Lec No.

5: Contracts

1/21/2014

Practically every business transaction is a contract, and whenever money or any other things of value are exchanged for some article of everyday use.
A contract is an agreement between two or more parties for certain acts to be performed or refrained from which has been arrived at in such manner, set forth in such form, and is of such content that it has enforceable legal effect.

1. As to Origin, a contract may be (a) express, (b) implied, or (c) a quasi contract (a) An express contract is a bilateral or multilateral contract in which the promises and assent of each party are expressed in speech or in writing. (b) An implied contract is a unilateral contract where either the act of acceptance or both the act of acceptance and the promise are inferred as a matter of fact from the conduct or acts of the parties. (c) A quasi contract is not, strictly speaking, a contract but a legal obligation which is similar to a contract and which is created by implication of law.

2. As to Participants, a contract may be (a) twoparty, (b) joint, (c) several, (d) joint and several, or (e) third-party beneficiary. (a) A two party contract is the common type in which only two parties ate involved. (b) A joint contract is one in which two or more parties merge, to a greater or less extent, their interests to enter into a contract with another party or parties. In a suit under a joint contract all of the promisors must be used together and not separately.

(c) A several contract is one in which two or more persons enter into a contract as promisors or promises but keep their liability more or less separate. A suit under a several contract must be brought against each of the promisors or each of the promisors separately. (d) A joint and several contract has some of the nature of each of the preceeding types. A plaintiff may sue the promisors wither jointly or severally. If he elects to sue jointly, however, he must sue all the promisors together in the same suit. (e) A third party beneficiary contract is one in which two parties enter into a contract for the protection of the interests of a third person who is not a party to the contract.

3. As to obligation status, a contract may be (a) bilateral or (b) unilateral. (a) A bilateral contract is one in which one party agrees to perform or refrain from performing some certain acts in return for which the other party agrees to perform or refrain from performing certain acts. (b) A unilateral contract is one in which there is a promise by one party to perform certain acts provided the other party does certain things, the acceptance to be accomplished by the act.

Prepared by: Engr. Leslie F. Divina

Lec No.5: Contracts

1/21/2014

4. As to completion status, a contract may be (a) executory or (b) executed. (a) An executory contract is one in which an obligation is assumed by one or both parties to do or refrain from doing certain acts at some time in the future. (b) An executed contract is one in which everything is done at the time of making the contract and no obligation for future acts is assumed by either party.

5. As to form, a contract may be (a) a contract under seal (b) a contract of record, or (c) a simple or parol contract (a ) A contract under seal is one with a seal attached. (b) Contracts of record are those which exist as a consequence of court judgements. Unless the judgement is entered by mutual consent, these are, strictly speaking, quasi contracts.

(c) A simple or parol contract is one which is less formal than a sealed contract. It may or may not be in some special form and may in some cases be written and in others may be oral. c.1. Contracts in some specified form are required in some jurisdictions for certain contracts, such as negotiable instruments (bills of exchange, promissory notes, etc.). There are always in writing as well as of the specified form. c.2. contracts in writing are required by statute in many jurisdictions for contracts such as insurance policies. - Patents must in writing. c.3. Unless there is a legal requirement to the contrary, an oral contract is just as binding as a written contract.

6. As to legal status, a contract may be (a) valid, (b) void, (c) voidable, or (d) unenforceable. (a) A valid contract is one which is in full force and enforceable by court action. (b) A void contract is one which has no status at law and is therefore not enforceable by court action. (c) A voidable contract is one which is binding on one party but may be either binding or nonbinding on the other party at his option. Contracts with infants (minors) are usually voidable at the option of the infant. (d) An unenforceable contract is one which is valid in all respects except that it unenforceable through court action.

The contents of the contract and the procedures used in arriving at the terms which it contains be in accordance with the law. The essential elements of the contract are briefly as follows: 1. there must be two or more competent contracting parties. 2. there must be a mutual agreement on the part of all parties to the contract to assume new obligations which each party understands and which are possible for the parties to perform. 3. there must be a valuable consideration for each of the parties to the contract, and the considerations must be reasonably equal in value. 4. the obligations which the parties to the contract undertake must be for legal acts which are not contrary to sound public policy.

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5. The contract must be set forth according to the form and executed in the manner prescribed by the law.

Classification of a party Infants (minors) Persons of unsound mind Drunken persons Persons under legal guardianship Corporations Convicts Enemy aliens Federal and state governments Foreign countries and their sovereigns Professional persons who are required by law to register and to be licensed

Prepared by: Engr. Leslie F. Divina

Lec No.5: Contracts

1/21/2014

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Infants or Minor. Infants are competent to sign for necessities, although exactly what constitutes a necessity may be subject to question. 1.1. An infant is liable for necessities furnished his wife and in some jurisdictions, for necessities of his children. 1.2. A contract entered into by an infant with any other party capable of entering into a contract is not a void contract but is viodable at the option of the infant.

2. Person of Unsound mind. A contract entered into by an insane person or a person of unsound mind is not a void contract but is voidable at the option of the insane person, or the person of unsound mind, or at the option of his legally appointed guardian , with the following exceptions: (a) Contracts created by law are valid and binding, and (b) Contracts are valid and binding where the sane person acted fairly and in good faith and without any knowledge, actual or constructive, of the others insanity, if the contract has been carried out to such an extent that a return to the original status is impossible. - Contracts made by a person who has been legally declared insane and placed under guardianship are void. - Contracts made with an insane person during an interval when he is sane are held to be binding. - Contracts made by an insane person are simply voidable and may be ratified by such person when he becomes sane or may be ratified by his guardian during his insanity or by heirs after his death.

3. Drunken Persons. Contracts made by drunken persons may be a 3.1. Voidable Contract heavily state of intoxication 3.2. Valid Contract mild state of intoxication 4. Persons under legal guardianship. Limited to engage with the contract. 4.1. Feeble-mindedness 4.2. habitual drunkards or spendthrifts 4.3. Idleness or debauchery

5. Corporations. A corporations is artificial person created by law and is limited in its ability to enter into contracts by its article of incorporations and by-laws and by general statues limiting the powers of corporations. 5.1. May engage with a contract with authorized officials and must have been authorized by its legally governing body. 6. Convicts. Depends on the jurisdictions.

7. Enemy Aliens. In general, enemy aliens cannot contract or sue under existing contracts without the permission of the government; but they may be sued on existing contracts, and in this case have a right to answer the suit. 8. Federal and State governments. - with restrictions in engaging into the contracts. - authorized with specific legislation. - fund must be available. - Follows certain procedures

9. Foreign Countries and their sovereigns. These sovereigns and countries and their representatives may make contracts and may enter suit under these contracts in our domestic courts, but may not be used in such courts without their consent. 10. Professional Persons. - required by law to register and obtain a license as a prerequisite to the practice of their profession.

Prepared by: Engr. Leslie F. Divina

Lec No.5: Contracts

1/21/2014

- Making and performing of contracts through the use of agency. - An agency may be contracted to act in be half of a person. - An agent of agency holds a written power of attorney. Or it may be orally given or even implied from the apparent or ostensible authority that one acting for the principal. - An agent may not make a contract under seal except in the presence of the principal, unless he authorized under seal.

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Both parties should agree in the contract. There must be actual agreement and not simply an apparent agreement. Offer and Acceptance Identical - There must be an offer on the part of one the parties to the contract and an acceptance by the other party. This offer must be accepted without qualification and without change, or there is no contract.

2. Time of Acceptance - the offer must be accepted within reasonable time, and where a time limit is fixed in such offer, it must be accepted before such time limit expires.

3. Method of Acceptance - If a method of acceptance is specified in the offer, the acceptance must be by the specified method. - may be made by letter or by telegram.

4. Revocation - An offer is revoked by the death or insanity of the person making the offer; but if the offer is accepted prior to the death or insanity of the person making the same, this constitutes a contract which is binding on the executors, administrators, guardian, or heirs of such person, provided the contract was not for personal services.

5. Misrepresentation - If one party to a contract makes a statement which is in fact untrue but which is in fact untrue but which he believes to be true, and this fact is a material fact or element in the contract, and the other party, believing the statement to be true and relying on the truth of it, enters into the contract, it may be avoided in the ground of misrepresentation. 6. Fraud 7. Duress 8. Undue Influence

Prepared by: Engr. Leslie F. Divina

Lec No.5: Contracts

1/21/2014

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What is a contract? John Bolts, a surveyor, is running a survey of a tract of land when Jim Arlan, a young man who has been standing by watching the procedure offers to help. No price or terms of employment are mentioned. Bolts permits Arlan to help him for the remainder of the day. (a) has a contract been established? (b) If so, what type of contract is it? (c) Is Bolts obligated to pay Arlan if Arlan so demands? (d) If Bolts is obligated to pay, how would the rate of pay be determined in the event of a dispute?

Good Consideration based on love, affections, or blood relationship, and is founded on generosity or natural duty; a good consideration has been held not sufficient to support an executory contract. Valuable Consideration is one where the law holds that there has been something equivalent given for the act or promise, such as money, labor a deed to land, exchange of promises to do something of value, etc.

3. The commissioning of an architect or engineer for professional services is usually negotiated in verbal conferences, after which the architect or engineer is notified by means of a letter that he has been established for the work. a. Does this procedure constitute a contract? b. If so, what kind of contract is it?

What constitutes a Valuable considerations? - A promise to do what one is already bound to do. - must give or promise to give something of value, or he must give promise to give something of value, or he must give up, or promise to give up some legal right, as promise not to sue or a promise to extend the time of payment of a note, in exchange for some other thing of value. - A promise of something or an act of value in exchange for a promise of another thing. Gift - A mere promise of a thing of value is simply a promise of a gift as it is not founded on a value considerations unless there is something of value given in return; but if the promise is carried out and completed by the delivery of the thing, this amounts to a gift which, as between the parties, cannot be reclaimed.

Sufficiency of Consideration - When a contract is founded on a value considerations, the courts will not inquire into the sufficiency of the consideration. That is, it is not necessary to the validity of the contract that the exchange which constitutes the consideration should be things, acts, or promises of equal value, excepting where a contract is for the exchange of sums of money. In such a case the courts will require that the exchanges be practically equivalent. - A decided difference in the value of exchanged may be strong evidence of fraud.

The courts refuse to enforce a contract to do something that is not lawful. The practical classes of contracts opposed to law or to public policy are: Contracts for a sale of public office, public contracts, or for the bribing the public officials Contracts which tend to deprive the court of jurisdiction or to compound a crime Contracts which tend to encourage litigation

6. Contracts which unduly affect the freedom or security of marriage 7. Contracts in unreasonable restraint of trade and which tend to suppress competition at letting or sale by auction 8. To pay a usurious rate of interest 9. Any agreement the object of which is to injure the public health or safety 10. Agreements to establish unlawful monopolies, trust, etc.

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Contracts for the committing of a crime or a tort

Agreements tending to promote fraud and breach of trust

Prepared by: Engr. Leslie F. Divina

Lec No.5: Contracts

1/21/2014

There are legal requirements in most jurisdictions as to the form which certain contracts must take. Certain info. which must be included may be specified, or the requirement may only be that the contract shall be in writing. Negotiable instruments consist primarily of promissory notes, bills of exchange, bank drafts, and bank checks. These in general must be in writing and must include the signature of the maker or drawer and an unconditional promise to pay a fixed sum of money.

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Types of contracts which be in writing: A special promise by an executor or administrator to render himself personally liable for the debts of the deceased. Any special promise to answer for the debts, defaults, or miscarriages of another person. Any agreement made upon the consideration of marriage. Any contract the terms of which cannot be performed within one year. An contract for the sale of any interest in land or for the leasing of land for a period of more than one year. 6. Contracts for the purchase of good, wares, or merchandise for a price equal to or higher than the amount fixed by statute.

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In general, contracts will be construed so as to give effect to the real intention of the parties. In determining what such intention is, the following rules are used: If the contract is capable of two interpretations, one of which would render it void or incapable of performance and the other valid or capable of performance, the latter construction will be given it. The intention will be gathered in the entire contract; and if there is a contradiction between printed and written parts thereof, the written part will govern. Words are given their plain and literal meaning except that evidence of local usage may vary their meaning, and technical words will be given their technical meaning.

Liquidated damages or a certain amount may be collected by a party aggrieved to the other party in case of a breach of contract. It is not a penalty to make a debt, payable in installments, payable in whole on the failure to pay an installment when due.

The Discharge by Performance 1.1 Tender of Performance 2. Impossibility of Performance - the engineering contractor is continually running into conditions of soil, stream flow, climate, and other conditions which could not have been were not foreseen prior to the undertaking of the work; and it is important that he understand the effect of these unforeseen conditions on the contract before entering into such a contract.
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3. Substantial Performance 4. Discharge by Agreement 5. Discharged by Operation of Law 6. Discharged by Breach of Contract 7. Discharged by Statute of Limitations

Prepared by: Engr. Leslie F. Divina