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Chapter 9
The Law of Contracts and Sales—I
Introduction
Chapter Nine addresses the following questions:
• How can we define and classify contract law?
• What are the elements of a legally valid contract?
• Which contracts must be in writing to be enforceable?
• What is the parol evidence rule?
• What are third party beneficiary contracts and assignment of rights?
Achieving Teaching Excellence
Encouraging Students to Interact with Peers in Class
Chapter Nine continues with the Teaching Excellence theme of improving what happens in
the classroom. In addition to focusing on teacher–student interaction in class, this manual
encourages instructors to focus on student–student classroom interactions as one way to improve
class discussion. For some instructors, this section will serve as a reminder. Instructors know that
they could improve students’ intellectual development through carefully planned exercises that
Look at the following questions that would promote student–student interactions, but would
probably not be very effective:
1. “Josette, what did you think of Paul’s response to question six?”
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2. “Samantha, discuss with Devon the principle of estoppel.”
The following questions would probably be more effective:
1. “Tim, after listening to Ian’s comments about the majority decision in the Sindell case, can
one identify which ethical norm Ian prefers?” A good follow-up question might be, “Does
Ian prefer the same ethical norm the majority decision prefers?”
2. “Chauntee, Yukiko has just presented three reasons she agrees with the court in the Harris
case. Which of her reasons seems the strongest? Why?”
3. After instructors have trained their class well, they can ask a riskier question. After they
know it is okay to make frequent mistakes, and that the classroom is a place to work on
material (not quiz on the material), instructors can ask a question such as this, “Jamie, what
is flawed about the argument Chris just made about reforming the product liability system?”
Chapter Overview, Topic Outline, and Discussion Questions
Chapter Overview
It is a fundamental requirement of a free-enterprise economy that entities in the private
sector and at all levels of government be able to enter into agreements that are enforceable by
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This chapter begins with a definition and classification of contract law. It analyzes the six
elements of a contract and then explains which contracts must be in writing in order to be
enforceable. The parol evidence rule, the nature of third-party beneficiary contracts and the
assignment of rights completes Chapter 9.
Topic Outline
I. Definition, Sources, and Classifications of Contract Law
A. Definition
B. Sources of Contract Law
2. Uniform Commercial Code
a. Paramount Contracting Co. v. DPS Industries, Inc.
C. Classifications of Contracts
1. Express and Implied Contracts
a. Pan Handle Realty, LLC v. Olins
2. Unilateral and Bilateral Contracts
3. Void, Voidable, and Valid Contracts
5. Quasi-Contract
II. Elements of a Legal Contract
A. Legal Offer
1. Baer v. Chase
3. Rejection by the Offeree
B. Legal Acceptance
1. Intent to Accept
2. Communication of Acceptance
3. Satisfying, or “Mirroring,” the Terms of the Offer
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C. Consideration
1. Adequacy of Consideration
3. Promises Enforceable without Consideration
D. Genuine Assent
1. Fraud
2. Duress
3. Undue Influence
E. Competent Parties
1. Minors
3. Intoxication
G. Legal Object
2. Case Law
a. Brown & Brown, Inc. v. Johnson
III. Contracts that Must Be in Writing
A. Contracts for the Sale of an Interest in Land
B. Contracts to Pay the Debts of Another
C. Contracts Not Performable in One Year
D. Sale of Goods of $500 or More
E. Nonbusiness Contracts
IV. Parol Evidence Rule
V. Third-Party Beneficiary Contracts and Assignment of Rights
A. Types of Third-Party Beneficiary Contracts
B. Assignment of Rights
VI. Summary
Discussion Questions for Chapter Nine
Teaching Excellence Reminder: Use follow-up questions that encourage students to interact with
their peers!
1. Explain relationships between express contracts and implied contracts.
An express contract is an exchange, oral or written, which expresses promises between
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2. Explain relationships between unilateral contracts and bilateral contracts.
3. Explain why someone might think this statement is true: A quasi-contract does not meet the
general definition of a contract.
4. Of all the elements of a legal contract, which ones probably trigger the most legal disputes?
Which ones are unlikely to be the focus of many legal disputes? Explain.
5. Explain why someone might think this statement is true: The Statute of Frauds prevents
lawsuits.
6. Explain why someone might think this statement is true: The parol evidence rule makes
people more careful about writing contracts.
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Answers to Critical Thinking about the Law Questions, Case Summaries,
Answers to Review Questions, Review Problems, and Case Problems
Suggested Answers to Critical Thinking about the Law Questions
1. What would society gain by holding all people to their agreements? The ethical norm of
security would be especially important to someone who wanted to hold people to their
agreements. One definition of security is to be safe from those wishing to interfere with an
2. The ethical norm that could make a business seek to encourage courts to be more flexible in
enforcing agreements is efficiency. One definition of efficiency is to minimize costs.
Case Summary—Paramount Contracting Co. v. DPS Industries, Inc.
This case involved the question of whether case law or UCC Article 2 should govern in
resolving a dispute between a contractor and a subcontractor. Paramount submitted a bid to make
runway improvements at the Atlanta Hartsfield-Jackson International Airport. Paramount
included DPS’s quote for supplying the fill dirt for the project in its bid. After winning the bid,
Paramount contacted DPS about the amount of dirt and the number of trucks it would need for
the airport project. DPS believe the parties had a contract, and it sent Paramount a letter
confirming that it was holding 45,000 cubic yards of dirt ready to be delivered to the project site.
Paramount did not respond to the letter, and ultimately the company bought the dirt it needed
from another vendor. DPS sued Paramount for breach of contract. The jury found for DPS, and
Paramount appealed. The appellate court affirmed the lower court decision, reasoning that UCC
Article 2 (not common law) applied to the dealings between Paramount and DPS since the sale
of dirt (a good) was the predominant purpose of the transaction. Generally, it is easier to form a
binding contract under UCC Article 2 than under common law.
Case Summary—Pan Handle Realty, LLC v. Olins
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This defendant Olins expressed an interest in leasing a home from the plaintiff Pan Handle
Realty. The parties signed a lease specifying a lump sum annual rent of $138,000, and the
defendant gave the plaintiff a postdated check for that amount. The lease agreement required the
Case Summary—Audito v. The City of Providence
The City of Providence hired a new class of police officers after all of them took a certain
numbers tests and were enrolled in the Police Academy. Those who scored the best were offered
a place in the academy in the form of a letter that stated that it was an offer of enrollment.
Suggested Answers to Critical Thinking about the Law Questions
1. There must be fairness to the system. If under the old system, some people qualified but not
2. Here, those who applied under the old system were held to those standards and expected
certain things. Those cannot be changed when there is a group who is expecting the old
Case Summary—Baer v. Chase
This case is in the book to show to the issue of implied-in-fact contract claims between Baer
and Chase. Chase, the creator of ‘The Sopranos,’ met Urbancyk and Baer on several occasions to
discuss about the concept of the show, which he had in mind. There were several occasions
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where chase had mentioned of paying compensation to Baer for his services. However, he had
Case Summary—The Private Movie Company, Inc. v. Pamela Lee Anderson et al.
This case focused on whether an agreement had been reached between The Private Movie
Company and Pamela Lee Anderson for her to star in a movie called, “Hello, She Lied.” The
issue was whether a deal had been made when the parties allegedly had not agreed on certain
Suggested Answers to Critical Thinking about the Law Questions
1. Here, one item that was especially important was the concept of consent. The court said that,
2. Here, the court ruled that Lee had not entered into an oral or written contract to perform in
the movie.
Case Summary—Stambovsky v. Ackley and Ellis Realty
This case is in the book to show an action for fraud. The plaintiff, Stambovsky, brought an
action for rescission of a contract for the sale of a house. He argued that the reputation of the
house (it was possessed by poltergeists) impaired the present value of the property and its resale
dismissed.
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Suggested Answers to Critical Thinking about the Law Questions
1. The judge writing the majority opinion prefers the ethical norm of security. This judge wants
2. The dissenting judge prefers the ethical norm of freedom—the defendants should not have to
rely on others’ opinions about what they need to disclose to buyers.
Case Summary—Brown & Brown, Inc. v. Johnson
Brown & Brown, Inc. is a firm of insurance intermediaries in New York City. Brown hired
Theresa Johnson to provide actuarial analysis. On Johnson’s first day of work, she was asked to
sign a non-solicitation covenant which prohibited her from soliciting or servicing any of Brown’s
Case Summary—Iacono v. Lyons
This case deals with contracts that cannot be performed within one year and for goods worth
more than $500. Iacono (plaintiff) and Lyons (defendant) went to Las Vegas and agreed to share
winnings and losses 50/50. During the course of the night, after the plaintiff begged the
defendant to stay, the defendant hit a jackpot of almost $2,000,000 on a machine that the
defendant fed the coin in. The defendant proceeded to keep the winning and was sued. The suit
The Legal Environment Of Business: A Critical Thinking Approach
Answers to Review Questions
9-1. Article 2 of the Uniform Commercial Code (UCC) applies to contracts for the sale of
goods, while the common law applies to all other contracts. A good is anything that is
9-2. A void contract is one that at its formation has an illegal object or serious defects,
whereas, a voidable contract is one in which one of the parties to a contract has the option
9-4. For an offer to be valid, the offer must show objective intent to enter into the contract, be
9-5. An offer can be terminated in the following ways:
• Lapse of time
9-6. A liquidated debt exists when there is no dispute about the amount or other terms of the
9-7 The fact that Catani is a minor should allow him to disaffirm. However, if Catani ratified
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9-8. The duress must be felt when a person is signing the agreement, not later.
10-10. In order to prove fraud more facts are required. Fisher would have to show an intentional
9-11. The court upheld the agreement by finding that consideration existed to support the
contract. “Any damage, or suspension, or forbearance of a right will be sufficient to
Answers to Case Problems
9-12. The Court of Appeals of Georgia affirmed the lower court verdict. In support of its
decision the court noted that as a general rule, damages for defective construction,
whether those damages are the result of a breach of contract or the negligence of the
contractor, are determined by measuring the cost of repairing or restoring the damage
9-13. The Supreme Court of Ohio ruled that moving into a home with another person to re-
engage in a romantic relationship does not satisfy the legal requirement of
“consideration” that is necessary to form a contract. According to the court, the evidence
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9-14. The court found in favor of the minor. In support of its ruling the court noted that a claim
on a contract survives in favor of a decedent’s personal representative regardless of
whether the decedent had filed an action before his death. The court noted that contracts
9-15. The Supreme Court of Georgia agreed with Coleman that the non-compete clause was
unenforceable as a matter of law since it contained no time limitation and purported to
limit Coleman’s actions in perpetuity. However, even without an express restrictive
covenant, Retina could still prohibit Coleman from marketing the Clinex-RE package
9-16. The court found that there was no breach of contract because the NCAA was not arbitrary
in the application of its rules. Bloom was a third-party beneficiary because the media
Thinking Critically about Relevant Legal Issues
2. The language of the agreement is most ambiguous here. There is no clear-cut way to lay out
3. There seems to be no account of this e-mail system. To make a full finding, one must find
4. Douglas would only need to prove that Megawidget knew what the icon meant. If both had