Week 3-1

Contracts—Nature
and Terminology
You have been asked to act as legal advisor to Catherine,
advising her whether or not a contract exists between her and
David after the following course of events.

On Monday, David advertised a table and chairs for sale

for £100 in the local newspaper. Catherine saw the
advertisement and telephoned David offering him £75.
David offered to sell the table and chairs to Catherine for
£80. She accepted. Two days later, Catherine rang David
and said that she would give him £85 if he delivered the
table and chairs as well. David refused. Catherine said that
if she had to collect the table and chairs herself she would
only give David £75. During the course of their
negotiations, Catherine and David have discovered that
they know each other through the local gardening club.

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Indicate whether each of the following statements is
TRUE or FALSE.

1. As Catherine and David are acquaintances, they cannot form a

binding contract.
2. Catherine and David have not formed a valid contract as they have
been unable to come to an agreement about price.
3. Delivery is capable of constituting sufficient consideration for an
increase in contract price.
4. If David accepts Catherine’s final suggestion, there will be a binding
contract between them at a price of £75.

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 Introduction
Promise is a declaration that something will or
will not happen in the future.
What is a Contract?
Contract is an agreement (based on a promise) that can
be enforced in court.
What law governs?
Service contracts - common law of contracts.
Sale and lease contracts - Uniform Commercial Code
(UCC).

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§1: Function of Contract Law
Designed to provide stability and
predictability, as well as certainty, for
both, buyers and sellers in the
marketplace.
Necessary to ensure compliance with a
promise or to entitle the innocent party
to some form of relief.

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 §2: Elements of a Contract
Agreement (Offer and Acceptance).
Consideration.
Contractual Capacity.
Legality.
Genuineness of assent.
Form.

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 §3: The Objective
Theory of Contracts
Intention to enter into a legally binding
agreement, or contract, is judged by
outward, objective facts as interpreted by
a reasonable person, rather than by the
party’s own secret, subjective intentions.

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 §4: Types of Contracts
Bilateral v. Unilateral.
Bilateral - Offeree must only promise to
perform (“promise for a promise”).
Unilateral - Offeree can accept the offer only
by completing the contract performance
(“promise for an act”).

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 Types of Contracts [2]
Expressed v. Implied In Fact.
Express-words (oral or written).
Implied In Fact - Conduct creates and
defines the terms of the contract.

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 Types of Contracts [3]
Quasi Contracts - Implied in law.
Fictional contracts created by courts.
Imposed on parties for the interest of fairness
and justice.
Equitable remedies.
Quantum Meruit.
Formal v. Informal.

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 Performance
Executed v. Executory.
Executed - A contract hat has been fully
performed on both sides.
Executory - A contract that has not been fully
performed on either side.

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 Enforceability
Valid.
Elements: Agreement, consideration,
contractual capacity, and legality.
Void.
No contract.
Voidable (unenforceable).
Valid contract can be avoided or rescinded.

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§5: Interpretation of Contracts
Plain Meaning Rule: Courts give terms their
obvious meaning.
If terms are ambiguous, court will attempt to
interpret ambiguous contract terms in a
reasonable, lawful, effective manner.
 Contracts are interpreted as a whole.
 Terms negotiated separately given greater weight.
 Ordinary, common meaning given.
 Specific wording given greater weight than general language.
 Written or typewritten given greater weight than preprinted.
 Ambiguous terms interpreted against the drafter.
 Trade usage, prior dealing, course of performance to allowed to clarify.

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 Case : Industrial Lift v. Mitsubishi
(Quasi Contracts)

FACTS:
Industrial Lift (IL) agreed to buy fork­lift trucks from
Mitsubishi to service and sell. Under the agreement,
Mitsubishi could terminate the deal without just cause on
ninety days’ notice.
IL made design changes in the truck to better suit the
American market, which Mitsubishi did not request but
later incorporated into the trucks it sold to other dealers.
In 1978, Mitsubishi terminated the agreement. IL sued
under quasi-contract principles to recover benefits
conferred on Mitsubishi by the design changes. The suit
was dismissed, and IL appealed.

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Case 3.2: Industrial Lift v. Mitsubishi
(Quasi Contracts)

HELD: AFFIRMED. FOR MITSUBISHI.

Under the agreement, Mitsubishi did not have to
compensate IL for its forklift improvements, which were
outside the express provisions of the contract.
The court described a quasi contract as “fictitious and
arising by implication of law wholly apart from the usual
rules” of contract formation.
When a written contract already exists, however, nor­
mally no quasi-contractual claim can arise.

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