contract (conditional contract), that the schools admission criteria, etc. printed on the school’s bulletin was not an invitation but an offer to agree to review admission materials and make decision of admittance based on school’s stated criteria. When a student sent in the application fee, that was an acceptance of the offer to review for admission and a contract for admission review was formed. Admission review is NOT the same thing as admission to the school. A separate contract for school admission would have to be formed. The school violated the terms of the admission review by accepting students, not on the posted criteria, but on the basis of other information – donations to school, etc.

Classification of Contracts
Express/Implied
Express - parties state terms orally or in writing Implied - terms formed by conduct of parties or course of dealing or custom & usage in the trade

Richardson v. J. C. Flood Company (1963) Plaintiff was hired to unclog sewer line. In the process, discovered that water line was defective and replaced it according to city ordinances. Although defendant supervised and watched process, defendant refused to pay for charges beyond sewer line. Court found implied contract by action of parties - watching additional work without objection implied consent.

Fox v. Mountain West Electric, Inc (2002) pp. 183-184 Fox and MWE entered into an agreement and submitted a bid to Lockheed regarding a fire alarm system. Fox and MWE later disagreed on the procedure for compensation of change orders. Fox left the project and MWE later contracted with another company. Fox brought suit for compensation for service rendered. The issue was whether or not there was a contract between Fox and MWE and, if so, what were the terms. The court found an implied contract. The predominant factor in the relationship between Fox and MWE was the service provided by Fox. Therefore the court would NOT look to the UCC for implied contract terms but would look to custom and usage in the trade (this type of business) to insert the missing contract terms in this situation. When a contract involves both goods and services, the court will determine which is the dominant factor (goods or services) and then use the appropriate information to determine the value of missing or unstated contract terms. The intent to contract was clear in this case but not all terms of that contract were stated.

Bilateral/Unilateral Bilateral - promise for a promise Unilateral - promise for an action Contract is formed when promised are exchanged or act is performed or substantially performed Determine difference by phrasing of the offer
Valid, void, voidable or unenforceable Valid - all four essential elements are met Void - one element is missing (or more) Voidable - one party has the right to rescind because of fraud, duress, undue influence, infancy etc. Unenforceable - some

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