Buisness Law Today Chapter 8

CHAPTTR 8

65The socialorder CHAPTER ( lUITINT

H*k*t#ffi

TEARNII{G ( lBIECIIVES

-AN OVERVIEW OF CONTRACT LAW

-ELEMENTS OF A CONTRACT

-TYPES OF CONTRACTS

-QUASI CONTRACTS

-I NTERPRETATION OF CONTRACTS

rests upon thestabilitv and

AFTER READINC THIS CHAPTER, YOU SHOULD BE ABLE TOANSWER THE FOLLOWING QUESTIONS:

I What is a contract? What is the obiective theoryof contracts?

What are the four basic elements necessary to theformation of a valid contract?

What is the difference betrveen an implied-in-factcontract and an implied-inJaw contract (quasi

contract)?

How does a void conhact differ fiom a voidablecontract? What is an unenforceable contract?

Why have plain language laws been enacted? Whatrules guide the courts in interpreting contracts?

s the eminent lurist Roscoe Pound observed in the chapter-opening quotation,"keeping promises" is important to a stable social order. Contract law deals with,

among other things, the formation and keeping of promises. A promise is an assertion that

something either will or will noi happen in the future.Like other types of law, contract law reflects our social values, interests, and expecta-

tions at a given point in time. It shows, for example, what kinds of promises our society

thinks should be legally binding. It distinguishes between promises that create only moral

obligations (such as a promise to take a friend to lunch) and promises that are legally

binding (such as a promise to pay for merchandise purchased). Contract law also demon-

strates what excllses our society accepts for breaking certain types of promises. In addition,it shows what promises are considered to be contrary to public policy-against the inter-

ests of society as a whole-and therefore legally invalid. When the person making a prom-

ise is a child or is mentally incompetent, for example, a question will arise as to whether

the prornise should be enforced. Resolving such questions is the essence of contract law.

Before we look at the r-rumerous rules that courts use to determine whether a particular

promise will be enforced, it is necessary to understand some fundamental concepts of con-

tract law. In this section, we describe the sources and general function of contract law. We

also provide the definition of a contract and introduce the objective theory of conhacts.

predictability ofconduct, of

l . t Iwnlcn KeePrngpromises is alarge item.l!

Roscoe Pound, 1870-1964(American jurist)

PROMISEAn assertion that something eithetwi l l or wi l l not happen in thefuture.

250 tlNIIi[ECONTRACTS

2il G!ffftTtrilNATURE AND CLASSIFICATION

PROMISOR

A person who makes a promise.PROMTSEE

A person to whom a promise ismade.

CONTRACTAn agreement that can be enforcedin court; formed by tvvo or morecompetent parties who agree, forconsideration, to perform or torefrain from performing some legalact now or in the future.

OB'ECTIVE THEORY OF CONTRACTSA theory under which the intent toform a contract will be judged byoutward, objective facts (what theparty said when entering into thecontract, how the party acted orappeared, and the circumstancessurrounding the transaction) asinterpreted by a reasonable person,rather than by the party's own secret,subjective intentions.

An extensive definition ofthe term contrad is offeredby the 'Lectric Law Library at

Sources of Contract lawThe common law governs all contracts except when it has been modified or replaced bystatutory law, such as the Uniform Commercial Code (UCC),I or by administrativeagency regulations. Contracts relating to services, real estate, employment, and insur-

ance, for example, generally are governed by the common law of contracts.Contracts for the sale and lease of goods, howevet, are govened by the UCC-to the

extent that the UCC has modified general contract law. The reiationship beh.veen generalcontract law and the law governing sales and leases of goods will be explored in detail in

Chapter lB. In this unit covering the common law of contracts (Chapters B through l7),we indicate briefly ir-i footnotes the areas in which the UCC has significantly altered com-mon law contract principles.

The Funct ion of €ontractsNo aspect of modern life is entirely free of contractual relationships. You acquire rightsand obligations, for example, when you borrow funds, when you buy or lease a house,

when you obtain insurance, when you form a business, and when you purchase goods orservices. Contract law is designed to provide stability and predictability for both buyers

and sellers in the marketplace.Contract law assures the parties to private agreements that the promises they make will be

enforceable. Clearly, many promises are kept because the parties involved feel a moral obli-gation to do so or because keeping a promise is in their mutual self-interest. The promisor(the person making the promise) and the promisee (the person to whom the promise ismade) may decide to honor their agreement for other reasons. Nevertheless, the rules of con-tract law are often followed in business agreements to avoid potential problems.

By supplying procedures for enforcing private agreements, conhact law provides anessential condition for the existence of a market economy. Without a legal framework ofreasonably assured expectations within which to plan and venture, businesspersons wouldbe able to rely only on the good faith of others. Duf, and good faith are usuaily sufficient,but when dramatic price changes or adverse economic conditions make it costly to com-ply with a promise, these elements may not be enough. Conhact law is necessary to ensurecompliance with a prornise or to entitle the innocent party to some form of relief.

Defini t ion of a ContractA contract is an agreement that can be enforced in court. It is formed by hvo or more par-ties who agree to perform or to refrain from performing some act now or in the future.Generally, contract disputes arise when there is a promise of future performance. If the

contractual promise is not fulfiiled, the party who made it is subject to the sanctions of a

court (see Chapter 15). That parf may be required to pay monetary damages for failing

to perform the contractual promise; in iimited instances, the party may be required to per-

form the promised act.

The Objective Theory of ContractsIn determining whether a contract has been formed, the element of intent is of prime impor-

tance. In contract law, intent is determined by what is referred to as the objective theory of

contracts, not by the personal or subiective intent, or belief, of a party. The theory is that a

party's intention to enter into a contract is fudged by ouhvard, objective facts as interpreted

L see Chapter l and Chapter l8 for further discussions of the significance and coverage of the Uniform

Commercial Code (UCC). Excerph from the UCC are presented in Appendir C at the end of this book.

r(

232 l!ililu[ICONTRACTS

The monoger of o Toyoto deolershiP

in GIendoro, Colifornio, disPloYs

the same contract wriften in four

different Asi a n la n gu a g es (Ch i nese,

Koteon, Vietnamese, and Tagalog).

A consumer protection low in

Colifornia requires certoin businesses,

such os car deolers and aPartment

owners, that hove emPloYees who

orolly negotiote contracts in these

longuoges to provide written

contrads in those some languoges.

Why might it be important to the

enforceobility of o written contrad

thot the consumer odually be oble to

reod its provisions?(AP Photo/Damian Dovarganes)

by a reasonable person, rather than by the party's own secret'

sr-rbjective intentions. Obiective facts include (l) what the

party said when entering into the contract, (2) how the party

acted or appeared, and (3) the circumstances surrounding

the transaction. fu will be discussed later in this chapter' in

the section on exPress versus implied conhacts, intent to

form a contract may be manifested by conduct, as well as bv

words, oral or written.

Freedom ol Conttattand Freedom from ContractAs a general rule, the law recognizes everyone's ability to

enter freely into contractual arrangements' This recogni-

tion is called freedom of contract, a freedom protected bv

the U.S. Constitution in Article I, Section 10. Because freedom of contract is a funda-

mental public policy of the United States, courts rarely interfere with contracts that have

been voluntarily n-rade.Of course, as in other areas of the law, there are many exceptions to the general rule

that contracts voluntarily negotiated wiil be enforced. For example, illegal bargains,

agreements that unreasonably restrain trade, and certain unfair contracts made between

one party with a great amount of bargaining power and another with little Power are gen-

.rrl ly ttot enforc"ed. In addition,.t yo.t wil l read in Chapter l l , certain contracts and

.la.rr., nay not be enforceable if they are contrary to public policy, fairness, and ir-rstice'These exceptions provide freedom from contract for persons who may have been pressured

into making contracts unfavorable to themselves.

The many topics that will be discussed in the following chapters on contract law require

"rr .rr'rd.ritr,'rding of the basic elements of a valid contract and the way in which the con-

tract was createdlThe topics to be covered in this unit on contracts also require an under-

standing of the types of tircumstances in which even legally valid contracts will not be

enforced.

Requirements of a Val id (ontrattThe following list briefly describes the four requirements that must be met for a valid con-

tract to exist. If any of these elements is lacking, no contract will have been formed. (Each

item will be explained more fr-rlly in subsequent chapters.)

I Agreement An agreement to form a contract includes an offer and an acceptance. One

pirty must offerlo enter into a legal agreement, and another party must accept the

terms of the offer (see Chapter 9).

Consideration Any promises made by parties must be supported by legally sufficient

and bargained-for consideration (something of value received or promised to convince

a person to make a deal) (see Chapter l0)'

Contractual cdpacity. Both parties entering into the contract must have the contractual

capacity to do so; the law must recognize them as possessing characteristics that qual-

ify them as competent parties (see Chapter I 1)

Legatity. The contract's purpose must be to accomplish some goal that is legal and not

against public policy (see Chapter I I).

Defenses to the Enforceabi l i ty of a ContractEven if all of the elements of a vaiid contract are present, a contract may be unenforce-able if the following requirements are not met.

I Gerutineness of assent, or voluntary consent. The consent of both parties must begenuine. For example, if a contract was formed as a result of fraud, mistake, or duress,the contract may not be enforceable.

2 Form. The contract must be in whatever form the law requires; for example, some con-tracts must be in writing to be enforceable.

The failure to fulfill either requirement may be raised as a defense to the enforceabil-ity of an otherwise valid contract. Both requirements will be explained in more detaii inChaoters l2 and 13.

There are numerous types of contracts. They are categorized based on legal distinctionsas to their formation, performance, and enforceability. Exhibit B-1 illustrates three classi-fications, or categories, of contracts based on their mode of formation.

Contract FormationAs you can see in Exhibit B-1, three classifications, or categories, ofcontracts are basedon how and when a contract is formed. The best way to explain each type of contract isto compare one type with another, as we do in the following pages.

Bilateral versus Unilateral Contracts Every contract involves at least two parties. Theofiferor is the party making the offer. The offeree is the party to whom the offer is made.The offeror always promises to do or not to do something and thus is also a promisor.Whether the contract is classified as bilateral or unilateral depends on what the offereemust do to accept the offer and bind the offeror to a contract.

BilateruI Contracts. If the offeree can accept the offer simply by promising to perform,the contract is a bilateral contract. Hence, a bilateral contract is a "promise for a prom-ise." An example of a bilateral contract is a contract in which one person agrees to buyanother person's automobile for a specified price. No performance, such as the payment

2]IEIMMNATURE AND CLASSIFICATION

OFFERORA person who makes an offer.

OFFEREEA person to whom an offer is made.

BIIATERAI CONTRAETA type of contract that arises whena promise is given in exchange fora return promise.

j

:l

a

BIIATERAIA Promrse ror a Promrse

UNITATERATA promise for an act

FORMAI-Requires a special form for

creation

INFORMALRequires no special form

for creation

'i::'

EXPRESSFormed by words

IMPLIED IN FACTFormed at least in part by

the part ies'conduct

1r4 l@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 promises are exchanged.

FExAMpLE 8.il feff offers to buyAnn's digital camera for $200. leff tells Ann that he will

give her the cash for the camera on the following Friday when he gets paid. An-n accepts

iefft offer and promises to give him the camera when he pays her on Friday. )eff and Ann

have formed a bilateral contract. ill

IJnilaterul Contracts. If the offer is phrased so that the offeree can accept only by con'i-

SNTLATERAL coNTRAcr pleting the contract performance, the contract is a unilateral contract. Hence' a unilat-

A contract that results when an offer lral c6ntract is a "Dromise for an act." h'r other words, the contract is formed not at thecan be accepted only by the offeree's

moment when prtmises are exchanged but rather when the contract is performed.performance'

f:€GJvrprE 82-l R..r. ,ry, to Celia, "lf"yo,r drive my car from New York to Los Angeles,

I ' l i give you $1,000." Only on Celia's completion of the act-bringing the car to Los

Angeles-does she fully accept Reese's offer to pay $1,000. If she chooses not 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 examples of offers

for unilateral contracts. If a person complies with the rules of tl're contest-such as by sub-

mitting the right iottery number at the right place and time-a unilateral contract is

for*.J, bindiig the organization offering the prize to a contract to perform as promised

in the offer.Can a school's, or an employer's, letter of tentative acceptance to a prospective student,

or a possible employee, q"lify as a unilateral contract? That was the issue in the follow-

rng case.

United States District Court, District of Rhode Island, 263 F.SuPP.2d 558 (2003).

BACKGROUND AND FACTSIn 2001, the city of Providence,

Rhode lsland, decided to begin hiring police officers to fi l l

vacancies in its police department. Because only individuals

who had graduated from the Providence Police Academy were

eligible, the city also decided to conduct two training sessions,

the "6oth and 6l st Police Academies." To be admitted, an

applicant had to pass a series of tests and be deemed

quali{ied by members of the department after an interview

The applicants judged most qualified were sent a letter

informing them that they had been selected to attend the

I t l THE W0RDS 0F THE COURT.. . ERNESTC.TIRRES, Chief Distr ictJudge.

:::;0, Ortober 15 letter * * * is a classic example of an offer to enter into a unilateral

contract. The October l5 letter expressly stated that it was a "conditional offer of employ-

ment" and the message that it conveyed was that the recipient would be admitted into the

6lstAcademy if he oishe successfully completed the medical and psychological examina-

tions, requirements that the City could nof lawfully impose uniess it was making a condi-

tional offer of employment. lEmphasis added.]

Moreover, the ierms of that offer were perfectly consistent with what applicants had been

told when they appeared lfor their interviews]. At that time, IPolice Ma jor Dennis] Simoneau

academy if they successfully completed a medical checkup

and a psychological examination' The letter for the applicants

to the 6l st Academy, dated October 15, stated that it was

"a conditional offer of employment'" Meanwhile, a new chief

of police, Dean Esserman, decided to revise the selection

process, which caused some of those who had received the

letter to be rejected. Derek Ardito and thirteen other newly

rejected applicants filed a suit in a federal district court against

the city, seeking a halt to the 6lst Academy unless they were

allowed to attend. They alleged in part that the city was in

breach of contract.

CASE 8.1-Cont inued

informed them that, if they "passed" the iinterviews], they wouid be offered a place in theAcademy provided that they also passed medical and psychological examinations.

The October I5 letter also was in marked contrast to notices sent to applicants by theCity at earlier stages of the selection process. Those notices merely informed appiicantsthat they had completed a step in the process and remained eligible to be considered foradmission into the Academy. Unlike the October 15 letter, the prior notices did not pur-port to extend a "conditional offer" of admission.

The plaintiffs accepted the Cityt offer of admission into the Academy by satisfying ihespecified conditions. Each of the plaintiffs submitted to and passed lengthy and intrusivemedical and psychological examinations. In addition, many of the plaintiffs, in relianceon the City's offer, jeopardized their standing with their existing employers by notifyingthe employers of their anticipated departure, and some plaintiffs passed up opportunitiesat*o*.j employment.

The City argues that there is no contract behveen the pariies because the plaintiffs haveno legally enforceable right to employment. The Ciq, correctly points out that, even if theplaintiffs 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 couldbe terminated without cause * x * . That argument misses the point. The contract thatthe plaintiffs seek to enforce is not a contract that they will be appointed as permanentProvidence police officers; rather, it is a contract that ihey would be admitted to theAcademy if they passed the medical and psychological examinations.

DECISION AND REMEDY rne court issued an injunctionto prohibit the city from conducting the 6l st Police Academyunless the plaintiffs were included. The October l5 letter wasa unilateral offer that the plaintiffs had accepted by passingthe required medical and psychological examinations.

255 EInTEUNATURE AND CLASSIFICATION

WHAT IF THE FACTS WERE DIFFERENT?Suppose thot the Odober I 5 letter had used the

phrose potential offer of employment rother thon the wordconditional. Would the court in this case still hove consideredthe letter to be o unilqterol contracfl

tr

Revocation of Offers for Unilateral Contracts. A problem arises in unilateral contractswhen the promisor attempts to revoke (cancel) the offer after the promisee has begun per-formance but before the act has been completed. trex=-AMnFsJ-l Roberia offers io buyEd's saiiboat, moored in San Francisco, on delivery of the boat to Roberta's dock inNewport Beach, three hundred miles south of San Francisco. Ed rigs the boat and setssail. Shortly before his arrival at Newport Beach, Ed receives , odio message iromRoberta withdrawing her offer. Roberta's offer is to form a unilateral contract, and onlyEd's delivery of the sailboat at her dock is an acceptance. p

In contract law, offers are normally revocable (capable of being taken back, or can-celed) unti l accepted. Under the traditional view of unilateral contracts, Roberta's revo-cation would terminate the offer. Because of the harsh effect on the offeree of therevocation of an offer to form a unilateral contract, the modern-day view is that once per-formance has been substantially undertaken, the offeror cannot revoke the offer. Thus,in our example, even though Ed has not yet accepted the offer by complete perform-ance, Roberta is prohibited from revoking it. Ed can deliver the boat and bind Robertato the contract.

Formal versus Informal Contracts Another classification system divides contracts intoformal contracts and informal contracts. Formal contracts are contracts that require a

reFor easy-to-understanddefinitions of legal termsand concepts, including terms andconcepts relating to contract lawgo to dictionary.law.com and key ina term, such as controd olconsideration.

FORMAL CONTRACTA contract that by law requires aspecific form, such as being executedunder seal, for its validiV

256 IINIIUUCONTRACTS

INFORMAT CONTRAfiA contract that does not require aspecified form or formality to be valid.

Ifffffr{Tirilf{fil Not every contractis a document with "Contracf'printed in block letters at thetop. A contract can be expressedin a letter, a memo, or anotherdocument.

EXPRESS CONTRACTA contract in which the terms of theagreement are stated in words, oralor written.

IMPLITD-IN-FACT CONTRACTA contract formed in whole or in partfrom the conduct of the parties (asopposed to an express contract).

special form or method of creation (formation) to be enforceable.2 Contracts under seal

are a type of formal contract that involves a formalized writing with a special seal

attached.l In the past, the seals were often made of wax and impressed on the paper doc-

ument. Today, the significance of the seal in contract law has lessened, though standard-form contracts still sometimes include a place for a seal next to the signature lines. Letters

of credit, which are frequently used in international sales contracts, are another type of

formal contract. As will be discussed in Chapter 46, letters of credit are agreements to pay

contingent on the purchaser's receipt of invoices and bills of lading (documents evidenc-ing receipt of, and title to, goods shipped).

Informal contracts (also called simple contracts) include all other contracts. No spe-cial form is required (except for certain types of conhacts that must be in writing), as the

contracts are usually based on their substance rather than their form. Typically, busi-nesspersons put their contracts in writing to ensure that there is some proof of a contract'seristence should problems arise.

Express versus Implied Contracts Contracts may also be formed and categorized as

express or implied by the conduct of the parties. We look here at the differences behveenthese two types of contracts.

Express Contracts. In an express contract, the terms of the agreement are fully andexplicitly stated in words, oral or written. A signed lease for an apartment or a house is an

express written contract. If a classmate accepts your offer to sell your textbooks from last

semester for $300, an express oral contract has been made.

Implied Contracts. A contract that is implied from the conduct of the parties is calledan implied-in-fact contract, or an implied contract. This fpe of contract differs from anexpress contract in that the conduct of the parties, rather than their words, creates anddefines at least some of the terms of the contracr.

Requirements for an lmplied-in-Fact Contract. For an implied-in-fact contract to arise,

certain requirements must be met. Normally, if the following conditions exist, a court willhold that an implied contract was formed:

I The plaintiff furnished son-re service or property.

2 The plaintiff expected to be paid for that service or property, and the defendant knewor should have known that payment was expected (by using the obiective-theory-of-contracts test discussed on pages 231 and2)Z).

5 The defendant had a chance to reject the services or property and did not.

lrExAMpaLETn Suppose that you need an accountant to Fil l out your tax return thisyear. You look through the Yellow Pages and find an accounting firm located in yourneighborhood. You drop by the firm's office, explain your problem to an accountant, andlearn what fees will be charged. The next day you return and give the receptionist all ofthe necessary information and documents, such as canceled checks and W-2 forms. Thenyou walk out the door without saying anything expressly to the accountant.

2. See Restatement (Second) of Contracts, Section 6, which explains that formal contracts include ( 1) contracts under

seal, (2) recognizances, (3) negotiable instruments, and (4) letters ofcredit. As mentioned in Chapter l,Restatements

of the Law are books that summarize court decisions on a particular topic and that courts often refer to for guidance.

3. A seal may be actual (made ofwax or some other durable substance), impressed on the paper, or indicated simply

by the word seal or the letters L.S. at the end of the docunent. L.S. stands {or locus sigilli, which means "the place

for the seal."

.riJ:i1ffi

zl iGIMNATURE AND CLASSIFICATION

What determines whether o contractfor accounting, tox preparation, orony other seruice is an expresscontroct or on implied-in-fadcontrad? (Cetty lmages)

" ..,+

: l ,L : l i '+,!:

In this situation, you have entered into an implied-in-fact contract to pay the accolin-

tant the usual and reasonable fees for her accounting services. The contract is impiied by

your conduct and by hers. She expects to be paid for completing your tax return. By bring-

ing in the records she 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-fact contract can arise, see the

Application feature at the end of this chapter.)Note that a contract can be a mixture of an express contract and an irnplied-in-fact cot-i-

tract. In other words, a contract may contaii-r some express terms, rvhile others are

implied. During the constrr-rction of a horne, the homeowner often requests that the

builder rnake changes in the original specifications. When do these char-rges forrn part of

an implied-in-fact contract that makes the homeowner liable to the builder for any extra

expenses? That was the issue in the following case.

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

BACKGROUND AND FACTS..---=ffi.*.-i Uhrhahn Construction was hired

by Lamar Hopkins (Hopkins) and his wife, Joan, for severalprojects in the building of their home. Each project was based

on a cost estimate and specifications. Each of the proposals

accepted by Hopkins said that any changes in the signed

contracts would be made only "upon written ordersi 'When

work was in progress, Hopkins made several requests for

changes. There was no written record of these changes, but

Uhrhahn performed the work and Hopkins paid for it. A

dispute arose after Hopkins requested that Uhrhahn use

Durisol blocks rather than cinder blocks in some construction.

The original proposal specified cinder blocks, but Hopkins told

Uhrhahn that the change should be made because Durisolwas "easier to install than traditional cinder block and would

take half the time." Hopkins said the total cost would be the

same. Uhrhahn orally agreed to the change, but discoveredthat Durisol blocks were more complicated to use than cinder

blocks and demanded extra payment. Hopkins refused to Pay,claiming the cost should be the same. Uhrhahn sued. The trial

court held for Uhrhahn, finding that the Durisol blocks were

more costly to install. The homeowners appealed.

CASE 8.2-Cont inues next page

23S llElro[CONTRACTS

CASE 8.?-Gont inued

in rnr w0RDs 0F THE couRT . . ' zRME, Judge'

The essential elements of contract formation were present here. The propo-sal consti-

tuted an offer by Uhrhahn to complete certain detailed construction proiects for certain

pri..r,'""a it clearly ,"t forttr additional terms regardingJhl work and the parties' relation-

!t ip. Wil.r, Hopkins signed the written propor"i-ultiple times-o11.-iot each proposed

project under sections tit led "Acceptance oiP-porrl"-he accePtedUhrhahn's offer and

pr"i"i*a to pay the amounts delineated for the various projects' Uhrhahnt promise to

oerform and the homeowners' promise to pay constituted bargained-for consideration'

Thur, , valid contract was formed between the parties'

The homeow,l.r, .hull.nge the trial court's dltermination that an implied-in-fact con-

tract existed. They argue thaithe proposal agreement, which requires-any chan-ges to the

original estimates and specificatio,',, io be p'ut in writing, controls'.They therefore assert

;i;1il;;; ;"i "r".

untf."hn for work or monetary amounts that deviated from the orig-

inal proposal agreement and were not reduced to writing. we disagree' we conclude that

the trial court's ""pr.r, ",-,d

l*plicit factual findings show that through his conduct

il;p;i;;, a,.td th.iefore the ho-"o*"t", implicitlv ltl"tq.tt.Piovision requiring

change orders to U" p.rii,-r *ritingand created a .ottirrct implied in fact that perraitted

.hun[., to the original contract to be made orally'

First, we note that parties to construction contracts frequently make changes to the

pr;;;'^; originally "gr."d-upon.

Additionally, provisions in construction contracts

requiring orders for extr"a work tL be written "t"

g.,.errlly held to be for the protection of

the owrtir, and the owner can waive such provisions'

To prove that the owner intended to waive such a provision, "the evidence must be of a

clear and satisfactory .tt*tr.i"t and clearly show a distinct agreement that the work be

deemed extra work r*a r aJi"it" ,gr""-.,.i*ith the owner to pay extra for such extra work'"

****

We also conciude that ihe trial court correctly determined that an implied-in-fact con-

hact was established through the parties' conduct, which allowed the parties to agree on

extra work orallY.-'--A contract implied in fact is the second branch of quantum ry'*yi! lan equitable rem.-

edy that literally means as much as he deserve s). A contract implied in fact is a "contract"

established by conduct. ihe elements x x x are. (1) the defendant requested the plaintiff to

perform work; (2) tnu pioi"ti1l nxpected the defendant to compensdte him or her for those

;;;;rrj, and'd)'tt n di-ir"io,i pnn* or should'have known that the plaintiff expected com-

pensation. lEmPhasis added'l

In this case, [the] triJ .onrtt factual findings show that the-parties' conduct estab-

lished an implied-in-iact contract. The trial court found that Hopkins "made several

,"q"**, i", "iaitio.,"t

*ork to the home," and that "Uhrhahn * * x completed a substan-

tial amount of the additional work requested'" Additionally, the tnal court stated that

Hopkins "accepted tn. i.,-r.fit of Uhrhahnb hard work." Moreover, Hopkins paid at least

three differerrt invoices for the additional work, which invoices itemized the extra (or addi-

tional) work performed by Uhrhahn'

The firsi element is clearly satisfied because Hopkins repeatedly asked Uhrhahn to per-

form construction work that deviated from the proposal agreement' The second element

is also satisfied because Uhrhahn's conduct ,ho*, ihrt it expected PiyT""l in return for

the work it performei ,i iopkin* request- Hopkins attd Uhthahn had a business rela-

ii""rftip, ,.,d Uhrh"h' *"' ii'"d by Hopkins io pttfot* a 1ob' Under these circum-

CASE 8.2-Cont inued

stances, Uhrhahn clearly expected to be paid for any work it performed at the homeown-

ers' request, as shown by the regular invoices it sent Hopkins for its completed work,

including invoices for the additional work orally requested by Hopkins. Finally, the last

element is also satisfied becar-rse Hopkins's conduct showed he knew Uhrhahn expectecl

to be paid. Up until the dispute over the Durisoi blocks ensued, Hopkins paid or partially

paid for the work that deviated from the proposal agreement pursuant to Uhrhahn's

invoices that referenced change orders. His payments clearly show that I're knew Uhrhahn

expected to be paid. Thus, the trial court correctly determined that a contraci implied in

fact existed, which Hopkins-and therefore the homeowners-breached when they failed

a .."T+"j"it pay Uhrhahn for the extra work performed.

We affirm the trial court's determination that Hopkins, through his conduct, created

an implied-in-fact contract that allowed the parties to orally agree to extras or changes to

the original proposal agreement.

2r9 G![EmNATURE AND CLASSIFICATION

F0R CRITICAt ANAtYSIS-TechnologicalConsideration would the outcome of this cose

hove been different if the parties hod communicoted by e-moilfor oll detqils regording chonges in the work performed? Why

or why not?

DECISI0N AND REMEDY rne utah appeals courtaffirmed the decision of the trial courf finding that there was a

valid contract between the parties and that both parties had

agreed to oral changes in the contract. The changes created an

implied-in-fact contract by which the builder agreed to provide

extra work in exchange for extra compensation from the

homeowners.

E

Contract PetformanceContracts are also classified according to their state of performance. A contract that

has been ftrlly performed on both sides is called an executed contract. A contract that has

not been fully performed on either side is called an executory contract. If one party

has fully performed but the other has not, the contract is said to be executed on the one

side and executory on the other, but the contract is stiil classified as execr-itory.

IrExAffFiE &5 | Assume that you agree to buy teir tons of coal from Westeri-i Coal

Company. Further assume that Western has delivered the coal to your steel mill, where it

is now being burned. At this point, the contract is an executory contract-it is executed

on the part of Western and executory on youl pari. After you Pay Western for the coal, the

contract will be executed on both sides. E

Conttart Enlorceabil ityA valid contract has the four elements necessary for contract formation: ( I ) an agreement

(offer and acceptance) (Z) supported by legally sufficient consideration (3) for a legal pur-

pose and (4) made by parties who have the legal capacity to enter into the conhact. As men-

tioned, we will discuss each of these elements in the following chapters. As you can see in

trxhibit B-2 on the next page, valid contracts may be enforceable, voidable, or unenforce-

able. Additionally, a conhact may be referred to as avoid contract.We look next at the mean-

ing of the Ierms yoidable, unenforceable, and void in relaiion to contract enforceability.

Voidable Contracts A voidable contract is avalid contract but one that can be avoided

at the option of one or both of the parties. The party having the option can elect either to

EXECUTED CONTRACTA contract that has been completelyperformed by both parties.

EXECUTORY CONTRACIA contract that has not yet been fullyperformed.

VATID CONTRACTA contract that results when theelements necessary for contractformation (agreement, consideration,legal purpose, and contractualcapacity) are present.

VOIDABLE CONTRACTA contract that may be legallyavoided (canceled, or annulled)at the oDtion of one or both ofthe oarties.

240 llNililuCONTRACTS

ENFORCEABTE CONTRACIA valid contract that can beenforced because there areno legal defenses against it

VOIDABLE CONTRACTA party has the option ofavoiding or enforcing the

contractual obligation.

UNENFORCEABTECONTRACT

A contract exists, but itcannot be enforced because

or a regar oeTense.

UNENFORCEABIE CONTRACTA valid contract renderedunenforceable by some statuteor taw

VOID CONTRACTA contract having no legal force orbinding effect.

QUASI CONTRACTA fictional contract imposed on theparties by a court in the interests offairness and justice; usually imposedto avoid the unjust enrichment ofone party at the expense of another.

avoid any duty to perform or to ratify (make valid) the contract. If the contract is avoided,both pariies are released from it. If it is ratified, both parties must fully perform theirrespective legal obligations.

As you will read in Chapter ll, contracts made by minors, insane persons, and intoxi-cated persons may be voidable. As a general rule, for example, contracts made by minorsare voidable at tl-re option of the minor. Additionally, contracts entered into r-rnder fraud-ulent conditions are voidable at the option of the defrauded party. Contracts entered intounder legally defined duress or undue influence are voidable (see Chapter l2).

Unenforceable Contracts An unenforceable contract is one that cannot be enforcedbecause ofcertain legal defenses against it. It is not unenforceable because a party failedto satisft a legal requirement of the contract; rather, it is a valid contract rendered Llnen-forceable by sorne statute or law. For exampie, some contracts must be in wriiing (seeChapter i3), and if ihey are not, they will not be enforceable except in certain excep-tional circurr-rstances.

Void Contracts A void contract is no contract at all. The terms yoid and contract arecontradictory'. None of the parties has any legal obligations if a contract is void. A contractcan be void because, for example, one of the parties was previously deterrnined by a courtto be legally insane (and thus lacked the legal capacity to enter into a contract) or becausethe purpose of the contract was illegal.

Quasi contracts, or contracls implied in law, are wholly different from actual contracts.Express contracts and in-rplied-in-fact contracts are actual or true contracts formed by tl-rewords or actions of the parties. The word quasi is Latin for "as if" or "analogous to." Quasicontracts are not true contracts because they do not arise from any agreement, express orimplied, behveen the parties therr-rselves. Rather, quasi contracts are fictional contracts

24r trlnE@NATURE AND CTASSIFICATION

that courts can impose on the parties "as if" the parties had entered into an actual con-hact. They are equitable rather than legal contracts. Usually, quasi contracts are imposedto avoid th,e uniust enrichment of one party at the expense of another. The doctrine ofunjust enrichment is based on the theory that individuais should not be allowed to profitor enrich themseives inequitably at the expense of others.

l*xAMpLE sA A vacationing physician is driving down the highway and findsEmerson lying unconscious on the side of the road. The physician renders medical aidthat saves Emerson's life. Although the injured, unconscious Emerson did not solicit themedical aid and was not aware that the aid had been rendered, Emerson received a valu-able benefit, and the requirements for a quasi contract were fulfilled. In such a situation,the law normally will impose a quasi contract, and Emerson will have to pay the physi-cian for the reasonable value of the medical services provided. El

When does enrichment qualify os "unjust enrichment"? Sometimes, a party is enriched by(benefits from) the actions of another, yet the benefits do not necessarily constitute unjustenrichment. For example, in one case the owner of a building (the lessor) leased the build-ing to a commercial tenant (the lessee) for five years. The lessee, which assumed all respon-sibil i ty for repairs, maintenance, and alterations, hired DCB Construction Company to makealterations to the premises at a cost of about $300,000. The lessor told DCB that it would notbe responsible for any of the costs. Nonetheless, when the lessee quit paying rent, wasevicted, and failed to pay DCB for the completed work, DCB sued the lessor for the amountstill owing ($280,000). In this case, clearly the lessor had benefited from DCB's work. Yet didthis benefit amount to unjust enrichment under the law? No, stated the court. The courtpointed out that DCB did the work for the lessee and was notif ied by the lessor that it wouldnot be liable for the costs of the work. Further, no fraud or mistake was involved. The courtnoted that the courts almost always reject unjust enrichment claims such as this one.a

E

[imitat ions 0n Quasi-€ontractual RecoveryAlthough quasi contracts exist to prevent unjust enrichment, the party who obtains a ben-efit is not liable for the fair value in some situations. Basically, a party who has conferreda benefit on someone else unnecessarily or as a result of misconduct or negligence can-not invoke the doctrine of quasi contract. The enrichment in those situations will not beconsidered "unjust."

irExAMpLFs.Tl You take your car to the iocal car wash and ask to have it run throughthe washer and to have the gas tank filied. While your car is being washed, you go to anearby shopping center for two hours. In the meantime, one of ihe workers at the carwash mistakenly assumes that your car is the one that he is supposed to hand wax. Whenyou come back, you are presented with a bill for a full tank of gas, a wash iob, and a handwax. Clearly, a benefit has been conferred on you. But this benefit occurred because of amistake by the car wash employee. You have not been uniustly enriched under these cir-cumstances. People normally cannot be forced to pay for benefits "thtust" on them. E]

When an Actual Contract ExistsThe doctrine of quasi contract generally cannot be used when an actual contract coversthe area in controversy. This is because a remedy already exists if a party is unlustiyenriched as a result of a breach of contract: the nonbreaching party can sue the breach-ing party for breach of contract. In this instance, a court does not need to impose a quasi

4. DCB Construction Co. v Central City Development Co.,940 P.Zd 958 (Colo.App. 1997)

contract to achieve justice. ITExAMFLE Br I Fung contracts with Cameron to deliver a fur-

nace to a building owned by Bateman. Fung delivers the furnace, but Cameron never

pays Fung. Bateman has been unjustly enriched in this situation, to be sure. Nevertheless,

Fung cantrot recover from Bateman in quasi contract because Fung 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, parties agree that a contract has been formed but disagree on its meaning or

legal effect. Or. ,."ror that this may happen is that one of the parties is not familiar with

the legal terminology used in the contract. To an extent, plain language laws have helped

to avoid this difficulty. Sometimes, though, a dispute may still arise over the meaning of a

contract simply because the rights or obligations under the contract are not expressed

clearly-no matter how "plain" the language used.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 courts with guidelines for deciding disputes over how contract terms or

provisions should be interpreted. Exhibit 8-3 provides a brief graphic summary of how

these rules 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.

Plain Language LawsToday, the federal government and a majority of the states have enacted plain language

laws to regulate legal writing. All federal agencies are required to use plain language in

most of their forms and written communications. Plain language requirements have been

extended to agency rulemaking as well.At the state level, plain language laws frequer-rtly apply to consumer contracts that are

primarily for personal, family, or household purPoses. For example, a New York law

iequires residential 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-

atelydiv idedandcapt ionedby[the] var ioussect ions.") I fapartytoacontract ,suchasan

insurance company, violates a plain language statute, a consumer can slle that party for

damages if she or he suffers harm (unless the party can show that it made a good faith

effort to comply with the statute). Some state statutes even allow parties to submit pro-

posed contracts to the state attorney general, whose approval then eliminates any liability

for damages because of a supposed violation of the plain language statute.

The legal profession is also moving toward plain English, and court rules in manyjurisdictions require attorneys to use plain language in court documents. At times, iudgeshave reftrsed to accept motions that are incoherent due to their highly technical legal lan-

guage. A number of states have also rewritten their fury instructions. Generally, the

tr

rihnEffiTftm Most laws, like mostcontracts, can be expressed in plainEnglish.

5. NewYork General Oblisations Law Section 5-702

245 ftnErrfrilNATURE AND CLASSIFICATION

IEIE trto one can avoid contractualobligations by claiming that she orhe did not read the contract. Acontract normally is interpretedas if each party read every wordcarefully.

revised instructions are phrased in simpler language, use the active voice more often, andavoid "legalese" to the extent that it is possible to do so.

The Plain Meaning RuleWhen a contract's writing is clear ar-rd unequivocal, a court will enforce it according to itsobvious terms. The meaning of the terms must be determined from the face

-of the

instrument-from the written document alone. This is sometimes referred to as the plainmeaning ru1e. Under this rule, if a contract's words appear to be clear and urrambigllous. acourt cannot consider extrinsic evidence, which is any evidence not contained in the doc-ument itself. Admissibiliiy of extrinsic evidence can significantly affect how a court inter-prets ambiguous contractual provisions and thus can affect the outcome of litigation.6

0ther Rules of Interpretat ionGenerally, a court will interpret the language to give effect to the parties' intelt asexpressed in their contract. This is the prirnary plrrpose of the rr,rles of interpretation-todetermine the parties' intent from the language r-rsed in their agreement and to give effectto thai intent. A court normally will not make or rernake a contract, nor will iinorrnallyinterpret the langrrage according to what the parties claim their intent was when theyrnade the contract.T The courts use the following rules in interpreting contractual terrns:

I Insofar as possible, a reasonabie, lawful, and effective meaning will be given to all of acontract's terms.

2 A contract will be interpreted as a whole; individual, specific clauses will be consid-ered subordinate to the contract's general intent. All writings ihat are a part of the sametransaction will be interpreted together.

I Terms that were the sub ject of separate negotiation will be given greater considerationthan standardized terms and terms that were not negotiated separately.

4 A word will be given its ordinary, commonly accepted meaning, and a technical wordor term will be given its technical meaning, unless the parties clearly intended sorne-thins else.

6. See, for example, Wagner v. Columbia Pictures Industries, lnc., 116 Cal.App.4th 586, 52 Cal.Rptr.Sd 898 (2007).7. Nevertheless, if a court finds that, even after applying the rules of interpretaiion, the terrns are snsceptible to norethan one meaning, the court nay permit extrinsic evidence to prove what the parties intended. See, for example,Langdon y. United Restaurdnts, lnc., 105 S.W.3d 882 (Mo.Ct.App. 2003).

244 I@CONTRACTS

This spocecroft ot AstrotechCorporotion in Florido is designed to

,collect informotion on conditions in

spoce thot con couse damoge toco m m u n icotion syste mq powe r g ri d s,ond sotellites. Suppose that ovisiting engineet suggests o designmodification that the componyincorporates into later models of the

spocecroft. Should thot engineerreceive compensation for themodificotion even though she orhe had no written contract with thecompanyT Why or why not? Underwhot doctrine could a court imposeo fictional controd to compensatethe visiting engineer? (Rereod pages

240 ond 241.) (AP Photo/John Raoux)

t t_-'' How many a dispute could have

been deflated into a singleparagTaph ifthe disputants haddared define their terms.

ARIS IOTLE,384 122 B.C.E

(Greck philosopher)

.=-ffi':-,' Citizens CommunicationsCompany is one of the largest telecommunications companies inthe United States and is the parent comPany to Frontier

5 Specific and exact wording lvill be given greater consideration thar-r ger-reral language.

6 Written or typewritten terms prevail over preprinted terms.

7 Because a contract sl'rould be drafted in clear and unarnbiguous language, a party that

uses ambiguous expressions is held to be responsible for the ambiguities. Thus, wl-ien

the language l-ias more than one meaning, it rvil1 be interpreted against the part,v that

drafted the contract.

8 Evidence of trade usage, prior dealing, and course of performance may be admitted to

clarifi the meaning of an ambiguously worded contract. (We define and discr-rss these

terms in Chapter 18.) What each of the parties does pursuant to the contract wil l be

interpreted as consistent with what the other does and with any relevant usage of trade

and course of dealing or performance. Erpress terms (terms expressly stated in the cor-t-

tract) are given the greatestrveight, followed by course of perforrnance, course of deal-

ing, and custom and usage of trade-in that order. When considering cr-rstom and

usage, a court rvill look at the trade customs and usage colnmon to the particular busi-

ness or industry and to the locale in which the contract u'as made or is to be perforned.

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

dispute.

United States District Court, District of Connecticut, 303 F.Supp.2d 197 (2OO4)

BACKGROUND AND FACTS Telephone, which offers services in thirty states. Citizens provides

health insurance to its nearly five thousand employees under aself-funded health plan. Under such a plan, a comPany normallybuys an insurance policy to cover claims that exceed a certain

CASE 8.5-Cont inued

amount. Citizens bought a policy from Trustmark Insurance to

cover claims that exceeded $100,000, subject to a $t million

maximum benefit per employee. In November 1999, Garry

Lonquis! a Citizens employee, experienced complications from

heart surgery that required intensive care. By January Lonquist's

medical bills exceeded $l million. Trustmark refused to renew

Citizens' policy unless, among other thingl it included an

amendment providing a seParate $l million deductible for

2458@NATURE AND CTASSIFICATION

Lonquis! effectively removing him from coverage. This

amendment was referred to as the "Lonquist Laserj' Citizens

accepted this offer in a letter dated March 6, 2000. Later, Citizens

filed a suit in a federal district court against Trustmark and

othert seeking damages and other relief for an alleged breach

of contract. Citizens claimed in part that the "Lonquist Lasef was

not valid. Both parties filed motions for summary judgment'

lN THE WORDS 0F THE C0URT . . . KRAVITz, D.J. [Distr ictJudge]

***rc

There seems to be no dispute that the March 6 agreement behveen Citizens and

Trustmark, in which the parties agreed upon the premium for the policy renewal and also

agreed upon the Lonquist Laser, ordinarily would constitute a 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 understanding of the terms that are definite and cer-

tain between the parties. * * * If the minds of the parties haye not truIy met, no enforce'

able contract exists. Here, there was an offer by Trustmark, an acceptance by Citizens,

intent by the parties to form a contract, a meeting of the minds about its terms, definite

terms, and consideration. Under traditional contract principles, therefore, the March 6

agreement unquestionably would qualify as a valid amendment to the existing insurance

"olatl.lb*.*een the parties. lEmphasis added. l

* * * Both sides agree that an agreement was reached and what that agreement spec-

ifies. The sole point of contention is whether the agreement constitutes a valid amend-

ment under the terms of the insurance policy. x x * Although the policy defines many

of its terms, it does not define the term "amendment"; nor does anything in the policy

specify precisely what an amendment must look like, other than that it must be approved

by Trustmark and signed by Citizens, both of which occurred here.

DECISI0N AND REMEDY rtre court granted TrustmarKsmotion for summary judgment. The insurance policy did not

define omendmenf specifically, so the court referred to a

dictiona{s definition of the word: "a change made by

correction, addition, or deletion." Both parties signed and

approved the "Lonquist Laser" change, and under the plain

language of the contract, it was a valid and enforceable

amendment.

F0R CRITICAL ANAtYSIS-SocialConsideration whot mightthe porties have done

to ovoid this litigotion?

@

Grant Borman, whowas engaged in aconstruction project,leased a crane fromAllied Equipment and

hired Crosstown Trucking Company to deliver the crane to the

construction site. Crosstown, while the crane was in itspossession and without permission from either Borman or

Allied Equipment, used the crane to install a transformer for a

utility company, which paid Crosstown for the job. Crosstown

then delivered the crane to Borman's construction site at the

appointed time of delivery. When All ied Equipment learned of '

the unauthorized use of the crane by Crosstown, it sued

Crosstown for damages, seeking to recover the rental value of

Crosstown's use of the crane. Using the information presented

in the chapter, answer the following questions'

247 GInEmNATURE AND CLASSIFICATION

bilateral contract 255contract 251executed contract 259executory contract 259express contract 256formal contract 255implied-in-fact contract 255

informal contract 255objective theory of contracts 231offeree 235offeror 255promise zlopromisee 231promisor zlt

quasi contract 240unenforceable contract 240unilateral contract 254valid contract 259void contract 240voidable contract 259

An Overviewof Contract Law(See pages 230-232)

Elements of a Contract(See pages 232-233)

Types of Contracts(See pages 233-240.1

1. Sources of controd low-The common law governs all contracts except when it has beenmodified or replaced by statutory law such as the Uniform Commercial Code (UCC), or byadministrative agency regulations. The UCC governs contracts for the sale or lease of goods(see Chapter l8).

2. The function of controcts-Contract law establishes what kinds of promises will be legallybinding and supplies procedures for enforcing legally binding promises, or agreements.

3. The definition of o controct-A contract is an agreement that can be enforced in court. lt isformed by two or more competent parties who agree to perform or to refrain from performingsome act now or in the future.

4. Objective theory of controcts-ln contract law intent is determined by objective facts, not bythe personal or subjective intent, or belief, of a party.

1. Requirements of o valid controct--The four requirements of a valid contract are agreement,consideration, contradua I capacity, and legality.

2. Defenses to the enforceobility of o controd-Even if the four requirements of a valid contractare met, a contract may be unenforceable if it lacks genuineness of assent or is not in therequired form.

1. Biloterol-A promise for a promise.

2. unilaterol-A promise for an act (acceptance is the completed-or substantial-performance ofthe contract by the offeree).

3. Formol-Requires a special form for contract formation.

4. Informal-Requires no special form for contract formation.

5. Express-Formed by words (oral, written, or a combination).

6. lmplied in fod-Formed at least in part by the conduct of the parties.

7. Executed-Afully performed contract.

8. Executory-A contract not yet fully performed.

9. Valid-A contract that has the necessary contractual elements of offer and acceptance,consideration, parties with legal capacity, and a legal Purpose.

10. Voidoble-A contract that a party has the option of avoiding or enforcing.

11. Ilnenforceable-Avalid contract that cannot be enforced because of a legal defense.

12. Void-No contract exists, or there is a contract without legal obligations.

lContinued)

248 IMCONTRACTS

" Quasi Contracts(See pages 240-242.)

Interpretationof Cdntracts(See pages 242-245.)

A quasi contract, or a contract implied in law is a contract that is imposed by law to preventunjust enrichment.

Increasingly, plain language laws are requiring private contracts to be written in plain language sothat the terms are clear and understandable to the parties. Under the plain meaning rule, a courtwill enforce the contract according to its plain terms, the meaning of which must be determinedfrom the written document alone. Other rules applied by the courts when interpreting contractsinclude the following:

l. A reasonable, lawful, and effective meaning will be given to all contract terms.

2. A contract will be interpreted as a whole, specific clauses will be considered subordinate to thecontracfs general intent, and all writings that are a part of the same transaction will beinterpreted together.

5. Terms that were negotiated separately will be given greater consideration than standardizedterms and terms not negotiated separately.

4. Words will be given their commonly accepted meanings and technical words their technicalmeanings, unless the parties clearly intended otherwise.

5. Specific wording will be given greater consideration than general language.

6. Written or typewritten terms prevail over preprinted terms.

7. A party that uses ambiguous expressions is held to be responsible for the ambiguities.

8. Evidence of prior dealing course of performance, or usage of trade is admissible to clarify anambiguously worded contract.

Answers for the even-numbered questions in this For Review section can be found on this text's accompdnying Web site atwwwrengage.com/blaw/blt. Select "Chapter 8" and click on "For Review."

I What is a contract? Wl-rat is the objective theory of contracts?

2 What are the for-rr basic elements necessary to the fonnation of a valid contract?

5 What is the difference between an implied-in-fact contract and an implied-inJaw contract (quasi contract)?

4 How does a void contract differ from a voidable contract? What is an unenforceable contract?

5 Why have plain language laws been enacted? What rules guide the courts in interpreting contracts?

ffi HypoTHETrcAr scENARIos AND cAsE pRoBr.EMs

n

S" I Express versus lmplied Contrack. Suppose that a local busi-ressperson, McDougal, is a good friend of Krunch, theowner of a loca1 candy store. Every day on his iulch hourMcDougal goes into Krunch's candy store and spends aboutfive minutes looking at the candl'. After exarnining Krunch'scandy and talking with Krunch, McDougal usually buys one

or hvo candy bars. One afternoon, McDougal goes intoKmnch's candy shop, iooks at the candy, and picks up a $1car.rdy bar. Seeir-rg that Krunch is very busy, he catchesKrunch's eye, waves the candy bar at Krunch u'ithout sayinga rvord, and walks out. Is there a contract? Ifso, classif, it

within the categories presented ir-r this chapter.